Profit fall forecast for Royal Mail as firm prepares for busiest ever Christmas

Royal Mail is expected to show a major fall in its profits in the first six months of the financial year, as the company prepares for what promises to be its busiest Christmas on record.

The company’s adjusted operating profit is expected to reach around £9 million, according to an average of analyst estimates provided by Royal Mail.

It would be a large step down from the £165 million adjusted operating profit the delivery giant made in the first half of the last financial year.

Like many businesses, Royal Mail’s 2020 has been heavily defined by the Covid-19 pandemic.

While large parts of the economy switched to working from home, the business’s postal workers were still out making deliveries.

However, what they were carrying changed drastically over the period.

In Royal Mail’s most recent update for shareholders, it revealed the number of parcels postmen and women carried in the five months to the end of August rose by 34%, while letter numbers dropped 28%, compared to the same period a year earlier.

The main reason for the massive change was the sheer number of people stuck at home, who were forced to turn to online retailers to cater to their needs as high street shops closed their doors.

Hargreaves Lansdown analyst Susannah Streeter said: “The shift to digital and the e-commerce boom should have helped boost the fortunes of Royal Mail with so many more packages to deliver.”

With that increase likely to continue through the normally buoyant Christmas period, postal workers are now preparing for what could be their busiest period in history.

But they will also have a lot more colleagues to help share the burden.

Last month, Royal Mail announced it would take on 33,000 temporary workers over the Christmas period to deal with the increased demand it is expecting. It will also run two more sorting centres.

In a normal year the company will hire around 15,000 temporary staff over the period, and its former record was 23,000.

Even with the extra help, the company has urged customers to “shop early, send early for Christmas” in order to avoid the rush in the final run-up to December 25.

But bosses have also tried to tap into the rising market for parcels, by allowing customers to send them straight from their doorstep.

For 72p per package, a postal worker will now pick up a parcel from a customer’s front door, cutting out the need for them to go to the post office.

Investors might hope for some sign of how that has gone in the first few weeks since the service launched nationwide.

Ms Streeter added: “The plan to collect parcels straight from the door should help put more volumes through the network and drive revenues despite the headache of initial set up costs.

“Coronavirus costs will have significantly eaten into profits, but Royal Mail’s reputation has arguably been boosted during the pandemic with staff praised for going the extra mile to keep the essential service running.”