Royal Mail to cut around 10,000 jobs amidst ongoing strikes

Royal Mail has published a trading update revealing its expected full year adjusted operating loss of around £350 million. The organisation says it plans to make short-term cost efficiencies through an estimated reduction of around 5,000 full time equivalent operational roles (FTEs) by March 2023 and c.10,000 by end of August 2023.

Key points:
• Royal Mail H1 2022-23 adjusted operating loss of £219 million (2021-22: £235 million profit), including around £70 million of direct negative impacts from 3 days of industrial action;
• Royal Mail trading cash outflow in H1 of £274 million1 (2021-22: £114 million inflow). On a pre-IFRS16 basis it was a £330 million1 outflow (2021-22: £64 million inflow);
• We will be starting the process of consulting on rightsizing the business in response to the impact of industrial action, delays in delivering agreed productivity improvements and lower parcel volumes: Short-term cost efficiencies being achieved through an estimated reduction of around 5,000 full time equivalent operational roles (FTEs) by March 2023 and c.10,000 by end of August 2023 (on a rolling 12 month basis); Based on current estimates, c.5,000-6,000 redundancies may be required by end of August 2023.
• Royal Mail full year estimate: expected full year adjusted operating loss of around £350 million, including the direct, immediate impact of eight days of industrial action which have taken place or been notified to Royal Mail, but excluding any charges for voluntary redundancy costs. This may increase to around a £450 million loss if customers move volume away for longer periods following the initial disruption;
• Communication Workers Union (CWU) has threatened, but not yet formally notified Royal Mail, of a further 16 days of strikes in November and December. If these take place, the loss for the full year would increase materially and may necessitate further operational restructuring and headcount reduction;
• The ongoing uncertainty means that the Board is unable to give a clear outlook for the full year. Additionally, this situation may lead to an impairment of the carrying value of the Royal Mail business when H1 results are published on 17 November;
• Royal Mail urges CWU to immediately call off planned strike action and embrace our offer of Acas talks to urgently find a resolution to the current dispute.

“The position of Royal Mail has deteriorated due to a combination of the impact of the industrial dispute, an inability to deliver the joint productivity improvements agreed with CWU under the Pathway to Change agreement, and ongoing macro-economic headwinds. Although action was taken in H1 to lower labour costs, the business was unable to reduce costs quickly enough in line with deteriorating parcel volumes.

Despite the current financial position, to date CWU has already taken 6 days of industrial action and formally notified Royal Mail of a further 2 days of damaging industrial action on 20 and 25 October, which are expected to go ahead.

Royal Mail expects to incur a full year adjusted operating loss of around £350 million, including the direct impact of eight days of industrial action which have taken place or been notified to Royal Mail, but excluding any charges for voluntary redundancy costs. This may increase to around a £450 million loss if customers move volume away for longer periods following the initial disruption.

In response, we will be starting the process of consulting on rightsizing the business. Short term cost efficiencies are being achieved through an estimated reduction of around 5,000 FTEs by March 2023 (on a rolling 12 month basis), to better match our costs to current parcel and letter volumes. Our operational FTE workforce will need to reduce by an estimated c.10,000 by the end of August 2023 (on a rolling 12 month basis).

The CWU has threatened, but not yet notified Royal Mail, of a further 16 days of strikes in November and December. Additional days of industrial action beyond 25 October would increase the loss for the full year materially and may necessitate further operational restructuring and headcount reduction.

Wherever possible, we will look to achieve FTE rightsizing through reductions in overtime, temporary staff and natural attrition. However, based on current estimates, c.5,000-6,000 redundancies (frontline roles in delivery and processing) may regrettably be required by the end of August 2023.

We will do all we can to avoid compulsory redundancies, including offering a voluntary redundancy scheme. The financial position of the business means that our legacy voluntary redundancy policy, which offered up to two years’ pay, is now unaffordable. We will consult with CWU on any new voluntary redundancy arrangements.

There is an increased risk of impairment of the carrying value of the Royal Mail cash generating unit (CGU)3, which was £1,366 million at 27 March 2022. Any impairment charge would be classified as a non-cash specific item. An update on the outcome of the impairment review will be provided as part of our H1 results announcement on 17 November 2022.

These results further highlight the need for significant and urgent change at Royal Mail with a further rightsizing of the business and modernisation of working practices. We will continue to take forward a range of initiatives to improve efficiency over the medium term to secure the long-term prospects for the company. We will also continue to push for talks with CWU at Acas, which need to be time bound as the damage from further strikes will only necessitate further changes in the business, beyond those already announced.

Notwithstanding challenging trading conditions across its markets, the performance of GLS remains on track to meet full year expectations of an adjusted operating profit between €370 – €410 million. The business continues to benefit from its resilient business model based on high quality services, wide geographical spread, balanced mix of B2B and B2C revenues and ability to manage costs and pricing.

The Board has always maintained that there should be no cross subsidy in the Group and recognises the need to address improvements in Royal Mail’s performance quickly. In the event that significant change within Royal Mail is not achieved, all options remain open to protect the value and prospects of the Group, including separation of the two companies.

A further update on performance will be provided in our half year results announcement on 17 November 2022.”