(Alliance News) - International Distribution Services PLC, the company formerly known as Royal Mail, on Thursday threatened to leave its strike-ridden UK letter carrying operation to fend for itself, separating it from its more successful international parcel arm.
IDS also formally requested that the UK government allow it to cut back mail deliveries to five days from six, ending Saturday service.
The developments came as IDS said it swung to a GBP127 million pretax loss in the six months that ended September 25 from a profit of GBP315 million a year before, as revenue slipped by 3.9% to GBP5.84 billion from GBP6.07 billion.
Revenue at Royal Mail, its UK letters and parcels arm, was down 10.5%, but it was up 9.5% in sterling terms and 10.5% in euro terms at international parcel business GLS.
Royal Mail revenue of GBP3.65 billion in the recent half, down from GBP4.07 billion a year ago, sent the division to a GBP219 million adjusted operating loss from a GBP235 million profit a year before.
IDS said it expects the full-year adjusted operating loss at Royal Mail to be GP350 million to GBP450 million.
At GLS, six-month revenue rose to GBP2.20 billion from GBP2.01 billion, though adjusted operating profit declined by 4.1% to GBP162 million from GBP169 million. Adjusted operating margin narrowed by a full percentage point to 7.4% on cost pressure.
GLS's adjusted operating profit is expected to be EUR370 million to EUR410 million, about GBP323 million to GBP358 million, in the full year.
"The difference between the performances of our two companies could not be more stark," said IDS Non-Executive Chair Keith Williams.
"GLS has adapted well to inflationary pressures across its geographies. However, we have been standing at a crossroads with [the Communication Workers Union] in the UK for several months. We are now heading in a clear direction in light of the substantial losses in Royal Mail."
He added: "In the event that significant change within Royal Mail is not achieved," IDS said, "all options remain open to protect the value and prospects of the group, including separation of the two companies."
IDS said "ensuring future sustainability depends critically on urgent reform of the Universal Service". It has approached the UK government to seek an "early move" to five-day letter delivery.
IDS declared no interim dividend but said it may pay a final dividend from the earnings of GLS.
Royal Mail last month said it will consult on up to 6,000 redundancies as part of efforts to reduce full-time roles by 10,000. It said it is seeking short-term cost efficiencies through the planned reduction of 5,000 full-time equivalent roles by March and around 10,000 by August.
It has so far focused efforts on removing overtime, not filling empty roles, and reducing temporary workers.
"We have always been clear we need change to survive," said Chief Executive Simon Thompson. "We have started turning the business around and will do whatever it takes."
IDS shares were up 0.3% at 240.50 pence in London on Thursday morning. The stock is down 45% in the past 12 months.
By Tom Waite; thomaslwaite@alliancenews.com
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