Royal Mail tumbles as it blames union dispute for shaky profit outlook

By Yadarisa Shabong

(Reuters) -Royal Mail missed annual profit expectations on Thursday and said meeting forecasts this year hinged on its main labour union agreeing a pay deal it has so far rejected, angering the union and sending the British group’s shares nearly 15% lower.

The Communication Workers Union (CWU), which represents more than a hundred thousand Royal Mail postal workers, has said the current offer has too many strings attached, and the two parties are now in a dispute resolution procedure.

Royal Mail said it could meet 2022-23 market expectations of UK adjusted operating profit of 303 million pounds ($375 million) if it reaches a deal with the union in line with its current offer, and avoids a strike.

JPMorgan analysts said they believed it unlikely wage talks would go smoothly, and expected there still could be a material downside risk to estimates.

The relationship between Royal Mail and the CWU has been a tumultuous one, with the previous dispute lasting two years before a December 2020 settlement.

“We are at a crossroads with the transformation of Royal Mail,” Chairman Keith Williams said.

“We need to adapt our business to a post-pandemic world and whilst we are making progress in some areas, more needs to be done in others.”

The CWU was unhappy with Royal Mail’s characterisation of its financial outlook, saying the group’s narrative was to “avoid giving our people the reward they deserve”.

“We leap from amazing achievements to suddenly we’re in a crisis, a crossroads – what a load of nonsense,” CWU’s Terry Pullinger said in a broadcast on Thursday.

Royal Mail offered a total pay rise worth up to 5.5% – out of which 2% would be paid when the deal is agreed and the rest based on certain conditions.

The 500-year-old company benefited from a parcel boom during the pandemic, but a slowing UK economy, subsiding consumer demand, and rapid inflation also pose challenges to its outlook.

Adjusted operating profit for the year ended March 27 was 758 million pounds, below analysts’ average forecast of 771 million pounds, as cost savings fell short of targets and parcel volumes tapered off lockdown highs.

Shares in the FTSE 100 company, which gained around 50% last year, were down 14.7% by 1156 GMT, touching an 18-month low.

($1 = 0.8078 pounds)

(Reporting by Yadarisa Shabong in BengaluruEditing by Jan Harvey and Mark Potter)