(Alliance News) - Royal Mail PLC on Wednesday unveiled plans for a name change and said it will consider a separation should its UK arm continue to struggle, while its GLS distribution unit shines.
Royal Mail shares were 4.8% lower at 271.30 pence each in London on Wednesday morning.
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.
GLS reported revenue growth during the first quarter ended June, while the eponymous Royal Mail unit saw a double-digit decline.
It is that sort of underperformance which may prompt the parent to mull a separation.
"The board has always maintained that there should be no cross subsidy in the group and recognises the need to address improvements in Royal Mail's performance quickly. In the event that significant change within Royal Mail is not achieved, the board will consider all options to protect the value and prospects of the group, including separation of the two companies," the company said.
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.
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, a logistics arm, volumes fell 3% annually, though revenue was up 7.8% in sterling terms, or 9.8% in euros.
GLS benefitted from "better pricing and higher freight revenue" during the first quarter. Looking ahead, margins may suffer, however, due to rampant inflation.
It maintained guidance of high-single digit revenue growth for the unit, as well as an operating profit in the range of EUR370 million to EUR410 million.
GLS revenue in financial 2022 amounted to GBP4.22 billion, up 4.4% in sterling terms or 9.6% in euros. Adjusted operating profit amounted to EUR402 million, so Royal Mail's guidance implies a range of a 8.0% fall to a 2.0% climb.
Group Chair Keith Williams said: "Whilst GLS delivered a solid performance in the first quarter, the performance of Royal Mail was disappointing with an adjusted operating loss of GBP92 million resulting from of a decline in parcel volumes post the pandemic and a lack of progress in delivering efficiencies.
"The pandemic boom in parcel volumes bolstered by the delivery of test kits and parcels is over. Royal Mail is currently losing one million pounds per day and the efficiency improvements which are needed for long term success have stalled. We can however be a long-term success story. We have advantages in scale and reach and a strong balance sheet and asset base which are the foundations for a successful future. We need to act now in moving to that future in the interests of all stakeholders, employing those advantages to the maximum."
While it hailed the rising importance of GLS, the parent said recent developments in the core Royal Mail have highlighted the need for change.
The first quarter performance "emphasises the need to act now to make the most of our new infrastructure, find more flexible ways of matching resource to workload and ensure we have a more agile and sustainable relationship with the [Communication Workers Union]".
The company expects breakeven adjusted operating profit for its core arm, excluding any impact from industrial action. Adjusted operating profit for the unit in the prior year was GBP416 million.
Royal Mail workers voted overwhelmingly in favour of strikes in a dispute over pay on Tuesday.
A ballot of members of the CWU 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 pay offer includes a 2% unconditional pay increase (which has now been applied and backdated to April 2022), a further 1.5% which would be paid from the date upon which we implement the changes agreed and a new "above and beyond" bonus scheme worth up to 2% or GBP520 a year," it explained.
"We remain committed to reaching agreement with the CWU. Industrial action by the CWU will only serve to damage the future prospects of the business and undermine the long-term job security we want to offer our team."
By Eric Cunha; ericcunha@alliancenews.com
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