Wildcat strikes may harm UK Royal Mail's financial recovery

Royal Mail warned yesterday that its fragile financial recovery would be “materially affected” by the recent unofficial strike action, because of lost business, brand damage and the risk of fines from the regulator.

The mail group made a small pre-tax profit of Pounds 3m for the first sixth months of the year, the first time it has been in the black in the first half for five years. Royal Mail made a loss of Pounds 542m in the same period last year. The move into profit was triggered by a 1p rise in the price of stamps in May, which generated Pounds 90m.

Adam Crozier, Royal Mail chief executive, said the group would only make a full-year profit if costs were cut. Wage rises and extra pension scheme payments will create almost Pounds 500m of costs in the coming months, and Mr Crozier said “unless we make operational changes to pay for these costs we will move straight back to a loss”.

A Pounds 2.5bn deficit in the Royal Mail pension scheme means that an extra Pounds 130m needs to be paid into the fund by the company.

The plan to raise postal workers’ wages by 14.5 per cent would cost Pounds 340m, said Mr Crozier, although the majority of this would not be paid unless productivity targets were met.

The main part of Royal Mail’s restructuring is the abolition of the second daily mail delivery, which is expensive but deals with relatively few letters. Mr Crozier said that as of yesterday 562 postal offices, about a third of the total, had agreed to move to a single delivery.

Mr Crozier also warned that profits would be harmed by the wildcat strikes. Royal Mail is assessing how much business it lost during the industrial action, and is campaigning to win back big clients such as Tesco, who have moved to other mail companies.

Royal Mail expects to miss reliability targets because of the strike and to be fined by Postcomm, the postal regulator. Missing these targets by more than 1 per cent would also trigger compensation payments for the group’s business customers.

But Postcomm said it may waive any fine if it concluded Royal Mail made as much effort as possible to limit the effects of the strike.

Allan Leighton, Royal Mail chairman, said relations between management and workers were “much better” and that any lingering disputes over pay and conditions were confined to London.

But the Communication Workers’ Union condemned Royal Mail’s plans to cut thousands of jobs. The union also said it was concerned that Royal Mail was making its finances look as bad as possible in order to push through changes.