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Royal Mail share price slumps as group delivers profit warning

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Shares in Royal Mail Group (LON:RMG) closed nearly 18 percent lower last night after the privatised postal operator warned that this year’s profits will be less than expected. The group pointed to ‘challenging’ trading conditions.

Royal Mail’s share price lost 17.96 percent yesterday to close at 391.40p. The Guardian estimates that more than £800 million has been wiped off the group’s market value.

Royal Mail posts profit warning

Royal Mail announce in a statement yesterday afternoon that the company now expected its  adjusted operating profit before transformation costs to be in the range of £500 million to £550 million on a 52-week basis, compared with £694 million last year.

“Trading conditions in the UK are challenging. Our letter volumes, especially marketing mail, are impacted by ongoing structural decline, business uncertainty and GDPR,” the group’s chief executive Rico Back commented in the statement, adding that the group’s UK productivity and cost performance had been ‘disappointing’.

The company noted that its UK productivity performance was ‘significantly below plan’ at 0.1 percent in H1 2018-19, while the full-year performance was expected to be ‘significantly below target’.

Analysts weigh in on update

The BBC quoted Neil Wilson at as saying that this was a ‘really horrible profits warning,’ but described the fall in the shares as ‘excessive’. The Guardian meanwhile quoted Helal Miah, an investment research analyst at The Share Centre, as cautioning that Royal Mail was now at serious risk of falling out of the blue-chip FTSE 100 index.

“Having been hovering around the FTSE 100 relegation lists in the last few quarterly reviews, the shares are now more than ever at risk of dropping out of the prestigious top 100 in the next reshuffle,” the analyst pointed out.

As of 07:47 BST, Tuesday, 02 October, Royal Mail share price is 391.40p.

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