The last 12 months have seen the Royal Mail share price halve from the June 2021 peaks of 614p, with the losses accelerating after the company cut its operating profit forecast in January, due to a £70m restructuring charge, when it announced its Q3 numbers.
Royal Mail share price sinks close to year low
Now trading near one-year lows, today’s full-year numbers have seen the share price fall further as the business continues to deal with the challenges thrown up by higher costs and lower volumes in its Royal Mail division.
It shouldn’t be a surprise that since the easing of covid restrictions parcel numbers have fallen, given that lockdown restrictions over the last 12 months haven’t been anywhere near as extensive as they were in 2020. There is also the small matter that Covid-19 test kit numbers have also fallen sharply since the end of free testing. Nonetheless due to the Omicron variant at the end of last year, staff absences did cause some problems, which disrupted service levels and raised costs.
Revenue falls short
Full-year results have seen revenue rise by 0.6% to £12.71bn, falling short of expectations of £13bn, while operating profits fell by 5.6% to £577m, due to higher spending on overtime, and other related staff costs. Royal Mail's revenue declined 1.6% to £8.5bn, largely due to the removal of lockdown restrictions changing consumer behaviour, however this was offset by a 4.4% rise in GLS to £4.2bn, which was driven by a recovery in freight and B2B volumes.
Looking ahead the outlook appears challenging, with the company locked in discussions with its staff over its latest pay round, with the threat of possible strike action. Assuming a successful outcome, current adjusted operating profit consensus for Royal Mail is for £303m, with downside risk.
700 jobs set to go
The company has said it is looking at making cost savings of £350m within Royal Mail, with 700 managerial jobs set to go as part of a reorganisation plan, while it also expects to have to raise prices on stamps as well as parcels in order to cope with higher fuel costs and wage demands.
For the GLS division expectations are for high single-digit revenue growth and operating profit of about £320m. Collectively this would equate to a combined operating profit of £623m for the new fiscal year, albeit with the caveat of downside risk on the Royal Mail side of the business.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
