Royal Mail braced for £650m loss as it is crippled by strike action

Royal Mail looks poised for a loss of nearly £650 million after a horrific Christmas marred by strikes.

Founded by Henry VIII, the 507-year-old company has been rocked by falling letter numbers, the end of the pandemic boom in parcel delivery and a bitter labor dispute with the Communication Workers Union (CWU), which represents approximately 115,000 postal workers.

And it is now heading for massive losses – pushing the company deeper into crisis and sparking new fears for its future after bosses warned staff last month that they are “fighting for the life of this company.”

Shares in parent company International Distributions Services (IDS) fell nearly 60 percent last year, though they rose 1.9 percent or 4.1 pence yesterday to 217.1 pence, well below the float price of 330 pence in 2013.

Susannah Streeter, senior analyst at Hargreaves Lansdown, said 2022 was an ‘annus horribilis’ for Royal Mail and that it entered the new year in a ‘precarious position’.

She added that the company was caught in a “vicious circle” of declining volumes and an exodus of customers that only worsened its outlook.

While new rounds of talks between management and unions could raise the company’s valuation “substantially” if a deal were struck, Streeter warned there are still “substantial hurdles to overcome.”

Royal Mail suffered a loss of £219 million in the six months to 25 September, compared to a profit of £235 million a year earlier, thanks in part to a £100 million strike action.

But this figure is expected to deteriorate dramatically when IDS reports results for its full fiscal year, which runs through the end of March.

City analysts predict Royal Mail will crash to a full year loss of £645m after making a profit of £416m in the past 12 months as it still made money on demand during Covid-19 restrictions home delivery.

The massive loss would amount to nearly £1.8 million a day as protracted union action took its toll over the Christmas period, leaving piles of letters, cards and parcels undelivered.

Russ Mold, investment director at AJ Bell, said the longer the dispute with the unions went on, the more likely customers were to look for alternatives.

The losses at Royal Mail are in stark contrast to IDS’ international delivery company GLS, which is expected to turn in profits of £317 million this year.

But that won’t be enough, analysts say, to prevent the parent company from swinging to a £290m loss in 2023 from a £662m profit last year.

The amount of red ink on Royal Mail’s bills is likely to raise new doubts about its future. In a letter to employees last month, CEO Simon Thompson and senior managers told staff they are now “fighting for the survival of this company.”

The company warned that neither the government nor regulator Ofcom would come to its rescue.

It has also warned it could spin off its UK arm of the GLS business, although there are concerns this could make matters worse and lead to the Royal Mail being re-nationalised.

Bosses have tried to make changes to Royal Mail’s business practices in a bid to make it more competitive with rivals.

But a pay and benefits dispute with the CWU has escalated into a long-running feud that saw postal workers strike for 19 days last year. Another strike vote is planned for this month.

Royal Mail has said changes are needed to compete, but the CWU claims staff will be converted into ‘gig economy’ workers with less reliable hours and wages.

Management was criticized over the weekend by former boss Rico Back, who said they had taken a “confrontational” approach to the strikes.

He added that Thompson’s lack of experience, both in the industry and as a leader of a major company, was a “toxic mixture.”

Meanwhile, speculation circulates about the ultimate goal for Daniel Kretinsky, the Czech billionaire who controls 23.2 percent of IDS through his vehicle Vesa Equity.

The tycoon, known as the “Czech Sphinx” for his inscrutable approach to investing, recently increased his stake in the group, sparking rumors that he was gearing up for an attack on the company.