Shares in International Distribution Services, the owner of Royal Mail, have dropped from £5.26 to £2.52 in 2022. After taking a tumble to a record low of £1.80 in October, they recovered slightly in November.
However, confidence remains low as a result of ongoing industrial action. October’s IDS share price increase of around 8% was a welcome and unexpected change for shareholders.
Analysts fear further losses could be on the horizon as negotiations between trade unions and management representatives rumble on with no sign of resolution.
Festive Strikes Dent Profits
With employees set to strike during the festive season – and parcel and letter volumes already down – Royal Mail forecasts its full-year adjusted operating profit will come in at a loss of around £400 million.
Predictions suggest IDS won’t turn over a profit in the short term. It isn’t targeting a return to profitability until 2025.
Only the international division, General Logistics Services, is continuing to perform. Operating margins decreased due to the pressures of inflation, but revenue continued to rise. The business is expected to produce high revenue growth, with an adjusted operating profit of around £338 million in 2022.
No End To The Dispute In Sight
Analysts believe if Royal Mail could negotiate a constructive resolution to the current dispute, IDS could set off on the road to recovery. It could enable the FTSE 250 firm to start its return towards profitability, bringing rewards for beleaguered shareholders.
Without any resolution in sight, the path ahead remains rocky for IDS. The longer the dispute between the trade unions and management continues, the longer the firm will have to operate in cash preservation mode and unprofitability.
Its £910 million cash and equivalents no longer cover its £930 million debt. As a result, no dividend is expected in the foreseeable future.
Major Challenges For Royal Mail
Royal Mail has described its current precarious situation as “facing significant headwinds”. It has suffered some major challenges in recent years, as the explosion in home shopping during the pandemic pitted it against stiff competition in the shape of new delivery and courier services.
The 500-year-old company had to adapt to survive, which was a good thing. Now its progress is being hampered again by the industrial dispute, IDS has suffered a significant setback.