Annual Losses for Royal Mail Highlight Ongoing Crisis
The potential acquisition by Czech billionaire Daniel Kretinsky hangs in the balance as Royal Mail is anticipated to report daily losses nearing £1 million. The postal service which is currently being operated under the ownership of International Distributions Services (IDS), is projected to announce a huge loss. City analysts have estimated that this year’s loss is around £313 million and are due to announce this in the upcoming week. Although much significantly less than the previous year’s £1 billion loss, this figure underscores the persistent financial troubles plaguing Royal Mail.
Takeover Offer Under Scrutiny
Kretinsky, who already holds a 27.5% stake in IDS and has investments in both West Ham United and Sainsbury’s has bid £3.5 billion to takeover Royal Mail but faces hurdles before the acquisition has been given the go ahead. There has been some concerns expressed by the UK Government (led by Chancellor Jeremy Hunt) regarding the national security implications of the takeover deal and have suggested that it be reviewed under the National Security and Investment Act . The National Security and Investments Act came into effect on the 4th January 2022 and allows the government to intervene in takeovers and similar situations if there is significant public interest as well as provide businesses and investors with the certainty and transparency they need to do business in the UK.
Government and Union Challenges
There has been calls for assurances that Royal Mail‘s six-day-a-week service will be maintained by Business Secretary Kemi Badenoch, while campaigners are pushing for the sale to be blocked. To add further pressure on Kretinsky’s takeover ambitions, the Communication Workers Union (CWU) has threatened strike action if their demands regarding working conditions and the universal service obligation are not met. The CWU has previously proceeded with strike action multiple times throughout 2022 that caused significant issues for the delivery service provider especially over Black Friday and the days leading up to Christmas which is the busiest time of year for all delivery companies. The strikes finally ended in 2023 after Royal Mail and their workers agreed on a three year deal where they would receive a ten percent salary increase as well as a one-off payment of £500.
Signs of Improvement Amid Struggles
The company reported a £319 million loss in the first half of the year so despite all the challenges, there is indications of improvement within IDS as the estimated loss implies that there is a slight improvement in the latter half. This shows positive recovery after the severe impact that the industrial action caused in 2022. Due to to Royal Mail’s Netherlands-based parcels business, GLS (General Logistics Systems).
GLS consists of 23 parcel delivery companies that cover over 5 million kilometres (3.1 million miles) in 42 countries across Europe. The network handles in excess of 1 million parcels every day and aim to deliver over 98% of consignments on time. One of these parcel delivery companies is Parcelforce Worldwide which Royal Mail formed in 1986 under the name Royal Mail parcels before going through rebranding. Due to GLS performing well, the company continues to strengthen IDS’s financial position so analysts report that IDS is expected to post a modest profit of £3 million for the year ending in March.
Market Reaction and Outlook
IDS’s group revenues are projected to reach £12.4 billion. Susannah Streeter, head of money and markets at Hargreaves Lansdown, referred to GLS as the “jewel in the company’s crown,” noting that EP Corporate Group likely sees significant long-term potential in the acquisition. As IDS prepares to release its financial results on Thursday, its shares fell by 0.6% yesterday, closing at 320p.