Royal Mail shares plunge another 10% after shock profits warning

Royal Mail shares plunge another 10% after shock profits warning


Royal Mail shares plunge another 10% to record low as shock profits warning continues to send investors running

Adrian Lowery for Thisismoney.co.uk

and
Rachel Millard City Correspondent For The Daily Mail

Shares in Royal Mail plunged another 10 per cent today to a record low after yesterday’s shock profit warning wiped nearly £860million off the postal giant’s value.

As investors continued to digest the dismal news on future profits and sell the stock, the share price fell 37.4p to 354p – which hit the firm’s market capitalisation by a further £390million.

The business is now worth just £3.5billion, setting the scene for it to be kicked out of the FTSE 100 index at the next reshuffle in December. 

Just four months after taking over at the postal service, chief executive Rico Back said on Monday he was ‘very disappointed’ with the way the business was performing.  

Profit plunge: Royal Mail has taken a huge hit in profits, four months after Rico Back took over as CEO

Profit plunge: Royal Mail has taken a huge hit in profits, four months after Rico Back took over as CEO

Disappointing: Royal Mail has taken a hit in profits, 4 months after Rico Back took over as CEO

The 64-year-old German said profits this year would come in between £500million and £550million, significantly below the £694million Royal Mail made last year.

He blamed a 7 per cent fall in the number of letters being posted, dismal productivity and problems keeping a lid on costs. The surprise announcement at 3.27pm stunned the City.

Shares fell 20 per cent in a matter of minutes before closing 18 per cent, or 85.7p down, at 391.4p – wiping £857million off the company’s value.

It is feared stamp prices will have to go up as the company fights to boost profits.

The grim update was the latest setback for Royal Mail following one of the biggest shareholder revolts in British corporate history over the summer.

Some 70 per cent of investors voted against pay for the company’s bosses in July – including the £2.7 million package given to Back on top of a £6 million golden hello. His predecessor Moya Greene was given a £2.6 million golden goodbye.

To add to its woes, Royal Mail lost chairman Peter Long last month following a backlash over the way the company is run.

Profits plunge: Shares in the Royal Mail fell by 20 per cent before closing at 18 percent

Profits plunge: Shares in the Royal Mail fell by 20 per cent before closing at 18 percent

Profits plunge: Shares in the Royal Mail fell by 20 per cent before closing at 18 percent

Back, who has been in charge since June 1 while still living in Zurich, last night said: ‘I am very disappointed about the performance we have had to announce today. This is clearly not an announcement we would ever have wanted to make.’

‘Nevertheless our view crystallised today and we had to tell you straight away.’ Helal Miah, investment research analyst at The Share Centre, said: ‘After only a few months in charge, Rico Back has issued a shocking trading update to the market which was certainly unexpected. The reading is not pleasant at all for investors.

‘It seems that Back is throwing out the baby with the bath water so that he can begin his tenure with a clean slate.’

Improving productivity was a key part of an agreement with trade unions this year following a battle over pensions. However, Back revealed that productivity improvement has been far slower than expected.

Royal Mail expects to make cost savings of just £100million this year, compared to the £230million previously targeted. Back insisted the company would continue to increase dividend payments.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: ‘Royal Mail is emerging from a difficult period of industrial negotiation and relations with the unions are no doubt strained.

‘It looks like the resolutions to those problems have not yet delivered the desired results.’ Neil Wilson, chief market analyst at trading platform Markets, said: ‘Not what investors want delivered through their letter boxes.

‘Shares in Royal Mail dived after a really horrible profits warning. The deal with unions was hailed as a major breakthrough but it looks like the planned operational and productivity gains are not being delivered to the degree that management had hoped for,’ he said. Unions one, management nil by the looks of it.’

 

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