Lombard: Sunday post could help Royal Mail scale IPO heights

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Brown paper packages tied up with string are just as popular with Moya Greene as they once were with Alp-surmounting songstress Julie Andrews. The tenacious Canadian boss of Royal Mail has been promoting a £3bn autumn float with a story of growing deliveries of shopping ordered online. A plan for the service to expand from six to seven days a week could therefore help the marketing efforts of lead banks Goldman Sachs and UBS.

Posties will probably be less thrilled. Bad enough having to push round trolleys ballasted with goods from Amazon without doing it on Sundays. The Communication Workers’ Union is opposed to the sell-off and has threatened to boycott deliveries fed into Royal Mail’s network by rivals.

But with competitors offering Sunday deliveries, Royal Mail will eventually have to follow suit, or risk redundancy. The business has increased volume market share in parcels from 33 per cent two years ago to 35 per cent today. Despite falling letter volumes, operating profits from letters and parcels jumped £261m to £294m in the year to March.

Provided the stock market stabilises, the Treasury has a chance of selling off over 50 per cent of the business before Christmas. The reference point for pricing will be Deutsche Post, trading at 13 times forward earnings. Royal Mail stands ready to take legal action against any mail boycotts by the CWU.

Packages aside, we can only guess at Ms Greene’s favourite things. But we can be pretty sure CWU leader Dave Ward is not one of them.

Hot water

Are water companies avoiding lots of tax? The zero tax status of Thames Water in its past financial year suggested so to tax vigilantes, who tend to supply indignation more plentifully than evidence.

The accounts of the 10 big water and sewerage companies of England and Wales suggest campaigners could be right, though. In the year to March 2012, the most recent period for which comparable numbers are available, the water bearers paid tax of just £138m. That is equivalent to 1.4 per cent of sales of £10bn, 3.7 per cent of operating profits of £3.7bn and 8 per cent of pre-tax profits of £1.7bn.

The official rate of corporation tax on profits was 26 per cent.

Our Aquariuses saved a tonne of tax by having lots of debt. Interest payments – £2bn during the year – were tax deductible. Capital allowances saved them a more modest amount. These are tax deductions available to all businesses on investment in equipment, an activity of which society theoretically approves.

Tax rules let you claim tax deductions for the cost of stopcocks and whatnot at a rate faster than depreciation on the equipment. The result is a whole heap of deferred tax – a running total of £5.3bn for the year in question – sitting as liabilities on the balance sheets of water companies.

Don’t expect tax campaigners to congratulate water companies when they start paying these debts off, years from now. But don’t be surprised if our aqueous pals start moaning to the regulator about the difficulty of making a decent profit around that time.


There are parallels between rows over UK-listed foreign groups and RBS, as a report from the Kazakh Financial Times shows:

“The lax governance standards of the London stock market have been highlighted by yet another corporate scandal involving a powerful shareholder. Oligarch Georgey Osbornovitch, it has emerged, played a pivotal role in ousting Stefan Hesternov as chief executive of the struggling Royal Bank of Scotland.

Osbornovitch is understood to have stepped in after Hesternov opposed his plans to reap political dividends from a share sale that would leave Britons, many of whom live below the poverty line, saddled with RBS’s toxic debt.

The shadowy fixer, described by local sources as “bag man” for unelected premier David Cameronsky, pulled strings through UK Financial Investments, a front company with an 81 per cent stake in the over-leveraged bank. This was despite pledging RBS would be run by an independent board to benefit all shareholders.

Shares fell 3 per cent. “It’s diabolical,” said Genghis Khanawormz, a Kazakh whose pension is part-invested in RBS via a FTSE 100 tracker, “you don’t get this sort of carry-on in Almaty.’

Mr Osbornovitch acquired control of RBS in the chaos that followed a financial crisis and the collapse of state socialism in the UK. He has been linked to legitimate businessmen such as Oleg Deripaska. But his own credentials are murky, especially when it comes to managing the UK’s submerging economy.”

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