Royal Mail warns on ‘material’ UK losses if strikes proceed

Royal Mail has warned that its UK postal service will be “materially lossmaking” this year if a series of proposed strikes takes place across four days in August and September.

The company said on Wednesday that the Communication Workers Union planned to organise strikes on August 26 and 31, as well as on September 8 and 9, the latest in a wave of industrial action sweeping across the UK.

The warning comes after the group said last month it was considering breaking up the business, which includes its profitable overseas operations, GLS.

Royal Mail said the CWU had rejected a pay award worth up to 5.5 per cent, which would have added about £230mn to Royal Mail’s annual “people costs” at a time when the business was already lossmaking.

“This decision by the CWU is an abdication of responsibility for the long-term job security of its members,” said Royal Mail. “In more than three months of talks, CWU has failed to engage meaningfully on the business changes required.

“Royal Mail announced it was losing a million pounds a day and the proposed pay deal adds more than half a million pounds a day to that figure,” the company added. “This can only be paid for with meaningful business change.”

Shares in Royal Mail were down 2.5 per cent at midday on Wednesday to 260p.

The CWU said more than 115,000 postal workers were expected to take part in “the biggest strike of the summer so far” to demand a “dignified, proper pay rise”, as inflation reached a 40-year high.

CWU general secretary Dave Ward said: “Nobody takes the decision to strike lightly, but postal workers are being pushed to the brink.

“We can’t keep on living in a country where bosses rake in billions in profit while their employees are forced to use food banks.”

The union cited Royal Mail’s annual profits of £758mn in the last financial year in its argument for a larger pay increase.

However, Royal Mail said “the Covid tailwinds [have] dissipated”, adding that cost savings and a wider overhaul in strategy were required.

“The UK business is at a crossroads, [the] losses are unsustainable,” the company said. “We must change the way we work so that we can deliver more of what our customers want — bigger parcels, delivered more often and with a lower environmental impact.”

Royal Mail had previously expected to break even, had it been able to push ahead with its cost savings and modernisation plan.

Gerald Khoo, an analyst at Liberum, said: “There are clear risks of parcel customers seeking alternative delivery providers [as a result of the strikes]. Therefore, there may be a long-term adverse impact on revenue as well.”

In the three months to the end of June, the UK postal service reported an operating loss of £92mn.

“The negative commercial impact of any strike action will only make pay rises less affordable and could put jobs at risk,” said Royal Mail.

The group had “contingency plans in place” and said it remained ready to negotiate with the CWU, “but any talks must be about both change and pay”.

Robin Byde, analyst at Zeus Capital, said: “These are tough times for Royal Mail and postal workers – the uplift from Covid and the lockdowns is long gone.”