Royal Mail at war with unions as losses mount

Bosses threaten break up as workers vote to strike

Royal Mail warned it could split up its business as it loses £1m a day amid a pay row with trade unions.

The post carrier said a break-up was on the cards unless it achieved ‘significant operational change’, adding it was considering ‘all options’ for its future.

The company is comprised of Royal Mail, its UK postal business, and GLS, its much more successful international delivery arm.

Executives refused to elaborate on what a split would involve.

The statement came after thousands of Royal Mail staff in the Communication Workers Union (CWU) voted overwhelmingly for industrial action in what could be the biggest strike of the summer amid a dispute over pay rises.

The firm also unveiled plans to rename its parent company as International Distributions Services, to reflect the ‘increased importance’ of its international parcel business GLS.

The warning followed bleak results for the three months to the end of June, which saw Royal Mail revenues drop 11.5pc year-on-year to nearly £1.9bn alongside a loss of £92m, as demand for parcel and test kit deliveries sparked by the pandemic plunged following the end of lockdown restrictions.

The company also noted that high inflation and the cost of living crisis was hitting its performance while its efforts to make the business more efficient had been ‘disappointing’.

Royal Mail has introduced measures to cut costs, such as reducing overtime and relying less on temporary workers, but it warned these had not been fast enough to offset the impact of falling letter and parcel volumes.

The performance stood in stark contrast to the firm’s GLS business, which reported revenue growth of 7.8pc to £1.1bn and a profit of £94m.

As a result of the quarterly performance, Royal Mail predicted profits in the business would break even for the full year but this did not include the impact of any strike action.

The shares rose 0.2pc, or 0.6p, to 285.6p following the update.

‘Whilst GLS delivered a solid performance in the first quarter, the performance of Royal Mail was disappointing,’ said Royal Mail chairman Keith Williams.

‘The pandemic boom in parcel volumes bolstered by the delivery of test kits and parcels is over. Royal Mail is currently losing £1m per day and the efficiency improvements which are needed for long-term success have stalled.’

Writing in the Daily Mail, Williams added the company could see its ‘last hurrah’ if it continued on its current trajectory and a refusal to change was ‘reckless’.

Royal Mail has recently embarked on a plan to transform its business and make it more competitive as it battles rivals such as Amazon.

The 500-year-old firm, which can trace its roots back to Henry VIII, is aiming to shift its focus towards parcels as well as improving automation and delivering post on Sundays.

But Royal Mail chief executive Simon Thompson said building new infrastructure was ‘not enough’ and it also needed to change its working practices.

‘We need to change – and change now,’ he added.

AJ Bell analyst Danni Hewson said any hope that the pandemic would revive a turnaround strategy was looking ‘pretty forlorn now’ as structural and staffing issues returned to the fore.

She added that the company was ‘painting a bleak picture’, which may be a message to union bosses that there is ‘only so far it can go in negotiations.’