A delivery man walk pass parked royal mail idle delivery vans
The company warned that full-year profits would be lower than expected amid an accelerating decline in letter volumes.
Shares in Royal Mail have sunk to their lowest level since privatization after it warned that annual profits would be lower than expected – knocking more than £1bn off its market value.
The warning was prompted by a bigger-than-expected decline in letter volumes and poor productivity performance, resulting in cost savings targets being missed.
That sent shares in the company plunging by 18% on Monday and saw brokers slash price targets for the stock overnight, resulting in a further fall of 8% on Tuesday.
The declines meant that Royal Mail’s market value had fallen by £1.3bn in less than 24 hours with the share price below 360p.
It has not been as low since the government privatized the company in 2013 at an initial offer price of 330p – before the stock jumped to 475p on the first day of trading.
Royal Mail said it now expected its adjusted operating profit for the year to-be between £500m and £550m, compared with £694m a year earlier.
Chief executive Rico Back said trading conditions in the UK were “challenging” with letter volumes – especially marketing mail – hit by “ongoing structural decline” as well as business uncertainty and new rules on how companies collect and process personal data.
The company said it saw a 7% fall in addressed letter volumes for the first half of the financial year, compared with an expected medium-term rate of decline of 4% to 6%.
Meanwhile, a target for ramping up productivity was partly impacted by a “challenging agenda” on working conditions and new technology following an agreement with unions.
Liberum analyst Gerald Khoo said the profit warning was “shocking in its scale and timing”.