Royal Mail owner IDS warns of cost pressures after return to profit

By Yadarisa Shabong

(Reuters) -The parent firm of Britain’s Royal Mail warned of a worsening cost environment following last month’s budget and said it could not rule out price hikes and higher automation as it looks to cut costs after returning to a first-half profit.

International Distribution Services, which owns Royal Mail and international parcels network GLS, joined other British businesses in warning of higher prices after finance minister Rachel Reeves’s budget raised employers’ National Insurance, or social security, contributions.

The changes will cost Royal Mail, employer of about 130,000 people in Britain, around 120 million pounds ($151.7 million) a year, disproportionately impacting its business relative to its parcel competitors, CEO Martin Seidenberg said.

“This makes Universal Service reform even more urgent,” Seidenberg added.

The firm has repeatedly called for regulator Ofcom to speed up reform of what it terms as an “old-fashioned” universal service regime which obliges it to deliver mail to all UK addresses, six days a week, at a uniform price.

Seidenberg has been focused on transforming the centuries-old Royal Mail into a more modern operation by automating parcel hubs and expanding its parcel lockers and drop-off locations, among other initiatives.

He told journalists on Thursday it was too early to say whether its actions to mitigate the rise in national insurance contributions could lead to potential job losses.

The group said it was on track to achieve its full-year forecasts and “well prepared” to deliver Christmas.

IDS reported adjusted operating profit of 61 million pounds for the six months ended Sept. 26, compared to a loss of 169 million pounds a year earlier.

Higher wage inflation in Germany and Italy also hurt margins at GLS, the group’s cash cow.

Shares were down 0.8% in morning trade.

IDS, which agreed to a 3.57 billion pound takeover by Czech billionaire Daniel Kretinsky in May, did not give an update on the deal but said it continued to expect it to close in the first quarter of 2025, subject to regulatory approvals.

($1 = 0.7910 pounds)

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Subhranshu Sahu and Jan Harvey)