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Royal Mail admits it’s having a ‘difficult time’ as profits slump 30pc

Royal Mail sorting office - Bloomberg
Royal Mail sorting office - Bloomberg

Royal Mail has admitted it is having a ‘difficult time’ as it negotiates a fierce dispute with workers over pensions, as profits dipped 30pc despite revenues beating expectations.

While the postal company’s revenues climbed 5.4pc to £4.8bn in the 26 weeks to September 24, pre-tax profits fell to £77m – largely due to an increase in pension costs of £114m.

The company is in the process of moving workers on to a new form of defined benefit scheme, but has faced stiff opposition.

Last month Terry Pullinger, deputy general secretary of the Communication Workers Union, said he would rather "smash Royal Mail to bits" than back down in his attempts to block the move.

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“It is a difficult time for Royal Mail and its people,” the company said today. “We remain committed to resolving the key issues with the CWU in a way that appropriately balances the interests of all our key stakeholders.”

A planned strike was blocked by the High Court in October but today the company warned further disputes “could impact our performance in the second half".

Chief executive Moya Green said Royal Mail had had “a good start to the year”, pointing to a 6pc increase in parcel volumes and a “resilient” performance in letters, revenues from which fell 3pc on an underlying basis.

Royal Mail vans - Credit: Joe Giddens
Hedge funds have been ramping up their bets against Royal Mail in recent weeks Credit: Joe Giddens

Revenues in the company's international unit jumped by 9pc, and Royal Mail boosted its interim dividend per share by 4pc to 7.7p.

Ms Greene said the company was "scaling up its presence in Europe" in order to take advantage of the stronger trading conditions. Outside of the European Union, GLS, Royal Mail's non-UK arm, was "growing through selective acquisitions", she said. 

She added that the firm would continue its investment in its UK parcel delivery service in order to stay ahead of its competitors, although added that it had "passed the peak" of spending, having put £1.5bn into improving its systems since privatisation.

"We're the biggest facilitator of online shopping in the UK and that has come through loud and clear," she said.

But Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "New age competitors are far slicker operations than Royal Mail. The contrast between Amazon or even Ocado’s robotic warehouses and Royal Mail’s sorting offices is stark. If the group is to win in a highly competitive sector it needs to modernise, and at some pace."

Hedge funds have been ramping up their bets against Royal Mail in recent weeks. As of yesterday evening, 3.4pc of its shares were on loan to short sellers.

However, most analysts said Royal Mail's results on Thursday were better than they had expected. The stock was up 1.9pc to £3.96 in early trading as a result although it lost ground as the day went on. They closed up 1.7pc at 395.50p. 

The firm's performance in the next half year period hangs on its performance over Christmas. The company is planning to open six temporary parcel sorting centres and recruit more than 20,000 staff.