RM expecting 'significant' loss of revenue from strikes

[TrueBlueTerrier]

Royal Mail expecting “significant” loss of revenue from nationwide strike

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Royal Mail said on Friday that trading has been slightly ahead of expectations in the first quarter of the year, but the company said nationwide strike action is set to cause “significant” loss of revenue from the second half of October.

The state-owned company, now just days from beginning its IPO on the London Stock Exchange, said on Friday that it generated a £2.3bn revenue in the three months up to the end of June 2013, up 6.3% on the the same period last year.

Earnings before tax and transformation costs were £258m, up 50% on the same period last year.

Operating profit after transformation costs were taken into account was £164m, the company said, up 156% on the same period last year.

The quarter had two additional working days on Q1 last year, but the results show the impact of the ongoing modernisation and cost-cutting within the company ahead of its expected privatisation. The Group’s growth is running ahead of the 5% year-on-year revenue growth seen for the whole of the last year (2013 financial year).

Over the past three years, the group’s Transformation Programme has delivered year-on-year productivity improvements of 4.4%, 3.2% and 1.7% respectively in financial years 2011, 2012 and 2013.

Q1


Royal Mail’s prospectus makes for nervous reading for some of its largest UK parcels customers
In the first quarter, Royal Mail’s core UK Parcels, International and Letters (UKPIL) business within Royal Mail saw its revenues up 5.56% to £1.9bn, with operating profit after transformation costs more than tripling to £123m. The profit margin within the UKPIL division more than doubled from 2% to 4.4% from last year’s to this year’s first quarter.

The growth in the UKPIL division came despite an ongoing year-on-year 8% decline in addressed letters volumes. The Royal Mail prospectus states that business letters – including statements, bills and invoices – still represent “substantial” business, amounting to £2.3bn in the 2013 financial year.

The Group’s European parcels business GLS saw its revenue up 10.4% to £402m for the quarter, while operating profit after transformation costs rose 19% to £31m, with profit margin rising by six tenths of a point to 7.7%.

The latest unaudited results from Royal Mail were contained within the company’s prospectus for potential investors, as the government prepares for an IPO around 11th October.

Royal Mail said typically its performance slows down in the second quarter of the fiscal year over summer, and this year the good summer weather has caused a temporary slowdown in UK online shopping volumes, but the third quarter of the year should see stronger parcel volumes since the company said it is “well positioned” to benefit from Christmas shopping.

Overall, the company said it believes its parcel volumes will be broadly similar in its 2014 fiscal year to those seen the year before, but following price rises the company expects parcel revenue to be “substantially” ahead of last year’s levels.

Industrial action

“National industrial action affecting UKPIL would… result in an immediate and significant loss of revenue for the Group”
However, as stated within the Royal Mail prospectus, the issue of industrial action looms large over the company’s business in the run-up to Christmas.

After three years of stable relations within the unions, Royal Mail is now facing the prospect of nationwide strike action as the Communication Workers Union campaigns against privatisation.

The union opened a strike ballot on Friday, and Royal Mail said in its prospectus that it is fully expecting the CWU’s 115,000 members in the company to vote in favour of strike action.

The company said potential investors should assume nationwide strike action will happen across the UKPIL business during and immediately after the IPO.

“National industrial action affecting UKPIL would cause material disruption to the Group’s business in the UK and would result in an immediate and significant loss of revenue for the Group,” the company warned.

“National industrial action, or the threat of such industrial action, during, or after, the Offer Period, is likely to materially adversely affect the operations, financial condition, results of operations, reputation and prospects of the Group.”

The impact on the UK parcels market from industrial action in the run-up to Christmas could be particularly challenging. Royal Mail states that it believes there are already capacity limitations in the UK parcel market, estimating that in the road to Christmas 2013, the available excess capacity in the entire parcel market will be only between 6m and 9m items per month. Royal Mail’s UKPIL division handles about 1bn parcels a year, while its Parcelforce Worldwide express parcels unit handles about 71m a year.

Royal Mail’s larger parcels customers could be particularly impacted by a shortage of capacity in the parcels market if strike action occurs. The company states that its largest parcel customer – likely to be Amazon – accounted for 6% of its total revenue. Royal Mail’s top 100 customers accounted for 16% of its domestic parcel revenue.

The warning about the impact of strike action came as Royal Mail laid out the potential risks of investing in the IPO, and was detailing the worst case scenario.

The company said strike action could potentially cause the value of its shares to fall “significantly”.

The UK government, which believes it will raise about £1.33bn in seeking between 40.1% and 52.2% of the company at between 260p and 330p per share, is intending to give 10% of shares free-of-charge to employees to get them on side.

[DirtyHarry]

Should treat their staff with respect then.

[Jynxx]

I honestly believe RM is another facebook, they'll sell the shares value will plummet and the fingers will point at the union as the cause and not Moya cooking the books past few years....just me being cynical? I've thought this from the start it's almost as if RM is baiting us to go on strike....oh well still voted ;D

[biscuit1957]

What an opportunity for the union to tell the world, that already, Royal Mail PLC has started to lose money because the non elected government of lib cons has sold the public and the postal workers down the river

[UnhappyGremlin]

The company said strike action could potentially cause the value of its shares to fall “significantly”.

Hardly likely to discourage us, announcing this.

[k979aaa]

I honestly believe RM is another facebook, they'll sell the shares value will plummet and the fingers will point at the union as the cause and not Moya cooking the books past few years....just me being cynical? I've thought this from the start it's almost as if RM is baiting us to go on strike....oh well still voted ;D

For YES hopefully but we all have been shafted by royalmail and Moya shares are a bribe most of royal mail is not a business but a company with a big real estate worth far more than the sale price. I question the business model as unsustainable as it presently stands are they hoping to cut your wages in the long term.

[lala]

Why do we need all this private money if we are making all that profit?

[UnhappyGremlin]

Why do we need all this private money if we are making all that profit?

Which is exactly the point.
We still haven't been told the real reason for the sale.

[Sidley]

To get their hands on the pension assets of about £30bn and £3bn from the sale?
Tory ideology?
It's not really that profitable and only the inclusion of profits from the sale of RM properties in the bottom line makes it look attractive to investors?

[k979aaa]

To get their hands on the pension assets of about £30bn and £3bn from the sale?
Tory ideology?
It's not really that profitable and only the inclusion of profits from the sale of RM properties in the bottom line makes it look attractive to investors?

Pension assets went 1.5 years ago all 28 billion pounds of it but still 1.5 billion in real estate and the business it's a going concern basically a problem to sell on land grabbing bastards!.

[Chelseablue]

Cameron and that weak lookin twat Osborne need new bentleys etc

[Brain Fury]

Why do we need all this private money if we are making all that profit?

Because a business cannot simply assume that it will continue to make a sufficient level of profit to fund an investment strategy. It needs other sources of funds to smooth out the ups and downs of profitability. Of course you can debate what the sources could and should be but profit alone is not workable for most businesses.

[Brain Fury]

I can't believe anybody really thinks that reduced profitability and thus a falling share price is good for anybody (except our competitors) and particularly anybody working for the business.

[clashcityrocker]

I can't believe anyone really thinks that having an unhappy and consequently strike prone workforce is a sustainable way to run a business.

[Brain Fury]

I can't believe anyone really thinks that having an unhappy and consequently strike prone workforce is a sustainable way to run a business.

Neither can I but it doesn't change the point that nobody should be rubbing their hands at a reduced profit and a falling share price.