Royal Mail Recovery Gathers Pace as Virus Boosts Parcels

Royal Mail Plc surged after saying a turnaround at its main U.K. business is picking up pace as the coronavirus crisis stokes a boom in parcel traffic.

A shift to online-shopping amid Covid-19 lockdowns lifted British package demand by a third in the first half ended Sept. 27, outstripping letters for the first time, Royal Mail said Thursday. U.K operations could “be better than break even” for the fiscal year if sales come in at the upper end of a revised range.

“What you’ve got is a huge underlying growth in parcels,” Chairman Keith Williams said in an interview. “That is a trend that will continue, in line with what’s happening in retail.”

Williams is seeking to accelerate a turnaround strategy in an executive capacity after the exit of Chief Executive officer Rico Back, who clashed with workers over productivity plans. Royal Mail, which is cutting 2,000 management posts to trim costs, said it has intensified union talks over moves to reduce hand-sorting and help adapt to the long-term slide in letter volumes.

Shares of Royal Mail rose as much as 8.7% and were trading 4.8% higher at 299.6 pence as of 8:36 a.m. In London, where the company is based.

That takes gains this year to 32%, reflecting new-found optimism about the company’s prospects, and compares with an 11% decline in the FTSE 250 Index of mid-sized U.K. firms.​

Read More: Pandemic Parcels Have Made Royal Mail an Unlikely 2020 Winner

​Revenue rose 10% in the six months, though the group reported an adjusted operating profit that fell 77% to 37 million pounds ($49 million) on costs related to pandemic disruption.

Discussions with unions include using data to make assigning routes more efficient, but have some way to go, Williams said, with workers seeking assurances that changes will be fair.

Royal Mail is also seeking changes to the Universal Service Obligation under which it is required to offer a regular postal service for letters, with regulator Ofcom set to report later this month.

A surge in pre-Christmas parcel volumes is expected to be huge, Williams said, prompting the company to hire 33,000 seasonal staff, though the fourth quarter through March is tougher to predict, with the broader economic outlook and Brexit potentially impacting parcel volumes.

Royal Mail has been working to prepare for changes to customs and VAT regimes that could come with the split from the European Union, and while there may be more paperwork, processes are already in place, the chairman said.

©2020 Bloomberg L.P.

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