Royal Mail ups sales forecast in anticipation of Christmas e-commerce boom

Royal Mail has fallen to a first-half operating loss, but had upped its sales outlook amid a boom in parcel deliveries as online shopping surges during the COVID-19 pandemic.

The group reported a £20m operating loss for the 26 weeks to 27 September compared with earnings of £61m a year ago, which comes after its core Royal Mail postal arm plunged to a £176m operating loss.

Group pre-tax profits slumped 90.2% to £17m over the first half as the woes in its letters business and soaring costs offset a near-10% jump in revenues to £5.7 billion.

But it said full-year revenues at Royal Mail are now expected to be between £380m to £580m higher year-on-year, which could see the division deliver a “better than break-even” result.

The firm cheered the boost from rocketing online shopping and delivery demand, with parcels revenue dwarfing turnover from letters for the first time.

Parcels revenues now represent 60% of group-wide sales, compared with 47% a year earlier.

Keith Williams, interim executive chairman at Royal Mail, 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 investing £155m 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%.

In October Royal Mail announced the roll-out of a new service to collect parcels from doorsteps enabling shoppers to return e-commerce orders without leaving their homes.

Following successful trials of Royal Mail Parcel Collect in the West of England, the service will now be rolled out nationally. Postmen and women will be able to pick up parcels from doorsteps at a cost of 72p per parcel or 60p per parcel for pre-paid postage items.