Tuesday 12 November 2019

Royal Mail issues profit warning as it misses cost-saving targets

Lower letter volumes and higher cost pressures have squeezed the business.

Royal Mail issued a profit warning on Monday (Chris Radburn/PA)
Royal Mail issued a profit warning on Monday (Chris Radburn/PA)

By Alys Key, Press Association City Reporter

Royal Mail has issued a profit warning after it failed to meet cost-saving targets, sending shares plummeting as much as 20% on Monday afternoon.

In an unscheduled trading update for the half year to September 23, the group said that its “productivity performance is significantly below plan”.

A target for cost avoidance during the same period has also been slashed from £230 million to £100 million.

As a result, Royal Mail expects group adjusted operating profit before transformation costs to be in the range of £500 million to £550 million, compared with £694 million last year.

Royal Mail also flagged that addressed letter volumes are now expected to decline faster than the group’s expectations, while pointing to the impact of GDPR regulation.

Trading conditions in the UK are challenging Rico Back

“Trading conditions in the UK are challenging,” said chief executive Rico Back.

“Our letter volumes, especially marketing mail, are impacted by ongoing structural decline, business uncertainty and GDPR.”

Shares tumbled more than 20% before settling at 14% lower at 408.4p.

The postal service also blamed the decline on unexpectedly high cost pressures from the labour market, and under-performance in productivity.

Productivity growth continued to be sluggish despite a lack of industrial action during the six months to September 23.

The measure grew at a rate of 0.1%, well below a target of between 2% and 3%.

Royal Mail now expects productivity to be much lower than predicted.

Targets were missed last year after strikes, high levels of sickness absence and adverse weather condition slowed up deliveries.

But the group struck a deal with union representatives in January, putting an end to long-simmering debate over pay and pensions.

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