Royal Mail turnround still needs the workers' stamp of approval

[POSTMAN]

https://www.ft.com/content/564c3985-e2d ... 0f37360f59

Christmas was first-class but might not last

How many roads must a man walk down before you can call him a postman? The answer is central to the Royal Mail investment case — even though most investors seem to have forgotten that.

Royal Mail shares have jumped 40 per cent since the Communication Workers Union voted in mid-December to accept a one-hour reduction in the working week. The stock had already doubled since September, helped along by signs of a more cordial atmosphere between the company and its frontline employee union.

Relations became more peaceable thanks in part to a virtuous circle of improved trading. More parcels meant fewer job cuts, which gave management more leverage to push for changes it sees as necessary to improve workforce productivity. The pandemic helped in other ways too. By classifying posties as essential workers industrial action became unpalatable just as the switch to parcels from letters reached a tipping point.

All this was visible in Royal Mail’s trading update on Thursday, in which the company hiked profit guidance for the March year end by more than a quarter. Operational gearing and pricing power meant parcels revenue in the Christmas quarter jumped 43 per cent on volume up 30 per cent. The growth overshadowed the inexorable decline in UK letter volumes, down another 14 per cent year-on-year, though even that represented an improvement on the 28 per cent drop reported for the first half.

A better than expected update extends a honeymoon phase for Simon Thompson, who took over as Royal Mail chief executive last month.

While relations between the CMU and his predecessor Rico Black had deteriorated, Thompson’s team was able to quickly secure important wins including an agreement on the pension scheme. Ofcom also improved his chances of pushing through workplace reforms by finding few problems with a cut in letter deliveries from six days a week to five. If put into law that change alone could save Royal Mail up to £225m a year.

But can the golden period outlast lockdown? Year-on-year comparisons are getting tougher just as pressure mounts on management to deliver a modernisation programme that is decades behind peers. Staff costs at Royal Mail’s core UK division were equivalent to 69 per cent of revenue last year, compared with 39 per cent at Bpost of Belgium and 52 per cent at Deutsche Post.

About 11 per cent of Royal Mail staff are over 60 so some of the inevitable headcount reduction can be via retirement. But relying on attrition alone risks underestimating the sensitive business of tweaking delivery routes and replacing bag carriers with box-sorting robots. As the specifics are still in negotiation, less than two months of relative peace between management and unions should not be allowed to eclipse the previous 500 years.

Investors have embraced the idea that Covid-19’s ecommerce boom will kickstart Royal Mail’s long-awaited transformation. The shares have risen to their highest since 2018 and are valued at about 13 times the raised current-year earnings guide, bringing them in line with its European peer group. Yet analysts’ forecast range for next year is too disparate to be useful and investment demands offer little prospect in the near term for dividends to return. They are paying no small price for a company that has promised a lot, but whose delivery is never guaranteed.

[Dorset Plodder]

Always nice to see a point of view from outside the Royal Mail v CWU.

It shows how keen RM to do away with the USO (regardless of what THEY say) a saving of £225 MILLION

I liked the bit about 2 months of relative peace betwen Management and Unions shouldn not be allowed to eclipse the previous 500 years!

[postslippete]

Royal Mail are doing quite well as indicated by the share price. This is the real reason why the CWU got the deal that they wanted. Heck,one might be forgiven that the CWU could have got their workers a 35 hour working week if they had dragged the talks on for another 6 months.

All lockdown has done is ramp up the number of parcels we now deliver on a daily basis. As more shops go out of business and others rely increasingly online,it's a massive boost for Royal Mail in the long term.

And letters?? Well we know that CAN pick up but,and it's only my opinion,but I firmly believe that Royal Mail don't want it too. The company hiked up the price of postage stamps last year and is there anybody on here that doesn't believe that our D2Ds are a massive growth area completely underutilized by the Royal Mail. Where's the farmfoods and regular Domino's leaflets gone?? Are Royal Mail are not taking their contracts right now??