Year: 2005

Allan Leighton, the chairman of the Royal Mail, is trying to persuade the Government to take on part of its pension bill so that he can proceed with a partial privatisation of the business. Royal Mail is trying to shift Pounds 1.5 billion of its Pounds 2.5 billion pension liabilities on to the Government’s books as a crucial step towards the partial sale. The postal group, which declared annual operating profits of Pounds 537 million yesterday, wants the Government to take responsibility for 220,000 existing pensioners of the scheme, which started in 1969. That would strengthen Royal Mail’s balance sheet and enable it to raise up to Pounds 5 billion from banks and the market. Royal Mail executives and the Department of Trade and Industry have already held talks and the issue will be a key part of a DTI review into the impact of competition on the state-owned group. Executives see sorting out the pension liability as fundamental to Royal Mail’s next move because it needs to restructure its balance sheet before making substantial borrowings.

Royal Mail is to abandon all but its first and second class postal products and replace them with services it believes serve better the needs of its mostly commercial customer base. The move by Royal Mail, which yesterday reported record operating profits of Pounds 537m and an improved performance, is aimed at defending its market share before the industry opens to full competition in January. Testing of the new products on customers is to begin in June with an eye to a launch before the new year competition deadline. Royal Mail would not give details of the products but they are expected to focus on guaranteed delivery at specific times rather than speed. For instance, a mailshot delivery might be split over weeks rather than at once. Adam Crozier, chief executive, said: “Most of our (current) targets are based on speed but most of the time this isn’t what our customers want.”

Adam Crozier, the chief executive, says services used to be designed around what Royal Mail thought it could do. The trade and industry minister, Alan Johnson, used to be general secretary of the Communications Workers Union. He may need all his experience gained from that job in his new one. One of the tasks high on his to-do list is a review of Royal Mail in the run-up to the letters market being fully opened to competition. He is likely to face some tough talking from Royal Mail’s chairman, Allan Leighton. In a sense, Mr Johnson will be relieved that there is still something to talk about. Three years ago Royal Mail was in trouble: Mr Leighton dubbed it a “basket case” – a business the government could not even give away. It had the worst strike record in Britain, it was losing pounds 1m every working day, wages and morale were at rock bottom and the Equal Opportunities Commission was contemplating an investigation into harassment and bullying. Its very ability to trade as a going concern was in doubt. Since then, Mr Leighton and the executive directors under the chief executive, Adam Crozier, have led a dramatic turnround, though as yesterday’s remuneration packages revealed, they have been well rewarded under the company’s long-term incentive plan.