21st Nov 2019 09:00
(Alliance News) - Royal Mail PLC on Thursday reported a significant rise in interim profit, but warned its transformation is off track.
The shares were down 16% on Thursday morning in London at 194.69 pence apiece, easily the worst FTSE 250 performer.
The mail and parcel operator's pretax profit for the six months to September 29 multiplied to GBP173 million from GBP33 million, though the adjusted figure was down 20% to GBP146 million.
Revenue climbed by 5.2% to GBP5.17 billion.
The firm said revenue growth came from higher parcel revenue in the General Logistics Systems and UK Parcels, International & Letter segments, more than offsetting a decline in revenue from letters.
Profitability improved due to the revenue growth as well as the non-repeat of over GBP120 million of impairments and pension insurance costs, though Royal Mail did book a GBP51 million charge for breaking competition law.
Royal Mail has cut the interim dividend to 7.5 pence from 8.0p, which is said was in line with a new dividend policy outlined in May.
Looking segmentally, UKPIL delivered revenue growth of 1.8%, Royal Mail's best performance in the division in half a decade, while GLS revenue was helped by acquisitions, growing 14%.
Within UKPIL, a 5.6% rise in revenue from parcels helped offset a 1.4% decline in letter revenue.
"Our profitability performance is in line with our expectations for the half year, despite considerable UK economic and political uncertainty," said Chief Executive Rico Back.
However, Back warned the outlook for the letters business in the UK remains challenging, due to lower-than-expected UK economic growth and business uncertainty. For its current financial year, Royal Mail sees a 7% to 9% fall in addressed letter volumes, excluding the upcoming UK general election, which brings a surge of political mailings. Next year, volumes could fall between 6% to 8%.
"Our transformation is behind schedule. We are investing more because of the industrial relations environment, the general election and Christmas, to underpin our quality of service at this key time," the CEO warned.
"This is likely to impact our productivity for the remainder of the year. When combined, revenue and cost headwinds could possibly result in a break-even or loss-making position for the UK business in 2020-2021. We maintain the ambitions associated with our Journey 2024 plan as set out in our full year results in May."
Back said Royal Mail "has to adapt" as people now post fewer letters but receive more parcels.
By George Collard; [email protected]
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