Royal Mail to layoff 20% of its managers to shore up finances amidst COVID-19

Royal Mail (LON: RMG) said on Thursday that it plans on slashing its workforce by roughly 2,000 jobs in a bid to shore up finances amidst the Coronavirus pandemic that has so far infected more than 300,000 people in the United Kingdom and caused over 43,000 deaths. The company withdrew guidance and suspended its dividend in March.

Shares of the company were reported about 3% down in premarket trading on Thursday and dropped another 4% on market open. At 168 pence per share, Royal Mail is roughly 25% down year to date in the stock market after recovering from a low of 124 pence per share in the first week of April. Learn more about why prices rise and fall in the stock market.

Royal Mail’s layoff will not affect postal workers

As per the company, the job cut will affect management positions in several areas, including finance, IT, sales, and marketing. The company currently employs 9,700 managers, out of which, about 20% will be laid off by March 2021. Royal Mail’s staff comprising 90,000 postal workers, however, will not be affected by the layoff. The postal service announced changes to opening hours earlier this week.

The interim CEO, Keith Williams of Royal Mail expressed confidence on Thursday that the move will save £130 million for the company in staff costs in 2021. For the next two years, Williams added, the British postal service targets cutting its capital spending by another £300 million. The CEO, however, said that the layoff was regrettable and commented:

“We are committed to conducting the upcoming consultations process carefully and sensitively. We will work closely with our managers and their representatives during this difficult period, including supporting them as they transition into the next stage in their careers.”

Royal Mail reports a 31% decline in its annual profits

Royal Mail’s former CEO Rico Back exited the role in May after a year-long battle with the UK-based unions over a £1.8 billion restructuring programme. The London-headquartered company has been struggling with profits for years as the rise of online shopping shifted the trend from sending letters to sending parcels.

According to Royal Mail, COVID-19 further accelerated this change, but the company was not quick enough to respond to the shift and strategise accordingly. Consequently, Royal Mail recorded a massive 31% decline in its annual profits.

Royal Mail’s struggles started even before the outbreak with its stock tanking roughly 20% in 2019. At the time of writing, the British postal service is valued at £1.68 billion and has a price to earnings ratio of 5.21.