Postmen praised for delivering record Royal Mail profit and the best customer service in a decade

Royal Mail today announced a record GBP 537 million profit on its operations for 2004-05 withquality of service to customers now hitting the highest levels in a decade. Royal Mail’s Chairman,

Mr Leighton said other highlights included:

• First and Second Class mail, along with all Mailsort and Presstream bulk mail services, andStandard Parcels, hitting or exceeding their target levels since last July.
• Since October, the results for First Class mail and Mailsort and Presstream bulk mail are thebest in a decade – an unprecedented overall level of service for our customers.
• Latest figures show the number of letters lost has almost halved – and 99.92% of the mailarrives safely.
• A 144% increase in the profit on operations for the financial year to March 2005 with the GBP537 million result comparing to a GBP 220 million profit the previous year,
• Record income of GBP 8.96 billion – up 3.7%,
• Record mail volumes averaging 84 million letters a day (22 billion a year) – one million moreevery day than the previous year,
• The implementation of operational changes to provide the base for more efficient working andimproved quality of service in a market fully open to competition from January 2006,
• A Share in Success payment for employees of GBP 1,074,
• Parcelforce Worldwide making a profit on its day-to-day operations during the second half ofthe year of GBP 3 million – its first period of profitable operations in more than a decade,
• General Logistics Services (GLS), Royal Mail’s European parcels business delivering tocustomers in 34 countries, making a GBP 61 million profit on operations – up 144% on the last year. GLS has made excellent progress over the last three years and is now a significantcontributor to overall Group profitability.
• Post Office Ltd increased its losses to GBP 110 million and has commenced the difficult task ofreplacing its traditional revenues by entering the financial services market with the launch lastyear of six new products.

But Mr Leighton warned: “There is still a huge amount to do. Transforming our operations,cutting our costs and, above all, winning the support of our people for the modernisation plan withits top priority being to improve customer service, has been Royal Mail’s greatest achievement indecades. But competing successfully in an open mail market is going to be even more difficult. We’ve a mountain to climb and we’ve only reached the base camp. The greatest challenge now is to bringabout a complete culture change in Royal Mail. We need everyone in the company focused on ensuringthat we consistently deliver high quality, value-for-money services that customers need and want.Competition has arrived and customers have a choice – so we need to prove that Royal Mail is thebest and our people are key to that.”

HURDLES
The company, he said, was also facing other daunting hurdles:

• Royal Mail will have to generate sufficient profit to pay millions of pounds into its pensionfund to tackle the GBP 2.5 billion deficit,

• The 14,609-strong network of Post Office branches made a loss on its operations last year ofGBP 110 million. Its rural network of 8,037 branches is fundamentally uneconomic and needs aninjection of GBP 3 million a week to survive. However, with the current annual Government fundingof  GBP 150 million due to end in 2008, Post Office Ltd cannot be expected to absorb extracosts at this level,

• Royal Mail lags behind its major rivals in automated sorting technology. It needs to make aseveral billion pound investment if it is to compete successfully and that means being moreprofitable in order to invest. However, the 8.6% return on its domestic letters business last yearcompares with the 16.4% Deutsche Post makes in its home market, and 22.2% made by TNT PostGroup.

Royal Mail’s Chief Executive, Adam Crozier, also stressed the challenges ahead.

“The hurdles we face are formidable but we are determined to change fundamentally what we do andhow we do it,” he said. Last year’s results, however, were a powerful demonstration of what RoyalMail and its people were capable of achieving. Postmen and women can be justifiably proud of whatthey have already achieved. They’ve done a fantastic job,” said Mr Crozier.

He said Royal Mail had made good progress against each of the priorities set in 2002 when itlaunched its three-year renewal plan:

• make Royal Mail “a great place to work,”

• improve customer service,

• return to profit,

• generate a positive cash flow.

“We’re delivering on all our objectives,” said Mr Crozier. “A company that was losing more thanGBP 1million a day before the renewal plan is now making more than GBP 2 million a day profit fromits operations. Customer service is the best in a decade and we are determined to do even better.There was a positive underlying cash flow last year of GBP 140 million compared to the GBP 96million of cash the business consumed in the year before the renewal plan. And the majority – 62% –of our people say Royal Mail is a great place in which to work and, again, this is a result we areworking hard to drive up.”

THE POST OFFICE – FUTURE DEPENDS ON SELLING NEW PRODUCTS
David Mills, Chief Executive of Post Office Ltd, also stressed that the future of the networkwould rest on its ability to sell its growing range of products and services, which included theHomePhone service, along with banking and financial services spanning home and car insurance,personal loans, child trust funds, and savings bonds. The loss of traditional benefits income meansthat the business faces a substantial income gap of 40% of historic revenue to be filled by thesenew products and services. The financial pressure on the Post Office was further underlined by theGBP 71 million loss last year in the directly managed network of 541 branches. In addition, therural network is making a GBP 3 million loss each week, which is presently being covered by annualfunding of GBP 150 million a year from Government.

CULTURAL CHANGE
Mr Crozier concluded: “The huge task now facing Royal Mail is to make the cultural changeneeded to succeed as a commercial business and to become the postal operator of choice forcustomers in an open competitive market.

“Our vision remains to be demonstrably the best and most trusted mail company in the world. Withthe dedication and commitment of our people, we are confident we can achieve our goal.”