As turnarounds go, Royal Mail can finally say it is making progress. Revenue and profit are growing, net debt is coming down, it has realised some cost savings, and it is confident enough to use some of its cash reserves to buy back shares and pay shareholders a special dividend.
With large parts of the world having become more accustomed to buying goods online since the start of the pandemic, it’s fair to say 2021 will be the second ‘digital Christmas’ in a row. It’s so much easier to order goods online than venture to the high street and the system requires companies like Royal Mail to help deliver these items to the customer’s doorstep.
Like many turnaround situations, Royal Mail’s recovery is far from complete and it says there is still a lot more work to do, and that there are also various headwinds for the business.
AJ Bell’s Russ Mould said: “A key risk to a bumper festive season for Royal Mail is whether supply chain issues spoil the party. Stock availability is a worry for retailers, and they will be praying that customers find a suitable alternative from their virtual shops if their first choice is not available.
“Royal Mail also flags a higher than expected number of staff off sick, as well as elevated vacancy levels, which means productivity is being impacted. That would suggest delays to customers receiving items and no-one wants their Christmas presents stacking up in a sorting office.
“Parcels delivery is highly competitive but Royal Mail is managing to retain its position in the market. It is convinced that the e-commerce surge experienced since Covid-19 struck is not a flash in a pan, it’s a structural shift that is here to stay – and that means higher parcel volumes permanently.
“It is also important to remember that Royal Mail is not just a UK business, it’s an international player and its overseas GLS arm continues to do very well.”