Royal Mail posts a profit slump

Royal Mail (RM) has announced a slump in operating profits to £39m in 2010/2011, down from £180m the previous year, on overall revenues of £9.2bn. The core UK letters and parcels business made a loss of £120m, compared to a £20m profit in 2009/2010, the worst performance for seven years. The firm also has a pension deficit of £4.5m.

What the commentators said

The outlook is hardly auspicious, noted The Guardian's Rupert Neate. The number of letters sent each day has fallen by a fifth in the past five years, thanks to the rise of email, text messages and social networking sites. Royal Mail expects letter volumes to shrink by a further 5% a year over the next five years. Moreover, the group's ability to boost revenues is severely hampered by regulation. Price controls apply to 80% of group revenues, said Damian Reece in The Daily Telegraph. So RM is "unable to meet competitors on an equal footing it deserves a modern regulatory regime so it can stand on its own two feet".

Parliament has just passed legislation allowing RM to be privatised, said Nils Pratley in The Guardian, but "don't hold your breath". Not only do the latest numbers show that it's "not a company in a condition to be sold", but it makes sense to "get the regulation right first". Only once the new system is in place will it be clear how well RM is likely to do and hence what a fair value for the group might be. If the government tries to rush privatisation, it could merely "end up short-changing taxpayers".

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A regulatory shake-up is now on the cards but it could take years. In any case, said Alex Brummer in the Daily Mail, Brussels won't publish its verdict on RM's future shape until next year. Far from being the coalition's first privatisation, RM is likely to find itself "in a queue" behind the banks.