For the first time, parcels revenue at Royal Mail is now larger than letters revenue

Group revenue up nearly 10% in H1 period

Royal Mail has published its interim results for the 26 weeks ended 27 September 2020. Group revenue was up 9.8%, to £5,671.0 million, driven by strong parcel growth at both Royal Mail and GLS. The Group reported an operating loss of £20.0 million, down from a profit of £61.0 million in the prior-year period. Growth in GLS profit was more than offset by losses in Royal Mail.

The growth in online shopping and parcels during the pandemic, combined with an increased focus on delivering more of what customers want, has led to revenue growth of nearly 10.0% for the Group in the first half, with Royal Mail revenue up nearly 5.0%. For the first time, parcels revenue at Royal Mail is now larger than letters revenue, representing 60.0% of total revenue, compared with 47.0% in the prior period. GLS delivered strong revenue growth of 21.7%, with adjusted operating margin up by 300 basis points. B2C accounted for 56.0% of GLS volume in the first half.

The Royal Mail performance reflects opportunity from the change in business mix. Revenue was up 4.9% with parcels up 33.2% partly offset by letters decline of 20.5%. Addressed letter volumes (ex. elections) were down 28.0% and total letter volume down 33.0%. Parcel volumes were up 31.0%. Government COVID-19 support was not utilised during the pandemic.

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GLS performance was boosted by exceptional volumes and short-term price initiatives in some countries. Revenue was up 21.7% with an adjusted operating margin 8.9%. Operating profit was up 84.4% to £166.0 million, boosted by improved performances in focus countries (France, Spain and the US). GLS also benefitted from scale effects, along with successful pricing initiatives in certain markets. GLS is well positioned to continue to benefit from the shift to B2C, cross-border growth and evolving customer needs towards more convenience and ease in receiving parcels.

Looking ahead, Royal Mail revenue is now projected to be £380.0 million to £580.0 million higher year on year. Mix change costs increased to £210.0 million, cost of COVID-19 put at £155.0 million. Royal Mail would be better than break even at adjusted operating profit level if revenues outturn at higher end of the scenario. GLS is now projected as 21.0% to 23.0% revenue growth year on year, with c. 8.0% adjusted operating margin.

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