Royal Mail plans to cut 700 management jobs and lowered its profit outlook after a tough Christmas when deliveries were disrupted by high sickness levels caused by the spread of Omicron.
The company said it had started consulting unions on the cuts, which were designed to “streamline operational management to improve focus on performance at a local level”. It has frequently been at loggerheads with unions over changes, and stressed that the cuts would be made “through natural turnover, redeployment and voluntary redundancy, wherever possible”.
Royal Mail employs 140,000 people, and the 700 management cuts are out of a total of 8,000 managers.
The job cuts will save £40m a year, but result in a one-off charge of £70m. This means Royal Mail’s full-year adjusted operating profit will miss its previous £500m estimate and come in at £430m.
The latest job losses come on top of 2,000 reductions outlined in June 2020 – one in five management roles – in areas including IT, finance, marketing and sales.
Russ Mould, the investment director at the stockbroker AJ Bell, said: “In streamlining the business, Royal Mail needs to ensure it doesn’t go too far and diminish its operational capability or spark widespread industrial action, the threat of which has hung over the business in the past.”
Thanks to a surge in parcel delivery driven by the online spending boom, Royal Mail made a £311m pretax profit in its first half after barely scraping a profit a year earlier.
Royal Mail said it handled 439m parcels in the three months to December, and said it was confident that a “structural shift” had occurred in parcel volumes since the start of the pandemic. Domestic parcel revenues increased by nearly 44% compared with 2019 levels, and fell by 4.9% year on year. Covid test kits made up a mid-single digit percentage of total parcel volumes in the first nine months of the year.
Overall revenues dropped 2.4% year on year to £3.5bn in the quarter, but were up 17.1% compared with 2019 levels.
As the Omicron variant spread, 15,000 Royal Mail staff were off sick or isolating in early January, leading to slower deliveries in some parts of the country. The company said absence levels were now improving. Complaints from customers have also jumped to a decade high, as Royal Mail received more than 1m last year.
Keith Williams, the chair, said: “We delivered a solid performance over the Christmas period in particularly challenging circumstances operationally … We expected some decline in parcel volumes given most retail stores were open during the period, unlike last year. However, the trend towards customers wanting more parcels remains, and responding to that change efficiently is key.
“Our domestic parcels business in the UK has seen demand increase by around a third over two years, as has our GLS business across its markets.” GLS is Royal Mail’s international parcel business, based in Amsterdam.
He stressed the importance of Royal Mail’s modernisation plans in light of the fast-paced change and ongoing inflationary pressures.
Mould said: “For a few years Royal Mail was delivering like the worst postie in the depot, parcels marked fragile launched over hedges, letters delivered to the wrong houses and so on, as it really struggled to modernise the business.
“Now, helped by the massive growth in parcels being sent during the pandemic, it finally seems to be getting its act together.”
Royal Mail shares rose 5% on Tuesday morning, making it the top riser on the FTSE 100.