Royal Mail increased its estimates for full year revenue today as the surge in online shopping caused by the coronavirus pandemic boosted its turnover.
However, it warned that it was still struggling with its loss-making letters division, as well as a sharp rise in costs.
For the full year, the firm said that revenue could come in between £380m and £580m higher than previously projected. If it hits the top end of guidance, the company could break even.
For the first time in its history, parcel revenue supplanted letter revenue as the firm’s biggest revenue stream, a milestone for Royal Mail as it undergoes major restructuring.
Strong parcel growth in the first half sent revenue up 9.8 per cent to £5.7bn, but Royal Mail only made £17m in pre-tax profit – 10 per cent of what it posted in the same period last year.
The company also reported an adjusted loss of £127m, with costs relating to Covid-19 and voluntary redundancies.
CMC Markets Michael Hewson said that today’s results had highlighted one of the firm’s major problems – the company’s high cost base compared to its peers.
However, he praised the firm’s decision to roll out a home collection service, which allows customers to have their parcels collected from as little as 72p.
Hewson added: “The outlook for the business is much more positive now with the company recently competing with Amazon for a £550m one-year contract to deliver 215,000 Covid-19 testing kits a day in the UK.”
Royal Mail interim chairman Keith Williams said: “The level of revenue growth in the first half shows we have the right strategy and that Royal Mail can be cash generative and a sustainable, profitable business in the future.
“But we need to speed up the pace of change in order to create a profitable business in the UK.”