Whether you’re for or against privatisation of the 500-year-old institution, the government’s announcement on 10 July that it aimed to swap overall control for a minority stake in Royal Mail in the autumn is sure to prove highly controversial.
In attempt to appease staff, the government will give 10% of the shares to 150,000 UK-based Royal Mail employees at the time of the Initial Public Offering (IPO). The rest however will be sold to "high-quality investors" including pension funds, mutual funds, insurance firms and private individuals, which could value the businesses at £2bn to £3bn.
The reasons behind the government’s sale are straightforward: while the postal operator is currently profitable, generating an operating profit of £403m on a revenue of nearly £9.3bn, it still has a net debt of £906m and there’s no way that future profits can be guaranteed – especially without further substantial, and expensive, restructuring. And, simply put, the government can’t afford to reinvest.
"It cannot be right for Royal Mail to come cap in hand to ministers each time it wants to invest and innovate," business secretary Vince Cable told ministers.
"The public will always want government to invest in schools and hospitals ahead of Royal Mail. An IPO is an open and transparent way for us to sell shares."
Ministers insist they are flexible on the size of the stake to be sold off, adding there is no guarantee a transaction will go ahead. The Communication Workers Union (CWU), implacably opposed to privatisation, is urging MPs to look at other ways of levering in cash and more innovative business structures to align its interests with customers.
Yet many formerly state-owned businesses such as Rolls Royce and BP have flourished under private ownership, argues Royal Mail chief executive officer Moya Greene. Private ownership will help it become more "flexible and fleet of foot" in the fiercely competitive postal market, she says.
The deal for companies and communities, she adds, is underpinned by law, which enshrines the principal of the six-day-a-week, one-price-goes-anywhere service to the 29m UK addresses. Privatisation elsewhere works, she adds, pointing to Deutsche Post and Austria Post, which deliver over 95% of letters the day after posting.
Amanda Lovelock, print specialist at Honda Trading Europe, is in two minds on the flotation. The service could be better, she says, but that doesn’t stop her wondering if privatisation is necessarily the best solution.
However, of more immediate concern to Lovelock is the prospect of postal strikes if the CWU makes good on its threats of industrial action.
"This will have a detrimental impact, we might revaluate what we do, and it could push us to other platforms like email. We have to communicate with customers and if we have to shift to other media our print spend will drop," she says.
Simon Walker, head of production at agency VCCP is more forthright on the issue: "My gut feeling is this is bad; it instantly changes the whole dynamic: making money for shareholders doesn’t always sit well with running a public service – priorities change, less profitable services will be lost while other costs may rise.
"There is plenty of private competition, so it’s already an open market with lots of choice. Royal Mail may be an old-fashioned institution in need of updating, but the current service, which hasn’t always been as strong as it could be, is pretty good and not too expensive these days."
Call for debate
Such a view will strike a chord with CWU general secretary Billy Hayes, who says government dogma stands in the way of serious debate on the options available to Royal Mail. He’s convinced that few people outside of the government and potential investors want their postal service sold, and, following a ballot, he knows that 96% of CWU members are against it.
"We are offering the government the opportunity to discuss how best to genuinely take Royal Mail forward. It’s time for vested interests and political opportunism to be set aside and to seize the chance to make the mail service work for customers, the company and the workforce."
Such combative talk from both sides is redolent of the torrid times of the Tudor court, when Henry VIII ordered the creation of the first national postal service in 1516 with horsemen carrying stamped mail to royal palaces. Charles I opened his ‘Royal Mail’ to the public in 1635.
Heritage isn’t enough for BSkyB though, which stopped using Royal Mail around seven years ago on price and reporting issues on pick-ups and deliveries. Head of print management Mark Cruise says TNT has done a "stellar job" and it will take a lot to coax his company back to Royal Mail.
"Privatisation could be good, but not for a long time; it will take a lot of investment and a big cultural shift on customer service before people see a substantial change at Royal Mail. I can see the point of view of the unions, but they need to get into discussions and be more realistic."
Wyndeham Group chief executive Paul Utting is playing a waiting game on Royal Mail privatisation.
Until the sector knows more on the circumstances of the deal, he says, it’s difficult to know if the proposals are good or bad for businesses like his. But as things stand right now, Royal Mail is a monopoly.
"And when you have a private company in a monopoly position, run purely for profit, that’s potentially an issue, especially without a strong regulator. Looking at other privatisations, such as utilities, the regulator hasn’t acted as often or as aggressively enough to ensure customers are getting the best deal possible."
Balancing shareholder and customer needs will be a massive challenge for Royal Mail and regulator Ofcom, almost as big as the challenge of driving internal cultural and structural change.
And the question is: will shareholders keen to see a return on their investment and customers desperate to improve or at least maintain service levels be patient enough to wait five years let alone 500?
OPINION
There are better means for taking Royal Mail forward
Kevin Slocombe, head of communications, CWU
The government and Royal Mail have both been spending considerable time and energy convincing the business community that privatisation of mail services is a good thing.
CWU and other concerned groups have been telling the other, more honest story. Privatisation of mail will bring higher prices and lower services. Despite the continuing assurances from ministers that the universal, six-days-a-week, one-price-goes-anywhere service is enshrined in law, a recent poll showed the overwhelming majority of the public believed prices would rise and services would be reduced. Those fears are well placed and it’s the UK’s businesses that will be hardest hit. Like those in the print and mailing industry, UK business is the biggest user of the universal service. A close look at the Postal Services Act shows that the government knows private owners will review the loss-making elements of the fixed-price service, particularly in rural areas, and this will hit regular mailers hard.
A recent YouGov poll also showed 67% of the public don’t want their postal services sold. Some of the widespread opposition is economic, based on the expected rise in costs, but many others simply oppose the fire-sale of a cherished 500-year-old British institution. Royal Mail and the Post Office are parts of the fabric of our society and the public simply don’t want it sold. With the company recently posting large operational profits while in public ownership, the ‘it’s not broke so it doesn’t need fixing’ point of view is a valid one.
Workers also voted by a massive 96% to express their opposition to the sale.
CWU isn’t just saying ‘no’ though. The union has tabled a clear workable proposal for Royal Mail. This is based on a not-for-dividend structure where profits are invested back into services.
We will continue to fight the privatisation of your mail service and you can join the campaign at saveourroyalmail.org.
READER REACTION
Will privatisation be good for Royal Mail and its customers?
David Houghton, joint managing director, D2 Printing
"I would hope that it’s a good move and will make the organisation leaner and give it more focus going forward. They have made very good profits this year, which reflects how their business is changing from post to parcels. So Royal Mail is doing very well and this could be an optimum time to open it up to the private sector. I think this could make it a stronger, more robust business, so I feel privatisation is positive for the Royal Mail."
Dave Broadway, managing director, CFH Docmail
"Of all the ways that Royal Mail could have been privatised, an IPO provides the best opportunity for the company to develop in a commercial way that is beneficial to its customers. I hope that the management of Royal Mail will recognise that it is moving from being a monopolistic state-owned company, to a competing private company where the proper treatment of its customers is as important as the wages and conditions of its staff."
Noel Warner, chief executive, Inc Direct
"I’m not sure if privatisation is a good thing or a bad thing, so I’m sitting on the fence a little right now. I appreciate that the unions will say that service standards will drop and that prices will go up, but I think it might just create a bit more competition, which could be a good thing. I’ll keep a close eye on things, though, to see if service improves – and I would be surprised if it could get any worse – and if there are any pricing changes."
