Royal Mail owner returns to profit as deadline nears for Křetínský bid

The owner of Royal Mail has returned to profit as a deadline approaches for the delivery group’s largest shareholder to make a takeover bid for the former state-owned postal service.

Publishing results over a day late, International Distribution Services said on Friday afternoon that it delivered a pre-tax profit of £114mn in the 12 months to March after racking up big losses the year before in the wake of a staff dispute. 

IDS was supposed to publish the results on Thursday morning, but they were delayed at the last minute after auditor KPMG requested more time to complete its review.

The group repeated on Friday that it was “minded to recommend” a £5bn offer including debt from Czech billionaire Daniel Křetínský’s EP Group, which has built up a 27.5 per cent stake.

EP Group has until May 29 to make a firm offer for IDS under UK rules governing takeovers of public companies.

IDS suffered a £676mn loss in the previous year up to March 2023, when postal workers walked out for 18 days in a row over plans to adjust working terms as the 508-year-old postal service faced growing competition from the likes of Amazon.

But IDS’s profit was delivered entirely by international parcel business GLS, with Royal Mail itself suffering an operating loss of £254mn.

Despite cutting that loss from £1bn a year earlier, the contrast in performance between Royal Mail and Netherlands-based GLS will pile pressure on the UK postal service, amid warnings that a takeover of IDS could lead to a break-up of the group.

IDS’s support for the Křetínský approach was subject to a number of contractual commitments, including preserving the group’s UK headquarters and upholding Royal Mail’s universal service obligation to deliver items everywhere in the UK for the same price.

But the postal workers’ union has already threatened to call another strike if EP Group attempts a break-up of the group in the event of a takeover.

A pledge not to separate Royal Mail and GLS was not one of Křetínský’s contractual commitments previously disclosed by IDS, although people familiar with the matter have said he made clear in negotiations his intention not to split the group.

IDS said Royal Mail’s international parcel volumes rose 22 per cent to 175mn, boosting overall parcel numbers by 6 per cent to 1.3bn, highlighting the importance of this business as the group faces declining demand for letters.

It repeated its call for industry regulator Ofcom to reform the universal service obligation — this requires letter deliveries six days a week and places a considerable cost on Royal Mail that its competitors do not have to face.