Parcels revenue has overtaken letters for the first time at Royal Mail, which has upped its investment to handle the Christmas ‘peak’ by around £100m this year.
Overall group sales in the six months to 27 September were up 9.8% at £5.67bn thanks to strong growth in parcel services at both Royal Mail and continental parcels wing GLS.
Interim pre-tax profits were more or less wiped out, falling by 90% to £17m, after massive costs around restructuring and Covid-19.
At Royal Mail parcels revenue jumped by 33.2%, with volumes up 31%.
However, addressed letter volumes were down 28% and total letter volumes fell by 33%.
“For the first time, parcels revenue at Royal Mail is now larger than letters revenue, representing 60% of total revenue, compared with 47% in the prior period,” said Keith Williams, interim executive chairman.
“As anticipated the reduction in letter volumes has had a significant impact on the regulated business which lost £180m in the first half, and demonstrates the need for change in the Universal Service.”
Williams said the group was on the right track with its future strategy, “but we need to speed up the pace of change in order to create a profitable business in the UK.”
He said the business was making “good progress” on the restructuring announced in June and with its talks with union CWU, which have been ongoing since July.
“Talks with our unions are at an important stage. We have been encouraged by our talks with CWU, which have intensified over the past weeks. With the improved revenue performance, we have focused on how we can deliver efficiency and productivity in a growth environment together, which will enable the business to see the benefits of operational leverage,” he stated.
Royal Mail posted an adjusted operating loss of £129m (prior year profit: £75m) after voluntary redundancy costs of £147m, mix change costs because of the growth in parcels of £95m, international conveyancing costs of £32m and £85m of costs associated with Covid-19.
The overall group posted a statutory operating loss of £20m (2019 profit: £60m). The group’s adjusted operating profit was £37m compared with £165m the prior year.
The group did not use any government Covid-19 support schemes in the period.
Royal Mail has set up eight temporary parcel sorting centres and recruited 33,000 flexible workers to cope with the Christmas peak.
“Overall we are planning to increase our investment in peak this year by around £100m, to ensure we maintain quality as we deliver Christmas for our customers and continue to support the Government’s Covid-19 testing programme,” Williams added.
It has also updated its traditional ‘Post early for Christmas’ messaging that has been in use for more than a century with a new slogan to reflect the growth in parcels and online shopping: ‘Shop Early, Send Early for Christmas’.
He said it remained difficult to give precise guidance for the rest of the year, although Royal Mail is expected to at least break even.
“Whilst parcel growth is expected to remain robust in Q3, there is more uncertainty over trends in Q4 due to the impact of changes to international postal rates and Brexit on international volumes, and possible further recessionary impacts across our footprint from the Covid-19 pandemic.”
The group’s share price rose by 6.6% to 304.87p after the announcement, and in earlier trading hit a 52-week high of 312.48p.