Royal Mail seeks to slash costs by £350m after missing profit target

Postal company battles inflationary pressures, slowing UK economy and the threat of industrial action

Royal Mail says it will need to raise prices and slash costs to offset inflation. PA

Royal Mail on Thursday identified £350 million ($432.92 million) in cost savings this year to battle inflationary pressures and the slowing British economy after the company's 2021-2022 profit slightly missed market expectations.

The postal company said market expectations for 2022-2023 adjusted operating profit of £303 million for its UK business could be met if it can agree upon a pay deal with its union in line with its current offer, and avoid industrial action.

Royal Mail has been in talks with its largest union, the Communication Workers Union (CWU), over pay increases, offering a total pay increase worth up to 5.5 per cent ― of which 2 per cent is to be paid as soon as a deal is agreed upon.

The CWU rejected the offer and publicly criticised Royal Mail, making preparations for a possible ballot for industrial action.

The relationship between Royal Mail and the CWU has been a tumultuous one in the past, with a two-year clash over pay and operational changes culminating in a settlement in December 2020.

The 500-year-old company had benefited from a boom in parcel demand during the coronavirus pandemic, but rapid inflation and rising costs of labour and fuel are a challenge as it aims to transform itself from a letter operation to a parcel-led business.

"As we emerge from the pandemic, the need to accelerate the transformation of our business ― particularly in delivery ― has become more urgent," chief executive officer Simon Thompson said.

Adjusted operating profit for the year ended March 27 came in at £758 million, slightly below average market expectations of £771 million.

Royal Mail also spoke of margin pressures in the United States at its more cash-generative international operation, GLS, as inflation bites.