Royal Mail profits surge ahead of planned sell-off

Annual profits rise to £324m as the government prepares to sell the 497-year-old postal service

Royal Mail has reported a 60% increase in pre-tax annual profits to £324m, as the government prepares to sell off the 497-year-old postal service in the most ambitious privatisation since British Gas in 1986.

The company, which ministers hope to float on the London Stock Exchange within a year, said its pre-tax profits in the year to the end of March increased to £324m from £201m a year earlier. Sales, which were boosted by a 30% rise in the price of first class stamps to 60p, increased by more than £500m to £9.3bn.

Moya Greene, the chief executive, said: "Our strategy is delivering. The transformation of Royal Mail is well under way."

Speaking publicly about the privatisation plans for the first time, she said a sale of part of the business would allow Royal Mail to "combine the best of the public and private sectors".

She promised that the sale would not affect Royal Mail's universal service obligation to deliver to every address in the UK six days a week for the same price. "We are honoured to provide the universal service to more than 29m addresses across the UK," she said. "[It] can only be changed by a vote in both houses of parliament."

Greene pleaded with her staff, who have rebelled against the sell-off plans, to "continue to drive our business forward as we seek to realise our collective objectives".

"These are times of significant change and we are asking a lot of our people," she acknowledged.

The Communication Workers Union (CWU), which represents postal workers, has vowed to fight the sale, which it says will lead to a "worse deal for customers, staff and thousands of small businesses dependent on the Royal Mail". Dave Ward, CWU deputy general secretary, said the positive results were "more compelling evidence of why Royal Mail should be kept in the public sector".

Royal Mail privatisation is pushing ahead as profits are up.

 "Privatisation isn't necessary and it would destabilise the workforce and the good progress being made. The support of the workforce is crucial to the success of the company."

Michael Fallon, the business minister, has warned the union that the world's oldest postal service could be sold to sovereign wealth funds or other foreign buyers if the CWU continues to fight its flotation. He said the government was "committed" to the sale and Tuesday's results were "another encouraging step" towards it.

The business secretary, Vince Cable, said there was "no alternative" to privatisation, and Royal Mail still faces a "fundamental threat" from email, texts and social media.

Greene, a Canadian who joined Royal Mail three years ago from Canada Post, said she has held discussions with a number of "high quality investors" in Canada and the US and said it would be "foolhardy" not consider the sale of the company to foreign buyers. "The IPO [initial public offering] market in the past few years has been quite unpredictable," she said. "It would be foolhardy not to consider other options."

She said she was disappointed with the union's "philosophical" stance against privatisation. "They believe government ownership should continue even though it fell into a very deep hole," she said.

Greene said that before Royal Mail embarked on its transformation plan, the company was "20 years behind" postal services in other countries.

She indicated that Royal Mail workers will face further rounds of redundancies as the company "has to be sized appropriately for the [declining] traffic we have to process". She declined to state how many more jobs are likely to be lost, but said more than 50,000 have been cut over the past decade.

Staff are due to collect 10% of the shares in the company, which could be worth £1,500 for each employee, when it is privatised.

However, the union said the government could not "buy off" postal workers with the vague offer of shares in the privatised company. "That's not going to cut the mustard," said Billy Hayes, general secretary of the CWU. "Our members don't want £1,500 if it is going to result in depressed terms and conditions and another five streets on a delivery."

Greene said profits would have been as high as £440m accounting for "transformation costs" of redundancy payments and other costs in reshaping the business, which is switching its focus from letters to parcels.

"Just over three years ago, our core UK business had significant cash outflows [ie was making losses]," she said. "Now, despite the challenging UK economic conditions, UKPIL [UK Parcels, International and Letters] contributes the majority of group operating profits."

She said the boom in online shopping had boosted the company's parcel business, to account for almost half of revenues. The number of parcels delivered last year increased by 70m to 1.4bn.

However, she said the letters business was suffering a "structural decline". On average 58m letters are sent every day, compared with 63m in 2011-12.

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IMF urges Treasury to speed up sale of Lloyds and RBS

Fund says disposal of £65bn bank stakes should be priority as Lloyds shares reach level considered as break-even for taxpayer

Speculation about a government sell-off of Royal Bank of Scotland and Lloyds Banking Group was escalating on Tuesday night amid reports that the International Monetary Fund is urging the Treasury to accelerate its disposal of the £65bn stakes in the two bailed-out banks.

As part of its annual health check on the UK economy, the Washington-based fund is said to be telling the government that disposal of the share stakes should be a priority.

Hopes of a sell-off of the 39% stake in Lloyds and 81% stake in RBS have risen in recent days as their share prices have climbed. On Tuesday shares in Lloyds closed just above 61p, the level which the Treasury has signalled it now regards as break-even for the taxpayer, while RBS was at 342p, still below any break-even targets set by the government.

The City has been focusing on 61p as a potential price at which to sell off Lloyds since March, when the bonus for the bank's chief executive, António Horta-Osório, was linked to selling off a third of the taxpayers' stake above this price. It is lower than the targets the City had originally been expecting of 73p, and the chancellor is yet to make public pronouncements on his intentions to sell off stakes in any banks.

The chancellor, George Osborne, has made it clear he does not want to put yet more taxpayers’ money in to fully nationalise RBS.

He has made clear that he does not want to plough in more taxpayer funds to fully nationalise RBS, to enable it to be split into a good and bad bank before being sold back into the private sector, as championed by some members of the parliamentary commission on banking standards.

The Treasury would not comment last night on the speculation about a possible IMF view on the stakes, which came amid expectations that more information would soon be provided about how major banks intend to plug the £25bn capital shortfall identified across the banking industry by the financial policy committee earlier this year.

A number of banks could soon provide information about how they intend to fill any discrepancies highlighted by the FPC. It was not immediately clear how many banks would be able to provide information or what their plans were to fill any shortfalls in announcements that could come as soon as on Wednesday .

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Petrol price rigging inquiry contacts oil traders

Glencore and Vitol among those receiving 'request for information' as part of cross-border investigation

Glencore and other big oil trading companies have been asked to provide information to the cross-border investigation into alleged petrol price rigging. There is no suggestion that these companies are being investigated.

European commission officials have asked the trading houses to answer questions related to allegations that oil companies have colluded to manipulate the price of oil and petrol for more than a decade.

Glencore, the Swiss-based commodity trader that is one of the biggest companies in the FTSE 100, and Vitol, the world's largest oil trader, are among those known to have been contacted by the commission. Glencore had previously sought to play down any links to the oil price fixing probe.

Glencore – founded by Marc Rich, a commodities trader best known for being charged by US authorities with selling oil to Iran during the 1979-81 hostage crisis - declined to comment on the record. A source close to the company said the "request for information" letter from the commission's investigators had been sent to "every man and his dog" in the oil industry and was no indication of any wrongdoing.

A spokeswoman for Vitol said: "Vitol, along with other market participants, has received a request for information from the European commission. There is no suggestion that Vitol is under investigation."

Trafigura, the world's third-largest oil trader, which hit the headlines for dumping toxic oil waste in the Ivory Coast in 2006, said the company was not aware whether or not it had received the letter from the commission.

Other oil traders, including Gunvor and Mercuria, were reported as also receiving the letter. They either declined to comment or could not be reached.

The commission declined to comment on the progress of its investigation, which was launched last week with dawn raids on the London offices of BP, Shell and oil price reporting agency Platts. Norwegian oil company Statoil was also raided. The companies said they are helping investigators with their inquiry.

David Cameron has warned that anyone found guilty of the "hugely concerning allegations" will face the full force of the law. The prime minister said the allegations were "very, very serious" and major consequences would follow as he pledged to ensure that laws passed after the Libor scandal would apply to oil price fixing in the future.

European investigators said any alleged price fixing could have had a huge impact on the price of petrol at the pumps

 "It's totally unacceptable for firms to fix prices and force consumers to pay more. That's why we are looking at how to extend this criminal offence to the energy sector to make sure that those who manipulate benchmark prices feel the full force of the law," he said last week.

The Serious Fraud Office is considering launching a criminal inquiry into the alleged price fixing, which European investigators said could have been going on since 2002 and could have had a huge impact on the price of petrol at the pumps "potentially harming final customers".

The price of petrol has risen by more than 80% since 2002 to about 135p a litre.

The commission said the big oil companies may have "prevented others from participating in the price assessment process, with a view to distorting published prices".

It added: "Any such behaviour, if established, may amount to violations of European antitrust rules that prohibit cartels and restrictive business practices and abuses of a dominant market position.

"Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers."

Luke Bosdet, of the AA, said British motorists would be relieved that the "lid is finally being lifted off the dark and murky world of oil pricing".

"Because prices are set in secret, drivers and consumers have no idea whether or not the price they pay at the pumps is a fair reflection of the wholesale price."

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Multinational CEOs tell David Cameron to rein in tax avoidance rhetoric

Burberry, Tesco, Vodafone and BAE Systems join CBI chief in lobbying PM to stop moralising on tax ahead of G8 talks

The bosses of some of Britain's largest multinational corporations have urged David Cameron to stop moralising and rein in his rhetoric on tax avoidance ahead of a G8 summit next month.

Chief executives of companies such as Burberry, Tesco, Vodafone, BAE Systems, Prudential and GSK were keen to take a final opportunity to lobby the prime minister in advance of the meeting of political leaders in Northern Ireland.

Cameron has pledged to use Britain's G8 presidency to tackle aggressive tax avoidance by multinationals, but is also keen to heed the counsel of his business advisory group, which he met with on Monday.

Also present was Google's chairman, Eric Schmidt, despite the internet search firm coming under fierce attack from MPs last week because of its tax arrangements.

The president of the Confederation of British Industry, Sir Roger Carr, who was at the meeting, was among those who have taken issue with Cameron's attacks on the ethics of big business tax engineering.

Sir Roger Carr, CBI chairman, said at an earlier meeting that tax avoidance "cannot be about morality – there are no absolutes"

 During a speech earlier in the day at a London event organised by Oxford University's Said business school, Carr said: "It is only in recent times that tax has become an issue on the public agenda – Starbucks, Google, Amazon – businesses that the general public know and believe they understand; businesses with a brand that become a perfect political football, the facts difficult to digest; public passions easy to inflame."

In what appeared to be pointed criticism of increasingly firm rhetoric from Cameron on multinational tax engineering, Carr insisted tax avoidance "cannot be about morality – there are no absolutes".

In January the prime minister used a speech at the World Economic Forum in Davos, Switzerland, to put a marker down on questions of tax structuring by big business. "Some forms of avoidance have become so aggressive that I think it is right to say these are ethical issues," he said, urging multinationals to "wake up and smell the coffee".

Carr said: "Tax payments are not, and should not be … a payment viewed as a down payment on social acceptability, or a contribution made by choice in order to defuse public anger or political attack."

The CBI boss, who is being talked of as a successor to Dick Olver as chairman of BAE Systems, invited the G8 to consider three points in relation to tax reform:

• Avoiding the moral debate – "it's all about the rules".

• Fixing the rules on an international stage, not unilaterally.

• Consulting on proposed changes with business.

A Downing Street spokesman said the specific controversy generated by Google's tax affairs was not raised during the meeting with business leaders, though discussions did focus on "explaining the tax and tax transparency part of the G8 agenda".

Also speaking at the Said business school event was Margaret Hodge MP, chair of the public accounts committee and one of parliament's most outspoken critics of tax avoidance. With Starbucks and the big four accountancy firms in attendance, she said: "Your time has now come on accountability. You are now being asked to answer certain questions and it's important that we all engage.

"One could argue that the way some companies organise their affairs is anti-competitive to many British companies. Especially if you look at the way Amazon arranges its affairs."

On Revenue & Customs' appearance before her committee last week, she added: "Their approach, when they came to parliament last week was complacent and patronising, an attitude that actually didn't help take the committee forward. I don't think it helped members work closely together across my committee.

"In my opinion they are not aggressive enough. These are issues of how you judge individual companies, but at the moment I'm not clear how HMRC makes its judgments. So toughen up, HMRC."

Other attendees at the event were representatives of retailer Marks & Spencer, which was accused of running its online business in a similar structure to Amazon's, and pharmacy group Alliance Boots, which recently relocated its headquarters to Switzerland.

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Battersea Power Station developer sells more than 800 flats for £675m

Rich Asian investors have snapped up many of the apartments and townhouses on offer in the first phase of the project

More than 800 flats in the Battersea Power Station development in London have been sold for £675m.

The owners of the Grade II listed power station, which has lain dormant since it stopped generating electricity in 1983 despite numerous outlandish development plans, said they had exchanged contracts with buyers of 95% of the flats and townhouses in the first phase of the project.

Rob Tincknell, the developer's chief executive, said it had experienced "phenomenal interest" from buyers wanting a slice of the first phase Circus West development, which will stand between the power station and Chelsea Bridge.

Circus West will contain 866 properties ranging from £338,000 for a studio to up to £6m for one of 12 penthouses.

Estate agents involved in the sale said many of the prime plots in the development have been bought by rich overseas buyers.

The Malaysian consortium that bought the site for £400m last summer declined to state the nationalities of the buyers. Many of the properties are likely to have been bought by Asia-based investors since the development went on sale in Kuala Lumpur as well as London in January.

Tincknell has previously said: "Our buyers are from all over the world and they're attracted by the uniqueness of the building."

Recent research by property broker Jones Lang LaSalle (JLL) found that overseas buyers accounted for more than half of London's new home-buyers last year.

The JLL study found foreign buyers bought £3bn worth of London residential property in 2012 – a 25% increase on the previous year. Six out of seven foreign buyers planned to let out their properties, the research said.

"Post-credit crunch it's much harder to get bank debt but with 30% to 40% of units sold 'off plan' to foreign buyers, that triggers work on the development," Adam Challis, JLL's head of residential research, said. "Without international investors most residential developments in London wouldn't happen and the housing crisis in the capital would be even greater."

The latest plans for the redevelopment of the Grade II listed former power station, which stopped generating electricity in 1983.

The foreign invasion into London's property market is most stark at the high end, with most of the apartments in One Hyde Park bought through offshore companies.

Russians bought 8.5% of all London properties worth more than £2m between March 2012 and March 2013, according to research by estate agent Knight Frank. Buyers from the United Arab Emirates, the US and China each accounted for 2.8%.

Construction work on the Circus West complex will start in July and is due to be completed in 2017.

Malaysian construction firm SP Setia and Sime Darby, Malaysia's biggest conglomerate and the world's biggest palm-oil producer, both own 40% of the development. Malaysia's Employees Provident Fund pension fund owns the remaining 20%.

The Malaysian consortium bought the site out of administration for £400m last summer. Previous failed plans for the power station, which famously features on the cover of Pink Floyd's 1977 album Animals with a giant pig floating between its chimneys, included converting it into a theme park, a nightclub and a new ground for Chelsea football club.

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Britain is booming? FTSE reaches 12-year high as record looms

Index rises to levels last seen before dotcom bubble burst, fuelled by a relatively calm eurozone, QE, low interest rates and rising confidence in Japan

At a close of 6,755 points, the FTSE 100 blue chip index matched levels from September 2000, just before the market's fascination with loss-making technology companies such as last minute.com came to an abrupt end and the dotcom bubble burst. The closely watched index of the 100 biggest companies traded in London is also within sight of its all time peak of the 6,930 reached on 30 December 1999.

The FTSE 100 is nonetheless lagging behind many other global markets, including the S&P 500 in the US and the Dax in Germany, which are at record levels.

Investors are betting that central bankers, including the Bank of England and US Federal Reserve, will continue their attempts to boost the global economy by printing money and keeping interest rates at historic lows. The buoyant stock market may take some of the pressure off George Osborne as he tries to persuade voters that his emphasis on public spending cuts to re-establish confidence in the economy is working. Bailed-out RBS was also the biggest gainer on Monday, rising 4.5%.

The FTSE has risen to a 12-year high. Photograph: Martin Argles for the Guardian

Earlier this month, the chancellor narrowly avoided the humiliation of a triple dip recession and since then has enjoyed the first signs that economic activity is picking up, mainly in the services sector and the south-east.

Even so, the FTSE 100 – which only four years ago sank to below 4,000 – is linked to the the global economy, which accounts for around 70% of sales by FTSE 100 firms.

Investors were encouraged by the Japanese government's optimism, amid signs that Tokyo has inspired the first sustained period of solid expansion in two decades. Signs of growth, albeit tentative, have encouraged a more positive mood among investors, while the long-running euro zone crisis seems to have entered a period of reasonable calm. A number of major deals, the latest being Yahoo's $1.1bn (£750m) proposed purchase of blogging site Tumblr, have also helped sustain the rally.

The historically low level of interest rates has also made shares more attractive than other investments. Gold and silver, previously considered safe haven investments, have lost their lustre.

Since the global banking crisis sent markets tumbling, with the FTSE 100 falling to 3,529 in March 2009, shares have slowly been regaining lost ground, gathering momentum in recent weeks. The turning point came last summer when the head of the European Central Bank said he would do "whatever it takes" to save the euro from collapse. Mario Draghi's message was taken by investors as a vote of confidence in the 17-member currency club and a signal that a repeat of the Greek crisis would be dealt with swiftly by Brussels.

Richard Hunter at the UK's largest financial adviser, Hargreaves Lans down, said shares in Britain's 100 biggest companies were likely to continue rising this year as long as companies could sustain their current run of profits.

"It doesn't look like central banks are going to stop printing money any time soon. Interest rates are going to remain low. When there is little money to be made investing in government bonds and commodities are volatile, stock markets have become the focus of most investors' attention," he said.

But some City analysts believe the recent positive run could soon come to an end, especially if the central banks turn off the money taps.

Julian Jessop at researchers Capital Economics said: "[We] expect a substantial correction in equity prices in the second half of the year, perhaps of the order of 10% for the US and UK markets and 15% for Europe and Japan, most likely triggered by the scaling back of the Fed's quantitative easing programme and a renewed escalation of the crisis in the euro zone. Assuming global monetary policy remains loose and Europe emerges stronger, the markets should then perk up again in 2014. But we doubt the current euphoria will last throughout 2013."

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