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Royal Mail sales boosted by parcel demand

Friday, 24 Jan 2014 | 2:30 AM ET
Peter Macdiarmid | Getty Images

Royal Mail Group, sold off last October in Britain's biggest privatisation for decades, said higher prices for posting parcels had helped underlying group sales rise 2 percent for the nine months to Dec. 29.

The company, whose sale was opposed by unions and opposition lawmakers and has been criticised since for possibly short-changing the taxpayer, said on Friday that a switch from weight to size-based pricing had pushed U.K. parcels revenue up 8 percent, despite flat volumes, in line with its guidance.

(Read more: British public flock to Royal Mail share offer)

Parcel volumes did rise in December, Royal Mail said, without saying by how much, as shoppers bought more presents online, and the company delivered more than 10 million parcels on its busiest day.

However, Cantor Fitzgerald analyst Robin Byde said that against a backdrop of record online sales for some British retailers over Christmas, the parcels performance was disappointing.

(Read more: Landsdowne grabs huge stake in Royal Mail sell-off)

"UK parcels was actually disappointing. Flat year-on-year, I think most people will look at that and think about a strong online retailing period in the run-up to Christmas and think that looks a bit odd," Byde said. He did not expect analyst forecasts to change on the back of the trading update, he said.

Royal Mail, which is modernising its business to better compete in a more lucrative parcels market, had faced the threat of a strike over the Christmas period but managed to agree on a pay rise with union members last month.

(Read more: Royal Mail to be valued at up to $5.3 billion in share sale)

The performance in parcels, which make up half of group sales, nevertheless helped offset a 3 percent like-for-like revenue decline in U.K. letters, hit by increasing use of email and social media messaging. However, the group's European arm, GLS, saw a 6 percent rise in underlying revenue.

Royal Mail said the trading performance was in line with its expectations.

Its shares were up 0.2 percent at 589 pence by 0838 GMT, or 78 percent higher than the 330p-per-share price Britain sold a 60 percent stake for, valuing the business at 5.9 billion pounds ($9.8 billion).

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