Royal Mail sets aside £18m for fine in French competition investigation

Royal Mail marked the first anniversary of its £3.3bn privatisation yesterday by setting aside £18m 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).

GLS operates one of Europe’s biggest ground-based parcel delivery networks, with almost 2,000 trucks and 660 depots spread across 37 countries.

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

In this case the authorities will not announce their findings until the end of next year. But Royal Mail, led by the Canadian Moya Greene, said it had agreed to settle “and provide compliance commitments now” to benefit from a reduction in any fine. It estimates a penalty of £12m and legal fees of £6m.

Analysts estimate GLS’s share of the French parcels market to be just over 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 as much as £160m.

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 investigating its business. The postal giant complained that its private competitors were able to “cherry pick” profitable delivery areas in big cities, whereas under the Universal Service Obligation it was required to deliver to remote rural areas too. In a move to mitigate the impact, Royal Mail proposed a price increase for rivals using its network, but that move was suspended by Ofcom in April and the pricing plan now faces an investigation.

Market relief at the scale of the forecast fine saw Royal Mail shares rise 1 per cent, or 4p, to 401.9p – still well above its float price on 11 October 2013 of 330p a share. After the shares initially soared as high as 615p, the Government launched an inquiry amid claims the taxpayer had been “ripped off” by an underpriced float. This impression was reinforced when many of the “priority shareholders” sold out.