Royal Mail has announced a major restructuring and costs-cutting programme that will see 2000 management jobs go from the privatised national postal service. Deliveries have been generally been one sector to have benefitted from the Covid-19 pandemic and lockdown. But Royal Mail’s deep structural issues and failure to adapt quickly enough to changing trends in the deliveries sector means a new leap in parcel deliveries is far from enough to save the jobs of some staff.
Royal Mail announced its three-step strategy towards savings targeted at £130 million as it announced a 25% drop in annual pre-tax profits this morning. Pre-tax profits dropped to £180 million and the company warned investors to expect significant losses over the next year as the costs of restructuring are absorbed.
Interim chief executive Keith Williams has placed the blame for the company’s woes on a failure to recognise and adapt quickly enough to a trend of fewer letters and more parcels being sent through delivery services. That trend was already firmly in place but accelerated by the Covid-19 pandemic. Addressed letters dropped 33% in April and May and advertising or ‘junk’ mail by 63% as companies cut back on marketing.
Mr Williams, previously in charge of British Airways, took over as interim chief executive of Royal Mail last month. He replaced Rico Back who was replaced after clashing with unions over the £1.8 billion restructuring plan.
However, the plan is going ahead under Mr Williamson with £300 million in capital spending to be cut across the company over the next two years. Dividends will not be paid in 2021 but investors have been told the plan is to restart payments in 2022, circumstances permitting.
Royal Mail currently employs around 9700 managers. The 2000 positions to go will mainly affect non-operational managers and senior executives. Redundancies will be rolled out in a “phased approach”, but will all come into effect by the end of next March.
Mr Williams also raised the company’s intention to review Royal Mail’s universal service obligation which means it has to deliver mail across the who country. However, Mr Williams stressed the need for that obligation to be “financially underpinned, in a sustainable way, and future-proofed to reflect changing customer needs and preferences”.
He will look to work with both the government and regulator Ofcom in attempt to find a compromise that means residents of more remote regions are not cut off from a delivery service but Royal Mail is not haemorrhaging cash providing one.
The Royal Mail share price was down 7% this morning but analysts expressed optimism that while the extent of changes at the company required are major, investors should be generally encouraged an effort is now being made to make them.
John Moore, an analysts at stock broker Brewin Dolphin, commented:
“There is a lot of bad news for many people in these results . . . Nevertheless, big changes are necessary and the hope will be that these radical moves will make the business more flexible and able to respond to growth potential from online retail, whilst more efficiently dealing with the legacy business.”
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