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Strikes cost Royal Mail £200m as it posts large loss

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Strike action at Royal Mail has cost the besieged postal company about £200 million, sending it to a large operating loss.

International Distributions Services (IDS), the recently renamed parent company, posted operating losses at Royal Mail, its UK business, of £295 million for the first nine months of its financial year as it was laid low by 18 days of industrial action by workers at the Communication Workers Union (CWU), including over the peak Christmas period.

Royal Mail remains locked in a bitter nine-month dispute with the union over below-inflation pay rises and an overhaul of working practices that has become increasingly political.

This week the Commons business, energy and industrial strategy select committee summoned Simon Thompson, Royal Mail’s chief executive, back to parliament amid doubts over his earlier evidence to MPs last week.

The group said today that despite having endured six more days of industrial action than initially forecast, it expected an annual adjusted operating loss towards the mid-point of its £350 million to £450 million guidance range, thanks to “tight control of costs and strike contingency measures”.

It claimed that up to 12,500 union members had worked on strike days, which along with other measures such as hiring agency workers, meant that more than 110 million parcels and 600 million addressed letters were delivered in December.

Royal Mail said, however, that its full-year outlook was based on there being no more strikes in its fourth quarter and on the union accepting its “best and final” pay offer.

The CWU, which represents about 1150,000 staff, has rejected Royal Mail’s offers of increased pay, the latest being a total raise of up to 9 per cent over 18 months. It held a rally this week before a third ballot for industrial action, the result of which is due to be declared on February 16.

Royal Mail argues that changes in working practices are needed because of a structural long-term decline in letters traffic and in order to succeed in the growing parcels market.

Revenue at Royal Mail fell 12.8 per cent year-on-year in the nine months to the end of December, weakened also by lower Covid test kit volumes. Total letter revenue declined 6.1 per cent and was down 14 per cent on the level before the pandemic.

Parcels now represent 54 per cent of total revenue compared with 48 per cent before the pandemic, which Royal Mail said highlighted “the urgent need to deliver change”. Total parcel revenue fell by 17.8 per cent, with volumes down 20 per cent during the period.

The crisis at Royal Mail has increased uncertainty over its future ownership, the prospect of a break-up of the group and the future of the universal service obligation. The government has rejected a plea from Royal Mail to cut its legal obligation to deliver letters to businesses and homes from six days a week to five.

Royal Mail said today that the number of voluntary redundancies needed under plans to cut 10,000 roles would be significantly lower than anticipated. It said that it was on track to cut its workforce by 5,000 by March and 10,000 in total by August but that the number of voluntary redundancies needed would be far less than the 5,000 to 6,000 it initially expected, partly because of employee turnover.

Volumes at GLS, Royal Mail’s international parcels business, fell 2 per cent and it posted revenue growth of 9.7 per cent. Adjusted operating margin fell 100 basis points to 7.5 per cent.

Analysts at the broker Liberum said: “The unchanged loss guidance at Royal Mail, despite additional strike days, is positive. However, we still see downside risks from more strikes and customer attrition. With no credible solution to the problems at Royal Mail, our recommendation remains ‘sell’.”

Analysts at the retail shares platform AJ Bell said: “The company has already declined to pay the half-year dividend and negative free cashflow raises the risk of a full-year dividend also being denied to shareholders. In November the company said it might try and pay a full-year dividend out of GLS earnings, but that could cause a political storm.”

Shares in IDS, which have almost halved over the past 12 months, traded up 5¼p, or 2.4 per cent, to 224¾p, on the London Stock Exchange today, valuing the group at about £2.1 billion.

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