Royal Mail Owner IDS Warns Business Could Be Split

Royal Mail owner International Distribution Services (LON: IDS) reported its half-year results before the open Thursday, sending its shares 2.5% lower at the open.

The company, which is facing worker strikes, reported that revenue fell by 3.9% to £5.84 billion during the half year ended September 25. IDS told investors the slide in revenue was driven by weakness in Royal Mail.

Meanwhile, the company’s operating loss was £163 million, compared to a £311 million profit during the same period last year, with IDS stating it reflects weak parcel volumes, the inability to deliver productivity improvements as well as the impacts from industrial action. Its adjusted operating loss came in at £57 million.

Looking ahead, IDS said it sees its full-year adjusted operating loss around £350 million to £450 million, including the direct impact of 12 days of industrial action, in line with its previously adjusted forecast. It is also targeting Royal Mail to generate positive free cash flow in FY 2023-24 and return to adjusted operating profit in FY 2024-25.

In his comments, Keith Williams, Non-Executive Chair of IDS, warned that if there is a lack of significant operational change in Royal Mail, it will look at all options to preserve value for the group, including the possibility of separation of the two businesses.

GLS has adapted well to inflationary pressures across its geographies. However, we have been standing at a crossroads with CWU in the UK for several months. We are now heading in a clear direction in light of the substantial losses in Royal Mail.

“Whilst our frontline management population under Unite/CMA has agreed both pay and change in the last few months, progress on a deal for frontline employees has been blocked by the actions of CWU. Accordingly, we have started to implement the change needed to rightsize Royal Mail which will ensure that it is both better placed to serve our customers’ needs in parcels, as well as letters, bring it back to profitability and provide a sustainable future,” said Williams.

“We believe that this is the best course of action for the long-term survival of Royal Mail even if it results in short-term disruption. A sustainable future must also include urgent reform of the Universal Service. Government has now been approached to seek an early move to five day letter delivery, whilst we continue to improve parcel services.”

IDS shares are down 1% at the time of writing. Its shares have declined over 55% so far in 2022.

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