Royal Mail’s (RMG) painful saga with its employees continues. A trading statement from the group said that it may fail to deliver on its transformation plan and reach its targets for 2024, as it faces the threat of further strike action from the Communication Workers Union (CWU).
Still, the postal operator insisted that it will continue with plans for a company shake-up, which would pump £1.8bn into the business to “modernise and grow in the UK”. Chief executive Rico Back said: “We want to reach agreement with CWU; but we cannot afford to delay this essential transformation any longer.”
Royal Mail is aiming for 70 per cent of its sales to come from parcels by 2024, with an increasing proportion of revenue generated from overseas. The group cited progress on rolling out small parcel sorting machines (PSMs), and it has also chosen a supplier for the automation of its Warrington parcel hub. Meanwhile, seven more letter sequencing machines were decommissioned during the third quarter – making a total of 24 in the year to date.
Over the nine months to 29 December 2019, revenues for the UK parcels, international and letters (UKPIL) division – adjusted for fewer working days compared with the prior year – rose by 2.1 per cent. A slight dip in letter revenues – which came despite boosts from the European parliamentary election last May and the UK general election in December – was offset by an improvement in parcel sales.
Black Friday and Cyber Monday parcel volumes were better than expected. But the rest of the Christmas period saw lower-than-expected volumes. Royal Mail attributed this to some customers moving to other carriers because of the risk of further industrial action.
For the 2019-20 year, Royal Mail expects declines in letter volumes in the range of 7-9 per cent and adjusted operating profits of £300m-£340m (before factoring in accounting rules pertaining to leases). Looking ahead to 2020-21, the group noted that tensions with its workers and delays to its transformation plan, along with ongoing economic uncertainty, increases the likelihood that the UKPIL division will be lossmaking. Without “significant progress” in its turnaround, its ability to meet its 2024 targets “will be compromised”.
Berenberg analyst William Fitzalan Howard noted that: “We were reticent about the turnaround programme before. Over the course of the year in 2019, the risk to that got clearer and clearer.” He added that he didn’t imagine everything would go wrong for Royal Mail over the next couple of years, “but there is a risk on parcel volume growth both because of the industrial action and the UK economy. There is risk on the cost side because of the industrial action and their inability to get productivity improving. And there is risk on the letter volume side”.