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Royal Mail warns over worsening decline in letter mailings

29 Jan 2019, 17:06

https://www.thecourier.co.uk/business/b ... -mailings/

Royal Mail has delivered yet more gloom over full-year profits and warned of a worse-than-expected fall in addressed letter mailings, as business uncertainty takes its toll.

The group, which sent shares plummeting last October after alerting over profits, said addressed letter mailings tumbled 8% over the nine months to December 23 despite its busy Christmas period.

The stock dived another 10% after it said letter volumes are set to fall by 7% to 8% over the full year and will be worse than forecast for 2019-20, with Brexit impacting business confidence adding to the ongoing trend for “e-substitution”.

The group also trimmed the top end of its forecasts for annual earnings to between £500 million and £530 million against the previous forecast of £500 million to £550 million.

This marks a hefty fall on the £694 million reported last year.

Shares fell as much as 20% last October when Royal Mail first revealed the extent of the expected profits fall.

In its nine-month trading update, Royal Mail reported an overall 2% rise in underlying revenues as an 8% rise in sales at its General Logistics Systems (GLS) division offset a 1% fall in its UK parcels and letters arm.

Rico Back, group chief executive of Royal Mail, said: “Due to our letters performance to date, we expect addressed letter volume declines, excluding elections, to be in the range of 7% to 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.”

The continuing collapse in letter volumes is the big news in these numbers ... Whatever the cause, we suspect those mailings are gone for good
Nicholas Hyett, Hargreaves Lansdown

But otherwise he said the group enjoyed a “busy Christmas season”, handling 164 million parcels in December alone, up 10% compared with last year.

The group said letter revenues dropped 6% in the first nine months of its year so far, with both sales and mailing volumes also hit by the recent introduction of General Data Protection Regulation (GDPR).

But it hopes to see a boost to letter turnover thanks to recent price increases in business mail, which came into effect this month.

Parcel revenues rose 6% on an underlying basis, with its domestic account parcel volumes, excluding Amazon, up 8%.

On Brexit, Royal Mail said the immediate risk to its domestic operations is “low” and that it is “not appropriate” to set out the impact of various scenarios on the wider group while the nature of the UK’s withdrawal is still unclear.

“As previously outlined, the main issues for the group are expected to relate to any potential economic downturn and changes associated with customs and VAT processing,” the group said.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “The continuing collapse in letter volumes is the big news in these numbers.

“Royal Mail’s gone out of its way to say that’s down to wider uncertainty, and the introduction of new privacy laws under GDPR, rather an uptick in companies using email rather than paper. Whatever the cause, we suspect those mailings are gone for good.”

Royal Mail was recently ejected from the FTSE 100, less than a year after clawing its way back into the blue chip index.

It capped a tumultuous year for the group after its recent profit warning added to a shareholder revolt and the resignation of its chairman.


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