Privatisation looms as profits rise at Royal Mail

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Royal Mail has reported a 26 per cent rise in operating profit – just as the government announced that it wants to part-privatise the business.

Operating profit was up £83m to £404m despite a fall in sales of £211m to £9.3bn.

The Liberal/Conservative coalition government said in its programme: “We will seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. We will retain Post Office Ltd in public ownership.”

Operating profit more than doubled at Royal Mail Letters to £121m but sales were down two per cent at £6.6bn reflecting the decline in traffic volumes.

UK mail volumes declined by 7.3 per cent in 2009-10 – the steepest fall since average daily volumes peaked at 84 million in 2005 – with the average daily mail bag now containing around 71 million letters, packets and parcels.

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Royal Mail said all major postal operators around the world expect volumes to decline further as people switch increasingly to electronic communications. “TNT Post Group in The Netherlands, for example, is planning for a volume reduction of up to 9 per cent this year and around 30 per cent over the next five years, while the United States Postal Services is currently seeing its mail volumes decline by 13 per cent a year.”

In addition, it has been hit by the creaming off of traffic by private sector rivals which increased their volume of mail by over 20 per cent. “More than one in three letters – a total of 6,400 million items – were posted last year with a competitor, but delivered by a Royal Mail postman or woman under rules which allow rivals access to Royal Mail’s network. Access mail now accounts for more than half of all business mail,” it said.

Operating profit at GLS, Royal Mail’s European parcels business fell ten per cent to £112m while sales were down  0.5 per cent year on year reflecting the difficult economic conditions, particularly in Germany. Cost savings in its delivery operations limited the resulting fall in operating profit – down by 10 per cent to £112 million.

Parcelforce Worldwide, the UK parcels business, saw operating profit rise 42 per cent to £17m maintaining sales at £399 million for the year.

While privatisation is back on the agenda, Royal Mail has some critical issues to deal with. Chairman Donald Brydon, said: “Huge challenges remain, including the need to find a resolution to our historic pension deficit, and the need to reach agreement with Postcomm on a regulatory regime more suited to today’s changing marketplace.”


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