Strikes and pensions reduce profits at Royal Mail

Strike action and massive pension payments have contributed to a big drop in profits at Royal Mail, according to the group’s preliminary financial results.

The organisation posted an operating profit of £162m in 2007-08, down 30.4% on the previous year.

Royal Mail Letters – which suffered a series of strikes last year – recorded a loss of £3m due to a sharp decline in mail volumes, the continuing impact of full competition in the postal market, and increased investment pumped into the business.

The organisation is also continuing to pay huge sums into its pension plan – more than £800m in cash last year. The last valuation put the pension deficit at £3.4bn in March 2006, but internal estimates indicate that it has “increased significantly” due to market changes.

Adam Crozier, Royal Mail’s chief executive, said the group had faced difficult challenges over the year. “But we secured a landmark agreement on modernisation and pensions and are pressing ahead with the vital investment in and modernisation of Royal Mail Letters to ensure it competes successfully in a market where volumes are falling and competitive pressures are increasing,” he said.

Management reached a deal with union leaders over modernisation plans and improved technology last year, alongside an agreement on major pension reform which took effect last month.

The group is currently without an HR chief after Tony McCarthy left for BA in November 2007.

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