Royal Mail looks to cut letter deliveries as strike action leads to big losses: reaction
Chief executive Simon Thompson vowed to do “whatever it takes” to turn the group around after interim results showed it tumbled to a £219 million underlying operating loss in the 26 weeks to September 25 against profits of £235m a year ago. The group said three days of strike action in the first half cost Royal Mail around £70m, while a further five days in October are estimated to have cost it about another £30m.
Royal Mail’s owner International Distributions Services (IDS), which was renamed from Royal Mail Group earlier this year and includes international delivery service GLS and Intragroup, reported pre-tax losses of £127m for the first half, against profits of £315m a year earlier.
The group is formally asking the government to switch from a six-days-a-week letter delivery service to five, covering Monday to Friday only, under its universal service agreement. It will, however, look to maintain a seven-day parcel delivery service.
Thompson said: “We have always been clear we need change to survive. We have started turning the business around and will do whatever it takes. We would prefer to reach agreement with the Communication Workers Union (CWU) but in any case we are moving ahead with changes to transform our business.”
A government spokesman said there are “no current plans to change the universal service”, adding: “While we recognise the issues that Royal Mail raise, there would need to be a strong case that showed changes would meet reasonable needs of users of postal services and ensure the financial sustainability of the universal postal service.”
Keith Williams, non-executive chairman of IDS, said: “We have started to implement the change needed to rightsize Royal Mail, which will ensure that it is both better placed to serve our customers’ needs in parcels, as well as letters, bring it back to profitability and provide a sustainable future.”
Royal Mail last month said it will consult on up to 6,000 redundancies as part of efforts to reduce full-time roles by 10,000, blaming industrial action for huge financial losses.
Victoria Scholar, head of investment at Interactive Investor, said: “IDS has been facing major headwinds from industrial action at Royal Mail this year which has been sharply weighing on its profitability. Investors have had a rough ride this year with shares down over 50 per cent year-to-date. However, the last month has been more positive for equities in general, lifting IDS by more than 20 per cent but the stock is under pressure today.”
Matt Britzman, equity analyst at investment platform Hargreaves Lansdown, noted: “A new name hasn’t made old problems go away as IDS, the owner of Royal Mail, delivers news of a challenging first half, to say the least. Battles with unions over pay are never good for business, and when that leads to strike action it has a material impact on performance.”
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