UK Royal Mail halves losses after big cuts
Royal Mail Group yesterday showed signs of a turnround as it announced a halving of full-year losses to Pounds 600m.
However, progress was marred by widening losses at Post Office branches and by the announcement of a Pounds 4.6bn pensions black hole.
The group said it would pour Pounds 100m a year into its pensions scheme until it filled the hole, the result of falling equity prices. Royal Mail went into the red in 2001 and last year reported a record loss of Pounds 1.1bn.
It has since shed 16,000 jobs and closed 345 post offices to cut costs. Its industrial relations have also improved, with a 90 per cent fall in industrial action.
Royal Mail said it had cut operating losses to less than Pounds 200m. The 38 per cent improvement on a year ago was the first sign of a turnround in five years.
Allan Leighton, chairman, said the group aimed to return to profit this financial year. But “the really hard work is ahead of us”, he said. “The middle year of any company’s recovery plan is always the hardest.”
Adam Crozier, who joined Royal Mail as chief executive this year to accelerate the restructuring plan, said the group was “financially well ahead of the game”. But the former head of the Football Association said more remained to be done if the worldwide parcels business, which last year lost Pounds 187m, was to break even within two years.
Royal Mail will face numerous obstacles in the final two years of its restructuring.
Postcomm, the regulator, last week issued proposals on the price that competitors would pay to access its distribution network, which could allow UK Mail, a subsidiary of Business Post, to hand over letters to Royal Mail for less than 12p per item. Mr Leighton said the regulator, which estimated that the proposed prices would allow Royal Mail to make a 6 per cent margin on the mail it delivered for rivals, “has got its numbers wrong again”.
Royal Mail is also facing European Commission plans to impose value added tax on stamps. Despite this threat and Postcomm’s imposition of price controls in January, Royal Mail’s UK mail business – the only part of the company that is regulated by Postcomm – made a Pounds 66m profit last year. Post Office Ltd made a loss of Pounds 194m last year compared with Pounds 163m the previous year, largely because of the cost of developing a universal bank.
Meanwhile, postal workers will receive a pay rise of Pounds 20 a week and could earn an extra Pounds 1,000 under plans to drop the second mail delivery, it was announced yesterday. The extra money will be paid if workers agree to new single deliveries which are expected to lead to big savings for the Royal Mail.
The average weekly pay of Pounds 363 will increase by Pounds 20 and a lump sum of up to Pounds 1,000 will be made after final agreement has been reached.
Copyright © 2003: Financial Times Group
