The timing of a possible Royal Mail IPO could be impacted if the financial markets remain as“skittish and volatile” as they currently are, according to CEO Moya Greene.
UK media have speculated that a flotation of Royal Mail in the second half of 2013 could raiseup to £2 billion following the company’s improved financial results this year.
Responding to a question from CEP-Research, Greene told yesterday’s ‘The Future of UK PostalServices’ conference: “In these markets, I don’t think that anything is ever definite.Markets are still very skittish (unpredictable) and volatile and barely recovering, and we have alot of work to do to really introduce the Royal Mail to investors.”
Greene said it was “a good aim to have” but there were still “certainly lots of headwinds in themarket”. She added: “I wouldn’t put a definite timeframe on things. I know Her Majesty’s governmentwould like to see us have access to capital next year, and it certainly would be very helpful forthe Royal Mail if we could do, but I think it would be foolhardy for anyone to try and predictwhere the markets are going to be a month from now, never mind 12 months from now.”
Greene said parcel and postal price rises introduced in April had so far had a positive effecton Royal Mail’s business, with letter volumes continuing to decline at the expected rate and parcelvolumes doing better than anticipated.
“The market in letters is affected most importantly by e-substitution, and by the rate of growthin the general economy, and the price increases – which had to catch up. We are seeing a decline involumes on the letter side of about 7 per cent, but revenues are up for the first time in a verylong time – and so we are exactly in line with where we thought we would be.
“But we have to be very careful; we have to be really razor-sharp on pricing in any market. Thatis true of letters and it’s certainly true of parcels, where there are many, many players in themarket and some of them may have more capacity than they wished they had.”
On the parcels side, Greene said Royal Mail’s revenues were up by 13 per cent and volumes wereup by 6 per cent, year over year. “I think that that is fuelled by e-retailing, and the fact thatpricing in the UK market for parcels had been almost dysfunctional, if you looked at it in terms ofthe costs of providing the service.”
She said many of the participants in the UK market were losing money, and some had followedRoyal Mail’s lead in raising prices. “So I think we are having a little bit of a salutary impact onthe overall market on the parcels side with the pricing increases that were undertaken. But moreremains to be done there.”
The former Canada Post chief said she noticed when she first came to the UK several years agothat average unit rates for parcels were “very low indeed – surprisingly low. I was shocked and Irealised then that a lot of players were losing money. The price controls that had been put on uswere probably part of the problem.”
Greene said she had never understood why there had been any price control at all on the parcelsbusiness, given the number of players. “But we have corrected a lot of that,” she said. “I wouldsay that we were a very big subsidy in this country on the fulfilment side to e-retailing,generally, and we’re starting to bring things more into a new and better equilibrium. So we arewhere we expected to be on letters and we are a little ahead of where expected to be onparcels.”
The Royal Mail chief said she welcomed competition, but that it was “the right time” to askwhether the same universal service obligations (USO) that are placed on Royal Mail should beapplied to other players entering the end-to-end mail delivery market.
“I think we really have to look at what it will take to secure the future of the universalservice in Britain,” she said. “This is a fair service and a very high level of service, and I haveno problem whatsoever with competition. But I think it has to be fair competition, and I think wehave got to balance what we’re going to do to maintain the ‘one price goes everywhere’ in Britainin the face of new entrants that don’t have the same requirements that we have at Royal Mail.
“So I would certainly like to see a wider debate on that subject. I think it is unfair thatthere is only one company that must publish its service standards and numbers; only one companythat does have the obligation to go everywhere. If you ‘cherry pick’ the profitable parts of thebusiness with no obligation to honour delivery in other parts of the country that may be moreexpensive to do so, it won’t be long before universal service gets into a grave positionfinancially. So it’s the right time to have that debate on what is appropriate, so the playingfield is reasonably level, and if we err, we err on the side of preserving the universal service,which is cherished in this country,” she concluded.
