Royal Mail expects UK parcels business to make a loss as uncertainty deepens
Royal Mail has warned of “significant uncertainty” during the coronavirus outbreak, as it predicts its UK parcels business will make a loss next year.
The postal service warned of the “potential for sharp and sustained economic downturns” for the next financial year.
Royal Mail has predicted its UK parcels, international and letters (UKPIL) business will be “materially loss-making”. The group added that the uncertainty around the pandemic means it will take longer to achieve targets laid out in the “Journey 2024” plan.
Profitability at Royal Mail’s European business, GLS, is expected to be “significantly reduced”.
In a bid to contain costs and preserve cash, Royal Mail is reviewing capital expenditure “whilst being careful not to compromise the long-term prospects of the business.”
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The board has also advised cancelling the final dividend for the 2019-2020 financial year in light of the current economic uncertainty.
Despite the ongoing uncertainty, the group expects full-year adjusted operating profit for 2019-2020 to be between £300m and £340m.
The group has in excess of £800m in cash plu sa £925m revolving credit facility. Royal Mail said if current volume and revenue trends persist, it is confident it has sufficient liquidity.
Given the increase in confirmed coronavirus cases, Royal Mail said rising levels of absences mean it cannot rule out reductions to services as Covid-19 develops.
The postal service added it was taking steps to limit contact between employees and with customers on delivery, after the government tightened restrictions on social distancing this week.
Group chief executive Rico Back said: “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.”
Shares are down 16 per cent.
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