Royal Mail profits rise by 4%

The Royal Mail increased its operating profit to £184 million in the first half of the current financial year despite a drop in revenues and fewer letters being posted, it was announced today.

Profits were up by 4%, or £7 million, in the six months to September, when deliveries in some parts of the country were hit by unofficial strikes.

The daily postbag averaged 72 million, down by three million from the previous year and 12 million fewer than in 2006.

Around 5,000 jobs were cut in the six-month period, bringing the total number to 60,000 since 2002 through voluntary redundancy or natural turnover.

Royal Mail said the continuing decline in post volumes, coupled with intensifying competition and the effects of the recession, had an impact on all its businesses.

But the group said the financial performance, along with some of the best quality-of-service figures on record, showed that modernisation of its letters business was working.

The modernisation sparked the unofficial disputes, followed by a series of national walkouts, which were halted following an agreement to hold further talks.

The company reported today that it was two-thirds of the way through its modernisation plan, with more than £1.3 billion invested out of £2 billion due to be spent by 2011.

Chief executive Adam Crozier said revenues had fallen by £73 million over the six months, but profits were made in all four businesses - the Post Office, letters, Parcelforce and European parcels.

"A combination of new and upgraded sorting machines in mail centres means more than 80% of the mail is now automatically sorted down to the level of the postman or woman's walk and is delivering cost benefits while changes in working practices - including everyone working all the hours for which they are paid, working flexibly and using the new equipment we're investing in - have also helped drive efficiency and offset the effects of volume decline," he said.

The Royal Mail, which was losing over £1 million a day in 2002, said traditional mail volumes fell by 8% during the six months because of the recession and growth in electronic communications.

Mr Crozier said it was too early to assess the impact of the industrial action, but he praised the "huge efforts" made by managers to maintain deliveries.

"Their support, along with our greater levels of automation in the business, and the use of fully vetted temporary workers, helped deal more quickly than in the past with mail that was delayed by CWU strikes.

"However the strikes caused disruption for some customers, to whom we apologise wholeheartedly. Across the whole of the company, all of our people are now fully engaged in delivering a great Christmas for our customers."

The Royal Mail paid more than £300 million into its pension fund over the six months and warned it remained a "daunting challenge" to fund.

The fund's deficit is being revalued and is expected to reach £10 billion compared with £3.4 billion at the last valuation three years ago.

Dave Ward, deputy general secretary of the Communication Workers Union, said: "These financial results betray the myth that the CWU has been blocking change.

"Postal workers are now working harder than ever before. We believe they deserve to be rewarded for the success they have brought to this change process which has delivered a 4% increase in half-year profits. A pay freeze is no way to thank staff who have seen colleagues leave and workloads rise.

"On pensions, we are equally daunted by the scale of the deficit. The Government must take responsibility and honour their commitment for the deficit which will allow the company to continue with a modernisation programme which increases profits, quality of service and greater innovation in products and services.

"We believe that the Post Office would greatly benefit from sole ownership of the financial services which play an important and growing part in generating revenue and profit.

"A Post Bank which returns all profits to the Post Office, instead of being split with the Bank of Ireland under the current model, is the best way of securing the Post Office's position as leading provider of trusted financial services."

A Department for Business spokesman said: "Today's figures confirm that Royal Mail must press ahead with its modernisation plans. Behind the headline profits, the figures show that mail volumes continue to fall and the company is heavily cash negative.

"The strikes and threat of strikes in the second half of the year will not have helped the situation as businesses rushed to find other ways to communicate with their customers or used other postal operators.

"The figures show that a successful outcome to the current modernisation talks between the management and the unions is vital to Royal Mail's future."

Liberal Democrat business spokesman John Thurso said: "The Government's policy on Royal Mail has been in limbo since the draft Postal Services Bill was withdrawn.

"Any improvement in profitability is welcome, but Royal Mail still faces many structural problems, including a decline in its core business and a pension deficit that has now topped £10 billion."