Royal Mail posts £1bn loss after year of strife
Royal Mail has reported a loss of over one billion pounds, after a year hit by strikes and poor delivery performance.
Parent company International Distributions Services has reported that Royal Mail made a loss of £1.044bn in the year to March, down from a profit of £250m a year earlier.
IDS says Royal Mail was hit by industrial action, with workers holding a string of strikes in the last year in a bitter dispute over pay and conditions.
IDS blames Royal Mail’s inability to deliver “the in-year benefits of planned productivity improvements”.
Weaker online shopping, and a drop in volumes of Covid-19 kits, also hit Royal Mail’s earnings compared with a year ago.
IDS warns that the UK’s Universal Service Obligation (USO) – which requires Royal Mail to deliver letters six days a week to every address in the land if necessary – “requires major reform”.
It tells shareholders this morning:
We urge the Government to work with us to protect the long-term sustainability of the one-price-goes-anywhere Universal Service.
Earlier this week, communications regulator Ofcom launched an investigation into poor performance at Royal Mail that could lead to a fine. after more than a quarter of first-class mail was not delivered on time.
Earlier this year, a cyber attack forced Royal Mail to temporarily suspend international parcel and letter deliveries through Post Office branches for several weeks.
The company’s international parcels business, GLS, made an operating profit of £296m, down 9.5%, today’s financial results show.
But overall, IDS has made a loss of £748m, down from a £577m profit the year earlier.
Last week, Royal Mail’s CEO Simon Thompson quit, after the acrimonious tussle with unions, but will stay on until the end of October.
On an adjusted basis, Royal Mail made an operating loss of £419m, beating market expectations according to Reuters.
Key events
Luxury carmaker Aston Martin has secured a £234m investment from China’s automotive manufacture Geely, sending its shares soaring this morning.
Geely is buying 42m shares from chairman Lawrence Stroll’s Yew Tree Consortium at 335p each, and will subscribe to buy another 28m at the same price.
This will give Geely a 17% stake, making it the company’s third-largest shareholder behind Yew Tree (with 21%) and Saudi Arabia’s Public Investment Fund (with 18%).
Aston Martin says Geely’s investment is part of a “new relationship agreement” to suport its growth plan.
Stroll says:
“This announcement is a further significant step towards delivering our ambition for Aston Martin. Geely Holding, who initially became a shareholder last year, sees tremendous potential for Aston Martin’s long-term growth and success.
They offer us a deep understanding of the key strategic growth market that China represents, as well as the opportunity to access their range of technologies and components. Geely share our vision for Aston Martin and want to be a more significant shareholder.
Aston Martin’s shares have jumped 12% in early trading, the top FTSE 250 riser, to 260p.
Geely’s investment comes at an important time for the car industry, as pressure mounts to reform the Brexit trade deal, points out interactive investor’s head of investment Victoria Scholar:
Aston Martin is a glamorous automaker with a chequered past having survived several bankruptcies. But James Bond’s favourite carmaker has revved back into the fast lane with a pick-up in sentiment spearheading investor returns on the stock.
Demand for luxury goods including cars has proven to be extremely resilient amid the cost-of-living crisis and a growing tranche of ultra-high net worth consumers. Earlier this month Aston Martin reported a narrower pre-tax loss in the first quarter of £74 million versus £112 million year-on-year.
This investment is a welcome developed at a time when there are growing concerns about the Brexit trade deal for UK auto manufacturing. Stellantis this week sounded the alarm over potential tariffs on exports to the EU. UK auto manufacturing has come under significant pressure since the referendum with annual car manufacturing more than halving between 2016 and 2022.”
Water industry admits it should have acted quicker to fix sewage problems
Untreated sewage pollution of rivers should have been managed sooner, the water industry chair said as she apologised for industry failures.
Water UK chair Ruth Kelly told Times Radio that companies did not monitor sewage outflows until recently, with only 10% overseen in 2015.
Speaking after the water industry apologised for its failings, and announced a £10bn infrastructure plan, Kelly said:
“We should have acted quicker. We should have acted faster. We should have acted to prevent the untreated water sewage going into our rivers and onto our beaches.
“We have listened, we get it and we have come today with a plan to put this right.”
Asked whether the average executive pay of £1.1m per year could be justified, Kelly poined out that 50% of CEOs would forgo bonuses entirely.
She said:
“Shareholders have decided they wanted to pay for some of the brightest and best people to lead the water company industry.”
Kelly also told BBC Breakfast that the UK public will face “modest upward pressure” on water bills for up to a century to pay for the clean up of sewage from rivers.
Musician and environmental campaigner Feargal Sharkey has said the water companies’ apology and sewers modernisation plan was “nothing to celebrate” as he said customers were left having to “pay them a second time” to clean up the country’s rivers.
The former Undertones frontman told BBC Radio 4’s Today programme:
“What I’m actually hearing is no apology for the fact we’ve paid them for a service we haven’t got.
“They are now suggesting that we should pay them a second time for a service we haven’t had.
BT’s job cuts also show the impact of artificial intelligence on the economy.
CEO Philip Jansen says BT will use AI to improve customer service.
Telecoms giant BT becomes the first (as far as I can recall) big firm to reveal the scale of job losses as a result of AI. Says 10,000 job losses come from automation and digitisation. Boss Philip Jansen says: “We will be a huge beneficiary of AI” – though not for axed workers.
— Graham Hiscott (@Grahamhiscott) May 18, 2023
Jansen also said the job cut target announced this morning was the culmination of an existing programme, which includes 30,000 contractors employed to build its fibre network in the next few years.
He told reporters:
“It’s a rolling programme, but it’s a five to seven year landing zone.”
A ‘big chunk’ of BT’s job cuts to be in UK
Many of BT’s planned job cuts will fall on its UK workforce.
CEO Philip Jansen told a call this morning that ‘a big chunk’ will be in the UK, on the ‘build side’ of the company
Victoria Scholar, head of investment at interactive investor, says:
“BT is planning to cut 55,000 jobs by 2030 as it looks to slim down its operations and reduce its cost base. ‘A big chunk of job cuts will be in the UK’, said BT’s CEO Philip Jansen.
It is targeting £3bn in cost savings by 2025.
Full-year core earnings rose by 5% to £7.9 billion, in line with analysts’ expectations but BT reported disappointing free cashflow down 5% to £1.3 billion and pre-tax profits slumped 12% to £1.7 billion.
Telecoms seems to be awash with job cuts at the moment with Vodafone and BT both reducing the size of their workforces. Both have been struggling with the pressures of inflation, most notably from energy. BT is focusing on digitisation and integrating AI, a shift which is likely to require fewer workers. Last year the telecoms operator was caught up in a bitter dispute with workers over wages amid the cost-of-living crisis, resulting in BT’s first national strike for 35 years.
Shares in BT have fallen sharply today by over 7% and are languishing at the bottom of the FTSE 100, but the stock remains higher by just below 20% year-to-date.”
EasyJet narrows losses as customers ‘safeguard’ holidays
Elsewhere this morning, easyJet has shrunk its losses as customers look to ‘safeguard’ their holidays in the cost of living squeeze.
EasyJet reported a pre-tax loss of £415m for the six months to the end of March, an improvement on the £557m loss a year earlier.
It carried 33.1 million passengers over the six months between October and March, a 41% increase on the 23.4m a year earlier.
EasyJet chief executive Johan Lundgren said the airline enters the summer period “with confidence”.
Lundgren explains:
Recent research has shown that travel is the number one priority for household discretionary spend with customers safeguarding their holidays and increasingly opting for low cost airlines and brands which provide great value.
“easyJet holidays expects to deliver full year profits of more than £80 million as it continues its rapid growth in the UK alongside its entry into the European package holiday market.
From summer it will start selling holidays in Switzerland which will be the first of a number of planned new European markets.
Shares in easyJet are largely unmoved, though – up just 0.15% this morning at 521p.
Chris Beauchamp, chief market analyst at IG Group, says today’s update hasn’t provided the magic to drive easyJet’s shares higher.
The tone is upbeat, but now investors will want to see the airline delivering on these rosy assumptions. Given still-high inflation, some scepticism probably isn’t entirely unwarranted.
National Grid profits jump amid green energy delays
Jillian Ambrose
In the energy sector, National Grid has reported a jump in annual profits to almost £4.6bn.
The surge in earnings comes amid growing concern that it is not connecting renewable energy projects fast enough to meet the UK’s climate targets, my colleague Jillian Ambrose reports.
The FTSE 100 monopoly said its underlying operating profits climbed by 15% to £4.58bn for the financial year ending in March compared with the 12 months before.
This was driven by a surge in profits from its electricity distribution business which climbed by 39% from the previous year to £1.2bn for the year to the end of March.
National Grid is under pressure from developers to overhaul its approach to connecting new renewable energy projects to the grid as it emerged that many will be forced to wait more than a decade for a connection.
The UK plans to run its grid entirely on clean electricity by 2035 but many renewable energy projects have been told they will need to wait until the late 2030s to provide clean power to the grid.
The National Grid chief executive, John Pettigrew, said:
“there has never been a more exciting time to be at the heart of the energy industry”.
BT has seen Vodafone’s job losses earlier this week and “taken them to another level” this morning, says Matthew Dorset, equity research analyst at Quilter Cheviot:.
Dorset adds:
“The business has faced pressure from alternative network providers, although on the retail side customer numbers have remained stable.
On the Openreach side of the business BT had a net loss of 68,000 connections, a reversal of a recent trend of slowing losses. This will be a concern and a figure to watch going forward.
Dorset adds, though, that BT has benefited from its price rises being linked to inflation, which led to hefty increases.
“Crucially, BT has been able to maintain a competitive position in the market due to prices being inflation linked. Given competitors do the same there is no real threat of customer churn there and it should be supportive for earnings.
Finally, as interest rates have risen at an extraordinary pace, the debt burden facing alternative providers will be good news for BT. While it is a business in transformation, it has a good mix of short and long-term opportunities to take advantage of.”
BT shares fall
The market isn’t very impressed with BT either.
Shares in the company dropped up to 10% in early trading, the biggest faller on the blue-chip FTSE 100 index.
As well as announcing up to 55,000 job cuts, BT also reported a 1% drop in revenue for the year to 31st March.
Reported profit before tax fell 12% to £1.7bn, which BT blamed on “increased depreciation from network build and specific items, partially offset by adjusted EBITDA growth”.
BT shares fell as low as 133.2p, from 148.1p last night, the lowest since early February.
Shares in Royal Mail’s parent company are among biggest early fallers on the London Stock market, after its results this morning.
International Distribution Services have dropped by 4.5% on the FTSE 250 index of medium-sized companies, after being pulled into a £748m full-year loss by Royal Mail’s woes.
Prospect union has “deep concern” over scale of BT job cuts
Unions are alarmed by BT’s plans to cut up to 55,000 jobs by 2030.
John Ferrett, national secretary of Prospect (which represents thousands of managers at BT) says workers will be very unsettled by the announcement.
“Prospect are deeply concerned by the scale of these cuts. Announcing such a huge reduction in this way will be very unsettling for workers who did so much to keep the country connected during the pandemic.
“As a union we want to see the details behind this announcement in order to understand how it will impact upon members and have demanded an urgent meeting with the Chief Executive.
It’s important that job cuts are voluntary, Ferrett adds:
“We have always opposed compulsory redundancies in BT and has been able to ensure over the years that any reductions have been achieved on a voluntary basis.
“Prospect has a partnership agreement with BT which governs how the company and the union manage change in the organisation.
“We will be ensuring that the partnership agreement is fully adhered to during any consultations with BT over job reductions.”
BT’s jobs cuts announcement comes just two days after Vodafone announced it would cut 11,000 positions worldwide, the largest reduction in its history.
Following Vodafone’s 11k job cuts, today BT said it will reduce its “labour resource” from 130k to 75-90k by around 2028-2030. Telcos seeking transformation to leaner and more efficient organisations.
— Kester Mann (@kestermann) May 18, 2023
BT to cut tens of thousands of jobs
UK telco BT is planning to cut up to 55,000 jobs by 2030, as it pushes to become a ‘leaner business’.
BT Group, the UK’s largest broadband and mobile provider, has declared it will reduce its workforce by tens of thousands of jobs by the end of the decade.
BT says it will cut its “total labour resource” (it’s own workforce, and those employed by third parties) from 130,000 today to between 75,000 and 90,000 by the 2030 financial year.
Chief executive Philip Jansen says BT will rely on a much smaller workforce, reducing its cust base, once it has completing the rollout of its new fibre broadband network.
Jansen says:
“By continuing to build and connect like fury, digitise the way we work and simplify our structure, by the end of the 2020s BT Group will rely on a much smaller workforce and a significantly reduced cost base.
New BT Group will be a leaner business with a brighter future.”
Jansen also says BT’s Openreach operation, which maintains its network, is competing strongly, and “it’s clear that customers love full fibre”.
The Openreach Board has reaffirmed its target to reach 25 million premises with FTTP [Ultrafast Full Fibre broadband] by the end of 2026 and plans to further accelerate take-up on the network
Royal Mail chair sees grounds for optimism
Despite reporting a £1bn loss this morning, Keith Williams, the chair of Royal Mail, argues there are reasons to be optimistic.
Williams says Royal Mail is sorry that it hasn’t delivered a better service, and insists that the universal service obligation must be reformed.
Williams tells the City:
“I said before that we had reached a crossroads at Royal Mail. Now that we have a negotiators agreement with CWU that will shortly go out to ballot, and thanks to the good progress made on our five-point plan to stabilise Royal Mail, our destination is coming into sight.”
“There is now a clear path towards a more competitive and profitable Royal Mail, delivering improved services for our customers whilst further reducing our environmental impact. Importantly, if ratified, the CWU agreement provides greater job security and increased rewards – through both pay and profit share – for our employees. Successful delivery of the agreement will be key.”
“Quality of service has been significantly affected by industrial action and high levels of absence. I am sorry that we have not delivered the high standards of service our customers expect. Improving quality of service is our top priority.”
“GLS has a proven track record of growth, solid margins and cash generation. During 2022-23 it delivered a robust performance in a tough macro-economic climate. Its flexible operating model, balanced B2C and B2B portfolio, diversified geographic exposure and continued investment have underpinned good progress this year and we continue to invest for long-term growth and margin accretion.”
“So as we enter 2023-24 we have grounds for optimism. The economic climate remains challenging, and Royal Mail faces the task of rebuilding business from the damage caused by industrial action. To do this successfully and plan for the long term, urgent reform of the Universal Service Obligation is essential. Our plan is to return to group profitability this year but also seize the opportunity for both businesses to deliver ongoing profits thereafter, to the benefit of both our employees, customers and shareholders.”
Royal Mail posts £1bn loss after year of strife
Royal Mail has reported a loss of over one billion pounds, after a year hit by strikes and poor delivery performance.
Parent company International Distributions Services has reported that Royal Mail made a loss of £1.044bn in the year to March, down from a profit of £250m a year earlier.
IDS says Royal Mail was hit by industrial action, with workers holding a string of strikes in the last year in a bitter dispute over pay and conditions.
IDS blames Royal Mail’s inability to deliver “the in-year benefits of planned productivity improvements”.
Weaker online shopping, and a drop in volumes of Covid-19 kits, also hit Royal Mail’s earnings compared with a year ago.
IDS warns that the UK’s Universal Service Obligation (USO) – which requires Royal Mail to deliver letters six days a week to every address in the land if necessary – “requires major reform”.
It tells shareholders this morning:
We urge the Government to work with us to protect the long-term sustainability of the one-price-goes-anywhere Universal Service.
Earlier this week, communications regulator Ofcom launched an investigation into poor performance at Royal Mail that could lead to a fine. after more than a quarter of first-class mail was not delivered on time.
Earlier this year, a cyber attack forced Royal Mail to temporarily suspend international parcel and letter deliveries through Post Office branches for several weeks.
The company’s international parcels business, GLS, made an operating profit of £296m, down 9.5%, today’s financial results show.
But overall, IDS has made a loss of £748m, down from a £577m profit the year earlier.
Last week, Royal Mail’s CEO Simon Thompson quit, after the acrimonious tussle with unions, but will stay on until the end of October.
On an adjusted basis, Royal Mail made an operating loss of £419m, beating market expectations according to Reuters.
Introduction: German carmakers lobby to maintain tariff-free access to UK
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
European carmakers have joined the push to delay post-Brexit rules on where parts are sourced from, amid fears that the future of the British automotive industry is at stake.
As we covered yesterday, Vauxhaul owner Stellantis, Ford and Jaguar Land Rover all called on the UK government to renegotiate the Brexit deal, to change “rules of origin” terms.
Currently, electric vehicles shipped between the UK and the EU will incur a 10% tariff unless at least 40% of their parts are sourced from within the two regions. That proportion is due to rise to 45% next year, which is a problem for electric carmakers as most electric vehicle batteries are still imported from Asia.
The European trade group for the car industry is calling for a delay extension to this phase-in of tougher post-Brexit trade rules.
The European Automobile Manufacturers’ Association (ACEA) warns that supply chains, particularly electric vehicle batteries, are not ready.
An ACEA spokesperson expained:
“There has been massive investment in European battery supply chains.
“The capacity to meet these rules of origin will come, but just not in the next few years. ACEA has requested that the current phase-in period for battery rules is extended by three years.”
VDA, the German car industry lobby group, has weighed in in support, the Financial Times reports today.
VDA said “we must urgently make adjustments” to the agreement, as Europe’s battery industry had not developed fast enough.
Otherwise, they fear that tariffs would place…
“a significant competitive disadvantage for the European car industry in relation to its Asian competitors in the so important UK market”.
Also coming up today
Water companies have apologised for repeated sewage spills and pledged to invest £10bn this decade in an attempt to quell public anger over pollution in seas and rivers.
The companies will triple their existing investment plans to plough funds into the biggest modernisation of sewers “since the Victorian era” to reduce spills of overflowing sewage into England’s waterways.
Industry body Water UK said the plans will cut the number of overflow incidents by up to 140,000 each year by 2030, compared with 2020. But the costs will ultimately be recouped from customers through higher bills, adding to the cost of living pressures in coming years.
MPs are heading to the Bank of England to grill the central bank’s top brass this morning.
The Treasury Committee plan to quiz governor Andrew Bailey on the Boe’s government bond-buying stimulus scheme (quantitative easing, or QE) and its role pushing up inflation, and how it will be unwound (quantitative tightening, or QT).
Yesterday, Bailey pledged to lift interest rates as far “as necessary” to get inflation back to the bank’s 2% target.
European stock markets are set to open higher, on hopes that the US debt ceiling deadlock will be broken, avoiding a US default.
Joe Biden and the Republican speaker of the US House, Kevin McCarthy, said on Wednesday they thought a deal to avoid a US debt default was in reach.
The agenda
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10.15am BST: Treasury Committee hearing with the Bank of England
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1.30pm BST: US weekly jobless claims data
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3pm BST: US existing home sales
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AGMs: Lloyds Banking Group, Legal & General AGM, and Next
