Royal Mail to review UK network

By Jo Francis, Thursday 15 November 2018

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Royal Mail has posted a big drop in profitability after what was described as a “challenging” first half of the year.

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Royal Mail: letter volumes continue to decline

Following last month’s shock profits warning, the group’s results for the 26 weeks to 23 September showed a sales increase of 1%, to £4.93bn.

Adjusted operating profit before transformation costs was down 25% at £242m primarily due to lower UK sales and “poor productivity performance” that was significantly below plan, meaning cost saving targets were missed. Adjusted pre-tax profit fell 27% to £183m.

Sales at the UKPIL business were down 1% to £3.59bn, and adjusted operating profit fell from £233m to £165m. Addressed letter volumes reduced by 7%, while total letter revenues including marketing mail were also down 7%.

Marketing mail revenues fell 5% to £496m. 

The UK parcels business performed “well” with both sales and volumes increasing by 6%, and Royal Mail expects to benefit from growth in the booming subscription e-commerce market.

Chief executive Rico Back, who took over at the beginning of June, said the group was taking actions to address the performance issues, including a UK Network Review. “For clarity, we have got the best network in the UK. This is about getting the best from it. It is not about building a new network,” Back stated.

The business is recruiting 23,000 temporary staff to handle the Christmas workload, and will operate six temporary parcel sorting centres. 

Sales at continental and US parcels wing GLS were up 9%, and adjusted operating profit fell from £90m to £77m. Royal Mail said that expected synergies at US acquisitions GSO and Postal Express “were taking longer to be realised” than envisaged, and it was making a £68m non-cash impairment charge as a result.

The group’s shares descended to a new five-year low of 318p in early trading after the results announcement, and were down 21.9p at 326.1p at the time of writing.

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