Royal Mail expects 'material loss' despite rise in parcel deliveries

Royal Mail (RMG.L) has announced it expects to report a “material loss” this year despite parcel post rising by more than a third during the coronavirus lockdown.

Revenues over the five months to the end of August were stronger than expected due to a 34% uplift in parcel deliveries — equating to 177 million more parcels.

However, letters deliveries over the five-month period fell by 28% — amounting to 1.1 billion fewer letters — continuing a decline seen in recent years.

Royal Mail said it is in talks with unions about cost cutting initiatives, including replacing “outdated working practices such as sorting parcels manually and workers signing in by hand as well as the removal of old letter-sorting machines which the company say are “unneeded when letter volumes have halved since 2004.”

In July, Royal Mail said it planned to axe 2,000 management jobs, in order to save £130m ($169.8m).

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The coronavirus pandemic has seen costs at Royal Mail soar by £75m due to COVID-19 measures, such as covering staff absence, social distancing and extra protective equipment.

The company has also seen costs rise by another £85m from handling more parcels and fewer letters.

“We are failing to adapt our business to fundamentally lower letter volumes and are holding on to outdated working practices and a delivery structure that no longer meets customer needs”, Royal Mail said in its latest trading update.

Royal Mail now expects revenue growth of £150m, an improvement to an assessment in June when it projected a fall of as much as £250m.

However, it warned: “There are still significant ongoing challenges including the impact of the recession, changes to international postal rates and the potential frictional impact on cross border trade from Brexit.”

Royal Mail's share price was up 20% by Tuesday lunchtime.