UPDATE 2-Union warns of industrial action as Royal Mail cuts 1,300 jobs

Tue Mar 25, 2014 6:54am EDT

Related Topics

* Royal Mail to cut net 1,300 managerial and HQ jobs

* Expects to eventually save 50 mln stg a year

* Unite trade union says industrial action an option

* Restructuring to cost 100 mln stg, Royal Mail shares dip (Adds details, shares, shareholder and analyst comment)

By Neil Maidment

LONDON, March 25 (Reuters) - Just five months after its privatisation, Britain's Royal Mail postal service has announced plans to cut a net 1,300 jobs to reduce costs, prompting a threat of industrial action from a trade union.

Royal Mail, sold off last October in Britain's biggest privatisation for decades, has shed 50,000 jobs in 11 years as it tries to adapt to the rise of electronic mail and a shift from traditional letters to more parcel deliveries.

The group said on Tuesday it planned to cut 1,600 managerial and head office jobs, offset by the creation of around 300 new or enhanced positions, in order to save an eventual 50 million pounds ($82.5 million) a year.

The Unite trade union, which represents the majority of those staff to be affected, called the cuts ruthless and said industrial action was an option.

"Unite is demanding a commitment to no compulsory redundancies on fair terms and an effective method for redeployment within the restructured organisation. If Royal Mail refuse we will have no alternative than to consider a ballot for industrial action," its Royal Mail officer Brian Scott said.

Royal Mail, which employs about 150,000 staff, only narrowly avoided strike action from frontline postal workers at Christmas after agreeing a new deal on pay and terms.

The company, which said the latest cuts would not affect postmen or women, has rarely been out of the headlines since the government sold off part of its stake.

With its shares surging almost 80 percent above the offer price, opposition lawmakers accused the government of selling the stake off too cheaply and short-changing taxpayers.

The job cuts won the backing of some investors.

RESTRUCTURING COSTS

"We see this as just another phase in their cost-cutting to evolve the business," Chris Murphy, UK equity income fund manager at Aviva Investors, a top 20 shareholder in Royal Mail, told Reuters. "We still think it's a well run company with strong management and we have faith in what they're doing."

Cantor Fitzgerald analyst Robin Byde also welcomed the cuts as a necessary step in a restructuring that had further to run, although he was wary of potential industrial action.

"The net job cuts proposed are slightly higher than we had forecast," he said.

"We think that there is risk of industrial action."

At 1015 GMT, Royal Mail shares were down 1.4 percent at 576.18 pence, the biggest fall in the benchmark FTSE 100 stock index, although they are still around 75 percent higher than their government sell-off price of 330 pence.

Asked about the reassurances sought by Unite, Royal Mail said it had a track record of achieving change through natural turnover, redeployment and voluntary redundancy where possible.

The group said the job cuts would deliver around 25 million of cost savings in 2014-15 and would help it to respond to increasing competition and higher pension charges.

The plan will result in a one-off cost of 100 million pounds, taking the total costs of its transformation plans to 230 million pounds for 2013-14, 70 million pounds more than Royal Mail had previously expected.

However, the group said this would have no impact on its investment programme.

Royal Mail, which will announce full-year results on May 22, said underlying trends were broadly in line with those seen in the first half, when rising parcel revenue and cost cuts helped it to almost double operating profit after transformation costs to 283 million pounds.

($1 = 0.6065 British Pounds) (Editing by Kate Holton and Mark Potter)

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