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Royal Mail bosses wake up late to failed delivery of cost savings

02 Oct 2018, 16:42 ... st-savings

Worry for investors is that board has been asleep, or distracted, since the CWU deal was agreed

A huge shareholder rebellion over pay. A £50m penalty from regulator Ofcom. An “overboarded” chairman, Peter Long, quitting to spend more time at his ailing chain of estate agents. A lot has happened at Royal Mail in recent months – so much, it seems, that management has only just woken up to the non-appearance of cost savings it had promised.

The confession landed with a thump at 3.27pm, late in the day for a company that abolished afternoon deliveries in 2004. The “lowering” of the target for cost savings was more of a shredding. Now-departed boss Moya Greene, in her sign-off in May, had promised £230m would arrive via “cost-avoidance” measures this financial year. Her successor, Rico Black, recipient of a contentious £6m award for switching jobs inside Royal Mail, thinks £100m will be more like it. Cue a plunge of 18% in the share price.

The open question is whether the savings, designed to boost productivity to cover contractual wage rises for staff, are merely delayed or will be lost in transit permanently. Royal Mail itself didn’t sound sure. It is “assessing” the pay and pensions deal it agreed with the Communication Workers Union in February to see what is possible. In the meantime, it will “pull every short-term lever” – whatever that means.

The backdrop is the continuing decline in the volume of letters in the UK. That fall will also be “outside the forecast range”, though less seriously so – a drop of 7% instead of 4%-6%. The real worry for investors is that the board has been asleep, or distracted, since the CWU deal was agreed without industrial action.

This profits warning has come uncomfortably soon after Greene departed to a fanfare of praise that will now ring hollow with investors. Meanwhile, Long, after a 34% protest against his reappointment in July, only decided a fortnight ago that he really ought to concentrate on his day job at Countrywide. There is a sense of drift at the top.

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