Shares in Royal Mail owner International Distributions Services PLC (LSE:IDS) dropped 12% in early trading on Friday after the company disclosed the full financial impact of industrial action at its UK parcels and letters business and told the market it would be cutting 10,000 jobs.
Analysts at City broker Peel Hunt said the operating loss forecast for the Royal Mail unit was worse than it had been predicting and was at the bearish end of consensus.
IDS warned of a huge round of job cuts as it expects £219mln of first-half losses, of which it claimed £70mln was due to three days of strikes by Royal Mail staff.
This means, said the broker, that the underlying £149mln is “still worse and due to the lack of efficiency improvement”.
The analysts said the financial performance of international parcels business Global Logistics Services (GLS) was in line with its expectations, but noted that this was "unlikely to be sufficient to support the stock at this stage".
Peel Hunt reiterated a ‘sell’ recommendation for shares in IDS. The stock, which has lost 64% of its value in the year to date, fell 25.7p to 180.86p in the first half hour of trading.
In a no-holds-barred update, IDS said just three days of industrial action had cost the business £70mln as warned the market it expects the Royal Mail delivery arm to make an operating loss of £219mln for the first half of the year, rising to £350mln for the full year. First-half cash losses were closer to £330mln.
The update was issued as staff walked out for another day of a planned 19 days of industrial action in the coming months in a stand-off between managers and the Communications Workers Union (CWU) over pay and conditions.
Broker Liberum noted that the expected £350m full-year UK loss "only includes the impact of 8 days of industrial action already taken or notified, and excludes the 16 additional days the CWU has threatened but not formally notified".
The IDS stock market statement came with another not-so-veiled warning that management could separate the ailing and strike-hit Royal Mail unit from the profitable GLS operation, as it threatened in July.
As a direct response to the company’s plight IDS said it must ‘right-size’ the current operation, with management having last month outlined a desire to scrap workplace agreements with staff that have been in place since the company was privatised nine years ago.
This, it added, meant it would have to remove 10,000 full-time equivalent roles by August next year, with 5,000-6,000 potential redundancies required to achieve that target.
In the update, the company said the GLS unit was trading in line with expectations and on track to deliver an operating profit of £320mln-£354mln.
Dave Ward, general secretary of the company's main union, the CWU, said: “The announcement is the result of gross mismanagement and a failed business agenda of ending daily deliveries, a wholesale levelling-down of the terms, pay and conditions of postal workers, and turning Royal Mail into a gig economy style parcel courier.
“What the company should be doing is abandoning its asset-stripping strategy and building the future based on utilising the competitive edge it already has in its deliveries to 32 million addresses across the country.
“The CWU is calling for an urgent meeting with the board and will put forward an alternative business plan at that meeting.
“This announcement is holding postal workers to ransom for taking legal industrial action against a business approach that is not in the interests of workers, customers or the future of Royal Mail. This is no way to build a company.”