Royal Mail poses mounting problems for chief executive

[TrueBlueTerrier]

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Greene’s attempt to revamp postal business under threat as spectre of strike looms

Where there was discord, Moya Greene brought a degree of harmony. Until now.

The chief executive of Royal Mail faces her biggest test since the privatisation of the postal operator four years ago, as a bitter industrial dispute over pensions and pay threatens to end in strike action.

The row exposes deep challenges at the 501-year-old organisation, which is undergoing a wide-ranging modernisation to adapt to the digital age.

With paper correspondence in terminal decline due to electronic communications, Royal Mail is seeking to harness the boom in e-commerce by growing its parcels business and investing in technology.

The broad restructuring will involve cutting costs, not least the significant wage bill of the 140,000-strong workforce at its core UK business. The decision to close a pension scheme has angered the Communication Workers Union, whose members are now voting on whether to take industrial action.

One top 10 shareholder says it is “confident a final resolution will be found” and is supportive of management. “Just because there’s a ballot doesn’t mean there will definitely be the strike — it’s been the case a number of times before.”

However, other investors are clearly worried. Royal Mail was relegated from the FTSE 100 index of blue-chip companies last month, and its shares have shed almost one-fifth this year. The stock is trading at 373p, above its float price of 330p but well below the 615p it touched just months after listing.

Perhaps a greater concern for investors than industrial strife are the financial implications of a final settlement on pensions and pay.

Royal Mail contributes about £400m into pension pots annually. But it says the amount would rise to more than £1bn from 2018 if no changes are made due to a funding surplus running out — an increase it calls “simply unaffordable”. Its free cash flow — money left over after expenses to pay for dividends, acquisitions and reduce debt — was £209m in 2016-17.

In place of an existing defined benefit pension scheme, which provides a guaranteed income in retirement, Royal Mail is offering a different kind of DB scheme that instead gives employees a cash lump sum linked to the value of their contributions. This was rejected by the CWU, which says it is concentrating on a Yes vote in the ballot.

According to calculations by Jefferies, the union’s demands on pay and working hours equate to a roughly 5 per cent annual increase in the wage bill. “That would have a huge impact and is probably unaffordable for Royal Mail,” says analyst David Kerstens. “The profitability of Royal Mail and its share price valuation are highly sensitive to small changes in wage inflation assumptions.”

The company prides itself on paying staff above industry rates but warns this will be put at risk by industrial action. It also insists the ballot does not mean a strike will happen, adding that it has plans in place to minimise the impact of any action.

During past walkouts, managerial staff were drafted in for front-line duties, such as mail sorting and deliveries, says one person with knowledge of the matter. “They think there’s a high probability of a strike and contingency planning is under way.”

If a full walkout does happen, it would be the first following Royal Mail’s controversial flotation in 2014, with the potential to disrupt mail deliveries across the UK ahead of the Christmas period.

This could accelerate the decline in letters by giving companies an incentive to switch to digital communications, say analysts, as well as delaying shipments for big retailers.

“Over the past few years as Royal Mail became more efficient and flexible . . . it has been looking to win more business in this space, and has been successful,” says Nick Pendleton, a former executive at the group.

This is important because Amazon is taking more deliveries in-house. But these large customers often have multiple parcel providers and so could switch volumes to other carriers, which include Hermes, DPD and Yodel.

“There are quite a large number of smaller, highly sophisticated competitors who can easily take over some of Royal Mail’s volumes during any strike action. They could see structural loss of market share,” says Mr Kerstens of Jefferies.

Although Royal Mail controls more than half of the highly competitive UK parcels market, its growth in this area has not made up for dwindling letters.

An increase in overall annual group sales to £9.78bn was only down to expansion at its smaller overseas arm, GLS, as revenue and underlying operating profit fell at the main British business.

With speculation about when Ms Greene will depart after more than seven years at the helm, she will surely not want to leave on a dissonant note.

[Lounge Lizard]

"With paper correspondence in terminal decline" -
Did I really deliver just a few dozen letters last week ?

[chickenwittle]

So many wrong facts in that article it's a joke . FAKE NEWS.

[Glenno]

With speculation about when Ms Greene will depart after more than seven years at the helm, she will surely not want to leave on a dissonant note

Yes she bloody well would, with her gilt edged pension, her extra shares and a jolly up at easy jet to boot,

[Dorset Plodder]

Always amuses me how Big Business lives on a higher plain than everyone else. It's OK to have a workforce that are paid shite wages provided the money rolls in for the share holders & the executives.

Oh the audacity of the workers to ask for a 5% rise that might put a dent in their profits. Despite the fact that inflation is running at 3% so that's only a 2% pay rise in real terms. And fancy wanting enough money to retire on instead of worrying about how the greedy bastard shareholders are going to get their pound of flesh. We really are a bunch of selfish bastards aren't we?

[wannabeek]

Yep its awful. Poor Moya. Shall we organise a whip-round? She must be feeling dreadful with the share price so low, seeing as she was given so many of them.

[enskied]

"Over the past few years as Royal Mail became more efficient and flexible . . . it has been looking to win more business in this space, and has been successful,” says Nick Pendleton, a former executive at the group

No it hasn't. Management have become better at manipulating the figures.

The last three years have been a disaster in our unit. Entire duties not being delivered for three days at a time. Managers taking a handful of mail from a duty and delivering it themselves so that it is elevated from a failed duty to a part failed duty. Streaming on a daily basis. Parcels left undelivered for days. Stahh Rotas not posted until Saturday and then changed on Monday mornings. OT not paid for weeks if at all.

Management is a disgrace.

[k979aaa]

Top ten share holder " Just because there's is a ballot does not mean there will be definitely the strike " What planet is this person on and is Moya the top ten share holder?

[Lounge Lizard]

With speculation about when Ms Greene will depart after more than seven years at the helm, she will surely not want to leave on a dissonant note

Yes she bloody well would, with her gilt edged pension, her extra shares and a jolly up at easy jet to boot,

Glenno,
I don't consider that to be a fair comment about Moya.
The blame lies with Vince Cable and other politicians for selling Royal Mail.
Whoever was appointed chief executive once in the private sector would act in a similar way looking after the shareholders rather than the workers.