Royal Mail Says U.K. Arm Could Post Loss 

(Bloomberg) --

Royal Mail Plc warned that its U.K. business could swing to a loss next year as a sluggish economy weighs on already declining letter volumes and union strife frustrates attempts to cut costs.

The stock fell almost 17% Thursday after Royal Mail said in a statement that revenue and cost headwinds could push it to a “break-even or loss-making position” in the 2020-2021 fiscal year.

Royal Mail has lost two-thirds of its value since May 2018 as it struggles to pare expenses in line with slumping letter usage as people switch to email and digital payments. The world’s oldest postal service is tapping surging parcel volumes amid a boom in Internet shopping, but faces competition from more nimble startups and Amazon.com Inc. moves to create a rival logistics network.

“The challenging financial outlook in the U.K. means now, more than ever before, we need to make the changes required,” Chief Executive Officer Rico Back said in the release. “People are posting fewer letters and receiving more parcels. We have to adapt.”

Letter volumes in Britain have halved since their 2004 peak. They’re set to decline as much as 9% in the full year, Back said, followed by a drop of 6% to 8% in fiscal 2021. The company had previously forecast a slide of 4% to 6% based on a recovery in GDP that it no longer expects to pan out.

The situation has worsened as clashes with the workforce delay Back’s “Turnaround and Grow” transformation plan, which seeks to sharpen the focus on parcels with 1.8 billion pounds ($2.3 billion) of investment.

Strike Victory

A U.K. court last week granted an injunction against the Communication Workers Union blocking a strike during the peak holiday season, and the CEO said in an interview that the company has begun talks to resolve the dispute.

Royal Mail said it will need to spend more to prepare for the Dec. 12 General Election, as well as the usual Christmas rush, though Sanford C. Bernstein analyst Daniel Roeska said the company may be “saved by the ballot box” as the vote boosts volumes. Next year is “looking challenged,” he said in a note.

Adjusted operating profit for the year through next March will be in a range of 300 million pounds to 340 million pounds, Royal Mail said, reiterating its previous forecast. First-half profit fell 13% to 165 million pounds.

Royal Mail shares tumbled the most since Jan. 29 on an intraday basis, and were trading 16% lower at 194 pence as of 8:43 a.m. in London.

To contact the reporters on this story: Christopher Jasper in London at cjasper@bloomberg.net;Siddharth Philip in London at sphilip3@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Anne Pollak, Andrew Noël

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