Royal Mail owner swings to £1bn loss as demand falls and wage costs rise

Royal Mail has swung to a £1bn loss and does not expect to turn a profit until 2025, as it races to recover from a dispute with postal workers that contributed to deteriorating delivery standards.

A £539mn impairment charge on the value of Royal Mail led to its £1bn operating loss during the 12 months to March, a severe decline from the £250mn profit recorded a year earlier.

Parent company International Distribution Services added on Thursday that Royal Mail was targeting a return to profitability in the year ending March 2025, although this would exclude any redundancy payments after the group cut thousands of staff.

The Royal Mail impairment dragged IDS to a £748mn operating loss despite its international parcel business, General Logistics Systems, remaining profitable during the year.

The results underline how quickly Royal Mail has been plunged into a financial crisis during one of the most challenging years in its history. It has struggled to modernise its service amid resistance from staff and increasing competition from rivals that employ delivery workers on less favourable terms.

Britons across the country have seen longer delivery times as Royal Mail battled a disruptive cyber attack and 18 days of strike action by postal workers that culminated in the recent resignation of Simon Thompson, its current chief executive. The group has also been hit by declining demand for online shopping deliveries as Covid-19 lockdowns ended.

This week, regulatory body Ofcom announced it had opened an investigation into Royal Mail’s failure to meet its delivery targets, adding the inquiry could result in a financial penalty if it does not receive a satisfactory explanation.

During the year, Royal Mail delivered just 74 per cent of first class mail within one working day and 91 per cent of second class mail within three working days, falling short of its obligation to deliver 93 per cent of first class mail and 99 per cent of second class mail within these times.

The group said that the cyber attack, which temporarily shut down its export services from January, had contributed to a 7 per cent decline in international parcel volumes during the year.

IDS chair Keith Williams said he was “sorry that we have not delivered the high standards of service our customers expect”.

Royal Mail was “in advanced stages” of deciding a replacement for Thompson, who will step down after October, Williams said.

Royal Mail last month reached an agreement with the Communication Workers Union, which includes changes that the historically letters-focused group hopes will enable it to meet growing demand for parcel deliveries seven days a week, such as adjustments to delivery start times and Sunday working.

But the deal, which is yet to be voted on by postal workers, included an improved offer on pay and a profit-sharing agreement, which will eat into profitability as Royal Mail seeks a turnround.