Royal Mail losing £1MILLION a day and strike action looms

Royal Mail saw first-quarter UK revenues fall 11.5 per cent, as a decline in its letters division is compounded by inflation-hit consumers cutting back on online shopping.

Royal Mail UK reported an adjusted operating loss of £92million in the first quarter, or around £1million per day.

The company, which is embroiled in a staff crisis over job cuts, pay, and working conditions, said that adjusted operating profit in its UK business will break-even for the full year, excluding the impact of industrial action.

Royal Mail shares fell sharply today, and were down 5.16 per cent or 14.70p to 270.30p. 

The quarterly loss was driven by higher costs and a ‘stalled’ transformation programme as a result of labour disputes, according to the group. 

Over 115,000 postal workers at Royal Mail have voted to strike over pay, trade union CWU said on Tuesday, which could result in the biggest industrial action to hit Britain this summer. 

Royal Mail said progress on its ‘Pathway to Change’ programme had stalled, creating a £100million risk to £350million worth of benefits identified for 2022-23. Other cost-saving programmes were said to be on track, albeit with headwinds from recent increases in absence due to Covid-19. 

The continentally-focused GLS business continued to perform reasonably well. Despite a drop of 3 per cent in volumes, revenues jumped 7.8 per cent, driven by higher freight revenue and stronger pricing. 

An operating profit of £94million leaves the full-year target of between €370million to €410million intact.

The group said: ‘Outlook for FY 2022-23: weaker parcels market and lower than anticipated efficiency savings in-year. Provided progress can be made on above actions, now likely to be around breakeven at adjusted operating profit level, excluding any impact from industrial action.’ 

The post and parcel delivery firm also said its holding company Royal Mail Plc would be renamed International Distributions Services Plc, and will have two separate businesses – Royal Mail and GLS.

Chairman Keith Williams, said: ‘Whilst GLS delivered a solid performance in the first quarter, the performance of Royal Mail was disappointing with an adjusted operating loss of £92.0m resulting from a decline in parcel volumes post the pandemic and a lack of progress in delivering efficiencies.”

‘The pandemic boom in parcel volumes bolstered by the delivery of test kits and parcels is over. Royal Mail is currently losing one million pounds per day and the efficiency improvements which are needed for long-term success have stalled. 

‘Stalled’: Royal Mail said progress on its ‘Pathway to Change’ programmed had stalled

‘We can however be a long-term success story. We have advantages in scale and reach and a strong balance sheet and asset base which are the foundations for a successful future. We need to act now in moving to that future in the interests of all stakeholders, employing those advantages to the maximum.’

Richard Hunter, head of markets at Interactive Investor, said: ‘In a particularly frank statement, the group has listed the challenges currently being faced. 

‘A recurring theme is the likelihood of industrial action, which will further hamper progress on its much-needed transformation programme. At the same time, the burgeoning parcels market has stalled, with inflationary pressures leading to less retail spending and therefore deliveries.’

He added: ‘All things considered, the white-knuckle ride for shareholders is likely to continue. 

‘Even prior to today’s update and the subsequent drop at the open, the shares had lost 46 per cent over the last year, as compared to a decline of 13 per cent for the wider FTSE 250. 

‘The price is now 14 per cent below the initial IPO price when the company floated in 2013, and 55 per cent below the peak price of 630p achieved in April 2020. 

‘Market consensus has unsurprisingly weakened against the current backdrop, yet on balance the ability of an unfettered company to drive further progress is also recognised, even though it is unclear when the group will be free to continue on its journey. As such, the view of the shares as a cautious buy could come under some further negative pressure.’