Royal Mail expects profit to rise as letters recover, flags higher costs

(Reuters) -Royal Mail Plc forecast a surge in first-half operating profit on Thursday despite warning of higher costs, as it benefits from improving letter volumes and higher UK parcel revenues compared with last year as people shop online.

While the number of parcels being delivered by its UK business has fallen as shops reopen after months of lockdowns, parcel revenue edged higher from last year and grew by a third year-to-date from 2019 levels. Total letter revenue rose 18.3% in the five months to August.

The postal company expects group adjusted operating profit between 395 million pounds ($538.74 million) and 400 million pounds for the six months to September. That compares with 37 million pounds it reported last year.

Royal Mail said adjusted operating profit and margin in its UK business would be even higher in the second half as compared with the first, largely because the benefits of its agreement with its largest labour union will be delivered in the period.

The company, one of the world's oldest postal firms, said it expects upward pressure on costs in both its British and international businesses due to tight labour markets and inflationary pressures.

($1 = 0.7332 pounds)

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Subhranshu Sahu)