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Royal Mail warns of ‘significant uncertainty’ as coronavirus hits UK post and key Italian parcel market

The post carrier's international GLS business has been hit hard by lockdowns imposed in Italy, France and Spain to try and contain the pandemic

Royal Mail PLC - Royal Mail warns of ‘significant uncertainty’ as coronavirus hits UK post and key Italian parcel market

Royal Mail PLC (LON:RMG) has warned that it faces “significant uncertainty” going forward as the coronavirus outbreak weighed heavily on its UK and Italian markets.

In an update on Friday, the letter and parcel carrier said it expected its UK post business (UKPIL) to be “materially loss making” for its 2020-21 financial year due to the pandemic as marketing campaigns, particularly from the travel sector, were cancelled.

READ: Royal Mail workers offer to be “emergency service” during coronavirus lockdown

The firm also said the recent restrictions on movement during the UK ‘s lockdown will “have a negative impact on unsorted and stamped mail”, although it could not quantify the impact at this stage.

One silver lining was the company’s UK parcels business, which it said had seen “strong” consumer volumes over the last two weeks as more people shopped online while being confined at home.

Meanwhile, the group said its international parcel delivery business, GLS, had encountered “very challenging” trading conditions as the virus disrupted its key markets in Italy, France and Spain.

The company said business-to-business (B2B) volumes in the division had “fallen significantly in the last two weeks and it expected the decline to continue.

As a result of the uncertain outlook and its plans to preserve cash, Royal Mail shelved its final dividend and said the outbreak will mean the targets for its Journey 2024 transformation plan for the UKPIL business will “now take longer to achieve”.

The firm also suspended its guidance for 2020-21 and beyond.

"We are focused on protecting our people, company and the communities we serve during this unprecedented crisis. We are putting the health and wellbeing of colleagues and customers first. At the same time, we are delivering the parcels and letters that are a lifeline for those who cannot leave their homes”, said Royal Mail chief executive Rico Back.

However, Back added that the firm was “entering a period of significant uncertainty in a good financial position”, with the company saying it has over £800mln in cash plus a £925mln revolving credit facility.

“We have substantial levels of liquidity and low levels of debt. We are taking immediate steps to further reduce our costs and protect our cash flow", the CEO said.

Broker predicts rise in staff absences during outbreak

In a note, analysts at Liberum, which rate Royal Mail at ‘sell’ with a 120p price target, said while the company will remain operation during the outbreak as an essential service, “staff absence is likely to continue to rise and could adversely impact on operational performance”.

“We were bearish on Royal Mail before the current crisis, seeing it as highly improbable that management could hit its 2024 targets on schedule without active co-operation from staff and trade unions, which was not forthcoming.”

“Even before the crisis we had already forecast the suspension of dividends, to preserve cash for future restructuring and to demonstrate that shareholders were sharing the pain with staff being asked to endure yet more change and upheaval. We had also forecast the group would not hit its 2024 targets. The significant and uncertain impact of the [coronavirus] outbreak has now made the achievement of these targets impossible”, the broker concluded.

The shares sank 8.9% to 147.6p in early trading.

Quick facts: Royal Mail PLC

Price: 178.85 GBX

LSE:RMG
Market: LSE
Market Cap: £1.79 billion
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