Royal Mail ‘crossroads’ after revamp stalls

ROYAL Mail shares tanked following disappointing results, causing pain for the parcel carrier’s thousands of retail shareholders.

The FTSE 100 delivery group warned that the company was at a ‘crossroads’ as it struggles to turn itself around under chief executive Simon Thompson.

Shares dropped 12.4pc or 42.4p to 300p after reporting an 8.8pc drop in profit to £662m in the year to March 27.

Royal Mail also warned of ‘price increases’ as it looked to offset the impact of surging inflation while also hiking its cost-saving target to £350m from £290m previously.

The decline means the shares are worth 10pc less than when Royal Mail listed on the London Stock Exchange in 2013.

it leaves many retail investors – one fifth of its shareholder base – with big losses. The profit drop came as chairman keith Williams said tailwinds the company experienced during the pandemic, when lockdown left people relying on shopping deliveries, were ‘now dissipating’. He warned of ‘clear headwinds’ in the year ahead.

‘We are at a crossroads. We need to adapt our business to a post-pandemic world,’ the chairman added.

Thompson said transformation of the business had become ‘more urgent’ postcovid. ‘We need to adapt old ways of working designed for letters and do it more quickly to a world dominated by parcels.’

Royal Mail remains locked in a dispute over pay with its heavily-unionised workforce. it has offered workers a 3.5pc pay rise this year with the potential of an additional 2pc productivity bonus.

However, the communication Workers Union (cWU) is thought to be pushing for a ‘no strings attached’ pay rise in line with inflation, which last month hit 9pc. The cWU said Royal Mail’s annual profit had been ‘earned off the backs’ of its members.

‘Every single penny of the [£662m] profit was from letters, parcels and test kits collected, processed, distributed and delivered by key postal workers,’ said cWU deputy general secretary Terry Pullinger.

Royal Mail warned its profit forecast for the coming year was based on reaching a pay deal with the union ‘broadly in line’ with its current offer, meaning a further wage rise could scupper its targets.

Thompson said the company and the cWU are in a dispute resolution process and ‘intensive talks’ were expected.

But analysts voiced concerns that inflation and possible industrial action had thrown turnaround plans into doubt.

AJ Bell investment director Russ Mould said inflation was ‘threatening to unpick’ the firm’s progress. ‘Pay increases can’t hope to keep pace with rising prices and demands for more flexibility,’ Mould said.

He added that the direction the company took ‘could determine whether the privatisation will ever be considered a success’.

Any slowdown in the turnaround strategy may also spark renewed calls for a possible sale of its international delivery arm GLS, which during the year reported a 4.4pc rise in revenues compared to a 1.6pc decline at Uk-focused Royal Mail.