Royal Mail Cuts Management Jobs as Virus Hits Demand

(Bloomberg) — Royal Mail Plc said it will cut around 2,000 management posts, or about 20% of the total, in a bid to streamline the business after the coronavirus outbreak accelerated a decline in letter volumes.
Britain’s 500-year-old postal service plans to reduce costs by 500 million pounds ($620 million) over the next two years by paring labor expenses and reining in capital spending, it said in a statement Thursday.
Chairman Keith Williams is seeking to reignite a turnaround plan at Royal Mail after taking on an executive role last month following the surprise exit of Chief Executive officer Rico Back, who had clashed with unions over planned productivity gains. While the Covid-19 crisis has boosted home parcels deliveries as people shop online, business-to-business mailings have slumped.
“Our plan for the group was to have parcels around 70% of the business by 2024. That’s coming about more quickly, and what you’ve seen is a very quick transition from letters into parcels,” Williams said in a phone interview.
Williams said Amsterdam-based parcels arm General Logistics Systems remains a key activity, despite analysts touting the prospect of a split. While there are few synergies between the U.K. and overseas operations, having an international presence “is clearly important,” he said.
Shares of Royal Mail traded 7.3% lower at 166.80 pence as of 9:36 a.m. in London, where the company is based. The stock has declined 26% so far this year.
Royal Mail said it plans to accelerate the pace of operational change in the U.K. to ensure long-term sustainability, and will seek to revisit the so-called universal service obligation governing daily deliveries to better reflect user needs. Labor costs should fall by 130 million pounds this year and capital spending by 300 million pounds over the next two.
Even with the changes, the main U.K. parcels, international and letters division is likely to be “materially loss-making” in fiscal 2021, the company said. The business was already lurching toward a loss even before the pandemic amid a labor dispute that saw Back clash with the Communications Workers Union.
Williams said he’s seeking to open talks on future pay and the issues raised by the labor group, as well as the need for change.
“Given thpany wanted to engage with its largest U.K. union, CWU representing the majority of the U.K. workforce, today’s announcement was suspiciously devoid of any new developments,” said Daniel Roeska, an analyst at Bernstein, in a note. “This would indicate to us that discussions are still ongoing and it was not possible” to reach common ground on the transformation plan, he added.
Royal Mail, which won’t pay a dividend this year, has also racked up costs during the viral outbreak after increased overtime payments and expenses for hiring agency workers and buying protective gear.
The company mapped out two scenarios for the year ahead, one with a 10% decline in U.K. GDP that could shave as much as 250 million pounds from revenue, and the other for a 15% slide in the economy that could wipe out 600 million pounds and add more than 250 million pounds in Covid-related costs.
The company posted an adjusted pretax profit of 275 million pounds for the year ended March 31.
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