Parcels revenue now exceeds letters for the first time and the shares are near a two-year high.
First-half results to 27 September
- Revenue up 9.8% to £5.67 billion
- Pre-tax profit down 90% to £17 million
- Net debt up 26% to £1 billion
- No interim dividend payment
- Expects full-year revenues to rise between £380 million to £580 million
Interim executive chair Keith Williams said:
"The growth in online shopping and parcels during the pandemic, combined with our increased focus on delivering more of what customers want, has led to revenue growth of nearly 10% for the Group in the first half. Across the Group, our people have worked incredibly hard to keep delivering for our customers during these unprecedented times, and I want to thank them for their dedication and commitment.
"We have been pushing forward with our transformation in Royal Mail and delivering more new innovations, products and services for our customers. The level of revenue growth in the first half shows we have the right strategy and that Royal Mail can be cash generative and a sustainable, profitable business in the future. But we need to speed up the pace of change in order to create a profitable business in the UK. Talks with our unions are at an important stage.
"We have updated our scenario for the full year. As parcel volumes at both Royal Mail and GLS have continued to be robust year to date, revenue performance in the scenario has improved. It remains difficult to give precise guidance but parcel growth is expected to remain robust in Q3, with more uncertainty over trends in Q4 due to the development of the Covid-19 pandemic, further recessionary impacts and trends in international volumes."
Parcel revenues exceeded letter revenues for the first time at Royal Mail Group (LSE:RMG) as online shopping during the pandemic pushed total sales up nearly 10% to £5.67 billion.
Ongoing parcel demand underwrote management’s expectations for full-year revenues to rise between £380 million to £580 million, with the possibility of its core UK business breaking even if it reaches the upper end of the projection.
Royal Mail shares rose by more than 7% in UK trading, having fallen by 17% last year and then doubling since late March pandemic lows. Shares of online retail mammoth Amazon (NASDAQ:AMZN) are up over 60% since late March.
Parcels revenue for the core UK Parcels, International and Letters division (UKPIL) jumped by a third, complemented by a one-fifth gain in sales at its General Logistics Systems (GLS) overseas parcels division. Although active in over 40 countries, GLS’s main focus is Spain, France and the US.
However, despite growing revenues, a one-fifth fall in letter revenue at UKPIL and additional Covid-related costs helped drag overall pre-tax profit down by 90% to £17 million. Voluntary staff redundancy costs during the period totalled nearly £150 million.
Talks with staff unions have intensified over past weeks. Management’s desire to accelerate the pace of change and inject increased automation has brought it into conflict with unions regarding potential job losses.
Earlier in the year, and given rising Covid-related costs, the group suspended its dividend, with plans to restart payments pinned on the next 2021/2022 financial year.
Royal Mail’s research some years ago predicting double-digit falls in the number of UK domestic letters continues to come true. However, plans to improve productivity, often involving increased automation, have left it crossing swords with staff unions. Under new leadership again, it remains in negotiations with unions.
For investors, the company’s failure to improve productivity with its staff and unions has arguably coloured the backdrop for too long. Now a global pandemic has accelerated trends, emphasising the required direction of travel. Tough decisions have been made with more to come. Its provision of the Universal Service Obligation also leaves it in the political spotlight – a tough place from which to implement change – while the suspension of the dividend removes a key shareholder attraction. That said, these latest results do appear to offer some hope. In all, while there remains much for Royal Mail to achieve, a shift in the balance of letters to parcels could now generate its own momentum of change.
- Exposure to online shopping trends
- Geographical diversity
- Demand for letters continues to fall
- Dividend payment suspended
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