https://seekingalpha.com/article/417773 ... time-money
More than one third drop in annual profit and a gloomy forecast.
YoY revenue growth only 2%.
YoY UKPIL revenue remained flat; GLS grew by 10%, dampened by decline in letters’ revenue.
Strongbalance sheet and a consistent dividend policy matched against a dwindlingcorrespondence market and fiercely competitive parcels market.
Age old correspondence methods are changing and so are conventions. And Royal Mail Plc (OTCPK:ROYMF) may not seem royal any more, as shrinking margins in the paper correspondence industry have pushed the company to revamp its business model. It is stressing more on parcels’ delivery with the boom of the e-commerce industry. With more than one third drop in annual profit and a gloomy forecast Royal Mail is all set to disappoint you.
Though the business got into the £10 billion revenue bracket for the first time, YoY revenue growth was only 2%. We may let go of the letters’ revenue but the other divisions also did not fare that well. The company operates through two core divisions: UK Parcels, International and Letters (UKPIL), and its European subsidiary General Logistics Systems (GLS). UKPIL in the UK collects and delivers parcels and letters through the Royal Mail Core Network and Parcelforce. GLS operates in continental Europe and the Republic of Ireland and has a large parcel delivery network in Europe. While YoY UKPIL revenue remained flat GLS grew by 10%, and contributed to almost 30% of overall profit. But that was quickly dampened by the decline in letters’ revenue owing to the new GDPR. Overall adjusted profit grew 1% only. While GLS is good and letters is drowning UKPIL remains at a tight position with shrinking revenues. The company has been successful in avoiding costs above target and continues to do so. Along with that there are strategic innovations in automation and AI that are being taken up to reduce costs and increase efficiency going forward.
The GLS is the best business Royal Mail has got as of now, seeing a YoY volume growth of 9%. GLS operates the second largest national express parcel network, thanks to the acquisitions of ASM and Redyser. The U.K. parcels’ market is very competitive with excess capacity which is putting pressure on prices. Though the company says they have been taking measures to expand margins, results show otherwise. The company expects UKPIL parcel volume and revenues will remain the same in the coming fiscal. And I bet that is not much. 20% of parcel revenues are coming through the international channel. It’s again a very competitive market with higher average unit rates. Royal Mail anticipates increasing capacity but it should depend on margins growth and exchange rate movements on trade flows.