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Royal Mail shares hit record low after profit forecast trimmed

Royal Mail shares hit record low after profit forecast trimmed
FILE PHOTO: A Royal Mail postal worker stands in the yard of a sorting office in Altrincham, Britain October 12, 2017. REUTERS/Phil Noble/File Photo   -   Copyright  Phil Noble(Reuters)
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By Arathy S Nair and Shashwat Awasthi

(Reuters) – Royal Mail Plc reined in its full-year profit forecast on Tuesday and spoke of a larger than expected decline in letter volumes, sending its shares down as much as 18 percent to a record low.

Hit by reduced letter volumes as more people switch to email, Royal Mail has been reviewing its operations and testing methods including automation, to deliver post and parcels as its attempts to cut costs have been slower than expected.

“While the rate of e-substitution remains in line with our expectations, business uncertainty is impacting letter volumes,” said Chief Executive Officer Rico Back, who took the top job last year.

The company also said it would focus on protecting margins in its General Logistics Systems (GLS) business, and warned of slowing GLS volume growth next year as a result.

GLS, formerly run by CEO Back, is a ground-based parcel network which operates in 41 countries and nation-states in Europe as well as eight states in the U.S. and in Canada. It accounts for a fourth of the company’s revenue.

The former British postal monopoly said it expected adjusted operating profit before transformation costs to range between 500 and 530 million pounds for the year ending March 31, below its previous forecast of 500-550 million pounds.

That represents a big fall on its adjusted operating profit before costs of 694 million pounds ($914 million) a year ago.

Royal Mail shares traded 7 percent lower at 278.8 pence at 0855 GMT, after hitting an all-time low of 246.6 pence in early deals. This was well below the 330 pence price at which they were floated more than five years ago.

The company, which was recently downgraded from the blue-chip index to the mid-caps, said the decline in addressed letter volumes, excluding political parties’ election mailings, would likely be wider than its forecast range of 4-6 percent in 2019-20.

It expects addressed letter volumes to fall 7-8 percent for the current year and said the volumes were likely to be outside its forecast medium-term range next year.

The company’s update prompted Liberum analysts to say they expect downward pressure on consensus for 2019-2020 due to the cautious guidance on UK letter volumes and GLS growth.

However, the parcels business in the UK performed well over Christmas, with the number of parcels handled in the December trading period up 10 percent to 164 million.

(Reporting by Shashwat Awasthi and Arathy S Nair in Bengaluru; Editing by Gopakumar Warrier and Keith Weir)

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