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POST OFFICE BOARD
CHIEF EXECUTIVE'S REPORT : JANUARY 1999
(November Results)
ROYAL MAIL
November's profit was £32m, which was £33m below budget. Income
was down £14m on budget due largely to performance in Royal Mail
National, whilst there were continuing overspends on mail operations.
Encouragingly, mails manpower and overtime have fallen for the
second consecutive month and it is obviously important that this trend
continues for the rest of the year. Richard Dykes will update the Board
on the further measures that are being taken.
Traffic in Royal Mail National declined by 3.9% compared to the same
month last year, with First Class down 1.9% and Second Class down
6.1% due to the trend towards later postings at Christmas. Streamline
volume was up 7% against a budgeted increase of 8.3% whilst
International traffic growth of 13.4% was 3.8% above the budgeted
level.
First Class quality was 91.1%, the same as November 1997, whilst
Second Class performance of 98.7% was 0.4% ahead of the previous
year. Robust contingency arrangements ensured that this was achieved
despite the impact of industrial action and flooding in the Midlands and
South West. All Streamline products showed year on year
improvements, with Mailsort 3 exceeding its full year target of 98.5%
delivery within 7 days.
POST OFFICE COUNTERS LTD (POCL)
Profit in November was £5.2m compared to a budget of £5.9m. Both
income and expenditure were down 2% on budget.
Quality of service in the 3 months to November hit its full year target of
95% of customers being served within 5 minutes.
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PARCELFORCE WORLDWIDE
November’s loss of £2m was £5.5m worse than budget and brings the
cumulative loss to £21m. Income was 6% below budget and 1% below
last year, whilst expenditure was 8% above budget, with overspends in
both staff and non staff areas. The full year forecast remains a loss of
£20m, although there are further risks around this and a key issue will be
the planned reduction of between 2,000-2,500 staff after Christmas.
Total volume fell by 1.7%, 3.8% below budget. The strong
performances by PF48 and International Express were not sufficient to
compensate for disappointing results from other services.
November was an excellent month for quality of service, with nearly
every product stream showing a year on year improvement. All the key
domestic Next Day services beat their full year targets.
OVERVIEW OF PERFORMANCE
Results in both Royal Mail and Parcelforce Worldwide continue to be
disappointing. The next 4 months will be tough ones and much will
depend upon how successful we have been during the Christmas period.
I have agreed with Richard Dykes that we will take every step to try and
hit the key targets in Royal Mail, which should then give us a reasonable
chance of meeting the EFL. With our demands for extra borrowing for
Sapphire, the proposed White Paper and the run up to regulation, it is
important that we do not miss targets at this time and present the
Treasury with the opportunity to go back on any of the earlier
agreements with the DTI.
OTHER ISSUES
Project Sapphire
We intend to announce the purchase of Sapphire on Monday 11 January
1999 with a simultaneous press briefing in London and Frankfurt, As
discussed at the December Board, this will give us a strong presence in
the German parcels market and access to a pan European network
serving 22 other destinations.
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International consolidation has continued with La Poste’s purchase of
Denkhaus and Deutsche Post’s acquisition of the distribution business of
Danzas for a reported £640 m.
Department of Trade and Industry
Stephen Byers, previously Chief Secretary to the Treasury, has been
appointed Secretary of State for Trade and Industry following the
resignation of Peter Mandelson.
Horizon
The ministerial re-shuffle which involved the key players at both the
Treasury and DTI meant that we did not get the anticipated pre-
Christmas, Government decision on the future of Horizon.
A way forward which would allow the programme to continue was
proposed by Stephen Byers, in his role as Chief Secretary to the
Treasury and supported by DTI ministers. This was based on an
agreement reached during December between POCL and ICL, covering
the acceptance process and revised commercial proposals in which
POCL offered some concessions in return for a reduced level of
financial risk around the programme. The DSS has submitted a counter
proposal, which essentially returns to the theme of continuing with the
Horizon infrastructure whilst dropping the benefit card and introducing
early, compulsory ACT in return for some form of compensation to ICL
for the development cost of the card. DSS have not yet agreed the
revised acceptance process.
Our current understanding is that ministers are now aiming to meet in
the week commencing 11 January and are under pressure to agree a way
forward which will avoid the need for arbitration by No 10.
Christmas 1998
Operational statistics for the Christmas period suggest that on a like for
like basis, traffic in Royal Mail grew by 3.5% compared to the previous
year. This figure climbs to 3.8% once pre-sorted traffic is excluded
from the analysis. Traffic in Parcelforce showed an overall decline of
around 4 %, with 13% growth in Next Day traffic unable to compensate
for the declines in Standard and PF48.
It is too early to tell how these figures will translate into financial
performance for the month of December.
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Project Beotys
By the end of January, Parcelforce Worldwide hope to reach “Heads of
Agreement” with a leading mail order company on a proposal which will
result in Parcelforce contracting for the distribution and delivery of all
their Home Shopping items and involve the transfer of their courier
operation to Parcelforce. This will deliver base volumes of 24m items,
traffic which is forecast to grow by 60% over 5 years. If concluded, the
deal will provide Parcelforce with the kind of “best in class” courier
operation which is essential to maintain cost competitiveness in the
Large Mail Order market, remove a key competitor and provide
significant opportunities for synergy with other major Home Shopping
customers.
Pricing
The proposed price increases in Royal Mail and Parcelforce Worldwide
are due to be submitted to Post Office Users National Council (POUNC)
on Thursday 14 January, with a view to being implemented on Monday
26 April.
Pay and Productivity
An individual ballot of CWU members has endorsed the Pay and
Residential Delivery agreement in Parcelforce Worldwide by a majority
of approximately 3:1.
Royal Mail have agreed a new productivity deal with the CWU which
has now been endorsed by the Union’s executive. This is predominantly
a gainshare scheme under which any savings from productivity
improvements, including savings from absorbing traffic growth will be
shared with employees in the form of a bonus. The scheme contains
quality and customer satisfaction gateways which will ensure that
productivity improvements are not achieved at the expense of customer
service and that we reward and incentivise improvements in quality and
customer satisfaction. The CWU intend to put the deal to the
membership as part of a combined ballot with the new pay settlement.
The ballot will close on 10 February 1999.
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Select Committee
The Post Office was questioned by the Trade and Industry Select
Committee along with the Minister of State, Ian McCartney and
representatives from POUNC, DHL, the Direct Marketing Association
(DMA) and our trade unions. We welcomed the Government's
announcement on the future of The Post Office and covered issues
including regulation, liberalisation, international expansion and crown
office conversions,
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CONCLUSION
The Board is invited to:
- note the January Report
- agree that the following profit/loss forecasts, which remain
unchanged from the previous month, will be released to the DTI:
Royal Mail £478m =~ no change
Parcelforce Worldwide £(20m) - no change
POCL £35m_ = - no change
AJR
JANUARY 1999
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