Royal Mail shares hit five-year low

By Jo Francis, Friday 05 October 2018

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More than £1bn was written off the value of Royal Mail this week after the post and packages group issued a shock profits warning.

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Roya Mail: addressed letter volumes down 7% in H1

In a trading update the group’s new chief executive Rico Back described UK productivity and cost performance as “disappointing”, partly due to the decline in marketing mail, with performance now expected to be “significantly below target”.

Royal Mail has slashed its cost saving target for the 2018-2019 financial year by more than £100m, reducing the figure from an expected £230m to £100m.

The group’s adjusted operating profits for the year are now expected to be between £500m-£550m. For the year ended 25 March this figure was £694m.

The news resulted in an immediate sharp fall in Royal Mail’s share price, which plummeted from 491p to 363.36p, and then continued to slide over the week, at one point reaching a 52-week low of 335.3p (high: 632.6p).

The share price crash wiped £1.3bn off the value of the company.

Royal Mail said that addressed UK letter volumes were down 7% in the first half, due to negative impacts including ongoing structural declines, business uncertainty and GDPR, with the same decline predicted for the full year.

The UK parcels business was performing well, and sales were up at continental parcels business GLS although margins were being squeezed due to cost pressures.

Back said the business would implement a range of short-term cost actions and would be assessing “efficiency and productivity opportunities” under the Pay, Pensions and Pipeline Agreement it had previously reached with the Communication Workers Union.

Royal Mail shares were at 343.5p at the time of writing. This week’s prices have been an all-time-low since Royal Mail floated five years ago.

The group will release its half-year results on 15 November.

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