Royal Mail to axe 2,000 managers in bid to cut costs

Royal Mail said it would cut 2,000 manager jobs in a bid to save £130m amid the coronavirus crisis as full year profits slumped by a quarter.

The company on Thursday added that it was also slashing £300m in spending over the next two years. Interim chief executive Keith Williams, who took over after the abrupt departure of Rico Back last month, said the company had "not adapted quickly enough to the changes in our marketplace of more parcels and fewer letters".

"Covid-19 has accelerated those trends, presenting additional challenges,” he said.

The Unite union, which represents Royal Mail managers, said the jobs cuts deflects attention "from where the real problems lie".

Pre-tax profit fell 25% to £180m in the year to March 29 as Royal Mail warned its main UK operation would be “materially lossmaking” this year. Annual adjusted pre-tax profit fell to £275m from £398m a year earlier.

Revenue in the first two months of the current year was down £29m from 2019. Addressed letter revenue fell 23% excluding elections and volumes 33% on the same basis. Operating profit was down £108m, year on year, the company said.

Advertising mail volumes plunged 63%, significantly impacted by Covid-19, while business mail volumes fell 19%. Parcel volume and revenue grew 37% and 28% respectively.

Ironically Back's departure came after his plan to cash in on the lucrative parcels market, driven by the rise in online shopping, met stiff resistance from the Communication Workers Union and delayed further by the coronavirus pandemic.

Royal said it would not pay dividends in 2021 but hoped to restart payments in 2022.

Total costs were up £80m so far, driven by overtime and agency resource costs due to high levels of absence, social distancing measures, protective equipment and parcel related volume costs.

'POOR DECISION MAKING'

On an adjusted basis, revenue increased 3.8% to £10.84bn, while operating profit fell to £325m, at the lower end of the £300m - £400m range the company announced three months ago.

GLS, the firm's courier service, reported a 17.5% rise adjusted operating profit to £208m, although James Rietkerk, the unit's head, stepped down, which CMC Markets analyst David Madden called "a blow to the division".

Unite national lead officer for the Royal Mail group Mike Eatwell accused management of poor decision-making which "failed to recognise the pace in the decline in the volume of letters, and ... too slow investment in technology and facilities to keep abreast of the huge growth in parcels.

"This scenario has been made worse by the adverse impact of coronavirus on the economy."

He describe the job cuts as "a classic example of trying to reposition a business to create a viable long-term future, while feeling under pressure to make short-term cuts that only hinder that transition".

Richard Hunter at interactive investor said Royal Mail's history as a listed business "unfortunately confirms a sorry tale".

"This update may offer some glimmers of hope, but in terms of investor patience much of the damage has been done. As such, the market consensus of the shares as a 'sell' is likely to remain intact.”