Shares in Royal Mail Group (RMG) surged 16% to 202p after the firm raised its expectations for annual turnover but warned that increased costs would still see it post a ‘material’ loss for the year.
In a statement ahead of its annual general meeting, the company reported that a ‘substantial shift’ from letters to parcels in the first five months of the current financial year due to e-commerce and online ordering had driven better than expected revenues.
Parcel volumes to the end of August were up 34%, driving a 33% increase in divisional revenues, but a 28% fall in letter volumes meant revenues for the letter business were down 21%. On a net basis, revenues were up £139 million over the period.
However, the change in mix from parcels to letters led to an £85 million increase in costs, while Covid-related costs such as elevated absence and additional spending on protective equipment were £75 million.
The firm admitted that while parcel revenues in Royal Mail and Global Logistics Systems (GLS), its Amsterdam-based logistics arm, had been ‘significantly ahead of expectations pre-Covid’ and had increased profits in GLS, it hadn’t halted the ‘long-term decline in Royal Mail profitability’ and the division was still expected to make ‘a material loss’ this year.
It went on to say that without ‘substantial business change’ Royal Mail was unlikely to be profitable in the near term. It also refrained from issuing specific guidance for the current financial year, although it raised its forecast for UK Parcel revenues from a 12% increase to a 22% increase and lifted its overall revenue forecast by between £75 million and £150 million.
