Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Royal Mail has taken a £134mn hit to the value of its business because of the increase in employers’ national insurance contributions, in one of the biggest impacts from measures announced in last month’s Budget.
The former state-owned mail company’s owner International Distribution Services said on Thursday that the writedown had pushed the group into the red, adding further pressure as it prepares for a takeover by Czech billionaire Daniel Křetínský.
IDS, which is already struggling with declining letter volumes and tense labour relations, reported an operating loss of £26mn for the six months to September following the £134mn impairment charge.
This was less than a £243mn loss during the same period last year, as the group benefited from price increases and a rise in letter volumes due to postal votes during this year’s UK general election.
Chief executive Martin Seidenberg warned that as a major employer of about 130,000 permanent staff, largely consisting of postal workers across the country, the “changes to national insurance will disproportionately impact our business relative to competitors”.
“The cost environment is worsening just at the time when we need to invest,” he said, adding that reforms to delivery targets that Royal Mail has long lobbied for were now “even more urgent”.
He told reporters that the group was “looking at all options” following the Budget and declined to rule out an increase in stamp prices or job cuts. But he said the latter would be a “last resort”.
His comments make Royal Mail the latest major UK business to raise alarm bells over chancellor Rachel Reeves’ decision to lower the earnings threshold at which businesses start paying NICs, as the government looked to shore up the public finances and boost funds for the NHS.
It could also affect the 508-year-old group’s ability to stop its leading market share being eaten up by more modern rivals, which have cut costs by depending more heavily on self-employed delivery workers.
IDS shares dropped 1 per cent in morning trading.
Křetínský, whose £5.3bn takeover of IDS is pending approval by shareholders and the UK government, has declared his ambition to capitalise on the growth of ecommerce and transform Royal Mail into a more modern parcel delivery business.
But current management has long warned that such efforts are being held back by its historic universal service obligation (USO) to deliver letters at the same cost everywhere in the UK six days a week, despite declining demand since the advent of email.
In September, industry regulator Ofcom indicated its support for the group’s proposal to reduce deliveries of second-class letters to five days a week, which it said “would enable Royal Mail to improve reliability, make substantial efficiency, savings, and redeploy its existing resources to growth areas such as parcels”.
But with such a move yet to be conclusively backed by Ofcom or ministers, IDS warned there was “continued uncertainty around USO reform”, despite this becoming more critical “in light of the increase in costs driven by the recently announced changes” to national insurance.
Read the full article here