Royal Mail to beat forecasts as lockdown Christmas smashes all parcel records

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Royal Mail Group PLC (LON:RMG) delivered a record number of parcels over Christmas in what it described as the busiest period in its history.

A total of 496mln parcels were handled in the three months to end-December with profits for the current year to March 2021 now set to exceed the top end of expectations said the postal group.

On its busiest day before Christmas, Royal Mail added it delivered 11.7mln parcels or a third more than on the busiest day during the first lockdown.

Parcels also boomed overseas, with GLS reporting a 27% rise in volumes over the nine months to end-December 2020.

Letters were again the weak spot with volumes falling by 14% though the decline slowed towards the end of the year, Royal Mail said.

Revenue in the nine months to end-December rose by 13.5% year-on-year to £9.3bn, with parcels up 43% to £3.8bn, GLS 29% higher at £3bn and an 8.5% drop in letters to £2.57bn.

Keith Williams, chairman, said: “The third quarter saw unprecedented parcel volumes in Royal Mail, driven by online shopping and the peak Christmas period.

“The decline in addressed letter volumes slowed to 14% in Q3, with a decline of 9% in December, compared to around a third earlier in the year, excluding the impact of elections.

“Given the stronger than anticipated trading, primarily driven by further COVID-19 restrictions and improved letter volumes, we now expect group adjusted operating profit to be well in excess of £500 million for FY2020-21,” he added.

Royal Mail said its revenue growth for the full year 2020-21 will also top the £380mln to £580mln estimate given in November.

On the downside, Royal Mail did caution that the additional workload and Covid-19 restrictions were pushing costs higher.

Around 10,000 flexible workers taken on over the peak period were being retained, it said, while 6,000 additional vehicles have been added and four temporary Parcel Sort Centres are staying open.

“These costs are more than offset by the revenue growth but the key question is how long the exceptionally robust growth will continue and the risk that volumes stall or even decline when restrictions are eventually lifted,” said broker Peel Hunt.

One possible disappointment was the statement made no mention of the dividend being reinstated even with the bumper trading.

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