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Trading since December has been affected by staff absences caused by omicron and inflationary pressures.
Royal Mail PLC (LSE:RMG) has cut its profits forecast for this year and announced plans to shed 700 managerial jobs as part of a reorganisation plan.
“As a next step, subject to consultation, we intend to further simplify and streamline our operational structures to ensure an improved focus on local performance, and devolve more accountability and flexibility to frontline operational managers,” the company said in a statement.
The cost of the redundancies will be £70mln, which has prompted the parcels and letters group to reduce its forecast for profits for the year to March 2022 at its UK business to £430mln from £500mln previously.
Savings from the redundancy programme will amount to £40mln annually at the end of the next two fiscal years, the group added.
Today’s announcement follows a cull of 2,000 back-office and managerial staff in 2020.
Royal Mail’s parcel business has been buoyed over the past two years by a surge in online shopping during lockdown, but this is easing off now it said.
Trading had also weakened since December due to staff absences caused by omicron and inflationary pressures.
Simon Thompson, chief executive, said: “With the rise of omicron, absence has been around twice pre-COVID levels, with around 15,000 staff off sick or isolating in early January.”
He added that the delivery group had spent £340mln on overtime, additional staff and sick pay.
Royal Mail has been heavily criticised for its delivery performance over Christmas, especially letters, but Thompson said the situation was improving with local offices affected now down to 10 from 77 at the peak.
Revenue in the third quarter to end December 2021 fell by 2.4% to £3.55bn, with UK parcel volumes down by 7% and letters by 3% compared to 2020.
Overseas arm GLS increased revenues by 4.5% with guidance now for 4% growth over the year and operating profits of €400mln.
Martin Seidenberg, GLS chief executive, said it has put up prices to offset rising costs.
“Cost headwinds are being experienced in both our European and North American businesses driven by higher inflation rates and a limited pool of available line-haul and delivery drivers.”
Shares in Royal Mail jumped 5% to 458.5p.
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