Royal Mail sets aside £18 million for international fine on IPO anniversary

Royal Mail faces further challenges in the UK, where the regulator Ofcom is also probing its business

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Royal Mail has marked the anniversary of its £3.3 billion privatisation by setting aside £18 million to cover a potential fine for alleged breaches of competition law at its international parcels business.

Virtually a year to the day that the Government sold off Royal Mail, the postal giant struck an agreement with France’s regulator, Autorité de la concurrence, over a possible breach of antitrust laws at its subsidiary Global Logistics Systems.

GLS operates one of Europe’s biggest ground-based parcel delivery networks, with almost 2000 trucks and 660 depots over 37 countries.

Its competition probe — which also affects rivals including Deutsche Post DHL, FedEx, TNT Express, and La Poste — is believed to centre on antitrust activities around postal trade body meetings in France, although the country’s competition authorities do not reveal the nature of their investigations until they end.

This inquiry is not due to publish its findings until the end of next year. But Royal Mail, led by Canadian Moya Greene, said it has agreed to settle “and provide compliance commitments now” to benefit from a reduction to any fine. It estimates a penalty of £12 million and legal fees of £6 million.

City analysts estimate GLS’s share of the French parcels market to be just more than 5.5 per cent, meaning its fine could be much higher — French competition law permits a maximum penalty of 10 per cent of worldwide turnover, which would force GLS to stump up £160 million.

The highly profitable GLS business was thrust into the limelight before its Royal Mail parent listed on the London Stock Exchange.

In a key period leading up to privatisation, the postal operator’s profit was found to rely entirely on European parcels and the Post Office business, with UK letters and parcels showing a loss.

Royal Mail faces further challenges in this country, where the regulator Ofcom is also probing its business.

The postal giant complained that competitors are able to “cherry pick” profitable delivery areas in big cities whereas it is obliged to deliver to remote rural areas too.

In a move to mitigate the impact, Royal Mail proposed a price hike for rivals using its network, but that move was suspended by Ofcom in April and the pricing plan now faces an investigation.

Today relief at the scale of the forecast fine saw shares rise almost 2 per cent or 7.7p to 405.6p — still well above its  float price on October 11 last year of 330p a share.

After shares initially soared as high as 615p, the Government launched an inquiry amid claims the taxpayer had been “ripped off”.