May 17, 2018 / 7:39 AM / 9 months ago

UPDATE 2-Royal Mail warns new EU data privacy law to weigh on letter volumes

* Letter volumes to fall at high end of 4-6 pct range

* Transformation costs at upper end of range

* Revenue up 2 pct on GLS, parcel volumes (Adds CEO and analyst comment, details)

By Sangameswaran S

May 17 (Reuters) - Britain’s Royal Mail Plc warned on Thursday that the new European data privacy law may reduce marketing mails, causing a fall in letter volumes towards the upper end of its forecasts.

Shares of the former British postal monopoly fell as much as 6.5 percent. It was the top loser on the main bluechip index .

The post and parcel delivery company, which has seen a steady slowing of letter volumes in the era of e-communication, maintained its outlook for addressed letter volumes, saying it expected a decline of 4 to 6 percent in the medium term.

But it warned about the impact from the General Data Protection Regulation (GDPR), which imposes new requirements on how companies collect and process personal information about European Union users. It comes into force on May 25.

“Due to the potential impact of GDPR and, or, if business uncertainty persists, we expect to be at the higher end of the range of decline for 2018-19 and may fall outside the range in a period,” the company said in a statement.

Royal Mail, which is facing stiff competition in its domestic parcels business, was privatised in 2013 and has since reduced layers of management, upgraded technology and cut its property bill to save costs.

It said costs related to the ongoing transformation of its business would be at the upper end of its forecast range of 130 million to 150 million pounds ($175 million to $202 million).

But the firm also said it expected productivity improvements at the upper end of its targeted 2 to 3 percent range, with cost cuts of about 230 million pounds in its core UK and international parcels and letters delivery businesses, UKPIL.

To offset slowing letter volumes, Royal Mail has been investing in its fast-growing European parcel business GLS to expand in areas and increase revenue from outside Britain.

Growth in GLS and parcel volumes helped the company’s annual revenue rise 2 percent to 10.17 billion pounds.

Revenue at GLS, which contributes about a fourth of the total, rose 21 percent to 2.56 billion pounds, more than offseting a marginal decline in UKPIL revenue.

“We do see GLS as a stronger contributor to growth going forward,” said Chief Executive Moya Greene, who is set to retire in June and be succeeded by GLS boss Rico Back.

Although the company expects good performance from GLS, it said margins may be affected by labour market pressures.

Royal Mail’s adjusted operating profit after transformation costs rose more than a percent to 694 million pounds in the 52 weeks ended March 25.

($1 = 0.7419 pounds)

Reporting by Sangameswaran S in Bengaluru Editing by Gopakumar Warrier and Edmund Blair

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