May 21, 2013 / 9:04 AM / 7 years ago

Royal Mail profit soars before privatisation

LONDON (Reuters) - Royal Mail more than doubled annual profit on the back of an online shopping boom, providing a timely boost as it plans for a stock market listing this year.

Royal Mail employees work at an Edinburgh mail centre in Edinburgh, Scotland December 18, 2012. REUTERS/David Moir

In a marked turnaround for a business that has been fighting to adapt to a more competitive market and falling letter volumes, Royal Mail reported adjusted operating profit of 403 million pounds in the year to March 31, against 152 million pounds a year earlier.

The increase reflected the impact of growing parcel volumes fuelled by internet shopping, alongside price rises and cost cuts after modernising its sorting operations. Parcel volumes rose 9 percent to account for almost half of Royal Mail’s revenue.

An initial public offering (IPO) is expected to value the state-owned business at 2-3 billion pounds - Britain’s biggest privatisation for 20 years. Royal Mail has 150,000 staff and annual sales of 9.15 billion pounds.

Momentum behind privatisation began gathering pace last year after the European Commission cleared the government to take on Royal Mail’s hefty pension liabilities and regulators gave the green light for the business to increase prices.

Despite fierce union opposition, Britain is pushing ahead with plans to privatise the company this financial year to give it access to external capital for future investment. It expects to appoint lead bank advisers within weeks.

After Tuesday’s results, Chief Executive Moya Greene said that she had been meeting potential investors in Britain, the United States and Canada.


“I’m speaking largely to long-only, high-quality investors that would normally participate in an IPO of this scale; investors like pension funds and mutual funds,” she said. “I would say the response has been positive.”

A stock market listing remains the preferred option, but ministers have said that a private sale could be an alternative.

This month business minister Michael Fallon said that several overseas buyers had expressed “significant interest” in buying the 497-year-old postal service, with Greene adding that no route to new capital should be discounted.

“I think it would be foolhardy for anyone to rule out any option at this time,” she said.

The Communication Workers Union (CWU), which represents 120,000 Royal Mail employees, has been extremely vocal in its opposition to privatisation, warning that the move could put the firm’s universal six-day-a-week service at risk.

Such a change, however, would also require a change in British law.

In a statement on Tuesday the CWU said that Royal Mail’s positive results showed that it is making progress and that privatisation is unnecessary.

Included in a sale would be a 10 percent stake reserved for Royal Mail workers. Last Thursday the firm said it had hired Equiniti to set up the employee share scheme.

European peers Austrian Post and Deutsche Post both reported quarterly operating profit rises this month, boosted by growth in parcel volumes and international express business.

Editing by David Goodman

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