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Can anything halt Royal Mail's decline?

30 Jan 2019, 15:59 ... -s-decline

Royal Mail shares have fallen to their lowest-ever level after bigger than expected declines in letter volume raised fears about the long-term viability of the former state-owned monopoly.

The postal service blamed new GDPR data protection rules introduced last year for a sharp reduction in marketing mail-outs that led to an 8% fall in letter volume.

Rico Back, the new Royal Mail chief executive, also blamed business uncertainty for letter declines, at a time when fears of a no-deal Brexit are seen as the main reason for companies holding back spending.

The accompanying downward earnings revision saw Royal Mail shares plummet by as much as 18% yesterday morning before recovering slightly. They have more than halved in value since peaking at 631p a year ago. In December the company was demoted from the FTSE 100 and is now valued at well below the 330p price at which it floated.

The slump has “wiped tens of millions of pounds” off the 7.7% stake that remains in the hands of postal workers, who were given the shares when it was privatised in 2013, says The Daily Telegraph.

City A.M. says “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.

In a bid to streamline the business, Royal Mail launched a big cost-cutting programme last November that included a plan to share more costs between its letters and parcels businesses, but a deal with unions brokered last February has failed to improve productivity.

This has prompted City investors to suggest the company should contemplate radical options as part of any turnaround plan.

Analysts at Liberum said: “The hope must be that more radical options are being contemplated, requiring further time for planning and consultation.”

But Nils Pratley in The Guardian writes the “worry for investors is that the board has been asleep, or distracted” since the Communication Workers Union deal was agree, describing a “sense of drift at the top”.

Rico Back was due to update the City on the progress of his turnaround plans in March but that has now been pushed back to May, a move Liberum said was “disappointing... given the importance of understanding management’s long-term strategy to turn the business around”.

All of this comes against the backdrop of a continuing decline in the volume of letters in the UK.

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown told Sky News: “Royal Mail’s gone out of its way to say that's down to wider uncertainty, and the introduction of new privacy laws under GDPR, rather an uptick in companies using email rather than paper.

“Whatever the cause, we suspect those mailings are gone for good,” he said, leading to wider questions about whether the former state-owned postal service can do anything to reverse its business fortunes.

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