Royal Mail has revealed a significant rise in annual profits during the covid crisis but is warning that the demand for parcel deliveries is decreasing.
James Andrews, Personal Finance Expert at money.co.uk, said:
“Thanks to the coronavirus pandemic, and a huge shift from in-store to online purchases, Royal Mail has reported an incredibly successful financial year. Its earnings this year surpassed expectations as profits soared 116% to £702m.
The leading UK delivery service has had an incredible 12 months following record lows reported in April last year. The initial move to online orders had been a hindrance to the delivery giant, which struggled to adapt to the quick and fundamental shift to parcels over letters.
Although Royal Mail had to deal with a stark change in demand, the company has adapted thanks to new leadership. Chief executive Simon Thompson, who joined in January 2021 from Ocado, focused on transformation for the 500 year old company. This new parcel-led approach has seen Royal Mail's stock soar more than 300% from its lowest levels last year and in Q3 the company had its best ever quarter as parcel volume grew 37% with 496m parcels handled.
March results predicted this year's revenue would be more than £900 million higher than the £10.84 billion delivered last year. The company exceeded this number, reporting group revenue of 12.6bn thanks to the higher profitability of parcels and expansion of its international delivery arm.
Although the past year has been phenomenal for Royal Mail, it still faces competition from the likes of Hermes and DPD. As this is only the start of its transformation, which has included delays to set up new infrastructure, it will need to continue to evolve to keep up with competitors. Amazon, for example, has quickly established an effective delivery service for the online age, while Royal Mail’s development has been slower as it seeks to change a company first set up hundreds of years ago.
As shoppers start to return to the high street this could affect online demand, so it will be down to Royal Mail to offer a tight service to keep their customers interested. Automation is high on the company’s list to implement agile working and cost savings needed to stay competitive.
But while there are challenges ahead, there are also opportunities to be grasped as more and more of our shopping comes through the post – with none of the competition able to match the sheer scale of the Royal Mail’s pick up and delivery network.”
