Royal Mail shares were down 4.4% in early morning trading on Wednesday following a reported 11.5% slide in Q1 revenue.
The firm highlighted weakening retail trends, lower test kit volumes and a return to structural decline in letters as reasons for its fall in revenue over the term.
Royal Mail confirmed an adjusted operating loss of £92 million, which it attributed to inflexibility in its cost base to adjusted to lower volumes, alongside disappointing performance on delivery of further efficiencies.
Meanwhile, the company mentioned its Progress on Pathway to Change had stalled, resulting in £100 million in risk to £350 million in benefits identified for FY 2022-2023.
However, the group said its other cost saving programmes remained on track, albeit with some headwinds due to higher staff absences on the back of a resurgence in Covid-19 cases.
Strike Action
The company has also been under the spotlight for widespread industrial action which has disrupted Royal Mail operations as workers advocated for a pay rise across the industry.
Employees represented by the Communication Workers Union (CWU) voted to take industrial action on Tuesday this week, after 97.6% of the 77% member turnout voted in favour a strike ballot.
The company failed to reach an agreement with its workers over Q1, however the firm said it would continue to discuss options with its staff to negotiate salary and employment terms.
“We have made progress building the infrastructure we need for Royal Mail to compete, especially given the growing demand for more larger parcels, delivering the next day – including Sundays – and in a more environmentally friendly way,” said Royal Mail CEO Simon Thompson.
“But building the infrastructure is not enough. We have to transform the way we work too. We need to change – and change now.”
“This is how we can give our team the job security that they deserve for tomorrow and not just for today. I am ready to talk about pay and change at any time. But it has to be both.”
FY 2022-2023
Royal Mail commented its outlook for FY 2022-2023 included a weaker parcels market and lower than expected efficiency savings in-year, and noted it was likely to breakeven at adjusted operating profit level if progress could be made on its disruptive issues in the last financial period.
General Logistics Systems
General Logistics Systems (GLS) announced an 3% decline in volume year-on-year, with a revenue growth of 7.8% linked to better pricing and higher freight revenues.
The group noted some margin compression on the back of inflation and Covid-19 restrictions, in line with management expectations, and confirmed an operating profit broadly in line with last year of £94 million.
GLS maintained its FY 2022-2023 outlook, including a revenue growth in the high-single digits in Euros year-on-year and an operating profit between €370 to €410 million.
“Whilst GLS delivered a solid performance in the first quarter, the performance of Royal Mail was disappointing with an adjusted operating loss of £92 million resulting from of a decline in parcel volumes post the pandemic and a lack of progress in delivering efficiencies,” said Royal Mail chairman Keith Williams.
“The pandemic boom in parcel volumes bolstered by the delivery of test kits and parcels is over. Royal Mail is currently losing one million pounds per day and the efficiency improvements which are needed for long term success have stalled.”
‘We can however be a long-term success story. We have advantages in scale and reach and a strong balance sheet and asset base which are the foundations for a successful future. We need to act now in moving to that future in the interests of all stakeholders, employing those advantages to the maximum.”