Royal Mail Owner Cuts Forecasts, Announces Plans To Cut 10,000 Staff

International Distributions Services — or the stock formerly known as Royal Mail — slashed its earnings forecasts for the year on Friday.

This sent shares in the business tumbling 12% to 184.2p.

During the six months to September the company made an adjusted operating loss of £219 million, it said. In the same 2021 period it posted a corresponding profit of £235 million.

As a consequence, International Distributions Services now expects to report an adjusted operating loss of £350 million.

It said that this figure includes “the direct, immediate impact of eight days of industrial action which have taken place or been notified to Royal Mail.” But it added that this sum excludes “any charges for voluntary redundancy costs.”

However, the Royal Mail owner said that losses could potentially rise as high as £450 million “if customers move volume away for longer periods following the initial disruption.”

10,000 Job Cuts Planned

The courier group also announced plans today to reduce Royal Mail’s headcount to 10,000 in response to recent strikes. This could include between 5,000 and 6,000 redundancies, it said.

Royal Mail says that it plans to reduce overtime, cut temporary staff and not recruit for roles that have been vacated to reach its 10,000 target.

International Distributions Services’ core British division has been hit by staff walkouts in recent months that’s brought operations to a halt. Eight days of walkouts in the first half cost the company in the region of £70 million, it said today.

The business said that its position had deteriorated “due to a combination of the impact of the industrial dispute, an inability to deliver the joint productivity improvements agreed with the [Communication Workers Union] under the Pathway to Change agreement, and ongoing macro-economic headwinds.”

The union has warned of a further 16 days of industrial action in November and December, Royal Mail said. This is on top of further walkouts that are scheduled for 20 and 25 October.

International Distributions Services added that additional strikes beyond this month “would increase the loss for the full year materially and may necessitate further operational restructuring and headcount reduction.”

To add to the sense of strife, the FTSE 250 firm said that “our legacy voluntary redundancy policy, which offered up to two years’ pay, is now unaffordable.” It will now enter talks with the CWU to discuss any new voluntary redundancy arrangements.

“Waves of Challenges”

Susannah Streeter, analyst at investment firm Hargreaves Lansdown, said that “Royal Mail had already been hit by waves of challenges, from a weakening of the pandemic parcel boom to fewer Covid test deliveries and a structural decline in letter sending.”

Streeter noted that “e-commerce deliveries have rebased to a higher level than pre-pandemic times which has been a welcome trend.”

However, she added that “the company has been side-swiped by the worse than expected cost-of-living crisis, as inflation has been exacerbated due to the invasion of Ukraine, sparking much deeper industrial strife.”

The firm’s GLS overseas unit remains on track for the full year in spite of increased competition and inflationary pressures. But Streeter noted that “the threat of further strike action means that no certainty can be given over the full year outlook for the group as a whole.”