Royal Mail delivers postal service warning

Royal Mail said its profit had more than doubled but warned its one-price-goes-anywhere universal postage service was in the red and under threat.
The company said the challenge from electronic media and rival postal services meant it needed to step up modernisation while plunging stock markets had sent its pension fund deficit soaring.
Chairman Allan Leighton said: “This strong performance has been delivered against a backdrop of falling mail volumes, increased competition, an unsatisfactory regulatory regime and the challenge of meeting the demands of our pension scheme.” Royal Mail said the deficit in its pension fund, in accounting terms, had risen about GBP 1bn to GBP 4bn owing to plunging equity values. It is expecting next year’s actuarial valuation to show a larger hole. The letters business was facing tougher competition from email and private-sector rivals, and now has a daily postbag of 79m letters – down 5m on two years ago. It warned the economic downturn could mean an additional squeeze on the operation as companies cut back on advertising.
Chief Executive Adam Crozier said that, despite the improvement in performance and reduction in costs, the business still had problems. “The scale of these challenges means there is an urgent need to step up the pace of modernisation and ensure everyone is playing their part in transforming our operations and delivering a world-class postal service. Jump to content [s] Jump to site navigation [0] Jump to search [4] Terms and conditions [8]
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Royal Mail delivers postal service warning• One-price-goes-anywhere mail pledge under threat
• First-half profit across group doubles to £177mMark Milner, industrial editor The Guardian, Friday October 24 2008
Article history

A Royal Mail postbox in a rural area of Suffolk. Photograph: Graham Turner

Royal Mail yesterday said its profit had more than doubled but warned its one-price-goes-anywhere universal postage service was in the red and under threat.

The company said the challenge from electronic media and rival postal services meant it needed to step up modernisation while plunging stockmarkets had sent its pension fund deficit soaring.

At the operating level Royal Mail Group's first-half profit rose from £86m to £177m. The biggest contribution came from the general logistic systems arm, which produced operating profit of £59m. The Royal Mail letters business contributed £46m on a turnover of £3.3 bn, while Post Office Limited moved from a loss of £7m to a £28m profit after taking account of the government's annual £150m social network payment.

Chairman Allan Leighton said: "This strong performance has been delivered against a backdrop of falling mail volumes, increased competition, an unsatisfactory regulatory regime and the challenge of meeting the demands of our pension scheme." Royal Mail said the deficit in its pension fund, in accounting terms, had risen about £1bn to £4bn owing to plunging equity values. It is expecting next year's actuarial valuation to show a larger hole. The letters business was facing tougher competition from email and private-sector rivals, and now has a daily postbag of 79m letters – down 5m on two years ago. It warned the economic downturn could mean an additional squeeze on the operation as companies cut back on advertising.

Chief executive Adam Crozier said that, despite the improvement in performance and reduction in costs, the business still had problems. "The scale of these challenges means there is an urgent need to step up the pace of modernisation and ensure everyone is playing their part in transforming our operations and delivering a world-class postal service.

"Royal Mail has always firmly believed the universal service to Britain's 28m addresses is a crucial part of the economic and social fabric of the country … however the universal service is undoubtedly in danger unless we have fairer regulation, the ability to access cash to keep investing in the business, and a long term solution to the pension fund burden that consumes so much revenue."

An independent review of the postal industry is expected to report within a few weeks. Crozier said that, irrespective of its findings, Royal Mail needed to adapt more quickly to the challenges. "Most importantly we need clarity over the future of the industry and Royal Mail's status in an increasingly competitive communications marketplace."

Royal Mail said the improvement at Post Office Limited had been helped by income from new products.

The organisation is coming towards the end of a programme to shrink the branch network by some 2,500 post offices. Crozier said the government's tender to operate the successor to the Post Office card account, through which millions get benefits and pensions, would be a "crucial" decision "central to the future of the branch network". The Post Office's contract runs out in 2010 and it may face two rival bidders for the new contract.

The National Federation of SubPostmasters has warned that if Post Office Ltd fails to win the contract, 3,000 more branches could close.