Royal Mail Replaces CEO After Clash With Unions, Virus Hit

(Bloomberg) -- Royal Mail Plc abruptly replaced Chief Executive Officer Rico Back after the coronavirus crisis added to ongoing challenges with a turnaround plan and labor friction.

Chairman Keith Williams will take on an additional executive role and finance head Stuart Simpson becomes CEO for U.K. operations, the flagship British postal service said in a statement Friday. The roles are temporary while the company searches for a new chief.

Royal Mail is responding to calls for a strategy change amid mounting losses. The company has suffered a collapse in letter volumes during the coronavirus outbreak, only partially offset by gains in parcel flows. Williams’s new role will see him lead discussions with labor groups and other stakeholders about an accelerated pace of change, according to the release.

“Postal workers have been outstanding during this pandemic and are ready to embrace innovation,” the Communication Workers Union said in a statement. “It is absolutely critical that the new CEO wants to work with the CWU to overcome the challenges we all face.”

Shares of Royal Mail traded 6.7% higher at 173.25 pence as of 11:01 a.m. in London, paring their slide this year to 23%. The stock has been in decline for four years as the company struggles to adjust to the long-term slump in letter volumes while exploiting a jump in parcels demand tied to online shopping.

Back will stand down as chief and quit the board with immediate effect, though won’t formally leave until August. The Hamburg native helped found a German parcel company in 1989 that was acquired by Royal Mail a decade later. He rose through the ranks to become group CEO in June 2018.

Marred Tenure

Back’s departure was a surprise even though his tenure has been “marred with difficulties,” Sanford C. Bernstein analyst Daniel Roeska said in a note to investors.

“A large restructuring plan fell afoul with unions and promised productivity improvements were delayed,” Roeska said, adding that the company also cut its dividend twice during that time.

Royal Mail suffered a spate of absenteeism earlier in the coronavirus crisis amid concerns about the availability of personal protective equipment, though levels have now halved, the company said. Deliveries have also been reduced to a five-day service in response to employee feedback and market trends, though a Saturday service will resume on June 13.

Royal Mail’s letter and parcels arm suffered a 22 million-pound ($27 million) revenue decline in the year through April. Letter volumes are down one-third for the period from March 30 through May 3, the company said. Though parcels have seen a 31% gain with High Street shops closed, business-to-business demand is down.

Historical Roots

The company, which traces its history back more than 500 years, said its liquidity position remains strong with facilities totaling 1.8 billion pounds and access to the U.K. government’s Covid Corporate Financing Facility if required.

Royal Mail has furloughed fewer than 200 workers as it maintains deliveries to 30 million households during the Covid-19 crisis. It will pay a 25 million-pound bonus to front-line workers who should get up to 200 pounds apiece in June.

The group plans to consult on measures to minimize losses and ensure long-term growth and said it will provide an update on June 25, along with fiscal full-year results and an outlook for the coming year.

©2020 Bloomberg L.P.