Royal Mail to axe 700 jobs in overhaul that will hit profits

Royal Mail announced plans to axe hundreds of jobs on Tuesday in an overhaul that will hit profits as it aims to improve performance and streamline management.

Britain’s biggest delivery group plans to scrap 700 management jobs at a cost of £70m in reorganisation charges following disruption from Covid-19 that caused thousands of staff to take time off because of illness.

As many as 15,000 staff, or 12 per cent of the workforce, were off in early January, pushing overtime, sick pay and temporary staffing costs up to £340m so far this financial year.

The FTSE 100 group warned the reorganisation charge would lower adjusted operating profits for the UK business to £430m from £500m for the 2021-22 financial year. This compares with £344m in its previous financial year.

Shares were largely unaffected by the announcement, rising 4 per cent to 455.30p by late morning as some of the worries over a potential hit to profits from staff absences were alleviated.

Investors and analysts had expected the group could face extra costs to maintain delivery services after disruption from staff absences and the Omicron coronavirus variant.

The share price has more than doubled since the start of the pandemic.

The group said it had identified a total of £220m of cost savings, which it would “continue to build on over the coming months”.

The job cuts, which Royal Mail said would reduce costs by £30m in the next financial year, would be made in consultation with unions, in particular Unite that represents managers.

Despite improved relations with the Communication Workers Union since a pay deal at the of 2020, Royal Mail has had rocky relations with the unions.

Mark Baulch, a CWU representative, told the Financial Times that negotiations over pay were “not going to be easy” this year because of inflationary pressures in the economy.

In a trading update, Royal Mail Group, including its international division GLS, reported a 2.4 per cent year-on-year fall in revenues in the three months to December to £3.5bn.

“We expected some decline in parcel volumes given most retail stores were open during the period, unlike last year,” said Keith Williams, chair of Royal Mail. “However, the trend towards customers wanting more parcels remains, and responding to that change efficiently is key.”

However, the company said its profitability target, barring the restructuring cost, remained intact for the full year.

Alex Irving, analyst at Bernstein, said that “the bear thesis of Covid absences hurting profitability looks not to be playing out”.