20th Jul 2022 14:22
(Alliance News) - Another underperformance from the Royal Mail PLC's UK arm has led to more concerns, though its parent has not ruled out a decisive action to improve its fortunes.
Royal Mail shares were 2.1% lower at 279.10 pence each in London on Wednesday afternoon.
A separation is on the table, should the eponymous Royal Mail arm continue to lag the Dutch-based, more internationally-focused GLS unit.
The Royal Mail division is its UK-focused one, delivering letters and parcels, and includes Parcelforce Worldwide. GLS is its international operation, based in Oude Meer, Netherlands and working across the US, Canada and Europe.
The revenue performance at GLS is not quite at the level of Royal Mail UK. However, the bottom line figure has more than competed with Royal Mail UK's.
In the year ended March 2022, Royal Mail UK's adjusted operating profit amounted to GBP416 million, while GLS achieved an adjusted operating profit of GBP342 million. In euro terms, the adjusted operating profit figure for GLS was EUR402 million.
In the year ended March 2021, GLS's adjusted operating profit was GBP358 million, surpassing Royal Mail UK's GBP344 million.
It has outperformed the eponymous unit again in the first quarter of financial 2022, figures on Wednesday showed. GLS achieved an adjusted operating profit of GBP94 million for the quarter ended June, compared to Royal Mail's GBP92 million loss.
GLS is doing the "heavy lifting", interactive investor analyst Richard Hunter commented.
Hunter commented: "The frustration of the current situation is clear to see from the group's comments, but some elements of optimism remain. The previous investment in efficiency has already led to higher automation, the strength of the group's resources leave it stable and well-positioned, while the continued contribution of the GLS business flatters the overall figures."
The FTSE 250 constituent said it will change its name to International Distributions Services PLC. It is a move that reflects the importance of GLS, which the company said it has become "increasingly" reliant on.
"The plan to change the group's name to the extremely boring International Distribution Services and create a clearer separation between the GLS and Royal Mail businesses may lead to speculation over a full break-up of the group," AJ Bell analyst Danni Hewson commented.
Royal Mail said revenue in its core unit during the first quarter ended June was 12% lower year-on-year.
The outturn reflects "weakening retail trends, lower test kit volumes and a return to structural decline in letters", the postal service explained. The unit suffered an adjusted operating loss of GBP92 million.
In GLS, revenue was up 7.8% in sterling terms, or 9.8% in euros, benefitting from "better pricing and higher freight revenue" during the first quarter.
A slowdown in demand comes as Royal Mail faces pressure at a union level.
Royal Mail workers voted overwhelmingly in favour of strikes in a dispute over pay on Tuesday.
A ballot of members of the Communication Workers Union showed huge support for industrial action in protest at a pay offer.
Royal Mail on Wednesday said the package was the largest pay increase "for many years".
The company expects breakeven adjusted operating profit for its UK arm, excluding any impact from industrial action. Adjusted operating profit for the unit in the prior year was GBP416 million.
Analysts at Swiss bank UBS expect a GBP50 million to GBP100 million profit headwind for a one-to-two day strike.
By Eric Cunha; [email protected]
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