Royal Mail has warned that its letters and parcels delivery service is at risk of falling into the red.
Shares in the privatised postal network fell to new lows yesterday after the company said that it may fail to hit the targets of a turnaround plan and that its UK operation will crash to its first losses since it was floated more than six years ago.
The gloom was made worse by fears that the Communication Workers Union is embarking on plans for the first national strikes in a decade.
Royal Mail’s shares, many owned by private investors who bought in at privatisation and by a workforce trust, closed down 10½p, or 5.5 per cent, at 179p. The shares floated at 330p in 2013 and peaked at more than £6 a few weeks later.
The company has also been hit by its failure to introduce new automated parcel-sorting technology to the timelines it has set itself.
Royal Mail is the country’s former state-owned postal monopoly, founded five centuries ago by Henry VIII. It is struggling to make its way amid falling letter volumes, as people communicate via email and social media, and parcel delivery competition from the likes of Amazon.
Last year in the UK it employed 143,000 people, more than 0.5 per cent of the nation’s workforce. A further 19,000 work for General Logistics Systems, its parcel delivery business in Europe and the US.
It delivered 13 billion letters and 1.3 billion parcels in the UK. It made pre-tax profits of £398 million, down nearly 30 per cent, on revenues up marginally at £10.5 billion.
Yesterday, the group reported on its Christmas trading quarter, a crucial period because of the rush of items bought online around the Black Friday shopping event in November as well as the wave of cards and presents sent before December 25.
With letter volumes down by 8 per cent on a like-for-like basis and parcel volumes only ahead by 4 per cent, the company has forecast that it will produce group operating profits of between £300 million and £340 million in the year to the end of March 2020. That compares with operating profits in 2018-2019 of £544 million.
Royal Mail also warned that with letter volumes now expected to fall even faster than the long-term average, by up to 9 per cent over the next year, UK parcels and letters will fall into the red in its next financial year.
The company blamed this on “the ongoing industrial relations environment, delays to the delivery of our transformation plan . . . combined with continuing economic uncertainty”.
Royal Mail’s group-wide profitability in 2020-21 will depend on how deeply UK parcels and letters fall into losses and how much General Logistics Systems holds up. At the half year, about 55 per cent of Royal Mail’s group operating profits were accounted for by the US operation.
Rico Back, 65, chief executive, blamed Royal Mail’s worsening outlook on the union. “We are disappointed that the CWU has issued a timeline for a ballot of its members for industrial action. We stand ready to invest £1.8 billion to modernise and grow in the UK.
“We want to reach agreement with the CWU but we cannot . . . delay this essential transformation any longer.”
By the time Dame Moya was on her way, replaced by the German Rico Back, head of Royal Mail’s international division, General Logistics Systems, tensions were simmering.
Mr Ward’s Communication Workers Union is threatening the first national strike in a decade at Royal Mail as Mr Back gets on with the transformation, long promised but not delivered by Dame Moya.
Royal Mail is at heart a letters business wanting to be a parcels business. It is not wholly irrelevant that letter volumes have halved since the internet started eating into its market from 2004 onwards and are expected to nearly halve again in the next five years.
However, at issue is the automation of Royal Mail’s antiquated parcel-handling capability via three new giant hubs and the introduction of parcel sorting machines. Transformational productivity gains are the prize, but the unions see machines replacing jobs and new “invasive” working practices.
Like railway workers, postal workers still believe that they should have a say in changes to their business.
That Mr Back has struck a confrontational tone in his 18 months in charge is one way of bringing change.
The presence of a well-organised 100,000-strong trade union suggests we may be in the realms of irresistible force meeting immovable object.
