Shares in Royal Mail (RMG) leapt 22% to 213p on 8 September after the firm raised its guidance for annual turnover but warned that increased costs would still see it post a material loss for the year.

It said a substantial shift from letters to parcels in the first five months of the current financial year due to e-commerce and online ordering had driven better than expected revenues.

Parcel volumes to the end of August were up 34%, driving a 33% increase in divisional revenues, but a 28% fall in letter volumes meant revenues for the letter business were down 21%. On a net basis, revenues were up £139 million over the period.

However, the change in mix from parcels to letters led to an £85 million increase in costs, while Covid-related costs such as elevated absence and additional spending on protective equipment were £75 million.

The firm admitted that without ‘substantial business change’ its core Royal Mail business was unlikely to be profitable in the near term.

Although it refrained from issuing specific guidance for the current financial year, the company raised its forecast for UK parcel revenues from a 12% increase to a 22% increase and lifted its overall full-year revenue forecast by between £75 million and £150 million, spurring the sharp share price rally.

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