Royal Mail has issued a profit warning after it failed to meet cost-saving targets – and the share price plummeted as much as 20 per cent minutes afterwards.
In an unscheduled trading update for the half year to 23 September, the group said that its ‘productivity performance is significantly below plan’.
Many regular investors bought shares in the Royal Mail when it listed in October 2013 and postal workers were given stock in the company.
Royal Mail: The listed company saw share prices fall by 20% minutes after a trading update
A target for cost avoidance during the half year to 23 September has also been slashed from £230million to £100million.
As a result, Royal Mail expects group adjusted operating profit before transformation costs to be in the range of £500million to £550million, compared with £694million last year.
Royal Mail also says addressed letter volumes are forecast to decline faster than the group’s expectations, while pointing to the impact of GDPR regulation.
Rico Black, chief executive, said: ‘Trading conditions in the UK are challenging.
‘Our letter volumes, especially marketing mail, are impacted by ongoing structural decline, business uncertainty and GDPR.’
Shares tumbled more than 20 per cent before settling at 18 per cent lower at 391p.
The postal service also blamed the decline on unexpectedly high cost pressures from the labour market, and under-performance in productivity.
Productivity growth continued to be sluggish despite a lack of industrial action during the six months to September 23.
The measure grew at a rate of 0.1 per cent, well below a target of between two and three per cent.
Royal Mail now expects productivity to be much lower than predicted.
Targets were missed last year after strikes, high levels of sickness absence and adverse weather condition slowed up deliveries.
But the group struck a deal with union representatives in January, putting an end to long-simmering debate over pay and pensions.
Helal Miah, investment research analyst at The Share Centre, said: ‘Only after a few months in charge, Rico Black has issued a shocking trading update to the market which was certainly unexpected.
‘We can therefore assume this was because of a leak because the reading is not pleasant at all for investors.
‘The release came at 15:27 today, and within moments the shares were down as much as 20 per cent.
‘The shares have nearly given up all of the astonishing gains we have seen between November last year to May this year.
‘Moreover, having been hovering around the FTSE 100 relegation lists in the last few quarterly reviews, the shares are more so than ever now at risk of dropping out of the prestigious Top 100 in the next reshuffle.’
Royal Mail share rollercoaster
When the shares first listed in October 2013, they were at 455p but popped straight up to 550p.
They then tumbled to reach an all-time low of 376p a share last September.
However, since then, the price has been rocketing, reaching a peak 631p a share in May 2018.
But the dramatic fall today has seen the price fall back to near the all-time lower wiping out the gains.