Royal Mail could do with a second referendum

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Royal Mail’s new boss Rico Back may be disappointed that prime minister Theresa May has ruled out a second referendum on Brexit under “any circumstances.” His addressed letter volumes, without the boost of political and election mailings, decreased by 6 per cent in the last quarter, reducing letter revenues by 7 per cent — the very bottom end of analyst estimates. 

Still, Mr Back — who used to run Royal Mail’s fast growing European logistics business out of Amsterdam before succeeding chief executive Moya Greene — might only have to wait a day or two for better news. Brexit positions deemed unchangeable “under any circumstances” are usually changed within 24 hours. 

According to the FT’s Brexit Briefing, “it would be no surprise” if others backed calls for a new referendum in coming weeks.

Meanwhile, Royal Mail has parcel growth to make up for the lack of letters and election flyers. But it is finding it hard to make parcel business offset ever-lower letter revenues. 

Stripping out the effect of UK elections in the prior period, total letter revenue was down by less than 7 per cent: more like 5 per cent. And total parcel revenue was up 6 per cent, reflecting trends in the domestic traffic mix. Higher volumes from e-commerce retailers and from tracked parcel business helped. So, too, did an international cross-border traffic initiative: this accounted for around 2 percentage points of total parcel volume growth and around 1 percentage point of parcel revenue growth in the period. Parcelforce Worldwide volumes were also up 4 per cent thanks to higher volumes from contract customers — although this may prove a one off.

Still, overall, Royal Mail’s combined letter and parcel revenue was down 1 per cent as the parcel uplift could not make up for the relentless letter revenue decline.

Thankfully, Mr Back’s old GLS logistics division continued to perform strongly, with volumes up 10 per cent and revenue up 11 per cent. Revenue growth was achieved in almost all markets, with strong performance in Italy, Denmark and Spain. In Poland, three new depots were opened in response to rising demand, and other eastern European businesses all saw double digit revenue growth in the period.

But the biggest worry for Royal Mail is not the decline of letters, or the chances of a Brexit rethink: it is new data protection rules. 

Due to the potential impact of these regulations, and amid continued pre-Brexit business uncertainty, the group has warned that letter volume decline could even fall outside the -4 per cent to -6 per cent range some time this year. Mis-use of personal data has lot to answer for . . .

E-commerce and changing shopping habits are having a less beneficial effect on property groups, according to British Land. This morning, the FTSE 100 company said the impact of company voluntary arrangements (CVAs) between struggling retailers and their landlords has been higher over the past two months.

Across its own retail property portfolio, the combined impact of retailers going into administration and seeking CVAs had risen to 1.6 per cent of total group contracted rent, up from 1 per cent in May. As a result, retail occupancy now stands at 96.4 per cent. 

It said: “The impact of long term structural change driven by the internet is being compounded by short term trading headwinds. As a result, there have been well publicised retailer failures and further CVA' s from those operators with more challenged business models.” 

Still, the company thinks its property assets are “on the right side of this trend”. Since the year end, British Land has let 128,000 sq ft of retail space and placed a further 97,000 sq ft under offer.

Today’s Lombard column focuses on new rules to link executive pay to long-term results: 

Executive pay curbs. Carillion collapse inquiries. UK Brexit demands. No, not prime minister Theresa May’s priorities, in reverse order. But three things that — for many — do not go far enough. And, as such, three things that commentators can safely argue do not go far enough. In fact, Google could extend the “canned responses” function in its email service to web publishing — as we only really need three: “These proposals do not go far enough”; “It can all be traced back to the financial crisis”; and “Something must be done”. 

So, it was not surprising that Monday’s unveiling of a UK corporate governance code, addressing the first two of the aforementioned things, met with the first two of those canned responses.