Industrial action and weak parcel volumes saw Royal Mail’s parent company slump to a £57 million pretax operating loss from a profit of £404m a year before as chair Keith Williams warned that the business was ‘at the crossroads’.

International Distribution Services has now said it may split off its strike-ridden Royal Mail operation from its more successful parcels arm.

IDS has also requested that the UK government allow it to cut back mail deliveries to five days from six, ending Saturday service.

Amid growing acrimony, the company said today that talks with the Communication Workers Union will continue although it is already moving ahead with required changes.

It warned: “Talks will cease if further industrial action goes ahead”.

Royal Mail plunged to an adjusted £219m loss from a £235m profit. GLS posted an adjusted profit of £162m, down 4.1%. No interim dividend will be paid.

The company said it expects a full year adjusted operating loss of around £350m to £450m, including the direct impact of 12 days of industrial action.

Keith Williams, non-executive chair, commented: “The difference between the performances of our two companies could not be more stark. GLS has adapted well to inflationary pressures across its geographies. However, we have been standing at a crossroads with CWU in the UK for several months. We are now heading in a clear direction in light of the substantial losses in Royal Mail.

“Whilst our frontline management population under Unite/CMA has agreed both pay and change in the last few months, progress on a deal for frontline employees has been blocked by the actions of CWU.

“Accordingly, we have started to implement the change needed to rightsize Royal Mail which will ensure that it is both better placed to serve our customers’ needs in parcels, as well as letters, bring it back to profitability and provide a sustainable future.

“We believe that this is the best course of action for the long-term survival of Royal Mail even if it results in short-term disruption.

“A sustainable future must also include urgent reform of the Universal Service. Government has now been approached to seek an early move to five day letter delivery, whilst we continue to improve parcel services.

“The board reiterates that in the event of the lack of significant operational change in Royal Mail it will look at all options to preserve value for the group including the possibility of separation of the two businesses.”

Reaction

AJ Bell investment director Russ Mould said: “The owner of Royal Mail has swung to a loss thanks to weakness in its UK operations.

“Its game plan is to become much bigger in parcels as we see a continued decline in the volume of letters sent. The strategy was looking smart during the pandemic when e-commerce sales boomed, but a normalisation of the market in 2022 has derailed the group.

“It has talked about splitting the group into two if Royal Mail isn’t fixed quickly. That’s looking more likely as time goes on, yet one must question which investors would be happy to just hold shares in the UK business.

“It’s broken, battered and bruised with an uncooperative workforce and a large part of its business in steady decline. That’s an ugly combination.”