International Distributions Services (IDS), the UK-based mail and parcel company formerly known as Royal Mail, has continued its loss-making run. For the first half of 2023 revenue was stable, up just 0.4% but operating profits were negative by a 54.8% at a loss of £243m. Even on an ‘adjusted’ basis, losses have tripled to £169m.
The problems continue to lie within the UK Royal Mail business rather than the continental European based GLS parcel business, and within Royal Mail, it is the issue of declining letter volumes that is a particular problem. The volume of addressed letters fell by 9% year-on-year in the first half of 2023, with advertising mail falling by 17%. What ameliorated the situation somewhat was the ability to raise prices, resulting in revenue edging-up by 1%.
However, the condition of the Royal Mail parcel operation was also difficult with a 6% decline in parcel volumes. In this market Royal Mail was not able to increase prices so easily, resulting in a 6.2% decline in revenue. Martin Seidenberg, Chief Executive Officer of IDS seemed to imply that the reason for the fall in volume was poor service quality due to strikes, rather than a fall in market demand overall. Royal Mail said that volumes and revenue had returned to growth in the second-half of the year.
As usual, the more focused GLS business had a better performance, with revenue up 5.9% on the back of 6% volume rise in parcels. In particular ‘business-to-consumer’ volumes were strong driven by growing e-commerce demand. However, profit margins seem to have been squeezed by higher costs in areas such as labour and GLS does not seem to have been able to increase prices in response resulting in a fall in operating profits of 7.4%.
Both parts of IDS have struggled over the past half-year in the face of mediocre demand and rising costs. However, it is still Royal Mail’s operational problems that are the main obstacle. The management say that they continue to work on these but there seems to be no dramatic change in direction.
Author: Thomas Cullen
Source: Ti Insights
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