Royal Mail’s nine-month trading update shows the pain inflicted by multiple labour strikes. With consumers and businesses frustrated at delays in their goods reaching their desired locations, many have turned to competitors for more reliable services. Some may never return to Royal Mail.
The UK operations saw a big decline in parcel and letter volumes in the period, compounding problems in the business. It has guided for full year operating losses in the mid-point of a £350 million to £450 million range and says the strikes have cost it £200 million over the first nine months of its financial year. Parent company International Distributions Services cannot afford to let this problem continue for much longer.
AJ Bell’s Russ Mould said: “The overseas operations under the GLS banner in recent years has been the saviour for the group, but the tide also seems to be turning for this division. Volumes and margins have fallen, which perhaps suggests a gloomier economic outlook is having a negative impact on the amount of goods being shipped.
“The company has already declined to pay the half-year dividend and negative free cash flow 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. International Distribution Services might want to avoid accusations that it isn’t paying workers enough but is still doling out cash to shareholders.
“Despite the negativity surrounding its income and considerable labour disruption, the group says its plan to stabilise the business is making good progress. That might explain the positive share price action in response to the trading update.”