Royal Mail cuts targets in face of letters decline

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Royal Mail has cut its target for cost savings from £230 million to £100m for the current financial year, saying that a decline in marketing mail had hit its plans to improve productivity.

It said in a trading update that it now expects group adjusted operating profit before transformation costs to be in the range of £500 million to £550 million.

Chief executive Rico Back said: “Trading conditions in the UK are challenging. Our letter volumes, especially marketing mail, are impacted by on-going structural decline, business uncertainty and GDPR. While we now expect addressed letter volume declines outside our forecast range this year, we are maintaining our medium-term guidance. Our UK productivity and cost performance has been disappointing. Against this backdrop, we are lowering our targets for cost avoidance and productivity improvements for 2018-19.

Royal Mail said its UK parcels business is performing well.

“Revenue and volume are up six per cent for H1 2018-19. Revenue and volume growth for 2018-19 is now expected to be better than 2017-18. Our continued focus on customer initiatives is paying off. GLS revenue is up an estimated nine per cent for H1 2018-19. However, labour market and other cost pressures are impacting GLS margins more than anticipated.”

However, it said: “In the UK, letter volumes are being impacted by ongoing structural declines, business uncertainty and GDPR, such that addressed letter volume is down seven per cent in H1 2018-19. We anticipate a similar decline for the full year. Our medium-term outlook for addressed letter volume declines of between four to six per cent per annum (excluding political parties’ election mailings) is unchanged.”

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