Royal Mail boosted by general election and stamp price rises

General election literature and stamp price rises have delivered a sharp increase in sales at Royal Mail.

International Distribution Services, Royal Mail’s parent company, said its total revenue from letters had increased by 11 per cent to £2 billion in the three months to June, up from £1.8 billion a year before, driven by millions of election-related poll cards, postal votes and items of candidate campaign mail.

The Royal Mail owner, which is urging shareholders to accept a £3.6 billion bid from Daniel Kretinsky, a Czech billionaire, also credited price increases, with the cost of some first-class and second-class stamps going up in April.

Kretinsky, 49, has built significant stakes in several prominent British businesses. In addition to his 27.5 per cent holding in International Distribution Services, he has a similarly sized stake in West Ham United, the Premier League football club, and a 10 per cent holding in J Sainsbury, the FTSE 100 supermarket group.

A takeover of International Distribution Services, should it go ahead, would be expected to take several months, not least because the new Labour government must consider whether it is prepared to allow an institution established in 1516 in the reign of Henry VIII, and one with modern public service obligations, to pass into foreign ownership.

Ministers also will need to take account of 130,000 Royal Mail workers, the vast majority of whom are members of the Communication Workers Union, which wants long-term guarantees of no compulsory redundancies and a say in the future management of the company. Kretinsky is not expected to agree to either demand. The directors of International Distribution Services, meanwhile, have attracted criticism for agreeing so readily to Kretinsky’s takeover offer pitched at a 360p a share, which is not much more than the 330p float price in 2013.

The company reported an 11 per cent rise in letters revenues to £985 million, but that masked a 4 per cent decline in volumes of ordinary addressed mail. The revenue increase was mainly thanks to general election mail. There was a 50 per cent increase in postal votes because of the timing of snap election.

The impact of the drop in addressed mail was balanced by price rises. A first-class stamp now costs £1.35, nearly three times the 46p of 2012, the year before privatisation.

Royal Mail and Kretinsky believe its business is now much more a parcels operation. In the three-month period, Royal Mail’s parcels volumes increased by 11 per cent to 315 million, which brought in revenue of £1.01 billion, an increase of 10.6 per cent on the same spell last year. However, the company warned that the figures were not comparing like-with-like because in the previous year there had been several customer losses that followed the strikes at the business earlier in 2023. It said this “tailwind” would “unwind” later in 2024.

Royal Mail is said to remain on track to return to the black, not counting the cost of voluntary redundancy packages as part of a headcount reduction programme.

GLS, the international courier business of International Distribution Services and, since it is profitable, regarded as the jewel in the company’s crown, reported a 4.8 per cent increase in revenue to £1.26 billion. That would seem to suggest there is pricing pressure in its markets as parcels and packages volumes were up by 5 per cent.

Martin Seidenberg, 49, International Distribution Services’ chief executive, reiterated his demand that the government and Ofcom, the regulator, abandon the universal service obligation, the quid pro quo of privatisation 11 years ago that every household in the country should retain the right to the same postal service.

“While we are making good progress on our transformation in Royal Mail, we can’t do it all on our own and we urgently need to see regulatory reform of the universal service,” Seidenberg said. “Letter volumes [annually] have declined from 20 billion at their peak to just 6.7 billion now, making the one-price-goes-anywhere universal service unsustainable in its current form.

“Ofcom is due to provide an update on universal service reform this summer. We urge Ofcom to move quickly to consult on the changes needed to ensure an efficient, financially sustainable universal service that protects what customers value the most.”