(Correcting that the GLS margin expansion was 300 basis points to 8.9% from 5.9%.)
(Alliance News) - Royal Mail remained bullish on its future as a parcel delivery firm, despite reporting on Thursday that interim profit was reduced to just one-tenth of the year-earlier level on a range of costs.
Revenue for the half-year to September 27 amounted to GBP5.67 billion, up 9.8% on a year ago. However, pretax profit dived 90% to GBP17 million from GBP173 million, and the firm posted an operating loss of GBP20 million versus a profit of GBP61 million a year prior.
For the Royal Mail arm, its UK business, revenue was up 4.9% to GBP3.83 billion from GBP3.65 billion a year before, with parcels revenue up 33% but letters revenue falling 21%. Domestic account parcel volumes, excluding Amazon deliveries, were up 51%.
Parcel revenue exceeded letter revenue for the first time in the UK business. Parcel revenue climbed to GBP2.30 billion from GBP1.73 billion, while letter revenue fell to GBP1.53 billion from GBP1.92 billion.
"Royal Mail's performance continues to reflect structural changes in the sector, which have only intensified through the Covid-19 pandemic," commented John Moore, senior investment manager at Brewin Dolphin. "The fact that for the first time parcels revenue is now larger than letters revenue is a milestone for the business and only goes to underline the importance of Royal Mail's restructuring programme, which was long overdue even when it was introduced."
Despite the boom in package delivery, the UK unit posted an adjusted operating loss of GBP129 million, swinging from a profit of GBP75 million a year ago, as it took GBP95 million in costs from mix change - from handling fewer letters and more parcels - GBP85 million in Covid-19 costs, GBP147 million for voluntary redundancies and GBP32 million for international conveyance, due to a virus-driven shortage in airline conveyance capacity. For the full year, Royal Mail said it expects mix change to cost it GBP210 million and Covid-19 costs to be GBP155 million.
For GLS - which offers parcel, logistics and express services, throughout Europe as well as in the US and in Canada - revenue rose 22% to GBP1.87 billion from GBP1.54 billion a year before, as volumes increased by 21%. Adjusted operating profit jumped 84% to GBP166 million from GBP90 million, as the division's adjust operating margin improved by 300 basis points to 8.9% from 5.9%.
Keith Williams, interim executive chair, commented on the company's outlook: "We have updated our scenario for the full year. As parcel volumes at both Royal Mail and GLS have continued to be robust year to date, revenue performance in the scenario has improved.
"It remains difficult to give precise guidance but parcel growth is expected to remain robust in Q3, with more uncertainty over trends in Q4 due to the development of the Covid-19 pandemic, further recessionary impacts and trends in international volumes."
Royal Mail confirmed it will pay no dividend for financial 2021, which goes to the end of March, but hopes to resume payouts in financial 2022.
Williams said talks with its worker unions is "at an important stage".
"We have been engaged in talks with CWU since July, which have intensified over the past weeks," he said. "Our first half performance demonstrates we can capture the revenue opportunity in the market, and deliver a growth agenda to support jobs, which has long been advocated by CWU."
Williams moved from non-executive chair to interim executive chair when Rico Back resigned as chief executive officer back in May. No update was provided on senior management in Thursday's statement.
"We are already working hard to deliver Christmas, recruiting around 33,000 additional flexible workers in Royal Mail over the peak season," Williams said, "and we continue to provide significant support to the government's COVID-19 testing programme and the distribution of protective equipment."
Royal Mail shares were up 3.4% late Thursday to 295.80 pence. The stock is up by a third so far in 2020.
"Inevitably, this period of transition has led to a mixed bag of results in headline terms," said Brewin Dolphin's Moore, "with revenue growth and a relatively positive guidance update overshadowed by significantly reduced profits."
By Tom Waite; thomaslwaite@alliancenews.com
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