Royal Mail narrows profit guidance as Brits set to send fewer letters than expected next year

Shares dropped by around 13 per cent as Royal Mail slashed the upper range of its profit guidance this morning after a 2018 the company would rather forget.

But there are further clouds on the horizon as the number of letters sent through the service is set to fall by more than previously forecast next year, according to the postal service's trading update issued today.

That has led Royal Mail to cap full-year profits at £530m, after reducing guidance to between £500m and £550m last November due to a delayed cost cutting programme.

Read more: Profits slide at Royal Mail as it promises to deliver on turnaround strategy

Meanwhile, the company had to rely on growth at subsidiary General Logistics Systems (GLS) to help boost its top line in the nine months to the end of December, during which revenue ticked upwards two per cent.

Its UK and international parcels and letters division, however, dragged the group down, with revenues there falling one per cent. Revenue increased from parcels, but decreased from letters, both by six per cent.

Letter volumes are set to decline between seven and eight per cent in this financial year, Royal Mail said, but predicted that business uncertainty would speed up the decrease next year to above the four to six per cent previously forecast.

Meanwhile, Amsterdam-based logistics company GLS, dragged the group up, increasing volumes by five per cent, and revenue by nine per cent.

The business is coming off a torrid year where it dipped below its highly criticised 330p per share floating price. 

Shares fell in November as the company showed profits had dropped by over a quarter in the opening half of the year following a profit warning in October that also saw the stock spiral.

Yesterday the company closed at 301p.

Read more: Royal Mail shares slump for second day in a row

Chief executive Rico Back said: “Due to our letters performance to date, we expect addressed letter volume declines, excluding elections, to be in the range of seven to eight per cent for 2018-19. While the rate of e-substitution remains in line with our expectations, business uncertainty is impacting letter volumes.

“As a result, addressed letter volume declines, excluding elections, are likely to be outside our forecast medium-term range next year. Otherwise, we are reconfirming the outlook and other guidance for 2018-19 provided in our half year results.”