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COVID-19: Royal Mail profits from lockdown online sales surge but parcel growth is slipping

Royal Mail has revealed a four-fold rise in annual profits during the coronavirus crisis but warned the explosion in demand for parcel deliveries is on the wane.

The former state-owned company said pre-tax profits for the year to March hit £726m, despite a surge in COVID-19 related costs, as parcel revenues topped letters for the first time in its history thanks to lockdown demand online.

It compared to a figure of £180m for 2019/20.

Royal Mail reported revenues of £12.6bn – a rise of 17% – driven by a 39% rise in parcel trade.

That offset a 12.5% decline in letter revenues and a 9% rise in operating costs.

A 10p-per share dividend was declared.

However, the company warned that parcel volumes in the UK were down 2% last month compared to April 2020 when the first UK lockdown was in full swing.

It cited continuing uncertainties over demand for its decision not to provide a financial forecast for the current financial year.

Shares – which have performed strongly during the pandemic – fell more than 4%.

Royal Mail said its results demonstrated the need for it to capitalise on the shift to online shopping.

The company said: "Commercially we must adapt more quickly to the needs of customers and consumers, and finally deliver the long-promised changes on operational and cost transformation… Without these changes, we cannot be competitive into the future."

Royal Mail, which has not enjoyed an easy relationship with the postal workers’ union CWU over the years, agreed a new pay deal as part of the shake-up.

The company also retained 10,000 temporary staff it had hired for the Christmas rush after admitting that record volumes during the public health emergency had stretched its capabilities.

John Moore, senior investment manager at Brewin Dolphin, said the company’s fortunes looked positive.

He wrote: "The one-off dividend and recent share price performance are rewards for shareholders who have stuck with Royal Mail after a challenging period between 2018 and 2020.

"The defined dividend policy – backed up by a strong balance sheet providing rare clarity on income – is something that many other UK companies have been unable to do.

"The group looks well placed to make a return to the FTSE 100; but, key to Royal Mail retaining that status will be maintaining the volume growth and innovation that have so heavily influenced today’s results."

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