Can Royal Mail get back on track? Union rows place dividend at risk 

Royal Mail is facing a pivotal year. Boss Rico Back is trying to roll out modern technology and shift its business model towards parcels, as the number of letters being sent continues to decline.

But his plans are getting a rough ride, with trade union chiefs arguing they are camouflage for thousands of job cuts.

The standoff has prompted a frustrated Back, 66, to press ahead with his overhaul this year without securing their backing.

Investors, including more than 700,000 individuals who bought Royal Mail shares after privatisation in 2013, are looking on nervously, having seen the price fall more than 70 per cent since their peak in 2018.

Back says the change is essential and the company cannot afford to delay it any longer.

But in response, the furious Communication Workers Union (CWU) – which represents two-thirds of Royal Mail’s 140,000-strong workforce – has vowed to ballot next month for strikes.

Dave Ward, the union’s general secretary, is not only threatening industrial action if members vote in favour, but also to expose what he calls ‘the mismanagement’ of Royal Mail.

The stage is set for a damaging showdown. A note from Liberum went so far as to say that the company’s strategy had been rendered ‘undeliverable’ by the row.

Liberum’s warning came after Royal Mail admitted in a third-quarter update that industrial disputes threatened to derail its transformation efforts and push its UK business into a loss in the 2020-21 financial year. 

Repeating a ‘sell’ recommendation, Liberum said: ‘Management openly questioning the achievability of targets just nine months after its strategy launch is hardly encouraging.’

Royal Mail claims that its row with the union over Christmas, when it succeeded in blocking strike action through the courts, has already caused some customers to switch to rival services and that further industrial action will send more running for the hills.

Back argues his plans are vital to allow Royal Mail to compete with rivals such as DHL, Fedex and Amazon. They involve replacing some letter-sorting machines with ones that handle parcels and introducing a van delivery service for larger packages.

Royal Mail Boss Rico Back is trying to roll out modern technology and shift its business model towards parcels, as the number of letters being sent continues to decline

Royal Mail has also introduced devices that track the progress of postmen on their delivery rounds. 

Bosses want to replace the arcane system for calculating pay – which still involves entering working hours into spreadsheets – with the digital swipe cards used in many modern offices. 

But the proposals are opposed by the CWU, which argues they should not be introduced without its support and guarantees on pay and conditions.

The union also claims the various changes collectively amount to an effort to track postmen ‘like criminals’ to ensure they are working as efficiently as possible.

It fears that as more changes are introduced, Royal Mail will slash the number of postmen. Royal Mail denies this and says it is introducing services that customers want. 

But trials it has launched in areas such as Swindon, for separate van delivery of packages, has led to threats of area-by-area strike action on top of national strikes by CWU members.

A Royal Mail spokesman said it wants to invest £1.8billion. This will focus on customer service improvements, digital initiatives, network enhancements and new ways of working to deliver more productivity and efficiency.

Analysts warned that this year’s dividend – already set to be cut from 25p to 15p – was ‘potentially unsustainable’ and ‘inadvisable’.

So is Royal Mail about to cancel its dividend?

John Moore, senior investment manager at Brewin Dolphin, said: ‘Industrial relations and political issues aside, the UK business appears to be taking better shape as the results of its transformation come through. 

That said, an indication of what Royal Mail’s future dividend policy will be – along with capital expenditure and expansion plans – is missing.’

After Royal Mail shares hit record lows earlier this month, the question for many investors will now be whether it is worth hanging on. 

In the parcel delivery space where it wants to expand, there is tough competition. Small shareholders, many of whom came in at the 330p float price in 2013, will be aware of the opportunity cost of staying invested and might well feel there are better homes for their savings elsewhere.

With even the reduced dividend at risk, the case for sticking with Royal Mail is looking increasingly thin.