- Strike action pushes IDS into first half loss
- All options for the parcels business still on the table
- Full year loss expected
Renamed Royal Mail-owner International Distributions Services (IDS) saw a 4% decline in first half revenues as Royal Mail income dropped 10.5% as strike threats take their toll on the business.
The shares broke a two-day losing streak gaining 0.5% to 241.1p but remain around 50% lower year-to-date.
The combination of weak parcel volumes and an inability to push through productivity improvements while in negotiations with the CWU (Communications Workers Union) pushed the postal business into a £219 million loss compared with a £235 million profit in the prior year.
The CWU is threatening to go on strike on the key ‘Black Friday’ shopping days of 25 and 25 November as well as 30 November and 1 December. The company said talks will cease if the strikes go ahead as planned.
Overall IDS reported an adjusted operating loss of £57 million against a £404 million profit in the first half of the prior year.
The international parcel division GLS increased revenues by 9.5% to £2.2 billion, but higher inflation crimped margins and led to a 4% fall in adjusted operating profit.
POSSIBLE SPLIT-UP OF BUSINESS
Management said a five-point plan is underway to ‘right-size’ the postal business and improve cash flow but warned that a failure to achieve the desired improvements may lead to a separation of the two businesses.
Non-executive chairman Keith Williams commented: ’The difference between the performances of our two companies could not be more stark. 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.’
The postal business is expected to make full year adjusted operating losses of between £350 million-and-£450 million including the impact of lost strike days.
The company is targeting a return to profitability in the 2024-25 fiscal year.
Guidance was maintained for GLS to deliver high single-digit revenue growth and an adjusted operating profit of between €370 million and €410 million.
Analysts expect IDS to make a loss of around £33 million for the year to 31 March 2023.
EXPERT VIEW
Investment director Russ Mould at AJ Bell commented: ‘All in all, we have a business that is still failing to deliver its promise of becoming more efficient via greater use of automation as its physical labour force is causing widespread disruption. Debt is also increasing.
‘It has talked about splitting the group into two if Royal Mail isn’t fixed quickly. That’s looking more likely as time goes on, yet one must question which investors would be happy to just hold shares in the UK business. It’s broken, battered and bruised with an uncooperative workforce and a large part of its business in steady decline. That’s an ugly combination.’
Disclaimer: Financial services company AJ Bell referenced in this article owns Shares magazine. The editor of this article (Steven Frazer) owns shares in AJ Bell.
