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Royal Mail shares plunge to new low as group warns on strikes and economy

Edmund Heaphy
Finance and news reporter
The industrial relations environment and economic uncertainty could prompt losses at the Royal Mail. Photo: Peter Macdiarmid/Getty Images

Shares in the Royal Mail (RMG.L) fell by almost 10% on Thursday to a record low, as the group warned that the industrial relations environment and UK economic uncertainty could prompt continued losses in one of its key divisions.

The company bemoaned the decision of the Communication Workers Union (CWU) to ballot its members for strike action, saying that it could delay progress on its turnaround plan.

"We are disappointed that the CWU has issued a timeline for a ballot of its members for industrial action. We stand ready to invest £1.8bn to modernise and grow in the UK,” the Royal Mail said in a Thursday trading update.

The 500-year-old group said that the strikes and potential for delays to the plan, as well as “continued economic uncertainty” could mean that its UK parcels, international, and letters (UKPIL) business will be loss-making in its 2020/21 financial year.

Profit guidance for its current financial year, which ends in March, remain unchanged.

It also warned that its ability to meet the targets set out in the 2024 turnaround plan could be “compromised.”

The CWU has accused Royal Mail bosses of reneging on a “progressive” 2018 deal to raise employee pay, reduce working hours, and reform pensions.

Staff in October voted to take industrial action over job security and related terms, but the Royal Mail won a High Court battle to prevent the strike occurring in the run-up to Christmas.

Shares in the Royal Mail plunged by almost 10% on Thursday. Chart: Yahoo Finance

The Royal Mail said it would proceed with initiatives from the turnaround plan.

“We want to reach agreement with CWU; but we cannot afford to delay this essential transformation any longer,” it said.

The company said that while volumes in its parcel business were “higher than expected” around Black Friday and Cyber Monday, they were lower than anticipated around Christmas due to the threat of strikes prompting customers to switch to other providers.

UKPIL revenue climbed 1% in the nine months to 29 December. A 1.5% decline in its letters business was offset by 3.7% revenue jump in its parcel delivery offering.

Overall, underlying revenue climbed 4.5% in the period, in part driven by growth in its international businesses.

“If it’s to adapt to the changing world it’s vital Royal Mail improves efficiency through automation,” said Nicholas Hyett, an equity analyst at Hargreaves Lansdown.

“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.”