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Sales are up and losses have been significantly reduced at Royal Mail – but an expected £120m increase in costs due to the upcoming National Insurance hike has resulted in a £134m impairment charge at the business.
Royal Mail parent group International Distribution Services (IDS) announced its interim results this morning (21 November).
In the 26 weeks to 29 September, IDS posted group revenue up 8.2% at £6.34bn.
Sales at Royal Mail were up 10.7% at £3.92bn, while continental parcels wing GLS grew sales by 4.4% to £2.43bn.
IDS posted an adjusted operation profit of £61m compared to a £169m loss the prior year.
The adjusted operating loss at Royal Mail reduced to £67m from a whopping £319m in H1 2023.
Continental parcels wing GLS posted an adjusted operating profit of £128m, albeit £22m lower year-on-year amid a “difficult” market.
Parcel revenues were up nearly 9% at Royal Mail, while addressed letter volumes (excluding elections) were down 5%.
However, letter revenues jumped 12.7% on the back of price increases and the impact of the General Election in July.
Performance improved thanks to ongoing operational changes as part of the modernisation and transformation project at Royal Mail, which now employs 19,000 people on new permanent contracts.
Royal Mail employs 130,000 overall.
IDS group CEO Martin Seidenberg commented: “The modernisation of the Royal Mail network continues at pace, with innovation to improve our services to customers, including the rapid expansion of our out of home footprint.
“As we enter our busiest period, we are well prepared to deliver Christmas, with around 4,000 new vehicles being delivered before peak, 16,000 extra people, extended delivery hours until 8pm and our growing network of parcel lockers and parcel shops.”
IDS plans to increase the Royal Mail out of home drop-off locations – including lockers and parcel shop drop-offs – to more than 21,000 locations by the end of March 2025.
However, Seidenberg warned about a worsening cost environment following the measures announced in the Budget at the end of last month.
“We are delivering on the changes we can control, but the cost environment is worsening just at the time when we need to invest.
“As a major employer with around 130,000 permanent employees, the changes to National Insurance will disproportionately impact our business relative to competitors. This makes Universal Service reform even more urgent,” he stated.
IDS also noted that the £3.6bn takeover offer for the business from EP Bidco Ltd – backed by Czech billionaire Daniel Křetínský and called in for government review under the National Security and Investment Act – is expected to become or be declared unconditional in Q1 of calendar year 2025, “subject to required conditions being satisfied or waived”.
IDS’ share price slipped by just over 1% on the news to 346.25p, but the shares are still up nearly 27% since the start of the year (52-week low: 209.82p, high: 357.80p).
The EP Bidco offer is for 360p in cash per share, plus a dividend that takes the offer to 370p per share.
Some IDS shareholders are understood to be holding out because they believe that – pending possible reform of Royal Mail’s Universal Service Obligation that could save the business £300m a year – the group could be worth more.
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