Watchdog fears Royal Mail slump could affect services
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