Royal Mail makes record profits despite recession in the UK

The UK government owned postal service Royal Mail said yesterday despite the global economic downturn and recession in the UK, it has for the first time in 20 years made profits of more than £900,000 a day even as it closed 2,200 branches since 2000 and is scheduled to close another 300 by March.

Royal Mail said today that despite the severe economic downturn and further falls in mail volumes driven by more use of email and other electronic communications, overall group revenue rose nearly 3 per cent during the first nine months of the 2008-2009 financial year to £7.2 billion.

For the first time in almost 20 years, all of the group business units are in profit, with Royal Mail Letters, the Post Office and Parcelforce Worldwide making an operating profit along with GLS, the Group's European parcels business.

A trading update covering the nine months to Christmas showed Royal Mail Group making a £255 million operating profit before exceptional costs, compared to £162 million for the whole of 2007-08.

The government's plan to shut 2,500 post offices is nearing its target despite fierce opposition to shutting down post offices at villages, towns and cities.

Last month, in a review conducted by Richard Hopper, a former deputy chairman of Britain's media watchdog, and circulated among ministers suggests that the government should close half of its 71 mail centres and privatise the other half, which in turn would be broken up into different units where rival operators would be invited to buy stakes in the collection and sorting units while the 'last mile' delivery would be retained by the Royal Mail.

Presenting the findings of the independent review to the parliament, Mandelson said that the barring Royal Mails retail outlets all other operations needed to be part privatised in order to be commercially viable and the Dutch company TNT had expressed its desire to buy a minority stake in the company. (See: UK government to sell part stake of Royal Mail to TNT)

The Hooper Report, which concluded that Royal Mail's current condition, was "untenable" because of its pension commitments and the challenge posed by digital communications.

Last week, private equity firm, CVC Capital Partners said that it is considering a bid for a minority stake in the state-owned postal service as part of government plans to part-privatise the carrier.

CVC Capital Partners had bought a 22-per cent stake in Post Denmark in 2005 and also bought half of Belgian's postal service.

Allan Leighton, chairman of Royal Mail Group, said, "The company and its people have come a long way in just six years when Royal Mail was losing more than £1 million a day and routinely failing quality of service targets. A huge amount has been done to put the business on a stable footing - something many believed was not possible - and having established a firm base on which to build for the future, we are getting on with our modernisation plans and catching up on decades of under-investment."

The improved financial performance while upholding customer service comes as Royal Mail continues to modernise the letters operation, which has now automated the handling of almost 80 per cent of total mail volumes, compared to less than 65 per cent two years ago.

During the last 18 months, the company has begun to upgrade automatic sorting equipment in many mail centres nationwide, the installation of the first of a new generation of "intelligent" letter sorting machines has commenced.

New technology to sort more A4-sized mail - including catalogues and magazines - has been installed, and Royal Mail drivers have been equipped with hand-held scanners which read the barcodes on Special Delivery and other tracked mail and can provide electronic confirmation of delivery within minutes.

Adam Crozier, chief executive of Royal Mail Group, said "Royal Mail's modernisation plan agreed with our shareholder, the government, is on track to deliver across the period of the plan, with more than £600 million spent on transforming the Letters business since the investment plan was agreed in 2006-2007.''

''We have plans in place to spend every penny of the £1.2 billion commercial loan agreed by the government in 2007 over the plan's lifespan to 2011, which will clearly help us to improve efficiency and deliver even better service for our customers, he added.