More than £800m has been wiped off the stock market value of Royal Mail after it issued a shock warning on Monday that profits will slump this year.
Investors sent shares in the post and parcels group down almost 18% as the company refused to rule out higher stamp prices to rebuild profits.
“We are going to be looking at all the levers that we have across revenues and cost [cutting],” said Stuart Simpson, the chief financial officer at Royal Mail, when asked directly about stamp price rises in a hastily organised conference call.
Simpson also suggested jobs could be axed: “We are [also] looking at … management layers, head office structure and all discretionary spending. We are doing a full portfolio review.”
Royal Mail slashed its profits guidance for this year to £500m-£550m, compared with £694m last year.
The company blamed a combination of factors, including a bigger than expected slump in marketing mail as a result of GDPR, the new EU regulations that put tighter controls on the gathering and storage of personal information, which has hit the amount of “unsolicited” or junk mail sent out.
Royal Mail also revealed a huge miss in its target for improving productivity, which is up only 0.1%, compared to an aim of 2-3%. That miss meant scrapping an ambition to find £230m in cost savings this year. Royal Mail said it now only expects to achieve £100m in savings.
Simpson refused to link the productivity slump to any ill will from workers after a huge backlash over executive pay at the firm.
Less than a fortnight ago, the group’s chair, Peter Long, stepped down after being accused of “overboarding” – having too many boardroom jobs. His departure also followed one of the biggest executive pay revolts in UK corporate history. Almost three-quarters of investors refused to support a lucrative pay deal for the new chief executive, Rico Back – which included a £6m “golden hello” to compensate him for moving from one part of the Royal Mail business into the top job.
Investors also rebelled against a £1m payoff for the outgoing chief executive, Moya Greene. However, the votes are only advisory and the payments have been made regardless of the huge protest vote.
“We are not seeing or feeling any negative pushback [from staff] in terms of what has happened,” Simpson said.
Trade union bosses warned that postal workers were angry at seeing such lavish awards handed out only months after they accepted changes in their pensions to help the company save money.
Analysts at The Share Centre said the beleaguered company was now at serious risk of falling out of the blue-chip FTSE 100 index at its next quarterly reshuffle.
“After only a few months in charge the new chief executive of Royal Mail has issued a shocking trading update to the market, which was certainly unexpected,” Helal Miah, an investment research analyst at The Share Centre, said. “Having been hovering around the FTSE 100 relegation lists in the last few quarterly reviews, the shares are now more than ever at risk of dropping out of the prestigious top 100 in the next reshuffle.”
Back said Royal Mail had factored the impact of last year’s acrimonious industrial dispute with staff into its current financial performance, which affected its first quarter to the end of June. However, an expected performance bounce back through the summer had failed to materialise, resulting in the emergency profits warning.
“I’m very disappointed with the performance we have had to announce today,” Back said. “It is clearly not the announcement we ever wanted to make. Trading conditions in the UK are challenging. Our UK productivity and cost performance has been disappointing.”
He said Royal Mail’s £500m capital expenditure pot is being examined with a “fine-tooth comb”. He said “nice to have” projects and investments would be cut to focus on the core business.
The company said its UK parcels business performed strongly, with revenues up 6% in the half year to 23 September, but that letter volumes are down 7% against an expectation of declines of 4-6% annually.
“Our letter volumes, especially marketing mail, are impacted by ongoing structural decline, business uncertainty and GDPR,” Back said.