Colleague Shares Worth Nothing.

[Eric Cantona]

I have learned that Royal Mail will tomorrow warn that its deteriorating cash position has rendered the company's equity worthless under the terms of an employee options scheme, dashing hopes of a share bonanza for its 165,000 workers.

The company's chief executive, Moya Greene, will say that Royal Mail's declining market share, and lower-than-expected savings from its modernisation programme, have left it in a worse-than-expected financial position. She will say that a valuation of the company undertaken using the framework of its employee share scheme has concluded that the equity is likely to be worthless.

The news will undoubtedly come as a shock to Royal Mail employees. The Communication Workers' Union has already been briefed on tomorrow's statement, which will represent Greene's first major announcement since joining the company last July.

Sky News' business presenter Joel Hills and I have discovered that the phantom share-based element of Royal Mail's Colleague Shares Scheme is now unlikely to pay out when the notional shares awarded to employees mature this year and next.

A cash bonus, which since 2007 has paid out £1600 to each employee, may still pay out an additional £1000 over the remaining life of the scheme, I'm told (depending on targets being met). 60 per cent of this additional payout would be related to a deal agreed with the union last year (which put a valuation of 200p on 300 notional shares for each employee), with the remainder based on meeting modernisation targets.

The share plan was set up in 2007 by Allan Leighton, the former chairman, and Adam Crozier, Greene's predecessor as chief executive. It was designed to link the achievement of Royal Mail's business objectives and financial rewards for posties.

The decision not to make a payment under the share-based element of the scheme underlines Royal Mail's financial predicament as it prepares for the next stage of its privatisation by the Coalition Government. Legislation to facilitate a sale or flotation of the company is in the House of Lords awaiting further progress.

There are a couple of important caveats about tomorrow's announcement.

Royal Mail's historic pension deficit of about £8bn is taken into account when calculating the value of the equity in the employee share scheme, but would not be in the event of a privatisation of the company. The Government has already agreed that it will take on the historic deficit in the event of a sale or flotation, which may result in various state aid remedies being required by Brussels (possibly including the sale of its profitable GLS European parcels business).

At its half-year results last November, Royal Mail revealed that its operating profit had fallen 72 per cent to £52m, partly as a result of its declining market share and falling mail volumes. Annual revenues have fallen by £1bn since 2009.

The company has also been hit by the difficult commercial real estate market, which has forced it to put on hold plans to sell surplus property, while the up-front costs of modernisation have not yet generated the anticipated savings.

If Royal Mail is privatised, the Government has said that at least 10 per cent of the company's shares will be given to employees.

Royal Mail declined to comment.

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[TrueBlueTerrier]

Already posted by thanks anyway.

[POSTMAN]

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