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The owner of Royal Mail is on track to return to profitability as its protracted sale to Daniel Kretinsky nears completion, buoyed by a significant increase in parcel deliveries over the festive period.
International Distribution Services (IDS) reported that Royal Mail’s “successful Christmas period” resulted in the processing of 188m tracked parcels, marking a 19 per cent increase from the previous year, as reported by City AM.
Operational enhancements, including a new service offering parcel delivery until 9pm, have also contributed to improving the reliability of the UK’s largest postal service. The company stated that nearly all items (99 per cent) posted before the recommended cut-off dates arrived in time for Christmas.
This surge in volume and reliability led to a 2.5 per cent revenue increase for Royal Mail in the three months ending December. However, a two per cent drop in earnings at its European service GLS meant that IDS’s overall revenue only saw a slight increase of 0.8 per cent, reaching £3.6bn.
(Image: THOMAS SAMSON/AFP via Getty Images)
Russ Mould, investment director at AJ Bell, commented: “If this is [IDS’s] sign-off from the public markets… then it could be a lot worse,” adding that while it would be an exaggeration to claim that Royal Mail’s operations are fully fixed, the projected return to profit for the current financial year marks a significant milestone in its turnaround.
The third quarter results signal what appears to be the final chapter in Royal Mail’s challenging and sometimes arduous turnaround journey. The company has faced difficulties adapting to decreasing letter volumes and ongoing disputes with its heavily unionised workforce.
For an extended period, Royal Mail has been engaged in discussions with Ofcom and government officials regarding its ‘universal postal obligation’, with indications that it has pushed for a reduction in delivery days from six to three. The government has given the green light to Kretinsky’s £3.6bn offer for IDS, subject to the condition of maintaining a ‘golden share’.
This provision ensures that any significant changes concerning Royal Mail’s ownership, tax status, or headquarters will require government consent, even as the company transitions to private ownership. This sale marks the first occasion in nearly 500 years that Royal Mail is not under UK ownership, following a tough ten-year period on the London Stock Exchange.
Since its IPO in 2013, IDS shares have fallen by over 20%. “It’s hard to give the company’s time on the stock market a stamp of approval,” Mould commented.
“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, expressed his pride in his team’s efforts over the festive period, stating: “I am proud of my colleagues across Royal Mail and GLS who went above and beyond for our customers this Christmas.”
He further highlighted the company’s adaptability to customer demand, saying: “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.”
