Royal Mail PLC (LON:RMG) said it is going to deploy automated parcel sorting hubs as worker productivity declined over the crucial Christmas period and as trade unions plan further strike action.
Revenue at its UK Parcels, International & Letters business (UKPIL) for the nine months to end-December rose 1.0% on the prior year, or 2.1% if adjusted for different numbers of working days.
READ: Royal Mail dividend under threat again, warns Berenberg
Parcel revenue growth of 3.7% more than offset a 1.5% decline in letters. GLS, the overseas parcels business, grew revenue 11.1%.
Chief executive Rico Back said the recent trading performance was “broadly in line with our expectations” and confirmed adjusted group operating profit is expected to be £300-340mln for the full year.
However, he said the outlook for 2020-21 “is challenging” and with no recovery in letter volumes and the lingering business uncertainty led the board to downgrade its expected volume decline for the coming year to 7-9% from 6-8% and “increased the likelihood” that UKPIL will be loss-making.
Industrial inaction
With the Communication Workers Union (CWU) balloting its members for industrial action after Royal Mail successfully had a pre-Christmas strike blocked in the courts, Back seemed to have had enough, with £1.8bn of potential investment burning a hole in his pocket and suggestions that some parcels customers switched some volumes to competitors due to the perceived strike risk.
“We want to reach agreement with CWU; but we cannot afford to delay this essential transformation any longer.
“So we are proceeding with key national trials and local initiatives, to improve our customer offering and grow the business, whilst maintaining good quality jobs and delivering a sustainable Universal Service,” he said.
This includes choosing the supplier for automation of the Warrington parcel hub to handle 40,000 items per hour, finalising the lease for a second fully automated parcel hub in the Midlands and exploring options for a third and final hub, further rolling out small parcel sorting machines, decommissioning letter sequencing machines, and deploying “a range of much needed local change initiatives and key trials, which have been held up for many months”.
A different view of our fully-automated parcels hub in Warrington which, once operational, will be the size of 4.5 football pitches!https://t.co/l7yKsan2B8 pic.twitter.com/F9KMBX3LjM
— Royal Mail (@RoyalMail) July 9, 2019
On the outlook, the company said unless it is able to make significant progress in delivering the transformation plan, “our ability to meet the year 3 targets of our Journey 2024 plan will be compromised” and so “additional mitigating actions” are being taken, with further details to be announced alongside full-year results in May.
Shares keep falling
RMG shares fell to a new all-time low on Thursday morning, falling 7% to 175.93p.
Analysts at broker Liberum said while the results were in line with management expectations “there appears to have been some slowdown in most growth rates at the 9-month stage” relative to the first-half performance.
“While current FY profit guidance has been maintained, we see significant risks to outer years,” the analysts said, keeping their 'sell' recommendation.
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