Parcels spark a Royal Mail revival after a record-breaking Christmas

Royal Mail shares soared after a record-breaking Christmas put the postal service on track for a profits bonanza.

With the pandemic fuelling an internet shopping boom, the delivery firm said it shifted a staggering 496m parcels in the final three months of 2020, an increase of more than 110m on the same period the previous year.

That was more than enough to cushion falling letter volumes and helped to lift quarterly revenues by 16.5 per cent – the biggest jump since the firm was privatised in 2013. 

Revenues for the first nine months of the financial year hit £9.3billion – well ahead of expectations – and the company is expecting annual profits to be ‘well in excess’ of £500million. That compares with £325million last year.

Shares surged nearly 12 per cent after the announcement, later closing up 4.9 per cent, or 21.1p, at 450.8p – the highest level since September 2018. The stock has jumped nearly 160 per centin the past year.

Keith Williams, Royal Mail’s chairman, said: ‘The third quarter saw unprecedented parcel volumes in Royal Mail, driven by online shopping and the peak Christmas period, with 496m parcels handled – the busiest in our company’s long history.

Royal Mail shares listed on the stock market at 330p eight years ago. The stock peaked at 632.6p in May 2018 but crashed to a low of 118.9p last March, before the recovery under Williams.

The legion of small investors who took part in the 2013 float included 150,000 postal workers who were given shares.

The 30 per cent quarterly rise in parcel volumes over Christmas was described as ‘unprecedented’ and triggered delays across Royal Mail’s network as the postal service struggled to manage. 

On its busiest day, it handled 11.7m parcels. This wiped out any losses from a 14 per cent drop in letter volumes, which have been falling dramatically in recent years as digital communication and advertising have grown in popularity.

It puts Royal Mail on course for blowout full-year results, with the firm saying it now expects the annual increase in revenues to be ‘significantly beyond’ the £380million to £580million it previously predicted.

Demand also remained high in January, with parcel volumes up 37 per cent compared to 2020, prompting the firm to keep on 10,000 of 33,000 temporary staff it hired for Christmas. 

It follows nine months of upheaval at the company, triggered by the sudden departure of former boss Rico Back in May.

Back was ousted after an acrimonious row with the Communication Workers Union, which delayed the company’s modernisation plans and led to threats of strikes and poor performance.

After Williams temporarily took over as executive chairman – a role he has since relinquished – he struck a peace deal with union chiefs and has brought in former Ocado executive Simon Thompson to be the UK chief executive. 

Royal Mail has also begun the construction of a second major parcels hub in the Midlands, as it seeks to build more capacity to handle the rapidly growing parcels market.

Postal firms have seen exceptional parcel volumes during the coronavirus crisis as more people shop online, but analysts at Jefferies said last week the benefits of the pandemic could start to fade in 2021.

Royal Mail said the higher volumes have also come with extra costs – but it is carrying out a review of its operations which bosses hope will lead to more automation and savings.

In particular, the new parcels hub in Daventry, Northamptonshire, is designed to handle more than 1m packages a day. It follows the start of construction of another in the North West.

The firm faces competition from courier firms such as DPD, Hermes and DHL, as well as Amazon which is increasingly delivering its own parcels.