Royal Mail is a good business but not yet a good investment

After several false starts, one of the last icons of nationalisation, the Royal Mail, is to pass into private hands. Business Secretary Vince Cable announced last week the centuries old postal operator is to finally join British Gas, British Telecom and Jaguar in the private sector, but for about 10 per cent that will be used as an olive branch to placate disgruntled staff and unions.

Russell Parsons

The Government stopped short of formally announcing an IPO so it is not known when the sell-off will happen. What is clear, however, is that investors will be buying into a company that is recovering from the losses the decline in letters volume caused to become a profitable media owner and a brand the public is ready to love.

Since taking over as chief executive in 2005, Moya Greene has turned the business around. Operating profit hit £403m in the last fiscal year from a loss a year earlier. Cost-cutting and round after round of efficiency programmes aside, the business has enjoyed great successes from revenue generating divisions closer to home.

Revenue from its letters division increased by 3 per cent in the 12 months to 31 March, with an increase in addressed and unaddressed marketing mail offsetting the 8 per cent drop in the volume of letters.

Royal Mail has previously credited full-service direct marketing service MarketReach, setup in July 2012 to convince brands of the value of direct marketing, as helping to mitigate the impact of letters decline.

The Royal Mail brand, kicked around in the way other omnipresents in British life such as the BBC and Marks and Spencer have been in recent years, has also enjoyed a recent revival. YouGov Brand Index data on perception unveiled last week found Royal Mail was the second most improved brand in the first half of the year.

Ministers have argued that a sell-off will only accelerate this growth, handing the business much needed capital to expand services such as advertising mail and parcel delivery with the potential for growth.

This is difficult to argue against. Investment is essential to compete with the likes of UPS in parcel delivery and stay out in front in advertising mail under increasing competition from the nippy TNT Post. There is also a strong argument to be made that the investment would be maximised under current management given their impressive recent track record.

There are headwinds, however, that will forever be a drag on Royal Mail’s ability to compete in the private sector. The universal service obligation, which the Government says will remain post-privatisation, means it has to spend time and money servicing parts of the country that will not reap revenues while its rivals focus on more profitable urban areas.  Elsehere, a heavily unionised staff that is resistant to change.

The Royal Mail is a great brand and can be a long-term success and ally to the direct marketing industry but it is still far from being a great investment.

Latest from Marketing Week

PLEASE SIGN IN OR REGISTER. IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and inspiration that will help you develop as a marketer and leader.

Register and receive the best content from the only title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work, so we can make Marketing Week more relevant to you.

Register now

THE BEST CONTENT

Our award winning editorial team and columnists will ask the biggest questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we will be your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Dedicated to developing your skills and helping you achieve marketing excellence. Find guidance on leadership, professional development and the latest industry jobs.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here