Royal Mail results rally undermines call to slow deregulation

Allan Leighton has under-mined his own efforts to slow postal market deregulation by admitting Royal Mail Group is set to produce better than expected results for this financial year.

His upbeat comments in an interview with the Financial Times come just weeks after Royal Mail warned Postcomm, the regulator, that proposed price controls threatened the group’s recovery and restructuring plan.

“We will be better than where we said we were going to be at the first year of the strategic plan,” Mr Leighton said. “We’re probably still losing about Pounds 1.1m a day, but the losses have not deteriorated in the last nine months.”

Mr Leighton has vociferously attacked Postcomm since the regulator published initial price control proposals last October, saying Royal Mail’s renewal would be compromised by a cap on prices and might even default on its debt.

In submissions to Postcomm during consultation, Royal Mail said its renewal plan “was significantly behind schedule”. Royal Mail told Postcomm it had “delays in spend on restructuring and delays in associated savings on operating expenditure, which it estimated would cost its regulated business between Pounds 400m and Pounds 600m over the three years of the control”.

Royal Mail also told the regulator it required a further Pounds 730m of revenues, reflecting previously unanticipated costs of increased national insurance payments, additional pension funding requirements, and interest. Postcomm has relaxed its proposed price controls to reflect these additional burdens.

But Mr Leighton was more upbeat in his interview, saying the news of better-than-expected results would be good for morale.

Asked to explain the apparent inconsistency in his statements, Mr Leighton yesterday said that the overall business would beat the plan, but some parts of it were slower than others.

Mr Leighton also said he had no plans to give up any of his other nine chairmanships and directorships in the wake of the Higgs corporate governance review. “In the end it’s the shareholders’ decision. If they don’t want you to be chairman or a non-executive of their company, they’ll soon let you know.”

He said he intended to see out the three-year recovery programme at Royal Mail, denying reports that he would become chairman of Safeway if Philip Green, the retail entrepreneur whom he is advising, was successful in the battle for the supermarket group.