Royal Mail IDS owner to return to profit as Kretinsky takes reins
The owner of Royal Mail is set to return to profit just as its long drawn out sale to Daniel Kretinsky nears completion thanks to a welcome uplift in the number of parcels it delivered over Christmas.
International Distribution Services (IDS) said Royal Mail’s “successful Christmas period” saw it process 188m tracked parcels, a 19 per cent uplift on the previous year.
Operational improvements, including its newly launched service to deliver parcels to customers until 9pm, also helped what is the UK’s largest postal service to improve reliability, it said. Almost all items (99 per cent) that were posted before the recommended cut off dates arrived in time for Christmas.
The growth in volume and reliability helped revenue at Royal Mail to jump 2.5 per cent in the three months to the end of December. But earnings at its European service GLS dropped two per cent, meaning IDS’s overall revenue only nudged up 0.8 per cent to £3.6bn
“If this is [IDS’s] sign-off from the public markets… then it could be a lot worse,” said Russ Mould, investment director at AJ Bell. “While it would be overstating things to say the Royal Mail operation is fully fixed, the return to profit promised for the current financial year is a significant milestone in its turnaround.”
Royal Mail turnaround
The third quarter results mark the likely denouement of what has been a long and, at times, painful turnaround at the Royal Mail, which has struggled to adapt to falling letter volumes and been blighted by constant friction with its heavily unionised workforce.
For years, it has been in dialogue with regulator Ofcom and policymakers over what is known as its ‘universal postal obligation’, with reports suggesting it has lobbied for a reduction to three from the six currently mandated.
The government approved Kretinsky’s £3.6bn bid for IDS after a protracted review on the condition it retains a ‘golden share’ in the firm.
The share means any changes to Royal Mail’s ownership, tax residency, or headquarters will still need state approval despite its owner going into private hands.
The sale represents the first time in the service’s near-500-year existence that it is not a UK-owned company and comes after a bruising decade-long stint on the London Stock Exchange.
Shares in IDS are down just over a fifth since its IPO in 2013.
“It’s hard to give the company’s time on the stock market a stamp of approval,” added Mould. “Initial excitement around its privatisation fizzled out as it struggled to modernise and boost efficiency thanks to a fractious relationship with its Royal Mail workforce.
“Ultimately, the shares… are well below the price they settled at their first full day of trading. A disappointing outcome for anyone who got in at the start.”
Martin Seidenberg, Chief Executive Officer at IDS plc, said: “I am proud of my colleagues across Royal Mail and GLS who went above and beyond for our customers this Christmas.
“At Royal Mail, we have made more progress to adapt to customer demand. Successful execution of our union agreements is bringing increased operational flexibility, which together with increased automation, and thousands of new vehicles, is leading to improved reliability.