Ofcom worried Royal Mail productivity slump could threaten company’s long-term finances

Ofcom has warned that Royal Mail’s long-term sustainability could be under threat in the wake of a profit warning which sent the recently privatised company’s shares plummeting.

The watchdog, which monitors the postal service’s ability to deliver letters and parcels across the country six days a week for a fixed fee, said in an annual report it was concerned the company was not meeting productivity targets.

Although Ofcom said it believed the universal postal service was “likely to remain financially sustainable in the immediate future”, Royal Mail’s admission in an October trading update that productivity growth was “significantly below plan” was a concern.

Royal Mail added in the update that full year performance was expected to be significantly below target.

Chief executive Rico Back has been tasked with delivering a turnaround in Royal Mail's finances, last month vowing to improve transparency over the company's future strategy.

Ofcom has held the view for several years that productivity performance was likely to help ensure the financial sustainability of the service.

“We will continue to monitor these developments closely,” the regulator said in the report.

An Ofcom spokesperson said: “We keep a close eye on Royal Mail’s performance and finances. Although Royal Mail currently faces some challenges, we believe the universal service is likely to remain sustainable in the immediate future.”

Royal Mail shares have dropped nearly a third this year, and recently edged below the 330p price it was floated at on the London Stock Exchange in 2013.

City A.M. has approached Royal Mail for comment.