In a trading update, parent group International Distributions Services (IDS) said that three days of industrial action had already resulted in a £70m hit to first-half performance, with Royal Mail expected to post an adjusted operating loss of £219m for the period – a huge reversal on the prior year’s £235m operating profit.

IDS said that, as a result, it needed to rightsize the Royal Mail business “in response to the impact of industrial action, delays in delivering agreed productivity improvements and lower parcel volumes”.

Shares in IDS fell by 11% in early trading following the news, and descended to a new 52-week low of 173.65p (high: 531.40p). 

Royal Mail plans to cut 10,000 full-time equivalent roles by August 2023, with half of the positions to be axed within six months. 

“Based on current estimates, c.5,000-6,000 redundancies may be required by end of August 2023,” IDS stated. 

The cuts represent a near-6% reduction in the workforce based on the number of people employed in the last financial year. 

A voluntary redundancy scheme will be offered in order to minimise compulsory redundancies. 

However, IDS also stated that redundancy terms would also need to change: “The financial position of the business means that our legacy voluntary redundancy policy, which offered up to two years' pay, is now unaffordable. We will consult with CWU on any new voluntary redundancy arrangements.”

The Communication Workers Union reacted with outrage to the news. CWU General Secretary Dave Ward said: “The announcement is the result of gross mismanagement and a failed business agenda of ending daily deliveries, a wholesale levelling-down of the terms, pay and conditions of postal workers, and turning Royal Mail into a gig economy style parcel courier. 

“What the company should be doing is abandoning its asset-stripping strategy and building the future based on utilising the competitive edge it already has in its deliveries to 32 million addresses across the country.”

The CWU has called for an urgent meeting with the Royal Mail board and said it would put forward an alternative business plan at that meeting.

“This announcement is holding postal workers to ransom for taking legal industrial action against a business approach that is not in the interests of workers, customers or the future of Royal Mail. This is no way to build a company,” Ward added. 

In the trading update, IDS also warned that if the further 16 days of strikes threatened for November and December take place, it would increase losses for the full year materially “and may necessitate further operational restructuring and headcount reduction”.

IDS said it would continue to push for talks with CWU at Acas.

The business also revealed that addressed letter volumes at Royal Mail were down 6% year-on-year, while domestic parcel volumes fell by 16%. 

Compared with pre-pandemic 2019 volumes, letters were down 24% and domestic parcels were up 11%. 

Royal Mail’s total parcels revenue in H1 was down 14.4% at £1.98bn, while letter revenue fell 5.3% at £1.67bn. 

Overall sales were down 10.5% at £3.65bn. 

Trading at international parcels wing GLS has been in line with expectations. 

IDS also reiterated its previous warning that it might become necessary to split the two businesses. 

“In the event that significant change within Royal Mail is not achieved, all options remain open to protect the value and prospects of the group, including separation of the two companies.”

The situation could also result in an impairment to the £1.37bn carrying value of the Royal Mail when the H1 results are published next month.