UK Royal Mail chief seeks pension aid to clear way for sale

ALLAN LEIGHTON, the chairman of the Royal Mail, is trying to persuade the Government to take on part of its pension bill so that he can proceed with a partial privatisation of the business (see Commentary, facing page).

Royal Mail is trying to shift Pounds 1.5 billion of its Pounds 2.5 billion pension liabilities on to the Government’s books as a crucial step towards the partial sale.

The postal group, which declared annual operating profits of Pounds 537 million yesterday, wants the Government to take responsibility for 220,000 existing pensioners of the scheme, which started in 1969. That would strengthen Royal Mail’s balance sheet and enable it to raise up to Pounds 5 billion from banks and the market. Royal Mail executives and the Department of Trade and Industry have already held talks and the issue will be a key part of a DTI review into the impact of competition on the state-owned group.

Executives see sorting out the pension liability as fundamental to Royal Mail’s next move because it needs to restructure its balance sheet before making substantial borrowings. The Pounds 2.5 billion pension deficit soars to Pounds 4.4 billion under FRS17 accounting standards. The situation is expected to worsen when actuaries review the liabilities next year.

Mr Leighton made his clearest commitment so far to pursuing wider ownership of Royal Mail even though the Government continues to deny that a partial privatisation is on its agenda. He said that could include going to banks and the markets and would mean more ownership by the employees. He said: “We need to have an injection of cash from somewhere.” He added: “It is my intention to drive a bigger share of the business to the employees…that is fundamental to the plan working or not.”

But Dave Ward, deputy general secretary of the Communication Workers’ Union, said: “The CWU has always maintained that Royal Mail’s finances were never as bad as originally made out. Now that everyone is agreed the business is performing well, I hope we can move on from endless futile speculation about different ownership models.”

Royal Mail said yesterday that all employees would receive payments of Pounds 1,074 as their share of the profits. However, those payments were dwarfed by bonuses of Pounds 2 million which went to Adam Crozier, the chief executive. While vigorously defending Mr Crozier’s pay, which in total topped Pounds 2.55 million last year, Mr Leighton said that future incentive schemes would take account of performance standards.

Last year Royal Mail missed 11 of its 15 delivery service targets, although it said this was largely due to the switch last spring to a single daily delivery from two deliveries a day. It said it missed only five of the 15 targets in the last quarter of the financial year.

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