A sharp drop in volumes of addressed letters has seen revenue at Royal Mail’s UK parcels, international and letters (UKPIL) business decline in a nine-month trading update.
In its trading update on the nine months to 23 December 2018, Royal Mail recorded a 2% increase in overall revenue, which includes UKPIL and the general logistic systems (GLS) sides of the business.
GLS enjoyed a volume boost of 5% in the period, resulting in an 8% uptick in revenue. UKPIL revenue declined by 1% with 6% growth in parcel volumes and revenue dragged down by an 8% fall in addressed letter volumes and a 6% drop in letters revenue.
Describing performance as “broadly in line” with expectations, Royal Mail affirmed that it expected to turn an operating profit of £500m-£530m for the full 2018-19 financial year.
Group chief executive Rico Back said: “Addressed letter volumes, excluding the impact of elections, were down 8%, with total letter revenue down 6%, largely reflecting the continuing impact of GDPR and a relatively strong prior year comparative period.
“Due to our letters performance to date, we expect addressed letter volume declines, excluding elections, to be in the range of 7%-8% for 2018-19. While the rate of e-substitution remains in line with our expectations, business uncertainty is impacting letter volumes.
“As a result, addressed letter volume declines, excluding elections, are likely to be outside our forecast medium-term range next year. Otherwise, we are reconfirming the outlook and other guidance for 2018-19 provided in our half-year results.”
With price increases for business mail customers coming into effect this month, it is expected that letter revenue will enjoy a net positive revenue over the new year.
Royal Mail confirmed that it was “planning for all the main eventualities” of Brexit, which remains set to take place on 29 March. Considering immediate risk to domestic operations “low” and regarding the “unclear” shape of the UK and EU’s future relationship, the PLC deemed it “not appropriate” to lay out the potential impacts of Brexit in its report.
Key issues identified that could hit Royal Mail include potential economic downturn and changes associated with customs and VAT processing, according to the update.
In its H1 results, 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.
Full year results up to 31 March 2019 are expected to be published on Wednesday, 22 May.
As a result of yesterday's trading update, shares in Royal Mail slumped to £2.54, their lowest level since the company was floated in 2013. Shares rallied slightly today, rising to £2.63 at the time of writing.