Post Office profits hit £321m as cost-cutting bites

Earnings at the Royal Mail have responded to the group’s wholesale job cuts and post office closures, with a doubling in profits to £321m. It made £9.5bn in revenue last year, helped by a move into profit of £58m for Royal Mail Letters, as deliveries were cut and new sorting technology introduced.

However the group's financial position is still looking precarious, as it pays £800m a year to try to plug its pensions black hole. It owes £6.8bn in pension payments, a figure which has doubled over the past year, and as a result it has negative cashflow, as it pays out £1m a day. Many believe the organisation is now technically insolvent.

Royal Mail Group's chief executive Adam Crozier said: "Our people have delivered strong financial results and high-quality customer service across all our businesses in the face of extremely challenging trading conditions."

The results were better than had been expected, which is sure to inflame the simmering row with the unions, protesting at the deep cuts in staffing levels, which has seen one in four, or 55,000, employees shed since 2002.

There is also widespread concern at the scale of remuneration of Crozier, one of the most highly-paid public employees, who received £3m in 2007 and £995,000 last year, after deferring £314,000 of his bonus by placing it in a long-term incentive plan, now worth £706,000 and due to be paid in June 2010.

The better-than-expected performance also brought into the spotlight once again the issue of part-privatisation. Those opposed to the move pointed to the improvement in earnings as a reason to put the plans on hold, while Lord Mandelson was accused of talking down the figures to push through the government’s plans.

WHAT THEY ARE SAYING
David Wighton, the Times: "The truth is that what the company really needs is to be set free from the constraints of public ownership to pursue the sort of radical change, not least in terms of relations with its workforce, that the likes of BT went through after privatisation. It will surely happen. It is just a question of when."

Toby Helm, the Guardian: "Admittedly, the fact that the company is making money across the board will make it more attractive to potential buyers, such as the Dutch operator TNT. But that will anger opponents even more, and it greatly damages Mandelson's case that the company has no future unless private money and management expertise is introduced. Expect the rebels to dig in even more now. Neal Lawson of the leftwing Compass Group said just now that the profit figures were proof of the "con" that ministers were trying to foist on the public. It will be interesting to hear how ministers frame the case for part-privatisation from now on." ·