Royal Mail shares tumble as strikes threaten turnaround plan
Royal Mail shares have tumbled more than eight per cent after it warned that the outlook for the next financial year “is challenging”, adding that threats of industrial action will hurt its turnaround plan.
Revenue at the 500-year-old company grew 3.7 per cent in the nine months to the end of the year, however, as parcel volumes offset declining numbers of letters.
Following this morning’s trading update, shares in the delivery company fell 8.2 per cent to 173.9p in early trading.
Royal Mail’s shares have fallen more than 35 per cent since last February as it faces stiff competition and threats of strike action by the Communications Workers Union (CWU) over pay and conditions.
The firm’s Journey 2024 turnaround plan seeks to adapt to trends and turn Royal Mail into a more internationally focused parcel delivery business.
Yet in an update to the market today it said that an uncertain business environment, ongoing industrial relations disputes with the CWU and weak letter volumes are likely to hamper the plan.
“Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year 3 targets of our Journey 2024 plan will be compromised,” Royal Mail said.
Richard Hunter of Interactive Investor said: “It seems that Royal Mail will need to hang its hat on consolidating its parcel business. Even here, the threat of strike action may drive the core UK parcels business to a loss in the very near future.”
The delivery firm said revenue at its UK business grew one per cent in the nine months to the end of December year on year, as letter revenue fell 1.5 per cent.
At its overseas business, revenue was up 11.1 per cent. “The turnaround of our US business remains in line with our plan for this year,” it said.
On these results, chief executive Rico Back said the company can “confirm adjusted group operating profit is expected to be £300-340 million” for 2019-20.
Nicholas Hyett of Hargreaves Lansdown said that the results had a glimmer of good news, “with the European business growing strongly”.
“It shows that post can be made to pay, but these are smaller businesses that lack Royal Mail’s legacy issues in the UK.”