RMG.L Share News (RMG)

(Sharecast News) - Royal Mail warned on Friday that its parcels, international and letters business (UKPIL) was set to make a loss while profitability at its European business, GLS, will be "significantly reduced" due to the Covid-19 outbreak.
The company still expects to report FY2019-20 group adjusted operating profit before IFRS 16 of ?300m to ?340m. However, it said that in light of "significant uncertainty" going forward, the UKPIL business is expected to be "materially" loss-making in FY2020-21 and GLS profitability significantly reduced.

To preserve cash, it plans not to propose a final dividend. In addition, the planned transformation of the UKPIL business is now expected to take even longer to achieve, it said.

Royal Mail also suspended guidance for 2020-21 and beyond.

The company said that in the last two weeks, advertising mail in particular has been significantly impacted by the pandemic, as marketing campaigns have been delayed or cancelled, especially in the travel sector. Business mail volumes have been resilient to date and broadly in line with previous expectations, it said, supported by recent customer mailings.

"We anticipate that recent restrictions on individuals and businesses will have a negative impact on unsorted and stamped mail, although we are unable to quantify it at this stage," it said. "Whilst it is difficult to accurately predict how letter volumes will evolve over the coming weeks we do expect downward pressure to continue."

Chief executive officer Rico Back said: "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.

"We are entering a period of significant uncertainty in a good financial position. We have a strong balance sheet. 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."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "Royal Mail is in a better position than some companies, in that its core letters and parcels business does at least continue to operate. The increase in online shopping is even providing a boost to some parts of the business. However, the significant falls in overall postal volumes both in the UK and internationally are expected to decimate profits this year and the group is nursing cash flow through the lean times, with the result that the full year dividend has been scrapped.

"The all-important question now for the group is how long the current lockdowns last, and unfortunately there's no ready answer to that. Royal Mail reckons it has the liquidity to weather disruption for some months, but if conditions haven't improved by the end of the summer things become increasingly challenging."