Royal Mail shares hit their highest level for almost two years as it said an explosion in internet shopping could deliver as much as £580 million of extra revenue this year.
As the coronavirus pandemic drives consumers online, the postal service revealed it is making more money from parcels than letters for the first time in its 504-year history.
The boom in demand is expected to result in its busiest ever Christmas, with bosses predicting it could add between £380 million and £580 million to annual revenues.
Royal Mail shares hit their highest level for almost two years as it said an explosion in internet shopping could deliver as much as £580 million of extra revenue this year
Royal Mail had at one stage predicted revenues could fall by up to £250 million this year. After the announcement, the company’s shares rose by as much as 9 per cent and breached the 300p mark for the first time since January 2019. They later closed up 3.3 per cent, or 9.5p, at 295.5p.
However, the parcels bonanza was not enough to prevent the UK business from crashing to a £133 million half-year loss, as plunging letter volumes took a bigger toll and costs rocketed.
Keith Williams, Royal Mail’s executive chairman, said the results showed that Royal Mail could be a ‘cash-generative, sustainable, profitable business in the future’. But he warned: ‘We need to speed up the pace of change.’
Bosses have been trying to modernise Royal Mail’s operations for years, emphasising the need to pursue growth in parcels as the number of letters being sent continues to fall.
The boom in demand is expected to result in the firm’s busiest ever Christmas, with bosses predicting it could add between £380 million and £580 million to annual revenues
But the coronavirus pandemic has given that mission fresh urgency, as letter volumes have collapsed by 33 per cent – taking out a huge chunk of revenues. As a result, the UK business slipped from a £95 million profit to a £133 million loss in the six months to September 27, despite revenues rising from £3.6 billion to £3.8 billion.
The group only limped to a £17 million profit overall after international parcels business GLS brought in £150 million in profit. In response, Royal Mail is seeking to expand UK parcel deliveries, introduce new automated technology to rapidly sort packages and collect more data about deliveries to improve efficiency.
At the moment the company relies far more on expensive manual labour to sort items than many of its rivals. But its attempts to modernise have encountered stiff resistance so far from the Communication Workers Union (CWU), which fears job cuts and has repeatedly threatened strikes.
Amid major disagreements between the company and union bosses, former chief executive Rico Back was ousted in May and Williams, Royal Mail’s chairman, has temporarily taken over his duties.
The former British Airways boss, who resolved disputes with cabin crew unions while running the airline, is now trying to broker an agreement with the CWU to speed up the introduction of new technology.
He warned the company was at a ‘crucial juncture’ and revealed that staff had been offered pay rises in exchange for supporting the changes. Williams has also warned that the shift from letters to parcels, which now account for 60 per cent of revenues, is making the company’s ‘universal service obligation’ expensive to maintain.
Under its current responsibilities, affirmed when the firm was privatised, Royal Mail must deliver letters for a fixed price to every address in the country from Monday to Saturday.
But the company is lobbying for these requirements to be relaxed, arguing that the £180 million loss its regulated letters business made during the first half ‘demonstrates the need for change’. It has prompted fears that the Saturday post could be scrapped to save money, with service cuts also potentially putting more Post Office branches at risk.