Royal Mail threatens to split up business as it reports £1m a day loss | Royal Mail

Royal Mail has reported it is losing £1m a day and has threatened to split if it cannot achieve “significant operational change”, as it faces what could be the biggest strike of the summer.

The day after thousands of its staff in the Communications Workers Union voted in favour of industrial action, the company said it was considering “all options”, including separating its domestic and international businesses under a rebranded holding company called International Distributions Services.

The CWU hit back, calling Royal Mail “pathetic” and accusing it of “pleading poverty and threatening fragmentation” to try to get its way in pay negotiations.

Royal Mail said its adjusted operating loss between April and June was £92m and revenue was down 11.5%. It blamed plunging deliveries of Covid-19 test kits and items bought online, a long-term decline in letter deliveries and a “disappointing performance” in making the business more efficient.

The company said it had worked to reduce its variable labour costs by cutting back on overtime and the use of temporary workers, but had not been able to cut costs quickly enough to match the lower volumes of parcels and letters.

On Tuesday, the CWU announced the results of its ballot of postal worker members in a dispute over pay. Almost 97% voted in favour of strike action on a 77% turnout.

The CWU and Royal Mail have both said they are prepared to return to the negotiating table, but the union said that if a deal could not be reached it would notify the company of the strikes, which are expected to take place in August.

Striking a downbeat tone in a call with reporters on Wednesday morning, Royal Mail’s chief executive, Simon Thompson, said the company needed to “transform the way we work”, amid growing demand for larger parcels and next-day deliveries, including on Sundays.

He said productivity had “gone backwards” over the past three months, and that initiatives previously agreed with the CWU had stalled, amid worsening labour relations.

Royal Mail’s international parcels business, GLS, proved a bright spot as it reported an operating profit of £94m and higher revenue, despite a fall in parcel volumes. This was thanks to higher prices and increased freight revenues.

The company said it wanted to make the most of its new infrastructure, including a “super hub” for parcels in Warrington in Cheshire that opened in June. However, Royal Mail said it needed to ensure it had a “more agile and sustainable relationship with the CWU”.

“We need to discuss the change that will actually pay for the pay,” Thompson told reporters. “It is the change we need to actually win and compete in the market and I am absolutely ready, we are absolutely ready, to have that discussion as long as it’s about change and pay.”

A CWU spokesperson said: “It is pathetic that Royal Mail, a company which announced profits of £758m mere weeks ago, is now pleading poverty and threatening fragmentation unless they get their way.

“Our members are committed to growing Royal Mail as a high quality public service – they deserve a decent pay rise.”

The chair of Royal Mail, Keith Williams, who previously faced up to unions amid acrimonious relations with workers during his time running British Airways, insisted he was a man able to solve labour disputes.

Offering to open up the company’s books to the union, Williams said parcel deliveries represented 60% of Royal Mail’s business and this would result in some changes to ways of working.

“We have the best terms and conditions in the industry, we pay 40% more than other parcels companies. We want to retain those terms and conditions and the best way to do that is to make the changes,” he told the BBC.

“Royal Mail in the UK is essentially a 60% parcels business – it competes against the main players in that market,” he said. “It means potentially later start times for some people, it means various other things.”

The CWU’s deputy general secretary, Terry Pullinger, said Royal Mail’s purported 5.5% pay offer actually amounted to a 2% increase at a time of soaring inflation, which last month reached a new 40-year high of 9.4%.

Accusing the company of “sharp practice” and “not honourable behaviour”, Pullinger told the BBC he did not believe Royal Mail was putting forward a genuine offer.

Royal Mail has said it hoped to break even in the current financial year, but this did not include the impact from possible strike action.