Royal Mail warned it could split up its business as it loses £1million a day amid a pay row with trade unions.
The post carrier said a break-up was on the cards unless it achieved ‘significant operational change’, adding it was considering ‘all options’ for its future.
The company is comprised of Royal Mail, its UK postal business, and GLS, its much more successful international delivery arm.
Failing to deliver: Royal Mail said a break-up was on the cards unless it achieved ‘significant operational change’, adding it was considering ‘all options’ for its future
Executives refused to elaborate on what a split would involve.
The statement came after thousands of Royal Mail staff in the Communication Workers Union (CWU) voted overwhelmingly for industrial action in what could be the biggest strike of the summer amid a dispute over pay rises.
The firm also unveiled plans to rename its parent company as International Distributions Services, to reflect the ‘increased importance’ of its international parcel business GLS.
The warning followed bleak results for the three months to the end of June, which saw Royal Mail revenues drop 11.5 per cent year-on-year to nearly £1.9billion alongside a loss of £92million, as demand for parcel and test kit deliveries sparked by the pandemic plunged following the end of lockdown restrictions.
The company also noted that high inflation and the cost of living crisis was hitting its performance while its efforts to make the business more efficient had been ‘disappointing’.
Royal Mail has introduced measures to cut costs, such as reducing overtime and relying less on temporary workers, but it warned these had not been fast enough to offset the impact of falling letter and parcel volumes.
The performance stood in stark contrast to the firm’s GLS business, which reported revenue growth of 7.8 per cent to £1.1billion and a profit of £94million.
As a result of the quarterly performance, Royal Mail predicted profits in the business would break even for the full year but this did not include the impact of any strike action.
The shares rose 0.2 per cent, or 0.6p, to 285.6p following the update.
‘Whilst GLS delivered a solid performance in the first quarter, the performance of Royal Mail was disappointing,’ said Royal Mail chairman Keith Williams.
‘The pandemic boom in parcel volumes bolstered by the delivery of test kits and parcels is over. Royal Mail is currently losing £1million per day and the efficiency improvements which are needed for long-term success have stalled.’
Writing in the Daily Mail, Williams added the company could see its ‘last hurrah’ if it continued on its current trajectory and a refusal to change was ‘reckless’.
Royal Mail has recently embarked on a plan to transform its business and make it more competitive as it battles rivals such as Amazon.
The 500-year-old firm, which can trace its roots back to Henry VIII, is aiming to shift its focus towards parcels as well as improving automation and delivering post on Sundays.
But Royal Mail chief executive Simon Thompson said building new infrastructure was ‘not enough’ and it also needed to change its working practices.
‘We need to change – and change now,’ he added.
AJ Bell analyst Danni Hewson said any hope that the pandemic would revive a turnaround strategy was looking ‘pretty forlorn now’ as structural and staffing issues returned to the fore.
She added that the company was ‘painting a bleak picture’, which may be a message to union bosses that there is ‘only so far it can go in negotiations.’
Walkout to cause chaos for millions
A strike by more than 115,000 Royal Mail postal workers, planned for next month, is expected to cause massive disruption.
There could be long delays to parcel and letter deliveries, including items sent first class.
It could also affect goods ordered online through websites such as Amazon but which are delivered by Royal Mail.
Essential post, such as letters from the NHS, will be delivered on time under contingency plans.
Post Office services will continue as normal, as it is a separate company owned by the Government.
Thousands of Royal Mail workers overwhelmingly backed a strike in a dispute over pay.
On Tuesday, the Communication Workers Union (CWU) said its members voted by nearly 98 per cent in favour of a walkout, on a turnout of 77 per cent.
Royal Mail has offered a rise of up to 5.5 per cent. But only 2 per cent of this is fixed. The remaining 3.5 per cent is tied to agreeing to changes in working practices with the CWU.
The CWU has branded the pay offer ‘disgraceful’. General secretary Dave Ward said management were ‘overpaid, underqualified [and] out of their depth’.
The union is also leading a strike at telecoms giant BT after members voted in favour of industrial action for the first time in 35 years.
Without change, this will be our last hurrah
By KEITH WILLIAMS chairman, Royal mail
Warning: Royal Mail Chairman Keith Williams
Royal Mail is at a crossroads. The world is changing fast and if our traditional operation in the UK doesn’t change too, this could be its last hurrah, which would be a terrible waste.
But the union seeks to avoid any meaningful discussion on change. In a business that is currently losing £1million a day, that is an abdication of responsibility for the future security of our people.
Royal Mail has a great history and commands huge loyalty from customers. It has a strong and trusted brand, with unparalleled scale and reach in the UK.
It has potential to succeed and to grow, but it won’t get there by living in the past. We need to change the way the business works. That need for change is at the root of our dispute with the Communication Workers Union.
Our group is made up of two main operations: our international business GLS and Royal Mail in the UK. Over the past few years, it has become increasingly reliant on the financial strength of GLS, which is growing and has a great future.
However, results at our UK business, Royal Mail, are worsening. The latest figures are stark. Royal Mail suffered a loss of £92million in the first quarter of 2022-23, while GLS reported a profit of £94million.
The disappointing UK performance is due to some harsh facts of life in our sector: people send fewer letters and there is tough competition in parcels.
But we also have not changed quickly enough. During the pandemic, the combination of a surge in parcels and the delivery of test kits showed that Royal Mail can be profitable, though the business needs to continue to adapt if it is to survive and thrive.
We are proud of Royal Mail’s role as a major UK employer: with a 140,000-strong workforce, 97pc of whom are permanently employed.
On average, our employees stay with us for 17 years. In today’s economy, that is extraordinary.
People don’t join as a gig to pay the bills – they stay and build a career with us. Our competitors in the gig economy are in a ‘race to the bottom’.
We want to do all we can to protect Royal Mail’s position as the leading employer in the industry, and to provide long-term job security.
We are confident that, if our people co-operate with us to make the changes that we need to working practices and deliveries, we will maintain our position as the leading employer in this sector.
Our pay offer continues to give our employees market-leading terms and conditions against a backdrop of losses and the worsening economic outlook for the UK.
Change is the route to well-paid, permanent, jobs long term.
Refusal to change is reckless.