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Fat cat bosses holding workers to ransom? Yes, you can understand why the Communication Workers Union is screaming blue murder. Royal Mail’s threat of 10,000 job losses is one way to harden minds during an industrial dispute over pay and working practices.
But the CWU’s leaders would be wise to reflect on a few financial realities. First, Royal Mail is definitely in a deep and deepening financial hole. It has been bizarre in recent weeks to hear Dave Ward, the general secretary of the union, question Royal Mail’s claim to be losing £1m a day. Quoted companies do not pluck numbers out of thin air in their stock market statements, or not usually. In fact, Friday’s statement showed the position to be even worse: the six-month loss was £219m.
That figure, plus a projected loss of £350m for the full year, may feel unreal because Royal Mail made operating profits of £416m within a group-wide outcome of £758m last year. But the massive downwards swing only underlines the size of the boost from lockdown and Covid last time. The underlying trend is still a fall in letter volumes, intense competition in parcels and a need to become more efficient on that parcel side in normal trading conditions.
Second, a major round of redundancies is not the most dramatic manoeuvre at the board’s disposal. A break-up of the parent group, called International Distribution Services since 10 days ago, would be. Royal Mail would be separated from GLS, the non-UK parcels business run out of Amsterdam and the bit that currently makes all the money. There is still a question of whether UK politicians would permit a break-up but, since it would be GLS that would be leaving, it’s not obvious that new national security powers could prevent it. Under a split, Royal Mail’s stability would look even shakier.
Third, the shareholders, including Czech billionaire Daniel Křetínský with a 22% stake, are not sentimental about Royal Mail and its 500 years of history. With the share price at 190p, down another 9% on Friday, they would probably applaud a break-up. At the moment, the £4bn-ish worth of GLS (on course for profits of €370m-€410m this year), is obscured by Royal Mail’s implied negative value. It is only economically rational for those same investors to insist on a “no cross-subsidy” rule until there is a prospect of Royal Mail making profits again.
None of which is to deny that the company’s pay offer in April of a basic 2%, plus a conditional 3.5%, was miserable when inflation is 10% and the group had paid a £400m special dividend to shareholders last year. Whether it was also intended to trigger a confrontation with the CWU doesn’t really matter at this stage. The practical question is how to get out of the mess.
Royal Mail workers can make up their own minds, but the advice here would be to get round to Acas, the conciliation service, and talk. If this dispute runs through Christmas, the numbers start to get extremely ugly.
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