Royal Mail warns it may default on debt if regulator sticks to tight price controls
Royal Mail Group yesterday raised the stakes in its dispute with the regulatorby claiming it may default on its debt if Postcomm does not back down over the tight price controls it proposed last month.
The announcement came as the mail operator reported half-year, pre-tax operating losses of Pounds 542m after exceptional costs compared with an operating loss before tax of Pounds 1.1bn for the last full financial year.
Allan Leighton, group chairman, said the results provided early signs of financial stabilisation at Royal Mail. But he warned that the company had not yet turned the corner and hard work would still be needed to get back to profitability.
The biggest threat now facing the company came from Postcomm's price controls. Royal Mail could face defaulting on its debt if the outcome of consultations was not satisfactory, he said.
"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."
Postcomm said it understood the company's concerns and was "fully expecting to find a resolution soon". The regulator added the proposals had been based on figures Royal Mail had given it. The regulator's consultation on price controls will end on December 2 and a decision is expected early next year.
The row between Post-comm and Royal Mail – formerly Consignia – started early last month when the regulator set out plans for tight price controls and a compensation scheme in exchange for a 1p increase in the price of first and second-class stamps next April.
Mr Leighton said the proposals were "madness" and would mean additional losses of Pounds 460m over three years for the operator.
Royal Mail Group has agreed Pounds 3bn in borrowing with the government, of which Pounds 1bn will be for restructuring plans and Pounds 2bn will go to Post Office Ltd – to replace working capital in the network and renew post office services.
An additional Pounds 450m – allocated from the Pounds 1.8bn gilts representing the group's historic profits – will go toward supporting the rural network over the next three years. The company's half-year results reflected the burden of its renewal plans. Exceptional items in the half year totalled Pounds 543m, almost all of them due to the costs of the restructuring.
But the company estimates it made a loss in its day-to-day operations of Pounds 147m in the first half, Pounds 72m less than in the first half of the last financial year, bringing the group's daily losses down from Pounds 1.2m to Pounds 1.1m.
Tensions eased after outsourcing plans withdrawn
Securicor's withdrawal from an outsourcing deal with Royal Mail has defused tensions with the unions after workers had voted to strike, writes Marianne Brun-Rovet. Securicor, which had applied to the Office of Fair Trading in September to provide cash handling and distribution services for the mail operator, withdrew its proposals yesterday after they were referred to the Competition Commission.
A few hours earlier, 95 per cent of the 3,000 members of the Communication Workers Union, who process and deliver cash to the country's 17,500 Post Office outlets, voted in favour of a strike. The union said the proposed transfer did not guarantee the pensions and employment security staff had working for the Post Office. Last night, the union said strikes were unlikely but the dispute remained live.
Royal Mail and Securicor said they were working to find alternative arrangements. Royal Mail said: "The status quo is not an option because the business is declining and its costs are increasing."
The union opposed Royal Mail's new share scheme. It said plans to offer staff shares in the business threatened the "partnership councils" set up last year.
