6th Feb 2020 08:20
(Alliance News) - Royal Mail PLC retained its profit forecast for the current financial year after a "busy" Christmas period though said it will miss its productivity target, and warned its core UKPIL business could be loss making in the up-coming 2021 financial year.
The stock was sat at the bottom of the FTSE 250 on Thursday, down 9.7% at 170.93 pence.
Revenue was up 3.7% for the nine months to December 29, and 4.5% higher when working day-adjusted.
In Royal Mail's UK parcels, international & letters unit, UKPIL, revenue was up 1.0%, led by parcels which saw revenue growth of 3.7% and volume growth of 3.0%. Letter volumes, meanwhile, sank 9% - excluding election-related material - and revenue fell 1.5%.
GLS - General Logistics Systems - volumes were up 5%, and revenue up 11%. Royal Mail said the unit continued to performer well, with Dicom, its Canadian business, performing in line with expectations.
The turnaround of GLS's US unit remains in line with plans, and in Europe revenue growth was driven by Germany, Belgium and eastern Europe.
For the current financial year, Royal Mail said it expects productivity improvement of 1.5%, against its 2% target. All other guidance, including an adjusted operating profit between GBP300 million to GBP340 million, was confirmed.
Looking even further out, things appear "challenging". The third-quarter run rate for addressed letter volumes "has not shown the expected level of recovery", the postal operator said.
"This, coupled with the ongoing uncertain business environment, means that we now expect a 1 percentage point increase in the decline, to 7-9% for 2020-21," said Royal Mail.
Further, the "ongoing industrial relations environment" and economic uncertainty "increases the likelihood" that UKPIL will be loss-making in the upcoming 2021 financial year.
On strike action, Royal Mail said it was "disappointed" the Communication Workers Union has said it is preparing another ballot of its members for industrial action.
GLS, however, is expected to perform "in line with our plan" in financial 2021.
The FTSE 250 constituent warned: "Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year 3 targets of our Journey 2024 plan will be compromised."
By Lucy Heming; [email protected]
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