Postmen praised for delivering record Royal Mail profit and the best customer service in a decade

Royal Mail today announced a record £537 million profit on its operations for 2004-05 with quality of service to customers now hitting the highest levels in a decade.

Royal Mail’s Chairman, Allan Leighton, said: “Postmen and women have achieved a fantastic turnaround.

“They will now deservedly get a Share in Success payment of £1,074 amounting to £218 million of the company’s profit. It’s one of the biggest profit shares with employees in UK corporate history.”

Mr Leighton said other highlights included:

· First and Second Class mail, along with all Mailsort and Presstream bulk mail services, and Standard Parcels, hitting or exceeding their target levels since last July.
· Since October, the results for First Class mail and Mailsort and Presstream bulk mail are the best in a decade – an unprecedented overall level of service for our customers.
· Latest figures show the number of letters lost has almost halved – and 99.92% of the mail arrives safely.
· A 144% increase in the profit on operations for the financial year to March 2005 with the £537 million result comparing to a £220 million profit the previous year,
· Record income of £8.96 billion – up 3.7%,
· Record mail volumes averaging 84 million letters a day (22 billion a year) – one million more every day than the previous year,
· The implementation of operational changes to provide the base for more efficient working and improved quality of service in a market fully open to competition from January 2006,
· A Share in Success payment for employees of £1,074 – substantially more than the £800 which would have been paid if the profit on operations had been £400 million, the trigger for any bonus to be paid.
· Parcelforce Worldwide making a profit on its day-to-day operations during the second half of the year of £3 million – its first period of profitable operations in more than a decade,
· General Logistics Services (GLS), Royal Mail’s European parcels business delivering to customers in 34 countries, making a £61 million profit on operations – up 144% on the last year. GLS has made excellent progress over the last three years and is now a significant contributor to overall Group profitability.
· Post Office Ltd increased its losses to £110 million and has commenced the difficult task of replacing its traditional revenues by entering the financial services market with the launch last year of six new products.

But Mr Leighton warned: “There is still a huge amount to do. Transforming our operations, cutting our costs and, above all, winning the support of our people for the modernisation plan with its top priority being to improve customer service, has been Royal Mail’s greatest achievement in decades.

“But competing successfully in an open mail market is going to be even more difficult. We’ve a mountain to climb and we’ve only reached the base camp.

“The greatest challenge now is to bring about a complete culture change in Royal Mail. We need everyone in the company focused on ensuring that we consistently deliver high quality, value-for-money services that customers need and want. Competition has arrived and customers have a choice – so we need to prove that Royal Mail is the best and our people are key to that,” said Mr Leighton.

HURDLES
The company, he said, was also facing other daunting hurdles:

· Royal Mail will have to generate sufficient profit to pay millions of pounds into its pension fund to tackle the £2.5 billion deficit,
· the 14,609-strong network of Post Office branches made a loss on its operations last year of £110 million. Its rural network of 8,037 branches is fundamentally uneconomic and needs an injection of £3 million a week to survive. However, with the current annual Government funding of £150 million due to end in 2008, Post Office Ltd cannot be expected to absorb extra costs at this level,
· Royal Mail lags behind its major rivals in automated sorting technology. It needs to make a several billion pound investment if it is to compete successfully and that means being more profitable in order to invest. However, the 8.6% return on its domestic letters business last year compares with the 16.4% Deutsche Post makes in its home market, and 22.2% made by TNT Post Group.

Royal Mail’s Chief Executive, Adam Crozier, also stressed the challenges ahead.

“The hurdles we face are formidable but we are determined to change fundamentally what we do and how we do it,” he said.

Last year’s results, however, were a powerful demonstration of what Royal Mail and its people were capable of achieving.

“Postmen and women can be justifiably proud of what they have already achieved. They’ve done a fantastic job,” said Mr Crozier.

He said Royal Mail had made good progress against each of the priorities set in 2002 when it launched its three-year renewal plan:

· make Royal Mail “a great place to work,”
· improve customer service,
· return to profit,
· generate a positive cash flow.

“We’re delivering on all our objectives,” said Mr Crozier.

“A company that was losing more than £1million a day before the renewal plan is now making more than £2 million a day profit from its operations.

“Customer service is the best in a decade and we are determined to do even better. There was a positive underlying cash flow last year of £140 million compared to the £96 million of cash the business consumed in the year before the renewal plan. And the majority – 62% – of our people say Royal Mail is a great place in which to work and, again, this is a result we are working hard to drive up.”

Mr Crozier said new products and services were being developed, alongside a completely new sales and marketing strategy. “The aim is to give us the kind of customer focus which a modern postal needs in a competitive market, but which we have never had in the past,” he said.

THE POST OFFICE® – FUTURE DEPENDS ON SELLING NEW PRODUCTS
David Mills, Chief Executive of Post Office Ltd, also stressed that the future of the network would rest on its ability to sell its growing range of products and services, which included the HomePhone service, along with banking and financial services spanning home and car insurance, personal loans, child trust funds, and savings bonds.

The loss of traditional benefits income means that the business faces a substantial income gap of 40% of historic revenue to be filled by these new products and services.

The financial pressure on the Post Office® was further underlined by the £71 million loss last year in the directly managed network of 541 branches. In addition, the rural network is making a £3 million loss each week, which is presently being covered by annual funding of £150 million a year from Government.

Mr Mills said: “We are well on the way to graduating from a transaction-based culture in the Post Office network to a customer-focused and sales driven organisation. But we must continue to develop our new sales skills and capability to ensure a successful future.”

CULTURAL CHANGE
Mr Crozier concluded: “The huge task now facing Royal Mail is to make the cultural change needed to succeed as a commercial business and to become the postal operator of choice for customers in an open competitive market.

“Our vision remains to be demonstrably the best and most trusted mail company in the world. With the dedication and commitment of our people, we are confident we can achieve our goal.”

Ends

Issued by Royal Mail Group plc:
148 Old Street
LONDON
EC1V 9HQ

NOTES TO EDITORS

Quality of Service – Quarter 4 Results

Full year target Quarter 4 2004-05
1st Class S&M 92.5% 92.8%
2nd Class S&M 98.5% 98.7%
Mailsort 1 91.0% 91.8%
Mailsort 2 97.5% 98.5%
Mailsort 3 97.5% 99.6%
Presstream 1 90.5% 92.3%
Presstream 2 97.5% 98.3%

1st Class PPI 90.6% 90.0%
2nd Class PPI 97.4% 96.6%
1st Class Response 90.3% 83.7%
2nd Class Response 97.5% 94.5%
Standard Parcel 90.0% 92.3%
Special Delivery 99.0% 98.1%
PCAs @ 91% 1st Class S&M 118 80
PCAs @ 92.5% 1st Class S&M Intra 121 107

Quality of Service Improvement

Full year
target Full year cumulative
2004-05 Period 1-4
2004-05 Period 5-12
2004-05
1st Class S&M 92.5% 91.4% 89.2% 92.5%
2nd Class S&M 98.5% 98.5% 98.1% 98.7%
Mailsort 1 91.0% 91.1% 87.7% 93.0%
Mailsort 2 97.5% 97.3% 96.2% 98.0%
Mailsort 3 97.5% 98.5% 97.1% 99.2%
Presstream 1 90.5% 90.4% 87.4% 92.0%
Presstream 2 97.5% 97.5% 96.9% 97.8%

1st Class PPI 90.6% 87.5% 83.7% 89.3%
2nd Class PPI 97.4% 96.0% 94.9% 96.6%
1st Class Response 90.3% 80.5% 76.9% 82.2%
2nd Class Response 97.5% 93.4% 94.0% 93.2%
Standard Parcel 90.0% 89.7% 88.4% 90.2%
Special Delivery 99.0% 98.0% 97.9% 98.0%
PCAs @ 91% 1st Class S&M 118 77
PCAs @ 92.5% 1st Class S&M Intra 121 107