Royal Mail shares slump to record low on UK loss warning

By Yadarisa Shabong

LONDON (Reuters) - Royal Mail <RMG.L> warned on Thursday of a "challenging" year ahead, with labour tensions and sliding letter volumes increasing the risk of its British business registering a loss, sending its shares plunging to record lows.

The warning, which followed a Christmas period dogged by the threat of strike action, sent shares in the former UK mail monopoly tumbling 11%. The company added that its largest union was also preparing another strike ballot.

The company's German chief executive, Rico Back, said it is vital that he moves ahead with a plan to transform the UK business into a sustainably profitable operation by 2024.

"We want to reach agreement with the Communication Workers Union (CWU); but we cannot afford to delay this essential transformation any longer," he said.

In May last year Back pledged to invest 1.8 billion pounds in a five-year turnaround plan to refashion Royal Mail into an international parcel-led business that can profit from a future dominated by e-commerce.

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

"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," it said.

Addressed letter volumes were expected to decline in the range of 7-9% in the next financial year, it said, representing a steeper decline than its previous forecast of 6-8%.

Shares of the FTSE 250 company fell to a record low of 168.05 pence, almost half the 330p on its initial public offering when the company was sold off by the state more than six years ago.

By 0916 GMT the shares had recovered a little to 173 pence, down 8.6%.

Revenue for the nine months to Dec. 29 increased by 3.7% and the company confirmed adjusted group operating profit for 2019-20 should be between 300 million and 340 million pounds.

Royal Mail, which employs about 143,000 people in the UK, said it expects productivity gains of about 1.5% for the full year, short of its 2% target.

In mid-November Royal Mail won a high court injunction to prevent strikes around Britain's national election on Dec. 12.

Members of the CWU had voted to go on strike, saying that the company had failed to adhere to an agreed pension deal, but the court ruled that the ballot was unlawful.

(Graphic: Royal Mail share value dwindles since IPO - https://fingfx.thomsonreuters.com/gfx/mkt/13/1821/1790/RMG2.jpg)

(Reporting by Yadarisa Shabong in Bengaluru and Paul Sandle in London; Editing by Patrick Graham and David Goodman)