Post Office Ltd profits up 9%, on higher government subsidy

Post Office Ltd said today that it has had an “encouraging” first six months since its independence from Royal Mail Group in April, with growth in mail, financial services and telecoms revenue. Boosted by GBP 8m in special stamp sales during the Olympics this summer,
the company that oversees the UK’s network of 11,799 post offices increased its turnover by 3% year-on-year to GBP 501m for the six months ended 23rd September 2012.

Operating profits before exceptional items increased by 9% compared to the same period last year, to GBP 61m.

Post Office Ltd, which remains state-owned despite leaving Royal Mail ahead of its former parent’s forthcoming privatisation, also saw its operating costs increase by 4.5% and its labour costs increase by 4%, to respectively GBP 437m and GBP 128m.

But the network’s government subsidy level also increased, by 14% to GBP 103m for the period.

National consumer watchdog Consumer Focus said today that the Post Office Ltd needs to become “more cost-effective to run” if it wants to achieve long-term financial sustainability.

Post Office chairman Alice Perkins and chief executive Paula Vennells said improvements had been made in the network’s revenues and profit “despite the challenging economic environment”.

“The financial results and achievements are encouraging, though the scale of change ahead remains ambitious,” they said today in a joint statement, stating that modernisation plans were currently seeing “good progress”.

The Post Office network has benefited from stability, with the government’s pledge not to close further branches, but is in the middle of a major transformation programme turning 6,000 of its 11,799 branches into either modernised “Main” or “Local” outlets by 2015.

So far, Post Office said 269 local or main-style branches have been opened or converted.

“The Post Office is changing. Still with unparalleled reach and at the heart of communities across the UK, it is growing and modernizing its products and services while becoming more successful financially,” said the company’s chairman and CEO.

Growth

The Post Office said it has seen a “strong” performance in its mail activities, particularly in packets and premium mail products including Special Delivery during the latest six months.

Financial services performance has been helped by new agreements to provide customer access for major banks, which should continue as the proportion of UK bank personal customers that can access their accounts through post offices increases from 80% to 95% next spring.

Post Office now has 3m of its own financial services customers, with a savings book of more than GBP 17bn. It is currently expanding its provision of mortgage specialists within branches, after introducing them back in March.

Perkins and Vennells said Post Office aimed to build on its “strong foundations” to become a “recognised and trusted” financial services provider.

During the last six months, the Post Office has also had success winning new government and council services contracts, including most recently a major deal with the DVLA.

In parallel to the privatisation of Royal Mail, the government is currently planning on turning Post Office Ltd into a mutual organisation, with ownership by employees and key stakeholders. Detailed plans are in the process of being drawn up, with discussions by a stakeholder forum starting this autumn.

“More cost-effective”

National consumer watchdog Consumer Focus, which has been backing the modernisation of UK post offices under the “Main” and “Local” model, said today the company needed to become more cost-effective.

Andy Burrows, the watchdog’s head of post offices, said: “If the Post Office is to achieve its goal of becoming financially sustainable, two things must happen. The network must become more cost-effective to run – the Transformation programme will play a key role in helping with this. Also, our post offices must be able to offer its customers more products and services.

“The recent DVLA contract is hopefully the start of an expansion in Government and banking services which will boost the post office’s figures in the future,” added Burrows.