Royal Mail mulls hiving off international arm as strikes take toll

Royal Mail has given the clearest indication it could split from its profitable international arm after a crippling labor dispute plunged it into the red.

The British company posted a loss of £219m for the six months to September 25, compared to a profit of £235m a year earlier – thanks in part to the £100m impact of strike action.

That also pushed parent company International Distributions Services (IDS) into the red, even as its international parcels company GLS posted a £162m profit.

The group, which changed its name from Royal Mail to IDS this year, warned it could separate the two companies.

The latest results showed IDS making a loss of £57m, down from a profit of £404m in 2021.

Chairman Keith Williams said, “The difference between the performance of our two companies couldn’t be greater.”

While GLS had “adjusted well” to inflationary pressures, Royal Mail had been “at a crossroads” with the Communication Workers’ Union (CWU) for months.

“We are now moving in a clear direction in light of the significant losses at Royal Mail,” he said.

The company, which has also suffered from declining parcel and letter volumes, said the need for change was “urgent” and the losses it has suffered are “unsustainable”.

Royal Mail is cutting 10,000 jobs and trying to transform the way it works, but is facing resistance from unions over its plans and also has a pay dispute.

The company last month made an improved offer worth 9 percent over two years. Yesterday it said talks with the CWU continued, but warned further strike action could lead to more job losses and could lead to the latest offer being withdrawn.

Royal Mail has also tried to save money by cutting the legal obligation to deliver letters from six days to five and said yesterday it had approached ministers seeking an ‘early step’ for the change.

However, the government said there are currently no plans to change the obligation. Other changes include the removal of a limit on the number of self-employed drivers it can use to make Parcelforce Worldwide deliveries, bringing it more in line with rivals.

Meanwhile, job cuts, expected to mean between 5,000 and 6,000 redundancies, prompted Royal Mail yesterday to open an online portal where workers can opt for voluntary redundancy.

At the same time, a shift from postal sorting centers to larger regional ‘super hubs’ has led to a review that is likely to lead to the closure of some smaller sites.

IDS insisted it “considers those are both matters.” [Royal Mail and GLS] have the potential to be successful’. But the possible future for Royal Mail as an independent company looks bleak.

At privatization in 2013, the company was valued at £3.3 billion, despite criticism that it was undervalued. But after an initial burst of enthusiasm for the float, it’s now worth £2.3 billion. IDS shares fell 1 percent to 2.5 pence from 237.3 pence according to the latest results.

Russ Mold, investment director at AJ Bell, said a split of the company “looks more likely as time goes on.”

“Still, one has to wonder which investors would like to hold shares in the British company,” he added. “It’s broken, battered and bruised, with an uncooperative workforce and much of its business in steady decline. That’s an ugly combination.’