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Royal Mail shares plunge to new lows on warning over UK losses

By Holly Williams, PA Deputy City Editor

Royal Mail has seen shares plunge to record lows after warning its UK arm could be loss-making next year and it may miss turnaround targets amid the threat of strike action.

Shares in the group tumbled as much as 11% at one stage after cautioning over a “challenging” year ahead as it remains locked in an unresolved dispute with staff that is delaying its turnaround plan.

It revealed the industrial action fears had already hurt demand for parcel deliveries over the crucial Christmas season as some customers switched to rivals.

The group said the row with the Communications Workers Union (CWU), together with ongoing Brexit uncertainty, “increases the likelihood” of losses in 2020-21 for its UK letters and parcels business.

Unless it makes “significant progress” on overhaul efforts, the group cautioned it was at risk of missing targets under the plan.

Chief executive Rico Back vowed to push ahead with the turnaround despite the CWU threats.

He said: “We are disappointed that the CWU has issued a timeline for a ballot of its members for industrial action.

“We stand ready to invest £1.8 billion to modernise and grow in the UK.

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

Royal Mail won a legal battle in November to prevent a postal strike in the run up to Christmas and the general election.

But the dispute with the CWU is ongoing amid worker concerns over job security and widespread changes under Mr Back’s overhaul.

In its update, Royal Mail said the underlying decline in letter mailings did not ease as expected, though Christmas and the general election, which coincided for the first time in nearly a century, helped narrow nine month letter revenue declines to 1.5%.

With the election boost stripped out, the number of letters mailed in the first nine months of the year tumbled 9%.

Nine month parcels revenues rose 3.7%, but growth was lower-than-expected over Christmas due to the threat of strikes.

Its European parcels arm GLS saw revenues leap 11.1% higher, helping overall group-wide revenues lift 3.7%, or 4.5% higher on an underlying basis.

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

“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.”

CWU deputy general secretary Terry Pullinger said: “These results are the consequence of gross mismanagement of this great public service.

“Ever since the new board appointed their choice of a new CEO and his team in 2018, this organisation has been on a downward spiral.

“They inherited an organisation when industrial relations were harmonious, a new blue print 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.

“But in just under two years, all of those very serious indexes have gone through the floor.

“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.”