Strike chaos leads Royal Mail to £1bn loss

Royal Mail has reported an operating loss of over £1bn, after 12 months of strikes and inflationary pressures. International Distributions Services (IDS) as a whole – which also includes profitable European courier GLS – incurred a loss of £748mn.

UK operations are clearly the focus this year. Revenue at Royal Mail fell by 13 per cent in the period, driven by a drop in parcel volumes, while operating costs remained stubbornly high. Problems were exacerbated by 18 days of strike action and over £30mn of voluntary redundancy charges. 

As a result, adjusted operating losses came in at £419mn – slightly worse than management had forecast. This doesn’t account for a £539mn impairment charge, however, following a reduction in the carrying value of Royal Mail to £900mn. This was blamed on “the current risk backdrop and ongoing industrial dispute”. 

So what happens next? On the bright side, Royal Mail has come to an agreement with the Communication Workers Union. While posties still need to vote on the deal, an end is at least in sight. Management expects the pay offer to increase annual costs by about £350mn. However, the courier is starting the current year with 10,000 fewer full-time equivalent employees than last year, which equates to an annualised run rate saving of £300mn.

Management is also reining in its capital expenditure at Royal Mail and focusing instead on GLS.

As such, the group as a whole is targeting an adjusted operating profit in 2023-24. However, things at Royal Mail are expected to get worse before they get better, and its losses are on track to widen further in the first half of this year. The UK courier is only due to return to profitability in 2024-25, therefore, and these predictions exclude voluntary redundancy costs. 

International Distributions Services is facing a long, uphill battle. Sell.

Last IC View: Sell, 238p, 17 Nov 2022