Royal Mail shares plunge after profit warning
Royal Mail shares ended 18% lower on Monday after it warned on profits in an unscheduled trading update. The post and parcel firm said cost savings would be just £100m this year rather than the £230m forecast.
Addressed letter volume fell by 7% in the first half of the year, while productivity performance was “significantly below plan”.
Adjusted operating profit before transformation costs would be between £500m and £550m as a result. That is significantly lower than the £694m posted last year. Shares fell 85.7p to 391.4p after the trading update was issued an hour before the London market closed.
Chief executive Rico Back trading conditions in the UK were “challenging”, with the number of letters posted – particularly marketing mail – affected by “ongoing structural decline, business uncertainty and GDPR”.
In June, Royal Mail said there was some uncertainty among its customers about the General Data Protection Regulation (GDPR), which imposes new requirements on how companies collect and process personal information about EU citizens and came into force on 25 May.
The company said its UK productivity growth had been disappointing, rising just 0.1% – far below the 2% to 3% target – despite no strikes being held by workers during the six months to 23 September.
However, Mr Back said the UK parcels business was performing well with revenue and volume up 6% in the first half.
“We remain focused on delivering parcel revenue growth and pursuing our strategy of targeted and focused acquisitions, through GLS, in growing markets,” he said.
GLS is one of Europe’s largest parcel delivery firms, covering 41 countries as well as eight states in the Western US and in Canada.
Helal Miah, an analyst at The Share Centre, said the recently appointed Mr Back appeared to be “throwing out the ‘baby with the bath water’ so he can begin his tenure with a clean slate”.
Neil Wilson at Markets.com said it was a “really horrible profits warning”, but described the fall in the shares that wiped £1bn off Royal Mail’s value as “excessive”.