Royal Mail CEO in shock departure as Covid-19 hits April revenue

Royal Mail chief executive Rico Back inexplicably quit on Friday after less than two years in the top job as the company reported a £22m fall in April revenues due to the Covid-19 crisis.

The company said Back had stepped down with immediate effect. Former British Airway boss Keith Williams becomes interim executive chairman of Royal Mail Group, while Stuart Simpson was appointed interim chief executive of the UK parcels, international and letters business.

Back had a troubled relationship with the powerful Communication Workers Union, which opposed his plans to restructure the business from letters to focus on parcel delivery and cash in on the rise in internet shopping. His £6m “golden hello” for leaving the company’s European subsidiary also angered investors.

Royal Mail on Friday added that costs had risen by £40m, driven by overtime and temporary staffing costs due to “high levels” of absence, the introduction of social distancing measures and purchase of personal protective equipment.

Addressed letter revenue fell 23% partly offset by the delivery of 36m more parcels, a rise of 31%, as locked down Britons did more online shopping. Letter volumes fell by 33%, or 308m items.

The company said staff who had worked through the coronavirus crisis would receive a £200 bonus out of a £25m fund set aside for the purpose. Executives have waived their bonuses for the current fiscal year, it added.

Back, who has been with the company for 30 years, will be on garden leave until August 15 during which he will receive his salary and benefits. After that date he will receive nine equal monthly payments totalling £480,000 as pay in lieu of notice and no cash bonuses or share awards would be given for 2019-20 or 2020-21.

He will also get a capped contribution of £50,000 towards legal fees incurred in connection with his departure; and a capped contribution of £25,000 towards outplacement support, Royal Mail added.

The company, controversially privatised by the Tory-Liberal Democrat coalition government in 2012 which undervalued it by around £1bn, has seen its share price collapse due to declining letter volumes and competition from parcel delivery firms.

Hargreaves Lansdown analyst Nicholas Hyett said the letter volumes "have probably been lost for good - companies and individuals that have discovered digital alternatives to increasingly expensive stamped envelopes will not go back".

"The group has been slow to modernise its operations and has repeatedly run into resistance from staff, manifesting in higher costs and increased disruption to the service. Even in the international business, which has been a lone bright light at times, trading conditions are uncertain."

"The group’s saving grace is a pretty healthy balance sheet and significant levels of liquidity. However, we suspect Royal Mail is burning through cash at a fair rate of knots in the current climate and that places a time limit on how long Keith Williams has to turn the ship around."