Royal Mail bankruptcy threat

 

THE Royal Mail could be bankrupted by its massive pension fund deficit, chairman Allan Leighton warned this afternoon. As he unveiled a huge rise in profits he warned that the company had no way of filling a £4bn pound hole in its pension fund without government help.

The business, which has axed 33,000 jobs and outsourced some operations to return to profit, warned it could be bankrupted by claims on its pension fund which it said has more members than any other company scheme in Britain.

Leighton said the company's efforts to turn itself around would be in vain unless the pension hole could be filled. 'We are dealing with a legacy from the past, if we could wipe that clear we could get on with running a profitable company. We are generating £500m cash a year and may have to put twice that into the pension fund, if you don't have enough cash you go bankrupt,' he said. Leighton added that he wanted the price of a first-class stamp to increase to 39p by 2009/10.

His comments came as Royal Mail, which had been losing £1m a day in 2002, delivered an operating profit of £159m pounds for the six months to 30 September driven by its post office shops and parcels businesses.

However operating profit in the letters business, which accounts for 76% of Royal Mail's revenue, fell 3% to £168m as mail volumes fell.

Chief financial officer Marisa Cassoni underscored the need for a pension bailout: 'It's a big number whichever way you look at it and it is very volatile, down to recent problems in the bond market. There are more than 440,000 people in our pension fund, more than any other company in the UK.'

Royal Mail also said it needs £2bn to replace ageing equipment and vehicles and to buy new technology.

From next year Royal Mail will have its core mail business opened to competition and faces the possibility of an imposed cap on the price of postage stamps by regulator Postcomm.

'Royal Mail is facing the prospect of the regulator imposing a price control which will undo the remarkable turnaround achieved in the last three years by our people,' Leighton said.

In the liberalised market, Royal Mail will still be required to provide a universal postal service for first- and second-class mail of one collection and one delivery each working day at a uniform price throughout Britain.

'Competition should not be for competition's sake, and it has to be fair, not make us operate with one hand tied behind our our back.' Said Leighton.

The company also announced that David Mills, chief executive of Post Office Ltd would step down at the end of the year along with finance chief Cassoni. However, chief executive Adam Crozier said he was going nowhere. 'I'm very committed to staying. There is a big job and I'm here to see it through'.