Royal Mail sees revenues from parcels surpass letters for first time

Royal Mail has revealed revenues from parcel deliveries overtook letters for the first time as it hiked its sales outlook thanks to a boom in online shopping during the pandemic.

Shares in the group rose as much as 9% as it said full-year revenues at Royal Mail could now be between £380 million to £580 million higher year-on-year.

This marks a sharp reversal on the fall of up to £250 million previously estimated in its scenario-based forecast and would see the division deliver a “better than break-even” result if sales came in at the top of the new range.

It comes as rocketing levels of internet shopping have sent parcel deliveries soaring, with Royal Mail reporting a near-10% jump in revenues to £5.7 billion over its first half.

In its busiest day, Royal Mail processed 2.5 million tracked parcels.

But this was offset by ongoing woes in its traditional letters business and soaring costs of the pandemic, which sent Royal Mail group tumbling to a £20 million operating loss for the 26 weeks to September 27.

This compared with earnings of £61 million a year ago and comes after its core Royal Mail postal arm plunged to a £176 million operating loss.

Group pre-tax profits crashed 90.2% to £17 million over the first half.

Interim executive chairman Keith Williams cheered the boost from rocketing delivery demand, with parcels revenues now accounting for 60% of group-wide sales, compared with 47% a year earlier.

He said: “Whilst the Covid-19 pandemic continues to present challenges for both Royal Mail in the UK and (international parcels business) GLS, the first-half performance has been above our initial expectations in many areas.”

But the first-half results show the costs faced during the coronavirus crisis, with the group forking out £155 million in its first half for social distancing measures and to cover a rise in absence rates.

The ongoing decline in letters also continued to weigh on the group, with mailings down 33%, while parcel mailings lifted 31%.

Royal Mail is looking to capitalise on the online shopping shift, recently announcing a new doorstep parcel collection service.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The postman is more likely to ring at the door with a bulky parcel these days than push envelopes through the letter box and adapting to the e-commerce boom is proving a painful shift for the company.”

But she said group revenue had “turned a corner” and added that “collecting parcels straight from the door should help put more volumes through the network and drive revenues despite the headache of initial set up costs”.