Royal Mail 2020-21 year results could result in parcel price rises

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Royal Mail Group full 2020-21 year results last week with performance well above initial expectations driven by strong parcel growth at both Royal Mail and GLS. However we are concerned that pressures could see parcel price rises in the near future.

Royal Mail Group had a cracking year with their 20/21 year ending with revenues up 16.6% at £12,638m and profits up 116% at £702m. Royal Mail parcels revenue was up 38.7% in the past year…. but parcels revenue has already dropped off 2% in April as the shops reopened and it is yet to be seen how much of this magnificent growth Royal Mail can keep in the future. Plus investors will not want to see flat revenues and profits – they’ll want to see an upwards trajectory.

We don’t quite know what the 2020-21 year holds for Royal Mail and neither does the company themselves due to ongoing uncertainty.

“As the outlook for 2021-22 contains a number of uncertainties that could significantly influence volumes and costs it is difficult to provide specific guidance for 2021-22 for Royal Mail. Instead we have provided information on costs and some sensitivities to assist in quantifying potential outcomes for the year ahead. GLS is expected to perform in line with the guidance given in March 2021. Despite this uncertainty, there are grounds for optimism. The opportunities are there. We must harness them.”
– Keith Williams, Non-Executive Chair, Royal Mail Group

As a result of this outstanding performance, Royal Mail have announced their future of the shareholder dividend. A one off 10p one-off final dividend is proposed in respect of the 2020-21 year and moving forward the dividend for 2021-22 is set at 20p per share.

And this is where we see an inkling of the trouble ahead and why we are concerned about parcel price rises. The Royal Mail Board have stated that they will not retain capital which is under utilised in their capital allocation framework so they’re not going to be building a cash war chest for the future. They’re paying 10p a share now and expecting to pay 20p a share next year. But, and it’s a big but, the growth from the pandemic has come and gone and it’s questionable if Royal Mail will ever see similar growth again.

There are two things that shareholders like – growth and profits returned as dividends. Growth of a company drives the share price up for those looking to cash in in the future, whereas dividends appeal to those who want a stable income today. However, Royal Mail costs are still up, there’s plenty of transformation left to go and the shops are open and undoubtably parcel traffic will stall.

This leaves Royal Mail to figure out where future growth and profits will come from. If they can’t maintain growth then the share price won’t be ticking up and that means the big attraction has to be dividends. If we now enter a post-pandemic slowdown of parcels then it’s a certainty that letter growth won’t replace their profits. That leaves very few levers to pull but the one certain way of boosting profits is to hike prices – and with letters largely regulated that means hiking parcel prices.

The difficulty is that hiking prices will simply see competitors take advantage to hike their own prices so this could be a knock on effect across the industry – many peg their prices to be competitive with Royal Mail so rises will give the industry more freedom.

It’s been a great year for Royal Mail who have stepped up and cashed in with a bumper set of 2020-21 year results. The note of caution regarding parcel price rises comes from questioning what they will do next.

11 Responses

  1. They are doing a lot of recruitment around here. With different shifts from the legacy ones. These are obviously to meet the current demand and when people are actually in.
    Couple guys from my place have gone over to them…better money set shift.
    For me the share price recovery is great and made all my losses back, your man Black was a disaster. Might be time to cash in before the next disaster which with some of the legacy issues won’t be far away.

    Parcel prices rises will just play into the others hands now and at least you will get tracking etc. The tracking and signing rates from RMG is appalling.

  2. And how much of that “profit” is over charges of RM’s business customers???

    We’ve been over-charged notoriously for Tracked services (the not-tracked spent total is generated with every manifest in Click&Drop…). I raised multiple claims (10mins of looking to find the bloody form) and someone eventually replied with random Excel file with random tracking numbers. And some of the tracking numbers were never posted from our RM account(!!) yet these were processed at the same regional mail centre. I tried to “follow up” on that email reply from RM, none to avail. Even our RM account manager doesn’t care about it. So I gave up on it. We’re losing a little bit of money every month but hey ho I can’t see our micro business like ours going after the giants.

    To be honest I never felt treated worse by a third party company to whom I pay monthly for the services rendered. RM is still stuck in the 2000’s

  3. Royal Mail probably want to look at how they take on new business. We applied for a business account so we could use an automated system for orders and it required an account to do this. Took five months to get a call back from someone! Then a week later I was told we couldn’t have an account but said I could still take parcels to the post office.

    Called Hermes, two weeks later we have an account!

  4. To be fair
    Most of us have rounded weights down to our advantage
    Or added the odd package to the bag without
    Altering the invoice
    Royal mail are building s new sea wall rather than just trying to stick a finger in the dyke wall

  5. Good decision increase parcel prices to please your shareholders. Never mind about the loyal Customers. Remember that The Royal Mail depends on the customers for their revenue.

  6. I wonder how much of there profit has come from lost parcels resulting in the same package being sent again. We resent 3000 packages last year as a result of the first going missing

  7. Ben, we never resend a parcel. First goes missing, refund buyer. Someone else can risk their address.
    More than once in the past had a 2nd parcel to the same address also go missing.
    Then usually a few months later both parcels returned uncollected from depot.

  8. I’m a top rated eBay seller and during the lockdown I’ve had no problems sending low value items in large letter boxes through Royal Mail second class post and putting them in the post box. They were always delivered promptly = happy customers. Since mid-April I have had five customers reporting their parcels have not arrived. So far I have received one back from Royal Mail marked “not called for”. Not surprising when it had a £3.50 surcharge sticker on it for “item underpaid” I checked and it was correctly labelled! What’s going on with Royal Mail? My email of complaint to RM customer services has had no response as yet and its costing me a fortune in refunds.

  9. When they make sure they collect delivery scans on everything with a QR Code on it, I and many others will cheer…..

  10. Re-send something when, apparently, it went missing?

    We never do that either.

    We had maybe 4-5 items lost items in 15,000 parcels sent (those are reported by buyers).

    We occasionally get pics of empty box as to suggest ‘it came empty, can i have a refund?’ HAHA And some of the buyers “re-use” the RM bag “our sincere apologies” as to suggest again it was destroyed by RM and we should refund. Well, if RM destroyed your parcel then raise the claim yourself with RM.


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