Royal Mail admits "legacy in letters" has hampered transition to parcels

Royal Mail has admitted it expects to make a loss in this financial year and won’t return to profit unless the business is overhauled to reflect a decline in letter volumes and a boom in parcel deliveries.

In its latest trading update covering the five months ending 30 August, it confirmed there had been a substantial shift in the business from letters to parcels and that the growth was being driven by B2C and e-commerce.

This led to better than expected revenues, but it said its “legacy in letters has held back operational changes needed to adapt our business to a market that has fewer letters and more parcels.”

In addition, Covid-related costs during the five-month period were £75m.

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Both GLS – Royal Mail’s international parcels business – and Royal Mail saw parcel revenues significantly ahead of expectations pre-Covid, but the group said that while this increased GLS’ profits, it had not halted the long-term decline in Royal Mail profitability.

It added that there is an opportunity to benefit from customers for parcel deliveries, if it adapted quickly, but that currently too many parcels were being sorted by hand and it was not shedding outdated working practices.

It cited a failure to reach agreement with trade unions as one reason for the inertia.

For the annual trading period ending 29 March 2020, the group made a pre-tax loss of £11m on revenues of £7.7bn.