First signs of financial stability in Royal Mail Group – but Leighton warns: "We've not yet turned round this company."

Royal Mail Group’s Chairman, Allan Leighton, said today the first signs of financial stability had emerged in the interim results for the first half of the year. In the six months to the end of September 2002:

The company made a trading loss of £147 million, £72 million less – a 33% improvement – compared to the first half of the previous financial year.
Losses amounted to £1.1 million a day, compared to a £1.7 million daily loss in the first half last year, and an average of £1.2 million a day in the whole of last year.
Exceptional items in the half year totalled £543 million, almost all of them due to costs from the radical restructuring plans now underway.
After exceptional costs, the Group made a pre-tax operating loss of £542 million. (The pre-tax operating loss after exceptional costs last full financial year was £1.1 billion.)
For the first time in more than a decade, turnover did not show a significant increase and instead fell slightly by £14 million to £3,993 million.
Overall mail volumes held up despite a slowdown in the UK economy but a disappointingly small growth in UK mail revenue of just £9 million was more than offset by falls in external turnover in international letters (£24 million), counter services (£5 million) and non-core, support services (£28 million). Parcelforce Worldwide’s exit from non-guaranteed services and some 350 unprofitable contracts played a large part in the fall in turnover in parcels and logistics of £31 million.
Post Office Limited increased its losses significantly this half year – £95 million before exceptional items, £33 million worse than in the first six months of last year. Trading losses now amount to £3.6 million a week.
In the half year, UK mails overall made an operating profit before exceptional costs of £41 million, a £36 million improvement on the previous half year.
Mr Leighton said: “These results provide early signs that we are starting to stabilise the business. We have stopped sinking deeper into the red but we are still losing more than £1 million every working day.

“Have we turned this company around? No, not yet – but we have stopped sinking. There is much hard work still to be done before we get back to profitability.”

The biggest threat now facing the company comes from the price controls published by the regulator, Postcomm, said Mr Leighton.

“Postcomm’s price constraints could choke this company. We are urging the regulator to change his proposals otherwise there will be fatal damage to our hugely stretching, three-year recovery plan,” he said.

“The half year results are the first evidence that we can progress towards our goals – but only within the right regulatory framework.”

Mr Leighton also announced details today of a shadow share scheme for everyone in the company. It does not require any personal investment and if the company hits the profit targets in its renewal plan, all eligible employees will get a dividend.

“We are giving everyone a share in this company,” he said. A key strategic goal is to make Royal Mail a great place in which to work. Too many of our people feel demoralised and undervalued. Lifting their morale is the surest way to lifting the service we give our customers.”

He added: “We have made progress in the half year with our recovery plan but more slowly than planned. We now need to increase the pace at which we are changing and restructuring our business.

“Achieving our goal to cut gross costs by £1.4 billion over three years has got to be the biggest challenge in UK business today but I remain convinced that we can restore the faith of employees and customers in the company.”

Sadly, achieving the recovery plan in a labour-intensive business would inevitably involve job losses and some 30,000 jobs would become redundant over the three years of the plan, added Mr Leighton.

In total, 13,000 jobs had gone in the first six months. Around 6,500 people had taken voluntary redundancy