Adam Crozer - Quickest And Best Way Forward For Royal Mail

24 February 2009 by Steve Lawson - © Hellmail.co.uk

Royal Mail Chief Executive Adam Crozier, answered a multitude of questions today over Royal Mail’s financial status and the planned introduction of a minority stakeholder, to the Business and Enterprise select committe.

Despite seemingly developing his own questions at times, he made it clear that the Universal Service was central to Royal Mail and the wider economy:

“If you don’t have a healthy USO, you can’t have competition. One relies on the other so protecting the USO has to be the number one priority.” he said

He was critical for regulation (Postcomm) which he said was not ideal in terms of resolving issues quickly enough. He said that Royal Mail was Losing 2p on every item of access mail - around 5bn items.

“A gamble was taken was taken on the USO and bringing in competition. A gamble was taken because the market volumes were going to continue to grow, the USO would take care of itself and therefore people could concentrate on bringing in competition. Of course that isn’t what happened in the market place. The market declined at an increasing amount.

“75% of our revenue in five years time will come from parcels. That tells you in a nutshell whats happened to the older-fashioned letters business and whats happening in ecommerce.

“Its been a very difficult one to explain to our people. Our people have been through a hell of a lot over the last six years. 50,000 fewer and they’re all working much harder, their future pensions decreased, their pay has been increased, and they work five days not six days so there have been good things for thewm too and hopefully the jobs are more satisfying, but it is very discouraging for them that no matter how hard they work, they cannot close that gap.”

He said improving efficiency meant automation in a lot of areas, pre-sorting mail ready for delivery workers to start work, but also new vehicles to reflect a change in the weight of products it handles whereas Deutsche Post and TNT have already done this.

He said CWU leaders certainly recognised the need for change but their own structure did not make it easy for them to carry that down through the union. On speculation on job loss numbers, Mr Crozier said that Royal Mail had never given specific numbers on job losses although he acknowledged that with modernisation, this would happen. He was quick to point out that Royal Mail had a positive record on redundancies:

“Of the 50,000 people we have lost, only one of those was a compulsory redunancy. We’ve managed to treat people very well.” he said.

As a company funded by the tax payer, it had to do some difficult things in order for the company to survive. He said the group centre of 11,000 managers was now 200.

“Postal workers do an amazing job, sometimes in terrible weather. We are on a learning curve as an organisation of learning we have to compete, and we have to be commercial. I think that shift has been difficult for our people. Cultural changes tend to take ten to twenty years.

“The best and most supportive way to bring in capital, expertise, and commercial opportunity, all at the same time, in a structured and reasonably full basis, then a partnership is the best way to do that.”

When asked why he felt that a minority shareholder was so important, he said that the Hooper report was clear, and the government had accepted those findings. He said a minority shareholder would leave the company in a ‘better position tomorrow than it is today’.

On setting up a strategic partnership, he said the economic climate was difficult but for the right investment, there was a market there. It could be done but he acknowledged it was not an easy market.

He described the pension deficit as a millstone for the company and that Royal Mail was having to modernise in three or four years when operators like Deutsche Post had taken some 15 years.

“We are playing catch-up” he said.

He admitted that any private investor would be seeking a return but asked why Royal Mail could not bring in consultants rather than a minority stakeholder, he said:

“I think its the quickest and best way of doing it. We employ 185,000 people. It not a case of bringing in the odd individual. The odd individual does not make a difference to 185,000 people. Its a bigger, wider, cultural change.”

He said that the shareholder (the government) had been very supportive of senior management but pointed out that what Royal Mail needed, right down through the organisation, was a lot of project directors and people with technology skills to help them implement the automation reform process.

“We need a quick way to bring in capital, expertise, and commercial opprtunities. Its the best way for the problem to be solved.” he said, but reminded the committee that the final decision was up to the shareholder.

Mr Crozier said the letters business made just under 1% profit margiun with companies like TNT and Deutsche Post making around 15% profit.

“Clearly the amount of profit we make sounds like a lot of money but when you set it in the context of the sheer scale of the pension problem, and the sheer scale of the volume decline, its just not anywhere near enough”

He said that although responsibility for the pension deficit would be taken away from the company, with 70% of Royal Mail remaining in public ownership, it would still be contributing and the tax-payer would not be losing out. The tax-payer would not have to be investing any money in Royal Mail, and would be getting a 70% share of a bigger, more successful and profitable company rather than a 100% in a lesser organisation.