Royal Mail shocks suppliers by plan to cut costs by 20pc

ROYAL Mail has outlined plans to cut supplier bills by at least 20 per cent as it seeks to bolster its balance sheet ahead of privatisation.The group, which last week reported a 72 per cent plunge in half-year profits, shocked its top 150 suppliers by revealing aims for drastic reductions in supplier costs at a recent meeting, according to a weekend report.

The Post Office owner's suppliers are said to be angry at the demands, with Royal Mail thought to have given them a few days to put forward proposals and set a 30-day deadline to negotiate new contracts.

Group procurement director at Royal Mail Kath Harmeston is understood to have made a presentation for cost cutting at the meeting, detailing proposals to review supplier payment terms, the sale of some assets and a sale and leaseback of part of its property portfolio.

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A spokeswoman for Royal Mail said: "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."

The group's half-year results laid out the pressures facing Royal Mail as it readies itself for a planned part or full privatisation by the Government.

Its profits plunged after its letters business slumped into the red as the number of letters posted in Britain continue to decline, while at the same time it is also facing greater competition.

The letters arm saw losses of 66m in the six months to September 26 against 48m profits a year earlier.

Royal Mail said the average postbag was now at a level not seen since the mid-1990s, with letter volumes falling to about 68m a day – a drop of 16m in the past five years.

Its overall operating profits dropped to 52m from 184m as it said the group continued to suffer increased competition from rivals as well as the use of email, websites and social media.

The Government announced a month ago that Royal Mail was to be privatised.

It is pushing the Postal Services Bill through Parliament to enable private capital to be injected and will take on Royal Mail's 8bn pension liabilities to smooth the path for privatisation.

Outsourcing giant Serco was also at the centre of an outcry over its treatment of suppliers last week as it was forced to apologise for writing a letter demanding rebates in the face of Government spending cuts.

It retracted the letter asking suppliers for a 2.5 per cent retrospective cash rebate.

But Serco is also shifting 4,500 of its smaller suppliers on to a new procurement system run by supplier management company Achilles that will see more than 50 firms pay about 500 in fees to register.