Royal Mail to cut supplier costs by 20pc

ROYAL MAIL has told its suppliers to strike new deals as it looks to cut 20 per cent costs from each contract.

The top 150 suppliers to the company were told in a meeting in London ten days ago the operator was looking to “radically reduce costs” ahead of plans to privatise the service, according to reports yesterday.

Under the auspices of meeting new chief executive Moya Green for the first time, the companies heard in a presentation that contracts would need to be renegotiated within 30 days, with the new deals in place by 10 December.

Group procurement director Kath Harmeston told contractors: “Royal Mail is in transformation and needs cash. A radical cost-out programme is required to support the transformation.”

The presentation set out a scheme to “radically reduce costs and our spend baseline by the end of the financial year – a 20 per cent minimum target reduction per key supplier”.

Cost-cutting plans presented by Royal Mail included looking at payment terms to suppliers, the sale of some assets and the sale and leaseback of part of its property portfolio.

Royal Mail last week revealed half-year group profits had fallen to £52m, down from £184m last year, with the letter business losing £66m.

The cost-cutting comes as Royal Mail faces a potential cash crisis, caused in part by the £800m a year the company pays into its pension plan, which has a £10bn deficit.

One anonymous supplier told a Sunday newspaper they were “furious” following the demand for tough cuts. Royal Mail would not confirm the proposals, though told City A.M. last night: “Royal Mail is striving to get the best value for money throughout the business and we are asking our suppliers for their ideas and proposals on how we might achieve this — but we are absolutely not imposing a blanket cut on suppliers’ bills.”

Government outsourcer Serco last week withdrew a letter asking for a 2.5 per cent cash rebate from suppliers after a political backlash.