Royal Mail owner IDS eyes return to profit as Kretinsky takeover nears completion

The owner of Royal Mail said it remained on track to return to annual profit after a parcel boost over Christmas. 

The update was revealed as the group’s £3.6billion takeover by Czech billionaire Daniel Kretinsky nears completion.

International Distribution Services (IDS) confirmed on Tuesday that the deal had received clearance from European and American regulators. 

The group warned in November that it was facing a £120million hit from the incoming National Insurance tax hike and that it could not rule out job cuts or price hikes to offset the blow. 

On Wednesday, IDS said Royal Mail delivered more than 99 per cent of items that were posted on or before the recommended cut-off date in time for Christmas.

Revenues rose 2.4 per cent across Royal Mail in the three months to the end of December, with sales of parcels up 3.2 per cent and a 1.4 per cent rise for letters.

The group said addressed letters continued to fall by volume, down 7 per cent, but that this was offset by higher stamp prices. 

Parcel sales across the UK by volume remained unchanged, at 334million, but revenues jumped 2.5 per cent to £1.02billion as prices rose. International revenue grew by 6.6 per cent to £227million. 

The performance has kept the group on course to return to adjusted operating profit, before voluntary redundancy costs, in 2024-25 this fiscal year, ‘despite the difficult market environment’, IDS said.

Total group revenue rose 0.8 per cent to £3.6billion as Royal Mail outperformed its international parcel arm GLS, where revenues fell 2 per cent but rose 2.5 per cent with acquisitions and disposals stripped out.

Royal Mail cheered a strong performance from its tracked parcel offering, with packages by volume up 19 per cent to 188million.

Its new ‘state-of-the-art’ parcel hubs in Daventry and Warrington processed over 75million parcels during the Christmas period, up 23 per cent year-on-year, according to IDS.

Martin Seidenberg, chief executive of IDS, said: ‘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.’

He added: ‘Whilst the market backdrop remains difficult, we are focused on strategic delivery and mitigation of inflationary pressures.’

Russ Mould, investment director at AJ Bell, said: ‘If this is Royal Mail owner International Distribution Services’ sign-off from the public markets, as its £3.6billion takeover nears completion, then it could be a lot worse.’

He added: ‘The company saw a material boost from increased parcel volumes over the festive period. 

‘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.

‘It’s hard to give the company’s time on the stock market a stamp of approval. 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 barely trading ahead of the 2013 IPO price and are well below the price they settled at on their first full day of trading. A disappointing outcome for anyone who got in at the start.’ 

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