Royal Mail: improving quality of service is “top priority”

Parent company International Distributions Services (IDS) posted its preliminary results for the 52 weeks ending 26 March this morning (18 May).

Overall sales fell by 5.3% to £12.04bn, with a group loss of £748m.

Sales were down 13% to £7.41bn at Royal Mail, which posted a statutory operating loss of £1.04bn.

The adjusted operating loss at Royal Mail was £419m, an £835m reversal on the prior year’s £416m profit by the same measure.

IDS said the loss was due to “industrial action, inability to deliver the in-year benefits of planned productivity improvements, lower test kit volumes and a weaker online retail market” with the situation partly offset by “successful management actions to reduce costs and rightsize the business in the second half of the year”.

The reported operating loss includes a £539m impairment charge against the value of Royal Mail.

Royal Mail also gained £35m from a damages award following a claim against DAF Trucks for vehicles sold to Royal Mail between 1997 and 2011.

The UK Competition Appeal Tribunal issued a judgment on 7 February awarding damages (plus interest) of £35m payable by DAF to Royal Mail.

Sales at overseas parcels wing GLS were up 10.2% at £4.65bn, with an adjusted operating profit of £348m. Operating margins at GLS slipped from 7.8% to 7.5%.

The group will not pay a final dividend. 

Regarding the outlook, IDS stated: “The trading environment continues to be uncertain for both Royal Mail and GLS.

“All of our markets are impacted by a challenging global economy, including high levels of inflation and expectations of lower future economic growth. Against that backdrop, we are targeting a group adjusted operating profit in 2023-24.”

The group also noted: “The outlook in Royal Mail does pose a risk to the group’s targeted investment grade credit rating, and we have taken action to maintain the best possible rating.”

Royal Mail is expected to return to an adjusted operating profit in financial year 2024-2025.

The pay deal agreed with the CWU is still subject to ratification by its members, with that process commencing yesterday.

IDS non-exec chairman Keith Williams said that improving the quality of service at Royal Mail was “our top priority”:

“I said before that we had reached a crossroads at Royal Mail. Now that we have a negotiators agreement with CWU that will shortly go out to ballot, and thanks to the good progress made on our five-point plan to stabilise Royal Mail, our destination is coming into sight.

“There is now a clear path towards a more competitive and profitable Royal Mail, delivering improved services for our customers whilst further reducing our environmental impact. Importantly, if ratified, the CWU agreement provides greater job security and increased rewards – through both pay and profit share – for our employees. Successful delivery of the agreement will be key.”

At the end of last year Williams warned that the price of a First Class stamp could rise to more than £1 if the USO wasn’t reformed. The price subsequently went up by just under 15.8%, to £1.10, last month. 

Today, the group reiterated the need for major reform. It wants the USO obligation to be reduced to a Monday-Friday service.

“We urge the government to work with us to protect the long-term sustainability of the one-price-goes-anywhere Universal Service,” IDS stated.

Addressed letter volumes for the financial year (excluding elections) were down 9%. 

Advertising mail volumes fell 8% year-on-year, while consumer and small business mail volumes declined 21% “driven by a significant drop in stamped letters volumes”, and impacted by 10 days of industrial action during the peak Christmas period last year.

Business mail volumes declined 5%, offset by price increases which led to revenue growth of 4.6% in that segment.

“Total letter revenue was down 5.7%, benefitting from pricing, offset by volume decline and mix effects.”

The CWU also described Royal Mail as being “at a crossroads”.

A spokesperson said: “There is no doubt that Royal Mail Group faces a very serious financial situation. It is one of its own making due to gross mismanagement, but it is serious nonetheless. 

“We now need to see actions rather than words. The toxic environment created by a senior management team that has gone to war with its own workforce needs to end immediately. 

“In recent weeks, there has been no let up on the culture of imposition, disregard for quality of service and the destruction of the service to the public. Royal Mail Group is at a crossroads. It cannot and will not survive without taking the workforce with it through this period.“

Earlier this week Ofcom launched an investigation into the performance of Royal Mail after it admitted that just 73.7% of First Class mail had been delivered within one day against a target of 93%. In some areas of the country it is only managing to deliver once a fortnight, according to frustrated customers.

Royal Mail has also announced the appointment of a new non-executive director, Ingrid Ebner.

The business is searching for a new CEO to replace Simon Thompson, who resigned last week after a torrid period at the helm, but will remain with the business until 31 October for a transition period.

Shares in IDS fell in early trading but had recovered to 220.20p, down 0.9%, by lunchtime (52-week high: 352.10p, low: 173.65p).