Behind the spin – Royal Mail
The Dilemma
Despite having posted its first profit in five years last November – a modest £3 million for the first half of 2003 – the postal service remains in a parlous state. Both Parcelforce and Post Office Counters lost big money – £59 million and £91 million respectively – leaving the letter-post business to pick up the pieces. It made £127 million, thanks largely to a penny rise in the price of a stamp. The removal of legislative barriers to competition has exposed the business to the chilly blast of commercial reality, with more customer-focused operators eating Royal Mail’s lunch in every sector, except the one for which it still holds a monopoly – the carriage of letters weighing under 100g. Attempts by chairman Allan ‘six jobs’ Leighton and chief executive Adam Crozier to streamline the business have been stymied by appalling industrial relations. Mix in an uneasy relationship with the regulator Postcomm and the fallout from the Consignia re-branding fiasco, and it’s a story well worth writing home about.
The Spin
Pointing to losses totalling £1.8 billion in 2001 and 2002, Leighton says RM has raised its head above the water again and is on target to complete his three-year recovery programme by 2005. But the strikes – which could cost RM up to £100 million and which have lost the organisation big-name clients and damaged goodwill enormously – may scupper his chances of achieving £400 million profits next year. The phasing out of the second post – which accounts for only 4% of mail but 20% of costs – is a vital measure, but it’s a tough sell to disillusioned customers and employees.
The Straight Talk
In response to allegations that he has exaggerated RM’s financial plight in order to play tough with the unions, Crozier said: ‘We are not trying to position our results. This is the cold, hard reality of the situation. Unless we make changes to pay for increased wage costs, we will move straight back into losses.’ Leighton was equally frank: ‘We have to earn nearly half a billion pounds to keep the renewal plan on track.’ CWU general secretary Billy Hayes disagreed: ‘It’s time to take off the self-imposed hair shirt.’ And in a reference to job cuts: ‘The company should drop its threat to the livelihoods of 30,000 postal workers.’
The Verdict
Even Leighton admits that RM still has a long way to go before it is safely back in the black. Unless he can sort out the Dickensian labour relations, transform productivity and win back customers with a reliable service, he – like many of RM’s letters – may never get there.
