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Royal Mail shares sink to all-time low as strike threat takes toll

13 Feb 2020, 05:46

Royal Mail shares sink to all-time low as strike threat takes toll


Staff tensions and declining letter volumes put £1.8bn turnaround plan in jeopardy

Royal Mail is worth less than at any time since it was privatised in 2013, after its warning of a challenging year of disputes with its trade union sent shares tumbling.

Tensions with its workforce and a declining volume of letters increased the risk of its British operations making a loss, the company said. Its shares fell by 11% before recovering to end the day down 5%.

Royal Mail floated in 2013 with a value of £3.3bn, amid criticism that the government had undervalued the company by up to £1bn. The fall in its share price on Thursday means the company is worth £1.8bn.

Rico Back, the chief executive who has faced criticism over his “astronomical” pay packet, said its gloomy financial forecast showed his plan to transform the UK business by 2024 must move ahead.

In May he pledged to invest £1.8bn in a five-year turnaround plan to refashion Royal Mail into an international parcel-led business that could profit from a future dominated by online shopping.

While the company said on Thursday that it had forged ahead on several fronts, including choosing a supplier to help automate its Warrington parcel hub, it said a range of initiatives and trials had been held up for many months.

The business, which employs 143,000 people in the UK, also faces the threat of strike action by the Communication Workers Union (CWU), with a Christmas walkout averted last year after Royal Mail won a high court injunction.

The company said the threat of strikes had encouraged some customers to switch to other delivery firms over the festive period.

Back said: “We want to reach agreement with the Communication Workers Union but we cannot afford to delay this essential transformation any longer.”

The CWU’s deputy general secretary, Terry Pullinger, dismissed the claim. “These results are the consequence of gross mismanagement of this great public service. Ever since the new board appointed their choice of a new chief executive and his team in 2018, this organisation has been on a downward spiral,” he said.

“They inherited an organisation when industrial relations were harmonious, a new blueprint agreement was in place and was being deployed at pace on how we jointly approach the challenges of the future. Poor culture in the industry was also being addressed as a priority and the share price was standing at 496p.”

He said that in two years, progress had been lost. “Workplace culture is worse than ever, industrial relations are at an all-time low and the share price now sits at 176p. Blame the trade union all you like but these are the facts, and they are without doubt the consequence of the mismanagement of this industry.”

CWU members backed strike action last year in a dispute over job security, pensions and employment conditions. The union has been further angered by the company’s decision to press ahead with Back’s turnaround plan, some of which it objects to, while negotiations are taking place.

The union has told the company it will serve notice of further strike action on 25 February.

Royal Mail’s problems have been compounded by a steeper-than-expected fall in the number of letters being sent. Addressed letter volumes were predicted to decline by 7-9% in the next financial year, it said, worse than the 6-8% it had expected.

Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said Royal Mail had no choice but to modernise.

“If it’s to adapt to the changing world, it’s vital Royal Mail improves efficiency through automation,” he said.

“Unfortunately delivering the necessary change is proving difficult.

“To make matters worse the threat of industrial action led customers to look to other providers for their key Christmas deliveries, stripping Royal Mail of volumes in a business that’s all about scale.”

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