A bigger than expected fall in letter volumes and less junk mail has hit Royal Mail, prompting a sharp drop in the group’s share price on Tuesday.
The UK postal operator reported an 8 per cent decline in letter volumes in the nine months to December 23, excluding political parties’ election mailings.
A “busy” Christmas, with a 10 per cent increase in festive parcel deliveries, failed to offset the impact of the slowdown.
“The continuing collapse in letter volumes is the big news in these numbers,” said Nicholas Hyett, an equity analyst at Hargreaves Lansdown.
“Royal Mail’s gone out of its way to say that’s down to wider uncertainty, and the introduction of new privacy laws under GDPR, rather than an uptick in companies using email rather than paper. Whatever the cause, we suspect those mailings are gone for good.”
Royal Mail said its outlook and guidance for 2018-2019 were “unchanged”. Price increases in business mail, which come into effect this month, are expected to have a “net positive impact” on letter revenue.
However the postal service trimmed its expectations for adjusted group operating profit before transformation costs to £500m-£530m for 2018-19. In an October profit warning it had predicted core profits of £500m-£550m — more than a fifth lower than a year earlier because of missed productivity and cost-saving targets.
Royal Mail’s share price dropped 13 per cent on Tuesday in London, having shed as much as 18 per cent in early trading. The stock has fallen about 36 per cent in the past 12 months.
The company said its cost-cutting programme would save £100m in 2018-19 — from savings in property, technology and central functions, and modernisation of its Heathrow distribution centre.
“In the UK, our parcels business continued to perform well, with volumes and revenue in the nine months both up 6 per cent, said chief executive Rico Back.
“Addressed letter volumes, excluding the impact of elections, were down 8 per cent, with total letter revenue down 6 per cent, largely reflecting the continuing impact of [EU data protection regulation] and a relatively strong prior year comparative period.”
EU privacy rules have reduced the amount of lucrative junk mail for Royal Mail.
In November, the company angered shareholders after it wrote down 85 per cent of the value of two recently acquired US parcel delivery businesses, adding to doubts about its international expansion.
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