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Royal Mail faces conflict with union over plans for UK enterprise


Only a day earlier than Royal Mail revealed plans final month to drop its iconic group model and doubtlessly cut up the enterprise, postal employees voted to go on strike.

Workers wished industrial motion over pay, as inflation rocketed to its highest stage in 4 many years. Royal Mail stated the next day that it was planning to rename the group International Distributions Services and presumably break up the corporate.

On the coronary heart of the difficulty is the UK’s lossmaking postal enterprise, which can proceed to be named Royal Mail. The group admitted that it had change into more and more reliant on its worthwhile abroad operations, referred to as GLS. Such is the divide in fortunes, the group is now contemplating hiving off the completely different companies.

However the plans have rattled the Communication Employees Union, which represents postal employees. The mounting tension underscores the battle the corporate faces between striving for efficiencies to rejuvenate Royal Mail and retaining employees on facet.

“It’s pathetic that Royal Mail, a company which introduced [annual] earnings of £758mn mere weeks in the past, is now pleading poverty and threatening fragmentation except they get their manner,” the CWU stated.

“Our members are dedicated to rising Royal Mail as a top quality public service — they deserve a good pay rise,” they added.

The rebrand is the second try by the group in twenty years to ditch the enduring moniker for the longstanding service, which was based by King Henry VIII within the 1500s. The Royal Mail title was briefly deserted in 2001 in favour of Consignia, which was swiftly ditched 16 months later.

Though the UK postal service fared effectively throughout the coronavirus pandemic as individuals relied on deliveries at dwelling, the group’s latest quarterly outcomes paint a unique image.

Revenue within the three months to the tip of June was pushed by GLS, the Amsterdam-based parcel sorting subsidiary, because the UK postal service reported an working lack of £92mn.

Line chart of Share price (p) showing Royal Mail's performance over the past two years

“Financially it’s a story of two halves in our two companies Royal Mail and GLS,” stated the group’s chief monetary officer Mick Jeavons. “It illustrates that we’re more and more turning into financially reliant on GLS.

“Parcel volumes have now declined from the peaks we noticed throughout Covid,” he stated, including that Royal Mail made 1,000,000 kilos a day of losses within the quarter. The general group has misplaced nearly half its worth this yr.

Nonetheless, Jeavons insisted that the corporate doesn’t essentially have plans to promote. “We’re simply emphasising . . . that if we will’t ship progress and alter in Royal Mail within the UK . . . these companies most likely are higher not collectively,” he defined.

Robin Byde, analyst at Zeus Capital, stated splitting up the companies had been mentioned “just about since IPO”.

Byde stated there may be some “strategic logic to carving out GLS and realising extra worth for shareholders and stakeholders”.

“You may make a case that the synergies between these two companies usually are not that nice. They’ve completely different focuses, the worldwide enterprise is clearly rising very strongly and the home enterprise is extra about managed decline,” he added.

The CWU has taken a unique stance. The union has cited the revenue within the final fiscal yr and the return of £400mn to shareholders when arguing for a pay enhance.

Regardless of the union’s criticism, Royal Mail described its efficiency within the UK throughout the pandemic as a “lifeline”. It reported £8.6bn in revenues within the yr to the tip of March, up 12 per cent on the earlier yr.

The corporate stands by its choice in November to return £400mn to shareholders “not least as a result of workers characterize our fifth largest shareholder group so that they have additionally acquired these funds”.

“Two-thirds of the dividends which have been paid to shareholders over latest years have been funded from the reported earnings of the worldwide enterprise, GLS,” the corporate stated. “Royal Mail has solely contributed a 3rd of the dividend return to shareholders and its contribution will likely be even much less this yr, if certainly there may be something in any respect.”

Parcels in trolleys at the Royal Mail sorting office in Chelmsford, UK, on Thursday May 13 2021
Regardless of the union’s criticism, Royal Mail described its efficiency within the UK throughout the pandemic as a ‘lifeline’ © Chris Ratcliffe/Bloomberg

Royal Mail chief govt Simon Thompson has insisted on discussing pay and situations concurrently — an echo of the stalemate between Community Rail and transport unions.

“What we’ve stated to the CWU is that we’re completely satisfied . . . to fulfill with them any time they want to focus on pay and alter, however we’ve acquired to debate pay and alter on the identical time,” he stated.

The CWU is conducting a separate balloting of its members for industrial motion on phrases and situations.

Thompson is adamant that change is required within the UK enterprise and believes it will possibly flip a nook.

“[The] surge in parcels and check kits have proven that we could be worthwhile,” he stated. “However we’re in a state of affairs now the place we have to change our methods of working so we will actually get the good thing about the £900mn price of funding we’ve made, so we will win and compete within the parcels market.”

Jeavons stated the corporate has been unable to regulate its price base quick sufficient in response to quantity declines, due to the give attention to discussions with commerce unions. “We now must get on with the change,” he added.

Royal Mail expects to interrupt even within the UK this yr, as long as it will possibly make progress on stripping out prices.

One space ripe for overhaul is Sunday deliveries, stated Thompson. “Round about half of our Sunday deliveries are finished by momentary employees and we’re definitely grateful for his or her assist, however by way of high quality and productiveness it’s not so good as what we might get from the core crew.”

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