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(Alliance News) - Royal Mail-owner International Distributions Services PLC on Monday urged UK industry regulator Ofcom to quickly push through changes to mandated postal services as it stood its ground against a possible bid approach.
On Monday, IDS published Royal Mail's submission to Ofcom for the reform of the Universal Service Obligation, describing it as a "clear and detailed proposal" based on extensive modelling and analysis of customer needs.
"These changes should be enacted quickly by Ofcom through changes to postal regulations and conditions and do not require legislation," IDS remarked.
In January, Ofcom said Britain's universal postal service "must modernise" and called for a "national debate" on the future of the UK's postal service, given that the number of letters being posted has halved since 2011.
Ofcom Chief Executive Melanie Dawes said: "Postal workers are part of the fabric of our society and are critical to communities up and down the country.
"But we're sending half as many letters as we did in 2011, and receiving many more parcels."
IDS said the plans now being executed under Chief Executive Martin Seidenberg are delivering clear operational and financial improvements.
IDS said it saw good revenue and parcel volume growth across both Royal Mail and international parcel business GLS in financial 2024, which ended in March, and has delivered top-line growth across both businesses. Royal Mail had returned to growth in the second half, it added.
IDS will release its financial 2023 results on May 23.
IDS said Royal Mail's USO proposal would deliver a more efficient, more reliable and more financially sustainable service, addressing the significant decrease in letter volumes from 20 billion a year in 2004/5 to 7 billion in 2022/3.
It would reduce the net cost of the universal service by up to GBP300 million per year, it added.
Proposals include: the retention of the one-price-goes-anywhere service to all parts of the UK; first class letters continuing to be delivered daily, six days a week; retention of the option of first class and second class letters; parcels still being delivered up to seven days a week; and all non-first class letter deliveries, including second class, being delivered every other weekday.
Last Wednesday, IDS confirmed it had rejected an "opportunistic" offer from EP Corporate Group AS.
IDS said it received a preliminary and conditional non-binding proposal from EP Corporate regarding a possible cash offer at 320 pence per share. A bid at this level would value IDS at around GBP3.06 billion.
Shares in IDS were up 2.4% to 278.60p in London on Monday, giving a GBP2.68 billion market capitalisation.
EP Corporate, is a 100% direct shareholder of VESA Equity which holds an around 27.6% stake in IDS.
It is controlled by Czech billionaire Daniel Kretinsky, a lawyer-turned-energy tycoon.
His other investments include stakes in UK supermarket chain J Sainsbury PLC, French newspaper Le Monde and London football club West Ham United.
On Monday, IDS said it "strongly believes" the possible offer "does not reflect the growth potential and prospects of the company under a new management team, a significant modernisation programme underway at Royal Mail, and the ongoing review by Ofcom in relation to the future of the USO."
The offer also "does not reflect the significant underpin of value through the group's extensive freehold property portfolio or the pension scheme in material surplus," it continued.
IDS received backing from its third largest shareholder, Redwheel, which holds an around 6.7% stake.
In a statement, Redwheel said it was in "full agreement" with IDS that the possible offer "significantly undervalues" the company and its future prospects.
"In order to make Royal Mail a sustainable business for the benefit of all stakeholders, we believe steps must be taken to return the business to profitability, and we also believe the Universal Service Obligation – the legal requirement for Royal Mail to deliver to the United Kingdom’s 32 million addresses six days a week - now needs urgent reform," it said.
"We believe that progress is already being made to transform Royal Mail into a profitable and sustainable business but we would urge Ofcom to reform the USO in order to make Royal Mail profitable once more and ensure its long term sustainability as an independent business which has the potential to benefit all stakeholders," Redwheel added.
By Jeremy Cutler, Alliance News reporter
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