UK govt confirms 1.75 bln stg Royal Mail package as FY profits rise 17.5 pct

The government today confirmed a 1.75 bln stg financing package for the Royal Mail as the UK's main postal service unveiled a 17.5 pct increase in annual profits.

The government package, structured as a 900 mln stg loan on commercial terms to be paid back by 2013 plus an 850 mln stg draw on the Royal Mail Reserve to help plug an estimated 5.6 bln stg deficit in the organisation's pension scheme.

Aside from the pension deficit, the package is aimed at funding modernisation of Royal Mail's infrastructure to enable it to cope with the UK postal market being opened up to greater competition.

'Giving Royal Mail the freedom to use its financial resources to invest for the future puts the company in a stronger position to successfully compete in the marketplace and also deliver a financial return for the taxpayer,' said Trade and Industry Secretary Alistair Darling.

Royal Mail today announced a 17.5 pct increase in operating profit to 355 mln stg, a result that will trigger bonus payments of just over 400 stg apiece to Royal Mail staff.

Turnover was a record 9.06 bln.

The organisation said all four of its businesses – letters, the Post Office, Parcelforce Worldwide and the European parcels business, GLS – improved their financial performance.

'The results show that Royal Mail has consolidated the gains it made during its three-year renewal plan when the business returned to profit and began to hit service targets instead of routinely failing them,' said Royal Mail chairman Allan Leighton.

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ROYAL MAIL WINS `£3BILLION PACKAGE TO MODERNISE'
PA News, p 1 05-18-2006
By PA Industrial Correspondent By Alan Jones
(ADVISORY: Clarifies number of customers in rural post offices in light of later information from Royal Mail)

The Royal Mail is to press ahead with controversial plans to issue shares to postal workers after securing a Government-backed package today worth £3 billion to modernise the network and tackle its huge pension fund.

There were fears tonight that the modernisation could herald a fresh wave of closures after it was revealed that 1,000 rural Post Offices had a total of just 50 customers each.

Chief Executive Adam Crozier said that was “not sustainable” although he insisted no decisions had been taken on the size of the network.

Royal Mail chairman Allan Leighton stressed that the £3 billion was not a Government “bail out”, or state aid, but freed up millions of pounds of the Royal Mail's reserves as well as giving it the chance to borrow £900 million.

The Government will also fund the continuing restructuring of the Post Office, it was announced.

Mr Leighton said a consultation exercise among staff held by the Royal Mail had so far received 80,000 responses in favour of the shares plan, with just three against.

Details could be announced within weeks, with workers being given the chance to own £5,000 worth of shares.

Dave Ward, Deputy General Secretary of the Communication Workers Union, said talk of shares was a “stage-managed distraction”, adding: “Our members are concerned about basic pay, pensions and job security, and are not interested in selling out their industry for a phoney one-off payment.”

The Royal Mail increased its profits by 17.5% last year, triggering bonus payments of more than £400 for postal workers and sub-postmasters across the country, it was announced.

Operating profits in the last financial year, calculated under new accountancy standards, were £355 million, with all of the Royal Mail's businesses improving their financial performance.

The Royal Mail said the “outstanding” financial result meant that its 180,000 workers will each receive a bonus of £418, amounting to a payout of almost £100m.

Mr Crozier, said one of the main challenges now was tackling the pension fund deficit, which grew last year from £4.5 billion to £5.6 billion.

“Royal Mail faces a challenging future – the need to modernise, securing the future of the Post Office network, increasing the focus on customers and improving service yet further, generating the cash to ensure the pension fund continues to meet its obligations, and all the time bringing our people with us.

“The key to future success is to ensure that the investment plan is brought to a successful conclusion, with the right incentive plan for our people, who are, as always, the key to our success.”

Mr Crozier said there had been a 0.7% fall in letter deliveries in the last financial year, which he predicted would continue.

The amount of first class and second class mail were both down, reflecting cost cutting in many businesses as well as different ways of communicating.

Mr Crozier said that a “radical transformation” of the Post Office network was now imperative, especially as Government business such as payment of benefits, fell away.

By 2010 the Government will only account for less than 10% of Post Office transactions, when it used to be 60%.

One of the issues yet to be resolved is support for the rural network of Post Offices.

Trade and Industry Secretary Alistair Darling said the new framework would give the Royal Mail the commercial freedom to develop its investment programme and manage its pension deficit.

“This financing framework will give the Royal Mail the right basis from which to take forward an ambitious modernisation programme, helping to deliver a world-class service.

“Giving Royal Mail the freedom to use its financial resources to invest for the future puts the company in a stronger position to successfully compete in the marketplace and also deliver a financial return for the taxpayer.”

Mr Leighton said a record quality of service had been delivered last year as well as the outstanding financial performance.

“The results show that Royal Mail has consolidated the gains it made during its three-year renewal plan when the business returned to profit and began to hit service targets instead of routinely failing them.

“But there can be no let up, especially as the market is now open to full competition with rivals handling more than one billion letters under access arrangements last year, a number set to hit three billion in two years time, if not sooner.”

Billy Hayes, General Secretary of the CWU, said: “The Government made a commitment in its election manifesto to make Royal Mail a success in the public sector and this package is a first step in that direction.

“It's a bit dramatic to be calling this investment a `rescue package'. It's important that people realise that the government has taken billions of pounds out of Royal Mail over the past 40 years and the company has taken a lengthy pension holiday.

“Therefore both the Government and Royal Mail have a moral obligation to fund the pension deficit.”

The union will hold its annual conference next week when opposition to the shares issue is expected to be voiced.

Shadow Trade and Industry Minister, Charles Hendry said: “We will be questioning the Government in detail about this package. Before making this announcement, the Government should have established its vision for the future of the Royal Mail and the Post Office.

One of Royal Mail's competitors described the financial arrangement as “murky” and threatened to involve EU and UK regulators to investigate it.

Nick Wells, chief executive of TNT Post UK, told BBC Radio 4's The World At One: “I'm really alarmed at the decision to waste taxpayers' money and potentially damage competition by giving such an enormous handout.

“It's very murky. We need some clarity and transparency.

“If we are not happy, we will take this to the competition regulator for the whole of Europe. It sounds like state aid to me.”

:: Mr Crozier earned £790,000 in the last financial year, including a bonus of £454,000, half of which he deferred into a long term investment plan, today's financial results showed.