Royal Mail profits rise as privatisation beckons

Royal Mail: Operating profits have more than doubled. Picture: PA

The Department for Business, Innovation and Skills confirmed that it would reveal next week which banks will lead the lucrative privatisation process, with frontrunners to handle the initial public offering (IPO) thought to include Bank of America Merrill Lynch, Barclays, Goldman Sachs and UBS.

These banks have already been involved in setting up meetings with potential investors in Britain, Canada and the United States.

Moya Greene, the chief executive of Royal Mail, confirmed she had been “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 added: “I would say the response has been positive.”

A stock market listing, expected to value the state-owned business at between £2bn and 3bn, could get under way as early as September. A flotation remains the preferred option, with the public buying shares alongside City investors in an echo of the “Tell Sid” campaign that pioneered the public sale of shares in British Gas in the 1980s. But ministers have said that a private sale remained an alternative, with sovereign wealth funds being potential buyers.

At least 10 per cent of the shares have been earmarked for the group’s workforce – worth an estimated £1.500 each – although it is not known whether its 150,000 UK employees will get them for free. Share registrar Equiniti has won the contract to create the employee share scheme.

The Communication Workers Union (CWU), which represents 120,000 Royal Mail employees, has been vocal in its opposition to privatisation, warning that the move could put the firm’s universal six-day-a-week service at risk – although this would require a change in legislation to occur and is not in the government’s plans.

Billy Hayes, the general secretary of the CWU, said: “Our members don’t want £1,500 if it is going to result in depressed terms and conditions and another five streets on a delivery.”

Yesterday Business Secretary Vince Cable insisted there was “no alternative” to privatising the 497-year-old postal service and said the organisation still faces a “fundamental threat” from e-mail that means it must be reformed in order to survive.

The group reported pre-tax profits of £324 million in the year to the end of March 2013, up from £201m in 2012 when there was one less trading week. The group hailed operating profits before exceptional items of £440m, more than doubling the £152m operating profit of the previous year.

Turnover for the group rose 5 per cent on a like-for-like basis to £9.3bn driven by parcels, where revenues were up 13 per cent, while letter revenue rose 3 per cent. Parcel deliveries now

account for almost half of the group’s revenues, driven by the continued growth in e-commerce.

Letters generated £4.8bn as volumes continued their decline, down to 58 million items from 63 million in 2011-12. Income rose due to price increases on the cost of stamps which came into force in April 2012. The group added that net debt decreased by £280m to £906m during the year, with £600m of loans repaid to HM Government.