Shares spike at Royal Mail despite ‘material loss’ in 2020
Royal Mail’s share price jumped more than 12 per cent this morning, as the postal service said its revenue had risen during the first half of the year thanks to a boom in online shopping.
Royal Mail said it believes revenue could be £75m to £150m higher for the fiscal year 2020/21 if the UK avoids a second lockdown, compared with an earlier scenario which suggested a decline of £200m to £250m.
However the group still predicted a “material loss” for the year, due to costs related to the pandemic and the changing nature of its business.
“We continue to expect Royal Mail to make a material loss this financial year 2020/21 and will not become profitable without substantial business change,” it said in a statement.
The net cost estimate from the shift in Royal Mail’s business from letters to parcels is now at £140m to £160m, compared to its earlier assumption of £110m.
“Currently, too many parcels are sorted by hand and we are failing to adapt our business to fundamentally lower letter volumes and are holding on to outdated working practices and a delivery structure that no longer meets customer needs,” Royal Mail said.
The company said it needed to make essential operating changes to adapt to a market that now focuses more on letters than parcels, with its legacy reliance on letters still holding it back.
Royal Mail said it was in talks with labour unions regarding the changes, though its history of such discussions under its previous chief executive is fraught.
The postal service also raised its estimate of costs related to the global health crisis, from to £120m from £140m.
“A heavily unionised workforce and watchful regulator make Royal Mail inflexible, and have made it difficult to prepare for a shift from letters to parcels which has been going on for more than a decade now,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
“Historic underinvestment in automation means hundreds of millions need to be spent in the next few years, and since that’s likely to mean job losses confrontation with the group’s unions is probably inevitable.”