Royal Mail slashes management jobs as virus hits postal demand

[LONDON] Royal Mail said it will cut around 2,000 management posts, or 40 per cent of the total, in a bid to streamline the business after the coronavirus outbreak accelerated a decline in letter volumes.

Britain's 500-year-old postal service plans to reduce costs by £500 million (S$866.2 million) over the next two years by paring labour expenses and reining in capital spending, it said in a statement on Thursday.

Chairman Keith Williams is seeking to reignite a turnaround plan at Royal Mail after taking on an executive role last month following the surprise exit of chief executive officer Rico Back, who had clashed with unions over planned productivity gains. While the Covid-19 crisis has boosted home parcels deliveries as people shop online, business-to-business mailings have slumped.

"Our plan for the group was to have parcels around 70 per cent of the business by 2024. That's coming about more quickly, and what you've seen is a very quick transition from letters into parcels," Mr Williams said in a phone interview.

Mr Williams said Amsterdam-based parcels arm General Logistics Systems remains a key activity, despite analysts touting the prospect of a split. While there are few synergies between the UK and overseas operations, having an international presence "is clearly important," he said.

Shares of Royal Mail traded 5.5 per cent lower at 169.9 pence as at 8.13am in London, where the company is based. The stock has declined 26 per cent so far this year.

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Royal Mail said it plans to accelerate the pace of operational change in the UK to ensure long-term sustainability, and will seek to revisit the so-called universal service obligation governing daily deliveries to better reflect user needs. labour costs should fall by £130 million this year and capital spending by £300 million over the next two.

Even with the changes, the main UK parcels, international and letters division is likely to be "materially loss-making" in fiscal 2021, the company said. The business was already lurching towards a loss even before the pandemic amid a labour dispute that saw Back clash with the Communications Workers Union.

Mr Williams said he's seeking to open talks on future pay and the issues raised by the labour group, as well as the need for change.

Royal Mail, which won't pay a dividend this year, has also racked up costs during the viral outbreak after increased overtime payments and expenses for hiring agency workers and buying protective gear.

The company mapped out two scenarios for the year ahead, one with a 10 per cent decline in UK GDP that could shave as much as £250 million from revenue, and the other for a 15 per cent slide in the economy that could wipe out £600 million and add more than £250 million in Covid-related costs.

The company posted an adjusted pretax profit of £275 million for the year ended March 31.

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