Royal Mail lifts revenue target, sees loss on growing costs

(Reuters) – Royal Mail on Tuesday raised its revenue target for the current year, driven by a jump in online shopping parcel volumes, but forecast an annual loss due to costs related to the COVID-19 pandemic and the changing nature of its business.

The company said it expects revenue to be 75-150 million pounds higher year-on-year for the fiscal year 2020-21 under a scenario that does not assume another lockdown, compared with its previous forecast of a decline of 200-250 million pounds.

Royal Mail’s shares, which have suffered a 26% slump so far in the year, surged 7% to lead gainers on the FTSE 250 midcap index by 0706 GMT.

The company said net cost estimate from the shift in its business from letters to parcels was now 140-160 million pounds versus the earlier assumption of 110 million pounds. It also revised its estimate of costs related to the global health crisis to 120 million pounds from 140 million pounds.

“We continue to expect Royal Mail to make a material loss this financial year 2020-21 and will not become profitable without substantial business change,” Britain’s former postal monopoly said in a statement.

Royal Mail, one of the world’s oldest postal companies, said its legacy in letters has held back operational changes that are needed to adapt its business to a market that has fewer letters and more parcels.

The company, whose previous CEO left after a battle with labour unions, said it was in talks with the unions regarding the essential changes.

“Currently, too many parcels are sorted by hand and we are failing to adapt our business to fundamentally lower letter volumes and are holding on to outdated working practices and a delivery structure that no longer meets customer needs,” Royal Mail said.