Over the past 12 months, Royal Mail’s share price has halved from June 2021 highs of 614p, with losses accelerating after the company cut its operating profit forecast in January, due to a £70 million restructuring charge, when it announced its third quarter figures.
Today’s full-year figures saw the share price fall further as the business continues to grapple with the challenges posed by rising costs and falling volumes at its Royal Mail division.
It should come as no surprise that since the easing of covid restrictions, the number of packages has fallen given that lockdown restrictions over the past 12 months have not been as extensive as they were in 2020. There is also the small issue that Covid -19 test kit numbers have also dropped sharply since the end of free testing.
However, due to the Omicron variant at the end of last year, staff absences caused some issues, which disrupted service levels and increased costs.
Full-year results saw revenue rise 0.6% to £12.71bn, below expectations of £13bn, while operating profits fell 5.6%. % to £577 million, due to higher overtime expenditure and other related personnel costs.
Royal Mail’s revenue fell 1.6% to £8.5bn, largely due to the removal of lockdown restrictions changing consumer behavior, but this was offset by an increase of 4, 4% in GLS to £4.2bn, which was driven by a recovery in freight and B2B volumes.
Looking ahead, the outlook looks difficult, with the company engaged in discussions with its staff over its latest pay cycle with the threat of a possible strike. Assuming a positive outcome, the current adjusted operating profit consensus for Royal Mail is £303m with downside risk.
The company said it is looking to make savings of £350million at Royal Mail with 700 management jobs planned as part of a reorganization plan, as it also expects to have to increase the prices of stamps as well as parcels to better cope with rising fuel costs and wage demands.
For the GLS division, expectations are for single-digit revenue growth and operating profit of around £320m.
Collectively, that would equate to a combined operating profit of £623m for the new financial year, but with the caveat of downside risk, on the Royal Mail side of the business.