Royal Mail warns on challenging outlook as strikes loom


Royal Mail has said it may be unable to meet its three-year turnaround plan targets as the threat of strikes continue to loom over the business.

Royal Mail’s letters revenue fell by 1.5%
Royal Mail’s letters revenue fell by 1.5%

In a trading update for the nine months ended 29 December 2019, which was issued this morning (6 February), the postal operator said it was “disappointed CWU has said it is preparing another ballot of its members for industrial action” and that it continues to offer CWU the opportunity for ongoing talks.

The High Court halted industrial action at the business in November when it declared unlawful the CWU’s ballot for action over grievances about job security and the terms and conditions of their employment.

“We stand ready to invest £1.8bn to modernise and grow in the UK. We want to reach agreement with CWU, but we cannot afford to delay this essential transformation any longer,” said Royal Mail group chief executive Rico Back.

“So we are proceeding with key national trials and local initiatives, to improve our customer offering and grow the business, whilst maintaining good quality jobs and delivering a sustainable universal service.”

Royal Mail’s group revenue climbed by 3.7% in the period. Revenue in its UK parcels, international and letters (UKPIL) business was up by 1% overall, benefiting from targeted price rises from January 2019, the European parliamentary election in May, and the UK general election in December.

Addressed letter volumes, excluding political parties’ election mailings, declined by 9%, while letters revenue fell by 1.5%.

But this was offset by parcels volumes growth of 3% and parcels revenue increasing by 3.7%.

Royal Mail attributed this to higher than expected volumes around Black Friday and Cyber Monday as for the rest of the Christmas period volumes were, on average, lower than anticipated, with some customers switching volumes to other carriers due to the risk of industrial action. This reduced parcel revenue growth by around 0.5 percentage points.

The company said parcels performance in January was stronger than Q3, which underpins its confidence in a higher level of revenue and volume growth in Q4.

The general logistics systems (GLS) side of the business saw volume growth of 5% and revenue growth of 11.1% in the period.

“We had a busy Christmas season, which coincided with a general election for the first time in almost a century,” said Back.

“Overall, our recent trading performance has been broadly in line with our expectations. We confirm adjusted group operating profit is expected to be £300m-340m (before IFRS 16) for 2019-20.”

The group said its outlook for 2020-21 is “challenging”, with the Q3 run rate for addressed letter volumes, excluding elections, not showing the expected level of recovery. Coupled with the ongoing uncertain business environment, it said this means it is now expecting a 1% increase in the decline, to 7%-9% for 2020-21.

“Further, the ongoing industrial relations environment and delays to the delivery of our transformation plan, when combined with continuing economic uncertainty, increases the likelihood that UKPIL will be loss making in 2020-21,” the company stated.

“Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year three targets of our Journey 2024 plan will be compromised.

“We are taking additional mitigating actions, and will provide an update on progress with these and further guidance with our 2019-20 full year results, which are expected to be announced on 21 May 2020.

“We continue to execute on our Journey 2024 plan as the best way to deliver a successful and sustainable future for the UK business.”

GLS is expected to perform in line with the group’s plan.

Royal Mail’s share price slumped by more than 10% in early trading to 168.05p but had since rallied to 176.75p at the time of writing.

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