Royal Mail PLC (LSE:RMG) said it may have to split the group as it admitted losing one million pounds a day.
The logistics firm said “in the event that significant operational change within Royal Mail in the UK is not achieved, the board will consider all options to protect the value and prospects of the group, including separation of the two companies.”
It also revealed the holding company Royal Mail will be renamed International Distributions Services PLC to reflect the group structure of two separate companies - Royal Mail and GLS. But it insisted the change of name will have no impact on the Royal Mail and GLS brands.
The former national postal service issued a trading update for the quarter through to June which revealed a drop in turnover on the back of delays to its cost-saving plans, as it remains embroiled in a dispute over pay with its workers.
Royal Mail’s quarterly revenue fell 11.5% from April to June, “reflecting weakening retail trends, lower test kit volumes and a return to structural decline in letters”, it said.
The biggest decline was in international and parcel revenue, which dropped 20.7% and 15.1% respectively year-over-year.
During the three months that ended in June, Royal Mail delivered 314 million parcels, a 15% drop compared to the same period last year and addressed letter deliveries fell 6% to almost 1.86 billion.
Royal Mail said that high inflation and the increased cost of living for consumers impacted its quarterly performance, in addition to a drop in the “exceptionally high volumes of parcels we saw during Covid-19 restrictions”.
It posted an adjusted operating loss of £92 million for the quarter, which it said reflects “inflexibility in the cost base to adjust to lower volumes and disappointing performance on delivery of further efficiencies”.
Royal Mail’s chair Keith Williams said: "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 need to act now in moving to that future in the interests of all stakeholders,” he added, a sentiment that was echoed by Royal Mail chief executive Simon Thompson.
Thompson said he was “ready to talk about pay and change at any time”, but that the two were inextricably linked. In today’s trading update the company called the Communication Workers Union ballot and other industrial action yesterday “an abdication of their responsibility for the future security of their members”.
Royal Mail workers have voted for strike action over a 2% pay rise.
The company said its cost-saving programme Progress on Pathway to Change had stalled during the quarter and that it was also affected by absences due to Covid-19.
It said it was unable to “reduce costs quickly enough in line with lower parcel and letter volumed” despite acting on labour costs.
Royal Mail forecasts a “weaker parcels market” in 2022 and to fall further behind with its cost-saving plan, but expects to be “breakeven” on adjusted operating profit for the year, excluding the impact of any industrial action.
Its Amsterdam-based logistics company General Logistics Systems fared better in the first quarter, generating 7.8% revenue growth as it benefitted from “better pricing and higher freight revenues”.
The subsidiary posted an operating profit of £94mln, broadly in line with the prior year, and maintained its outlook for the full year 2022-23 including single-digit percentage revenue growth and operating profit in the range of €370mln to €410mln.
Royal Mail's shares fell 5.04% on early morning trades today.