£860m wiped off Royal Mail as profits plunge
NEARLY £860m was wiped off Royal Mail’s value after its chief executive warned profits would be far lower than expected.
Just four months after taking over at the postal service, Rico Back said he was ‘very disappointed’ with the way the business was performing.
The 64-year-old German said profits this year would come in between £500m and £550m, significantly below the £694m Royal Mail made last year.
He blamed a 7pc fall in the number of letters being posted, dismal productivity and problems keeping a lid on costs.
The surprise announcement – at 3.27pm – stunned the City.
Shares fell 20pc in a matter of minutes before closing 18pc, or 85.7p down, at 391.4p – wiping £857m off the company’s value.
The business is now worth just £3.9bn, setting the scene for it to be kicked out of the FTSE 100 index at the next reshuffle in December. And it is feared stamp prices will have to go up as the company fights to boost profits.
The grim update was the latest setback for Royal Mail following one of the biggest shareholder revolts in British corporate history over the summer.
Some 70pc of investors voted against pay for the company’s bosses in July – including the £2.7m package given to Back on top of a £6m golden hello. His predecessor Moya Greene was given a £2.6m golden goodbye.
To add to its woes, Royal Mail lost chairman Peter Long last month following a backlash over the way the company is run.
Back, who has been in charge since June 1 while still living in Zurich, last night said: ‘I am very disappointed about the performance we have had to announce today. This is clearly not an announcement we would ever have wanted to make.
‘Nevertheless our view crystallised today and we had to tell you straight away.’ Helal Miah, investment research analyst at The Share Centre, said: ‘After only a few months in charge, Rico Back has issued a shocking trading update to the market which was certainly unexpected. The reading is not pleasant at all for investors.
‘It seems that Back is throwing out the baby with the bath water so that he can begin his tenure with a clean slate.’
Improving productivity was a key part of an agreement with trade unions this year following a battle over pensions. However, Back revealed that productivity improvement has been far slower than expected.
Royal Mail expects to make cost savings of just £100m this year, compared to the £230m previously targeted. Back insisted the company would continue to increase dividend payments.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: ‘Royal Mail is emerging from a difficult period of industrial negotiation and relations with the unions are no doubt strained.
‘It looks like the resolutions to those problems have not yet delivered the desired results.’ Neil Wilson, chief market analyst at trading platform Markets, said: ‘Not what investors want delivered through their letter boxes. ‘Shares in Royal Mail dived after a really horrible profits warning. The deal with unions was hailed as a major breakthrough but it looks like the planned operational and productivity gains are not being delivered to the degree that management had hoped for,’ he said. Unions one, management nil by the looks of it.’