Royal Mail enjoys revenues boost as parcel deliveries hit record level

Royal Mail has forecast higher profits after the pandemic-induced surge in online shopping drove parcel deliveries to record volumes.

Revenues jumped by a fifth in the third quarter as the company predicted full-year adjusted operating profit to be “well in excess” of £500m.

Shares rose 5 per cent to 450.82p by mid-morning in London as some gains were pared back to extend its two-and-half-year highs.

“The third quarter saw unprecedented parcel volumes in Royal Mail, driven by online shopping and the peak Christmas period,” said Keith Williams, non-executive chair at the company.

He added that the 496m parcels handled were “the busiest in our company’s long history”.

The group had suspended its profit forecast earlier in their financial year, which runs to the end of March, because of uncertainty over the coronavirus crisis.

It generated £325m in the previous financial year and analysts had been expecting £402m.

Record parcel volumes powered an increase in group revenues of 13.5 per cent to £9.3bn in the nine months to the end of 2020, compared with the same period a year earlier.

Revenues were also helped as the fall in letter deliveries slowed.

Royal Mail has struggled to modernise to make the most of the surge in ecommerce and parcel deliveries before and during the pandemic.

It has been held back by its legacy operations that are geared towards delivering letters.

The company acknowledged extra costs from tighter Covid-19 restrictions and “additional handling and sorting costs” from the higher than anticipated parcel volumes.

It began construction last week on its second hub to automatically sort parcels, located in the Midlands, that will process more than 1m mail items a day.

Royal Mail brought in former Ocado executive Simon Thompson as its new UK chief executive at the start of the year to expand its parcels business. The UK operations had been struggling before the coronavirus crisis.

Royal Mail also owns Amsterdam-based General Logistics Systems, or GLS, which operates internationally.

GLS accounts for almost a third of group revenues and has been in a better position to benefit from the packages uplift.

The group said in September that the likely scenario for its domestic business in the year was a “material loss” and that it “will not become profitable without substantial business change”.

However, revenue growth for the UK unit was expected to “significantly” exceed £580m in the year ending March, which was at the top end of a forecast range given in November.

The group said it did not foresee the renewed Covid-19 restrictions in Britain that closed many brick-and-mortar stores and gave further wind to the online shopping boom over Black Friday and Christmas.

Royal Mail retained about 10,000 of the 33,000 temporary workers hired for the Christmas peak to keep up with demand.