Royal Mail's (RMG) transformation from letters to parcels is behind schedule, the company confirmed on Thursday, which will slam the brakes on productivity and possibly push the UK letter business into a loss for the next financial year.

Shareholders must feel that their Christmas has been cancelled, sparking significant selling that left the stock nearly 17% lower at 192.4p. The shares were floated at 330p back in 2013.

‘Royal Mail is blaming the unions, the election and even Santa for having to invest more money because its transformation is behind schedule, but it doesn’t appear to be blaming itself’, said Russ Mould today, the investment director at investment platform AJ Bell.

BEHIND SCHEDULE

The company said that it was investing more because of the ‘industrial relations environment’ and the upcoming election.

While it is understandable that extra costs have been incurred to ensure that polling cards and Christmas cards are delivered on time, it is surprising that these events have had such an unexpected impact.

In the middle of a fight with unions, one might be forgiven for seeing the gloomier outlook painted by the company as part of the ‘negotiations’, but for the fact that expectations for the decline in letter volumes has been downgraded to a range of 6% to 8% from 4% to 6% in May demonstrates the challenges that lie ahead.

Management recently won a court injunction to prevent industrial action by the Communication Workers Union (CWU) over the key festive season.

Despite these setbacks management is sticking with its ‘Journey 2024’ targets of revenues of £12bn and operating margins of at least 5%.

HALF YEAR FINANCIALS

For the six months to 29 September 2019 revenues were 5.1% higher at £5.2bn leading to adjusted pre-tax profit of £146m (£183m). UK letters delivered a 1.8% improvement in revenues to £3.6bn, while the international parcels business saw a 14.1% increase to £1.5bn.

Solid cash flow facilitated the payment of an interim dividend of 7.5p in line with the new dividend policy to deliver an annual payment of at least 15p for the full year.

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Issue Date: 21 Nov 2019