Royal Mail in profits slump
ROYAL Mail shares hit a record low yesterday as it delivered a sharp fall in half-year profits after falling short on productivity and cost-saving targets.
The FTSE 100 company, which floated at 330p in 2013, closed down 22½p to 325½p. An increase in parcel volumes owing to more online shopping failed to offset a continuing slide in letters, with new data protection laws making companies more wary of sending out junk mail.
It had shocked investors last month by warning profits would be lower than expected as cost pressures increase and it struggles to deliver productivity gains after a long dispute with the Communications Workers Union over issues including pensions and pay. Pre-tax profit more than halved from £77million to £33million on 1 per cent higher revenue of £4.93billion.
Revenue at its UK parcels and letters business fell 1 per cent to £3.58billion, with parcel volumes and revenue up 6 per cent while addressed letter volumes dropped 7 per cent. Revenue at its international arm GLS was up 9 per cent.
CEO Rico Back said: “It was very disappointing, four months into my new role, to have to announce last month our poor UK productivity and cost performance. The past few months have been challenging. We have put in place a range of actions to improve our performance.
“There will be greater emphasis on how we connect customers, companies and countries through our domestic and international businesses. There will be a clearer focus on financial performance and management accountability.”
He pledged to share more details about its strategy for the next five years with investors at meetings next March.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Royal Mail’s profit warning last month flagged falling letter volumes and rising labour costs in the international business, but it’s the struggle to deliver cost savings in the UK business that’s the real problem.
“The new agreement with employees, reached earlier this year, avoided industrial action, but it’s proving difficult to deliver the improved working conditions and cost savings at the same time.
“An organisational restructure looks like it’s on the cards as the group tries to get back on track. While we’ll have to wait to get the details, that kind of thing is expensive and risky.”