Royal Mail has reported a £1bn loss, with bosses blaming strike action by workers and a failure to increase productivity for its poor performance during a year in which it cut 10,000 jobs.
The poor performance led International Distributions Services (IDS), which owns Royal Mail, to report an overall loss of £748m for the year to 26 March. That compares with a profit of £577m a year earlier.
IDS said Royal Mail swung to a loss “due to industrial action” by unionised staff over pay and working conditions that eventually led to the resignation of its chief executive, Simon Thompson, last week, as well as an “inability to deliver the in-year benefits of planned productivity improvements”.
While the company finally reached a deal which the union agreed to put to its membership last month, the postal service also suffered a drop in demand for Covid test kit deliveries, as well as a dip in online shopping, which led to a boom in parcel deliveries during the pandemic.
Together, those problems overshadowed what IDS said were successful efforts to cut costs and “rightsize” the business in the second half of the financial year.
Those efforts included slashing 10,000 jobs at Royal Mail, a target it reached months before schedule and which will save the business about £150m over the next financial year. IDS’s chief financial officer, Mick Jeavons, said “there is no further job cut plan, or target”.
However, further cost cuts may still be rolled out. “We’ll continue to revise and improve performance in all our units every year,” the IDS chair, Keith Williams, said.
The company said its deal with the Communications Workers Union, which will be voted on by members at the end of the month, opened the door for “further operational efficiencies” that would make Royal Mail more competitive.
Royal Mail, which was privatised in 2013, has spent nearly a decade trying to revamp the business amid a decline in letters and a surge in online shopping that has led to an increase in competition for parcel deliveries.
While the pay deal – which was reached after workers staged 18 days of strike action – will cost about £600m, IDS said it would largely be covered by cost cuts over the next two years.
Williams said there was now a “clear path towards a more competitive and profitable Royal Mail, delivering improved services for our customers while further reducing our environmental impact”.
However, bosses have not ruled out plans to potentially break up the business. “That’s not our current intention. We feel we’re moving forward, but it is still an option if we don’t,” Williams said.
But he acknowledged the quality of its services had declined, just days after the communications regulator launched an investigation as it emerged more than a quarter of Royal Mail’s first-class mail was not delivered on time.
“Quality of service has been significantly affected by industrial action and high levels of absence. I am sorry that we have not delivered the high standards of service our customers expect. Improving quality of service is our top priority,” he said.
“Our plan is to return to group profitability this year but also seize the opportunity for both businesses to deliver ongoing profits thereafter, to the benefit of both our employees, customers and shareholders.”
Thompson, who took on the job in early 2021, will leave in October after a bruising tenure that included being accused of “incompetence or cluelessness by MPs”.
IDS bosses said they were not aware of whether personal attacks from either politicians or unions played a part in Thompson’s decision to step down. “We’ve been at a crossroads and we were moving forward, and Simon decided this was the opportunity for him to step down and appoint new leadership,” Williams said.
IDS stock was the biggest faller on the FTSE 250 in early trading, down 3.2%.
