Last week was bruising for Royal Mail as the postal service posted losses for the first six months of 2022, a planned series of strikes kicked off, and it announced a wave of redundancies. This follows first quarter results published earlier in this year that showed Royal Mail was losing £1m a day. The maelstrom of events has resulted in a sharply declining share price.
Royal Mail’s [IDS.L] share price plummeted 10.47% to close Friday at 187.75p after announcing a wave of redundancies. The UK postal provider warned that up to 10,000 jobs were at risk as a result of ongoing strikes. The announcement was made as half-year results revealed that the company had swung into loss for the first half of its financial year and followed the first of a planned series of worker’s strikes.
At the start of the month, Royal Mail changed its name to International Distributions Services PLC, with its ticker changing from RMG to IDS. However, it could take more than a name change to get the UK’s national postal service out of trouble.
Royal Mail posts a first half loss
In a trading statement released on Friday 14 October, Royal Mail delivered an operating loss of £219m for the six months ending 30 September, down from a £235m profit for the same period in 2021. Royal Mail explicitly referenced that £70m of the loss was the “direct” result of three days of industrial action. In the statement, Royal Mail said it estimates it will have to make around 6,000 redundancies by the end of August 2023.
Royal Mail said that the “ongoing uncertainty” over strike action meant that it was unable to give a clear outlook for the full year.
The disappointing half-year results came the day after postal workers held the first of their 19 planned strikes over pay and working conditions last week. These dates cover October to the first week of December and include posting dates around Black Friday and Cyber Monday. Postal workers had voted for strike action after rejecting Royal Mail’s 2% pay increase, with the Communication Workers Union (CWU) calling for a pay rise which matches inflation. Union CWU has also accused Royal Mail of pushing through structural changes that would cut sick pay and offer new employees inferior terms.
In response, a Royal Mail spokesperson reiterated that the company is “losing £1m a day and must change faster in response to changing customer demands."
Royal Mail’s share price hasn’t delivered in 2022
The half-year losses follow Royal Mail saying that it made an adjusted operating loss of £92m between April and June in first quarter results published 20 July. Chairman Keith Williams blamed a lack of progress in “delivering efficiencies” as the company faces weaker parcel demand after a boom in deliveries during the height of the Covid-19 pandemic.
Following the first quarter numbers, Royal Mail’s share price has fallen sharply, dropping 34.1% between 20 July and Friday’s close. Mid-September saw an acceleration in Royal Mail’s share price decline with the stock going from a close of 267.8p on 12 September to a close of 183.2p on 29 September.
On 16 September, JP Morgan lowered its rating on the stock to ‘neutral’ from ‘overweight’, while cutting its share price target to 270p from 360p. Analysts at JP Morgan cited the ongoing dispute with the CWU behind the decision to lower its rating and price target on the stock. The analysts also lowered their estimates for Royal Mail’s parcel volumes for the full year 2023 to a 16.6% decline compared to last year’s 12.1% decline.
"This reflects growing losses in the UK, with no end in sight and potential for losses to climb further," the analyst said.
The half-year results and continued industrial action are likely to put further pressure on the stock.