Royal Mail puts price tag on strike costs

Jo Francis
Thursday, January 26, 2023

Royal Mail parent International Distributions Services has put a £200m price tag on the cost of last year’s strike action, and said that asset sales will be required to support cashflow at the postal operator.

Royal Mail: "our model sets us apart and we want to preserve it"
Royal Mail: "our model sets us apart and we want to preserve it"

In a trading update for the nine months to 31 December 2022, IDS said that addressed letter volumes at Royal Mail were down 8% year-on-year, and down 25% compared with pre-pandemic volumes in 2019. 

Domestic parcel volumes were down 21% year-on-year, but up 5% based on 2019. International parcels – currently impacted by a ransomware attack – were down 6% year-on-year and a whopping 46% down on 2019. 

Continental parcels wing GLS reported volumes down 2% year-on-year, but up 29% on pre-pandemic levels.  

Group revenue for the period was £9.1bn, down 5.4% on 2021 but up 11% compared with 2019. 

Royal Mail sales were £5.66bn, up 8.6% on 2019 but down 12.8% on 2022 due to “a return to structural decline in letters, weaker retail trends, the impact of industrial disruption, and lower test kit volumes”.

IDS said that Royal Mail’s adjusted operating loss was £295m for the period, and the net cost of the 18 days of strike action last year had been estimated at around £200m. 

Regarding the outlook, IDS said that the ongoing industrial dispute could result in an impairment charge on the £1.4bn carrying value of Royal Mail. 

It expects the full year adjusted operating loss for Royal Mail to be around £400m, and said that due to the ongoing industrial dispute the business now expected "negative in-year trading cashflow, and thus generation of positive free cash flow will require support from the proceeds of asset disposals".

IDS has also provided an update regarding ongoing issues facing the business, including CEO Simon Thompson being recalled by MPs on Parliament’s BEIS committee. The group also accused union the CWU of a “false narrative”.

A spokesperson said: “We welcome the opportunity to expand on any points on which the Committee would like clarification, and share the steps we are taking to resolve this dispute and secure the long-term future of Royal Mail for our people and customers. 

“As the CWU launches its third ballot for industrial action, we are seeing an increasingly false narrative circulating on our pay and change dispute. This is designed to create fear and uncertainty amongst our employees as the CWU builds support for further damaging strikes, instead of focussing on agreeing a deal to deliver what our customers need and give a pay rise to our people who have already lost around £1,800 each after 18 days of strikes.”

Royal Mail also refuted suggestions that the business wanted to become a so-called ‘gig economy’ employer. 

“We are proud to have the best pay and conditions in our industry. In an industry dominated by the ‘gig economy’, insecure work, and low pay, our model sets us apart and we want to preserve it. We have written to the CWU on multiple occasion to correct the false allegations that Royal Mail is planning to ‘sack’ thousands of workers and wants to become ‘another courier company’. This is simply not true. 

“The statements are designed to mislead and create fear and uncertainty amongst our employees. We have already announced that reductions in 10,000 full time equivalent roles – which have become necessary because of industrial action, the need for better productivity and lower parcel volumes following the pandemic – will be achieved through natural attrition, reducing temporary workers, and a generous voluntary redundancy scheme which has been oversubscribed.”

In the trading update, IDS said the number of voluntary redundancies required to achieve the headcount reduction would be “significantly lower than the 5,000-6,000 communicated in October” as a result of its “strong performance in reducing variable FTE resource and current levels of attrition”. 

The business is on track for 5,000 FTE (full time employee equivalents) reduction by March. 

IDS also said that up to 12,500 CWU grade employees had returned to work on strike days.

The CWU launched a fresh ballot for further strike action earlier this week. 

Its share price rose by 2.13% to 224.27 following the update (52-week high: 460.70p, low: 173.65p).

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