Royal Mail saw its share prices tumble by 18 percent at the start of this week. The falling shares were the direct result of a warning on profits within an unscheduled trading update.
Reduced Cost Savings in 2018
Royal Mail said recently announced that its cost savings for 2018 would be only £100 million instead of the previously predicted £230 million. During the first half of the year, addressed letter volume dropped by 7 percent. Moreover, productivity performance had been “significantly below plan.”
As a result, ahead of transformation costs, adjusted operating profit would be somewhere between £500 million and £550 million. This is considerably lower than last year’s posted £694 million.
Stumbling Royal Mail Shares
Following the trading update, shares immediately fell by 85.7p to 391.4p ahead of the London market closing.
Rico Back, Royal Mail chief executive, said that there were “challenging” trading conditions in the United Kingdom. The number of letters posted were affected by “ongoing structural decline, business uncertainty and GDPR,” said Back. This was especially true when it came to marketing mail.
A Difficult Year for the Mail
Back in June, the letter and parcel delivery service said there was a degree of uncertainty among its customers. This was regarding the General Data Protection Regulation (GDPR). The GDPR places new requirements on the way in which companies can collect and process E.U. citizen personal information. It became effective as of May 25.
Royal Mail said it had experienced disappointing productivity growth in the United Kingdom. It grew by only 0.1 percent. This is considerably lower than its target of 2 percent to 3 percent. The poor growth occurred despite the fact that there haven’t been any worker strikes throughout the half-year leading up to 23 September.
After a Strong First Half
Parcel business performed well during the first half, said Back. Revenue and volume were up by 6 percent during those months.
“We remain focused on delivering parcel revenue growth and pursuing our strategy of targeted and focused acquisitions, through GLS, in growing markets,” said Back. GLS is among the biggest parcel delivery businesses in Europe, serving 41 countries in addition to Canada and eight states in the Western U.S.
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