16th Nov 2023 17:17
(Alliance News) - International Distributions Services PLC on Thursday called for urgent reform of its delivery obligations, after seeing losses widen in the first half of the financial year.
However, while the Royal Mail owner's argument is "logical", it is unlikely to be received "with a huge deal of sympathy", warned AJ Bell's investment director Russ Mould.
For the six months ended September 24, IDS reported a pretax loss of GBP194 million, widened from a loss of GBP127 million a year prior. Revenue climbed 0.4% to GBP5.86 billion from GBP5.84 billion, trailing operating costs, which increased 2.3% to GBP6.10 billion from GBP5.97 billion.
Within that total, Royal Mail revenue fell 2.9% to GBP3.54 billion from GBP3.65 billion. By contrast, international package delivery arm GLS delivered a 5.9% revenue increase to GBP2.33 billion from GBP2.20 billion.
Speaking to investors, Chief Executive Officer Martin Seidenberg said that while Royal Mail is now making good progress following industrial action and customer losses, both regulators and government are yet to "do their bit".
Seidenberg explained: "It's simply not sustainable to maintain a network built for 20 billion letters when we're now only delivering seven billion. The UK is not immune to the trends that we see across the world. Many other comparable countries have already reformed their Universal Service, and the UK is getting left behind. We welcome the fact that Ofcom will be reviewing options for the Universal Service, but the need for reform is urgent."
Reflecting on this commentary, AJ Bell's Mould argued that while a six-day delivery service could feasibly be seen as no longer realistic, "it is unlikely to be received with a huge deal of sympathy by customers, politicians, or regulators".
As the firm's losses continue to stack up, Mould emphasised that IDS needs to come up with an alternative solution, after years of trying to drive efficiency improvements "have come to very little".
Speaking to the comparative successes and failures of GLS versus Royal Mail, Mould suggested that Seidenberg could spin-off the latter, rather than trying to execute a turnaround where his predecessors have failed.
"New CEO Martin Seidenberg may argue the group has two businesses with real potential but only its international delivery arm GLS is really demonstrating any of said potential," Mould said, adding that a spin-off could make Royal Mail "somebody else’s problem, allowing him to focus on the profitable and cash generative GLS division".
IDS Chief Executive Martin Seidenberg said the company delivered on its plan to stabilise Royal Mail via cost control "and ruthlessly prioritising high-return projects".
The company can't fund dividends until it returns to positive cash generation.
Looking ahead, IDS said it expects adjusted operating performance in financial 2024, which ends in late March, to be breakeven, excluding voluntary redundancy costs. For financial 2023, the company had reported an adjusted operating loss of GBP71 million, swung from a profit of GBP758 million a year prior.
IDS shares closed 3.6% lower at 235.94 each in London on Thursday.
By Holly Beveridge, Alliance News reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
International Distributions Services