UK Royal Mail is expecting operating profit of GPB 200m
In April 2002, Allan Leighton, then newly appointed Royal Mail chairman, launched a three-year plan for the postal group in response to the Consignia debacle, a management rout and losses of as much as Pounds 1.7m a day.
Through a restructuring of the postal network and 30,000 job cuts, Mr Leighton pledged to make Pounds 1.2bn of cost savings and return the group to profit by 2005.
Almost two-thirds of the way into the plan, Royal Mail has confirmed that it is expecting to make an operating profit of Pounds 200m for the 2003-04 financial year, compared with a loss of Pounds 197m in 2002-03. About 12,000 jobs will go in the next few months, bringing the total staff reduction so far to well over 20,000, and more than half of delivery offices have agreed to make fundamental changes to working practices to improve productivity.
Industrial relations are always fraught at Royal Mail and while antagonism between management and postal workers seems to have died down since last year's wildcat strikes, middle managers are now threatening to rebel over job cuts. But the group says it has made progress in eliminating many old workplace problems, such as resistance to change among workers and management bullying.
These signs of a turnround come at an important time for Royal Mail. The group's 300-year-old monopoly is ending and it will soon have to face the realities of free market competition.
Deutsche Post and TPG of the Netherlands are in talks with Royal Mail on using its delivery network for their mail and are getting ready to launch their own postal services in the UK.
Two years ago it looked doubtful that Royal Mail would survive such a change in its operating environment. But the terms of last month's historic access agreement with private sector rival UK Mail, which will form the basis of talks with other competitors, show Royal Mail will not take deregulation lying down.
The first part of the Royal Mail business that was tackled in the three-year plan was the loss-making parcels division Parcelforce.
Staff numbers were cut by almost 50 per cent, a non-urgent business service was abandoned and efforts were focused on the more lucrative express delivery market. Parcelforce is expected to break even this year.
Royal Mail's transport strategy has been overhauled. Apart from a single surviving (but soon-to-be phased out) post train running from Willesden in London to Low Fell in Tyne and Wear, mail is no longer being transported by rail.
A new distribution depot in Daventry forms the hub of a revised road network. Royal Mail is also cutting the number of flights but using larger aircraft to carry post by air, and has switched from post bags to crates for more efficient loading.
The biggest change has been the abolition of the second daily postal delivery, which carried 4 per cent of mail but incurred 20 per cent of costs. Royal Mail have said most customers will not notice a difference and businesses will still get an early delivery. The move to single delivery will mean up to 10,000 postal workers will be surplus to requirements, a key part of Royal Mail's cost-cutting plan, but the group says all redundancies will be voluntary.
Mr Leighton and Adam Crozier, Royal Mail chief executive since early 2003, seem keen to play down reports that the group is out of the woods. Mr Crozier warned recently that last year's unofficial strikes had cost about Pounds 40m and he is worried future profits will be hit by a pension fund shortfall of up to Pounds 150m a year.
And while Royal Mail's financial health is improving, the reliability of first class service is falling, which means that Mr Leighton still has some way to go.
