Royal Mail: We need to change – and change now

Royal Mail: We need to change – and change now

Royal Mail  has provided an update on trading for the first quarter, April to June 2022 revealing “disappointing” performance, with the company currently losing one million pounds per day. The Board warns if “significant changes” are not achieved it will considering separating Royal Mail and GLS.

Royal Mail

• Revenue down 11.5% year on year in the first quarter, reflecting weakening retail trends, lower test kit volumes and a return to structural decline in letters
• Adjusted operating loss of £92 million, reflecting inflexibility in the cost base to adjust to lower volumes and disappointing performance on delivery of further efficiencies
• Progress on Pathway to Change stalled, creating £100 million risk to £350 million of benefits identified for FY 2022-23; other cost saving programmes on track, albeit with headwinds from
recent increases in absence due to COVID-19
• Q1 performance emphasises the need to act now to make the most of our new infrastructure, find more flexible ways of matching resource to workload and ensure we have a more agile
and sustainable relationship with the CWU
• Now moving ahead with actions where we do not need further union agreement, notably revisions and Scan-in Scan-out (SISO) in Delivery

Outlook for FY 2022-23: weaker parcels market and lower than anticipated efficiency savings in-year. Provided progress can be made on above actions, now likely to be around breakeven
at adjusted operating profit level, excluding any impact from industrial action.

• Volume declined 3% year on year in the first quarter; revenue growth of 7.8% in Sterling, (9.8% in Euros), including acquisitions, benefitted from better pricing and higher freight revenues
• Given current inflationary environment and COVID-19 restrictions in place during Q1 2021-22, some margin compression year on year, as expected

• Operating profit of £94 million (€112 million), broadly in line with prior year

• Maintaining FY 2022-23 outlook: revenue growth year on year of high single digit % in Euros and operating profit in the range of €370 to €410 million Group:
• Holding company Royal Mail plc to be renamed International Distributions Services plc to reflect the group structure of two separate companies (Royal Mail and GLS). Our intention is
to have clearer financial separation with no cross subsidy, reflecting the increased importance of GLS to the group and our position in the wider logistics and distribution markets
• No impact on Royal Mail and GLS brands
• In the event that significant operational change within Royal Mail in the UK is not achieved, the Board will consider all options to protect the value and prospects of the Group, including
separation of the two companies.

Keith Williams, Chair, commented: “Whilst GLS delivered a solid performance in the first quarter, the performance of Royal Mail was disappointing with an adjusted operating loss of £92 million resulting from of a decline in parcel volumes post the pandemic and a lack of progress in delivering efficiencies.”
“The pandemic boom in parcel volumes bolstered by the delivery of test kits and parcels is over. Royal Mail is currently losing one million pounds per day and the efficiency improvements which are needed for long term success have stalled.”

Classified: RMG – Internal
‘We can however be a long-term success story. We have advantages in scale and reach and a strong balance sheet and asset base which are the foundations for a successful future. We need to act now in moving to that future in the interests of all stakeholders, employing those advantages to the maximum.”

Simon Thompson, CEO Royal Mail, commented: “We have made progress building the infrastructure we need for Royal Mail to compete, especially given the growing demand for more larger parcels, delivering the next day – including Sundays – and in a more environmentally friendly way. But building the infrastructure is not enough. We have to transform the way we work too. We need to change – and change now. This is how we can give our team the job security that they deserve for tomorrow and not just for today. I am ready to talk about pay and change at any time. But it has to be both.”

Martin Seidenberg, CEO GLS, commented: “GLS continues to deliver a good performance, with weaker B2C volumes partly offset by growth in B2B. Pricing actions have mitigated volume declines and revenue grew by 9.8% year on year in Euro terms. Given inflationary pressures, operating profit margin contracted, as expected. Whilst we anticipate further cost pressures in the second half, we are maintaining our full year outlook.”

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