Parcels boom drives Royal Mail profit surge, but April sees slowdown

Britain’s postal service provider said pre-tax profits in the year to March rose to £726m from £180m as parcels, rather than letters, provided it with the majority of its revenue for the first time in its five-century history. Group revenue was up 16.6% to £12.6bn.

Adjusted operating profit was slightly ahead of expectations at £702m, up 116%. The group pulled full-year guidance due to uncertainty over whether the momentum of online shopping during the lockdown would be maintained.

It warned that parcel volumes growth would unwind as the economy reopened, but added that it was hopeful a “significant proportion” would be retained.

The company, which could soon be lifted into the FTSE 100, said Royal Mail revenue was up 24.1% in April with GLS, its international service, up 22.3% year on year. Royal Mail parcel volumes were down 2% and addressed letters up 25%.

Parcel volume growth at GLS remained strong until mid-April, with a subsequent slowdown given the high volumes observed last year.

Shareholders will receive a special 10p a share dividend. Royal mail expects to propose a 2021-22 payout of of 20p a share, on a one third/two thirds annual split. From 2022-23 the interim dividend will be one third of the prior year's full year dividend.

Operating costs rose by 9.2% driven by higher expenditure to keep sorting offices Covid-safe and operating an expanded parcels service.

"Keeping a lid on costs going forward will be a challenge. There’s the pay deal agreed with unions which will take a £130m bite out of profits over the next year. But smoother industrial relations will also put it into a much more stable position for future growth," said Hargreaves Lansdown analyst Susannah Streeter.

"There also appears to have been a has been a mini rebound in its letter business. Addressed letter volumes were up 25% in the first month of 2021-2022. But this could simply signify a rebound in direct marketing campaigns as the economy opens up. The iconic red post box is still no match for the speed of email or social media and overall the volumes of letters remains significantly lower than before the pandemic.’’