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Royal Mail posts operating loss amid pandemic but pins hope on parcel delivery

Royal Mail vans at Nottingham Mail Centre which will process more than 2.8 million items of post on their busiest day of the year.
Royal Mail said parcel deliveries are key to its future. Photo: PA

Royal Mail (RMG.L) has announced a £20m ($26.85m) group operating loss in the first half of 2020, but says parcel deliveries are key to its future as they outstripped letter revenue for the first time in the company’s history, the company said in its half year report.

Parcel revenue now represents 60% of total revenue, compared with 47% in the prior period.

“The postman is more likely to ring at the door with a bulky parcel these days than push envelopes through the letter box and adapting to the e-commerce boom is proving a painful shift for the company,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“With demand for letters plummeting, there is a risk that the red post box could go the same way as the iconic telephone box, revered for its history and not its usefulness.”

Shares were trading up by 6.4% at around 9:05am in London.

Royal Mail said its parcel delivery has overtaken its letter delivery for the first time in in its history.
Royal Mail said its parcel delivery has overtaken its letter delivery for the first time in in its history. Chart: Yahoo Finance UK

The operating loss for this period compares with earnings of £61m at the same point last year. It also follows an underlying operating loss of £129m at its core Royal Mail postal arm.

Group pre-tax profits fell by 90.2% to £17m during the same period.

In light of COVID-19, “uncertainty remains, particularly for Q4” said the company in a statement.

Yet, the business said it will double down on its renewed strategy.

“We have been pushing forward with our transformation in Royal Mail and delivering more new innovations, products and services for our customers. Whilst we have done exceptionally well in terms of revenue and have seen real growth for the first time since privatisation, we have recorded a first half adjusted operating loss of £129m after restructuring charges of £147m, and a reported operating loss of £176m,” said Keith Williams, interim executive chair at Royal Mail.

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While “collecting parcels straight from the door should help put more volumes through the network and drive revenues despite the headache of initial set up costs” according to Streeter, she added that the business has “long been under investment in automation which means that Royal Mail is in many ways playing catch up with the competition.

“Adapting with flexibility is not Royal Mail’s strongest point, and it will need to be much more nimble to keep abreast of its customers changing needs and stay in with a chance of keeping up with the competition.”

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