Royal Mail’s profit outlook shaky on labour dispute; shares slide

By Yadarisa Shabong

(Reuters) -Britain’s Royal Mail said on Thursday the pay dispute with its largest labour union is a “key uncertainty” for the group this fiscal year after 2021-22 profit missed analysts’ estimates, sending shares 12% lower.

The Communication Workers Union (CWU), which represents more than a hundred thousand Royal Mail postal workers, had criticised and rejected the company’s latest wage offer, 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 ($375.11 million) if it reached a deal with the union in line with its current offer, and if it avoids a strike.

Analysts at JPMorgan said they believed it was unlikely that 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 in the past, with the prior dispute lasting two years before the December 2020 settlement.

“We are at a crossroads with the transformation of Royal Mail,” Non-Executive 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 500-year-old company had benefited from a boom in parcel deliveries during the COVID-19 pandemic, but a slowing UK economy, subsiding demand on lower consumer spending amid the cost-of-living crisis, and rapid inflation also pose a challenge to its outlook.

Adjusted operating profit for the year ended March 27 was 758 million pounds, slightly below average market expectations 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 12% by 0911 GMT, touching a near one-and-half year low.

($1 = 0.8078 pounds)

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Sherry Jacob-Phillips and Jan Harvey)