Royal Mail Jumps as Deal Caps Pensions, Extends Delivery Hours

(Bloomberg) -- Royal Mail Plc, Britain’s 500-year-old postal service, secured a labor agreement that will cap pension liabilities and extend delivery hours in return for higher pay and a shorter working week. The stock rose the most in three years.

The deal with the Communication Workers Union will cap the annual cash cost of pensions at around 400 million pounds a year ($569 million), Royal Mail, one of Britain’s biggest employers with almost 150,000 staff, said Thursday. The company had warned that contributions might spiral beyond 1 billion pounds.

As part of the accord, employees will get an immediate 5 percent pay increase, to be followed by a 2 percent hike in 2019. At the same time the current 39-hour week will be cut in stages with a view to reducing it to 35 hours by 2022.

The deal sets out plans to extend delivery times and collection deadlines by half an hour, seen as vital in Royal Mail’s battle to retain market share as smaller firms chase its business and Amazon.com Inc. moves to create its own logistics network. Operating profit for the year through March should reach at least 680 million pounds, at the top end of estimates.

Shares of the company, founded under Henry VIII, gained 6.8 percent -- the most since Nov. 27, 2013, a month after its initial public offering -- and traded 6.7 percent higher at 500.80 pence as of 2:27 p.m. in London.

To contact the reporter on this story: Christopher Jasper in London at cjasper@bloomberg.net.

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net.

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