Royal Mail shares plunge over 17%

Royal Mail (LON:RMG) released a trading update for the nine months to 23 December 2018 on Tuesday. Its recent trading performance remains “broadly” in line with its expectations. However, it has downgraded its letter volume guidance. Shares in the company slid by almost 10% on the back of the announcement.

Group revenue increased by 2%.

The group is now expected to deliver an adjusted group operating profit before transformation costs of £500-£530 million for the 2018-2019 year.

Over the period, Royal Mail revealed a 25% drop in its first-half profits. This is following the announcement of a profit warning in October, whereby shares crashed 18%. It also purchased the Canadian parcel delivery firm, Dicom Canada.

Royal Mail has downgraded its letter volume guidance, however, blaming the new GDPR and business uncertainty.

Group Chief Executive Officer of Royal Mail, Rico Back commented on the announcement:

“We have had a busy Christmas season. In the UK we recruited 23,000 seasonal workers and opened six temporary parcel sorting centres to make sure we had the capacity to handle the high volumes of parcels and cards through our network. In the December trading period alone we handled 164m parcels, up 10% compared with last year. Our people delivered a great Christmas. I thank them for all their efforts.”

“Overall, our recent trading performance was broadly in line with our expectations. We now confirm that we expect to deliver adjusted Group operating profit before transformation costs of £500-530m for 2018-19.”

“In the UK, our parcels business continued to perform well, with volumes and revenue in the nine months both up 6%. Addressed letter volumes, excluding the impact of elections, were down 8%, with total letter revenue down 6%, largely reflecting the continuing impact of GDPR and a relatively strong prior year comparative period.”

“GLS delivered another good performance with revenue up 13% including acquisitions. Whilst GLS continues to see cost pressures, we confirm that we are targeting adjusted operating profit margins of over 6% for the full year. We will continue to focus on margin protection and as a result we expect to see a slowing in the rate of GLS volume growth next year.”

“Due to our letters performance to date, we expect addressed letter volume declines, excluding elections, to be in the range of 7-8% for 2018-19. While the rate of e-substitution remains in line with our expectations, business uncertainty is impacting letter volumes. As a result, addressed letter volume declines, excluding elections, are likely to be outside our forecast medium-term range next year. Otherwise, we are reconfirming the outlook and other guidance for 2018-19 provided in our half year results.”

At 08:38 GMT today, shares in Royal Mail plc (LON:RMG) were trading at -9.64%.