LONDON (Reuters) - Britain's state-owned Royal Mail Group GBPO.UL posted a large rise in first half operating profit on Tuesday, paving the way for one of the country's most high profile privatisations in decades.
An increase in profits was seen as a key target in plans for a flotation now expected as early as the third quarter of next year, as Royal Mail shows potential investors the impact of its move from a letters-based to parcels-based business.
The group, which delivers around 58 million items a day in the UK, said operating profit in the six months to September 23, after stripping out the cost of its modernisation programme, had risen to 144 million pounds ($228 million) from 12 million pounds a year ago.
Its core letters and parcels business swung to a 99 million pounds profit from a 41 million pounds loss a year ago, as higher prices, staff cuts, better sorting and greater parcel volumes helped offset a 9 percent fall in traditional letter traffic caused by the rising use of email.
"Preparations are now underway for the sale of Royal Mail Group. Obtaining external capital is a key part of the transformation process as we become a more parcels-focused business and make the investment in technology to do so," the group said in a statement.
Its parcels businesses account for 47 percent of sales, with the proportion set to grow as more people shop online. Group parcel volumes grew by 4.2 percent in the first half to 673 million items.
The group has said that the UK express parcels market alone is worth 5.8 billion pounds and last month announced it would add 1,000 new jobs to its Parcelforce business, whose customers include BT (BT.L), Amazon (AMZN.O) and John Lewis JLPLC.UL.
Operating profit at its European parcels business GLS fell 22 percent to 45 million pounds, reflecting tough markets and a weaker Euro.
Momentum behind Royal Mail's privatisation has gathered pace this year with the European Commission clearing government to take on its hefty pension deficit. It also received approval to rise stamp prices to help stem losses from declining letter volumes.
A float for the firm, which has almost 160,000 staff and sales of 9.5 billion pounds, is both Royal Mail and the government's preference as opposed to a sale. UBS and Barclays are advising the government and Royal Mail respectively.
It would represent one of the most significant privatisations of a British asset since John Major's Conservative government sold the railways in the 1990s.
Tuesday's results did not include the Post Office, which operates a branch network that sells stamps and insurance and provides other services, and became independent of Royal Mail in April.
($1 = 0.6302 British pounds)
Reporting by Neil Maidment, Editing by Rosalba O'Brien