Parcels deliver for Royal Mail; even direct mail returns

Royal-Mail-postbox2The surge in online shopping triggered a four-fold rise in profits for Royal Mail over the past 12 months of the pandemic, with parcels now representing 72% of group revenue and even direct mail witnessing a mini revival from the depths of Covid hell.

The postal giant’s annual results reveal that parcel revenues rose 38.7% with pre-tax profits for the year to March hitting £726m – up from £180m a year earlier – on revenues which increased 16.6% to £12.6bn.

Its European and US parcel business GLS also enjoyed a boost from the pandemic, with revenues up 27.8%, delivering its highest margin in 13 years. More than half of its deliveries were direct to consumers, compared with two-thirds coming from business-to-business customers.

The 2020-21 period had significantly different revenue outcomes between the two halves of the year. Parcel revenue growth was about 10% higher in the second half than it was in the first, while letters revenue declined only 5% in the second half of the year, compared with over 20% in the first half.

Business mail, while also negatively affected, was more resilient throughout the year. Direct mail saw volume reductions of almost two thirds during the Q1, recovering to a 23% decline in Q4. The consumer and SME channels also saw volumes improve over the course of the year, with total letter revenue declining by 12.5% year on year.

Although April figures are not part of the full-year results, the company has used them to demonstrate that, moving forward, it faces an unusual set of volume and revenue comparatives, which become increasingly difficult as the year unfolds.

April 2021 trading saw total revenue growth of 24.1%, with year on year parcel revenue growth and letter revenue growth in the month. Parcel revenue grew by 20.0%, and total letter revenue by 29.6%, while parcel volumes declined 2% and letter volumes (excluding elections) grew by 25%.

Royal Mail predicted this could well lead to Q1 and even H1 performance in 2021-22 being reasonably strong. However, H2 is more difficult to call.

The company said that it may be some time before the true impact of the pandemic on the topline is known, although it acknowledges that the crisis will have accelerated the long-term structural shifts in both parcel volume growth and letter volume decline.

It added: “A proportion of the growth will start to unwind as the lockdown restrictions are removed, although it also seems certain that a significant proportion will stick, as consumer behaviour and buying preferences switch online permanently.

“On letters, while it is unlikely that business mail customers who have found an electronic alternative to mail during the pandemic will switch back to mail, we believe that advertising mail has an intrinsic value as a part of the marketing mix, so we could see a more positive recovery in that stream over time.”

Royal Mail chief executive Simon Thompson said: “We’re changing. And it’s working. Change. It can be daunting. But constantly changing to meet the needs of the customer is what all great companies do.

“Last year has stood out as one of remarkable change at Royal Mail. It has been challenging at times, but we are emerging stronger, leaner and have learnt that we can change at lightning pace when we are united by a common purpose.

“A worldwide pandemic. New ways of working. Designated as key workers. Tens of millions of Covid-19 test kits handled. Over 1.5 billion items of PPE delivered to schools, social care and healthcare providers. 30 million vaccination letters delivered. It has been quite a year.

“Our people have been magnificent. On behalf of our customers and Royal Mail I would like to thank them for their Herculean effort and for everything they have done. Our customers have been very supportive and at times very tolerant. At the beginning of the pandemic, we communicated to customers that service disruption was, despite our best efforts, likely.

“High levels of Covid related absences including shielding, the introduction of social distancing in our operations, no shared vans, and the increase in parcel volumes means that at times our quality has not always been as we would have wished. We know the world has changed and the team is now focused on delivering pre-Covid-19 quality in a Covid-19 world as soon as we can.”

Related stories
Mail bonding: Royal Mail boon as letters market returns
Royal Mail Parcel Collect is ‘biggest change since 1852’
Direct mail and door-drops cement Covid-19 comeback
Direct mail engagement soars as market bounces back
Online shopping boom delivers the goods for Royal Mail
Royal Mail eyes online surge with ‘Buy, Print, Drop’ blitz
Parcel boom shores up Royal Mail while letters crash

Print Friendly