Watch­dog fears Royal Mail slump could af­fect ser­vices

The Sunday Telegraph - Money & Business - - Business - By Jack Torrance

THE com­mu­ni­ca­tions watch­dog has warned that Royal Mail’s fi­nan­cial tra­vails could threaten the sus­tain­abil­ity of the uni­ver­sal postal ser­vice as new boss Rico Back strug­gles to get the pri­va­tised de­liv­ery firm back on track.

Of­com, which mon­i­tors Royal Mail’s abil­ity to meet its le­gal obli­ga­tion to de­liver let­ters and parcels to the whole coun­try six days a week for a fixed fee, has sounded the alarm af­ter the com­pany is­sued a profit warn­ing in Oc­to­ber, knock­ing more than £1bn off its stock mar­ket value.

In a re­port last week the reg­u­la­tor said, while it ex­pects the uni­ver­sal ser­vice to “re­main fi­nan­cially sus­tain­able in the im­me­di­ate fu­ture”, it was wor­ried about Royal Mail’s fail­ure to keep up with its pro­duc­tiv­ity tar­gets. The re­port said: “Given our view in pre­vi­ous years was that con­tin­ued progress on ef­fi­ciency was likely to … help en­sure the fi­nan­cial sus­tain­abil­ity of the uni­ver­sal ser­vice, this is a con­cern for us.” It also raised con­cerns about Royal Mail’s pre-tax earn­ings, which slipped from 4.6pc to 4.4pc last year, be­low the 5pc to 10pc range that Of­com sees as rea­son­able to keep the uni­ver­sal ser­vice sus­tain­able.

The re­port adds to the pile of trou­bles faced by Mr Back as he bids to bal­ance the com­pany’s boom­ing overseas par­cel busi­ness with its heav­ily reg­u­lated home mar­ket.

Royal Mail’s shares have fallen 30pc since the start of the year and re­cently slipped be­low 330p, the price they floated at when it was na­tion­alised five years ago.

A spokesman said: “Royal Mail is work­ing closely with Of­com to pro­vide a deeper in­sight into our per­for­mance plans. We have put in place a range of ac­tions to im­prove our per­for­mance.”

Rico Back, the new Royal Mail CEO, must bal­ance the com­pany’s overseas par­cel busi­ness with its home mar­ket

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