Christmas trade delivers boost for UK Royal Mail chiefs
It is a significant boost to plans by Allan Leighton, chairman, and Adam Crozier, its chief executive, who are striving to make Royal Mail more commercially driven to fight off competition from the private sector.
The state-owned postal group said yesterday it had made Pounds 800m in revenues over Christmas, Pounds 80m more than in 2003, with the growth of internet shopping helping to fuel a rise in mail volumes.
Royal Mail delivered 2.2bn items of post in the run-up to Christmas, 100m more than in 2003. About 55m items were sent by internet retailers, it said, led by Amazon.com and eBay.
As well as a growth in sales at Royal Mail, loss-making parts of the business such as the Post Office and Parcelforce also achieved better results over Christmas. Revenues at the Post Office rose by Pounds 17m in December, Royal Mail said, in part thanks to a move into financial products.
Royal Mail is on track to meet its Pounds 400m operating profit for the 2004-05 financial year, which will trigger a bonus payment of at least Pounds 800 to each of its 195,000 employees.
It is a significant turnround, particularly in a difficult climate. The results of retailers such as J Sainsbury and Marks and Spencer were weak over Christmas.
At the start of Royal Mail’s three-year restructuring plan in 2002 the group was losing Pounds 1m a day.
Job cuts of about 35,000 and changes in working practices, including the abolition of the second daily postal delivery, led to lower costs and a healthier balance sheet.
But although Mr Leighton and Mr Crozier have succeeded in turning round the group’s finances, they are still under pressure to improve the reliability of the postal service. The proportion of first-class mail arriving the next day usually falls over Christmas as the system struggles to handle the sharp rise in volumes.
Royal Mail yesterday declined to publish exact performance figures, but said about 63 per cent of first-class mail was delivered the next day during Christmas 2003, and that performance had improved “by a few percentage points” over Christmas 2004.
For the rest of the year, next-day first-class deliveries rose to about 90 per cent, although Royal Mail has never met the target of 92.5 per cent set by Postcomm, the postal regulator.
Postwatch, the consumer watchdog, criticised Royal Mail for not publishing its Christmas performance figures. It said that internet shopping held “massive potential” for Royal Mail’s packets business but “people need to be able to shop with confidence” and know that their goods would arrive on time.
Following its financial recovery, Royal Mail’s management will start concentrating on how to make the group more competitive.
Over the next few years Mr Leighton and Mr Crozier will focus on “a more conventionally commercial strategy”, Royal Mail said. Mr Crozier wants to overhaul pricing to reflect costs, including a move to size- based pricing.
Light, bulky items cannot be machine-sorted and cost more to process than their current postage, Royal Mail argues. Postcomm is looking into size-based pricing and is expected to make a decisionthis month.
Royal Mail’s 300-year-old monopoly in the letters business has already been broken and by this time next year the market will be fully liberalised. UK Mail, owned by Business Post, Deutsche Post of Germany and TPG of the Netherlands are already active in the market and La Poste of France is thought to be planning an entry.
