Happy to sell the news, not make it

Latest rumours tip Swann to fill the chief executive's seat at Royal Mail – being vacated by Adam Crozier later this month. The 44-year-old is reportedly at the top of a list of three drawn up by headhunters at executive search firm Egon Zehnder.

The story surfaced as the financial community wound down forthe extended Easter break, and on the first day of trading thereafter, shares in WH Smith were marked lower. Some took it as a back-handed compliment to Swann, though the minimal decline of less than half a per cent begged the question whether investors really believed Swann was headed for the exit.

Some mail industry experts would very much like to see Swann take on the formidable task of completing what Crozier started at Royal Mail, namely the modernisation of what has become a dated operating structure. These supporters say Swann would be a much-needed breath of fresh air, and cite her reputation for tenacity and frankness as further factors in her favour.

Both WH Smith and Royal Mail are declining to comment on the speculation. A spokeswoman for the latter only confirms that Royal Mail chairman Donald Brydon – who himself joined the postal group's board less than three months ago – is "still looking to fill" the vacant role.

"We would not comment any further on that until we have that person confirmed and in place," she adds.

However, one source familiar with the inner workings at WH Smith insists Swann will stay put for the time being: "She has no plans to move on."

Some analysts appear to be following the same line of thinking. They note that although Swann's current company specialises in selling newspapers and magazines, she personally shows no inclination to feature in such publications.

Tony Shiret, retail analyst with Credit Suisse First Boston, concedes that the ambitious and hard-driving Swann does savour seemingly insurmountable challenges. However, he adds that Royal Mail "sort of intuitively looks like not the right kind of job for her".

"She prefers to go into work to work, not to deal with a lot of high-profile publicity, which is what she would get at Royal Mail," Shiret says.

Indeed, postal industry experts say one of the main demands on anyone taking up the chief executive's post at Royal Mail will be the ability to successfully handle a high public profile. David Stubbs of London-based Europe Economics says although the role is not as well-paid as many other equivalent jobs, it is still a "worthy" endeavour that could bestow other benefits on the right candidate.

"If someone can turn Royal Mail around, it would definitely enhance their reputation," Stubbs says. "You get a lot of recognition that you wouldn't get if you were head of a similar-sized business elsewhere."

Stubbs emphasises that public relations nous will be an essential attribute for the new leader at Royal Mail, as much of what happens within the group is played out in the media. Political skills will also be necessary, as elected officials of all persuasions tend to be drawn into proselytising on the best way forward for the UK's incumbent postal operator.

However, perhaps most paramount will be the ability to maintain and strengthen fragile relations between Royal Mail management and its 141,000 workers, as represented by the Communications Workers Union (CWU).

This will prove particularly tricky given the long track record of distrust between the two sides, which led to a series of damaging strikes last autumn. The dispute was only recently resolved through a national transformation agreement struck last month, but that is still subject to a final vote of approval by CWU members via a postal ballot that closes on 23 April.

For its part, the CWU says Crozier's replacement must have a strong service ethos. A union spokeswoman says its highest priority is to ensure the effective roll-out of the national transformation agreement once there is a new leader at the helm.

The agreement outlines a number of guarantees for workers in exchange for support in the ongoing drive to modernise Royal Mail. The headline element is a 6.9 per cent pay rise during the next three years, beginning with a 2 per cent increase this year, followed by subsequent rises of 1.4 per cent in 2011 and 3.5 per cent in 2012.

Stubbs says this deal, struck by Crozier in his final days at Royal Mail, will hamper the chief executive's successor. Though improving industrial relations is undoubtedly crucial, being locked into a multi-year agreement will inevitably make the difficult work ahead just that bit harder.

"It doesn't feel like it, but you could say that they have been through the easiest part of the transformation, and the hardest part is still to come," Stubbs says of the 2 billion modernisation programme, which is said to be two-thirds complete.

"In terms of modernisation, Adam Crozier has made these first steps – and perhaps these will be important steps – but there is still a lot to do going forward."

He cites the fact that although Royal Mail aims to halve the number of sorting centres it operates to roughly 40, it has to date closed only two – and one of those was destroyed by fire. While a great deal of modern sorting equipment has been ordered, much of it is not yet operational because of either functional problems or opposition by local workers.

Chris Phillips, market analyst with UK brokers Post-Switch, adds that Royal Mail will also have to replace its "antiquated" fleet of some 30,000 lorries and vans within the next few years. This will represent a substantial capital outlay for an organisation that is already struggling to pay down a pension deficit estimated at 10bn.

Phillips credits Crozier for having done "a great job financially" at Royal Mail, noting that he transformed a company that was losing 1m a day into an operation that now makes 900,000 every 24 hours. Yet he concedes there is a great deal of unfinished business now that Crozier has brought Royal Mail "to the brink".

"It's like he's saying to whoever takes over, 'I'll give you a bungee cord, but you have to do the jump yourself'. That's how we all jokingly talk about it," Phillips quips.

The top-line return to profitability is almost wholly attributable to the postage increases approved last year by regulator Postcomm, which saw the price for first and second class letters rise by 3p to 39p and 30p respectively. Though Royal Mail will undoubtedly get a further boost from the latest 2p increase that took effect last week, experts agree that the serious financial benefits from modernisation will take years to realise.

This is significant, as 900,000 per day is a drop in the ocean of Royal Mail's annual turnover of some 6 billion, and disguises the fact that the organisation remained cash negative in its latest reporting period. It also fails to address the continuing trend in favour of electronic communications, which led to a 4 per cent drop in the number of missives delivered by Royal Mail in the first half of this financial year.

About 70 per cent of the group's deliveries are currently letters, with the remainder being larger packages. Phillips expects those ratios to flip in favour of a heavy bias towards packets and packages within the next five years, as online shopping drives demand for home deliveries.

To succeed in the long-term, Royal Mail will have to capture a significant proportion of that market, but this will be easier said than done, as competition in this sector is already intense. Phillips believes Royal Mail could also open up new lines of business by tapping into the potential of organising electronic delivery methods.

"All of these revenue streams are available to Royal Mail once they get their house in order," he says.

Phillips is among those keen to see Swann leading the assault on Royal Mail's domestic challenges. He says her name is "rightfully" mentioned in connection with such high-profile posts, as her qualifications and past performance speak for themselves.

"Adam Crozier was a fresh face when he came to the Royal Mail," he says. "I believe Kate could be the same, and will have lots of fresh ideas. I'm rooting for her."

However, questions remain as to whether the mother-of-two would fancy a job which one source described as "a lot of grief for not a lot of money". Though some would argue that Crozier's pay of nearly 1m last year is hardly a pauper's sum, it would represent a pay cut for Swann, who made 1.3m at WH Smith last year and stands to gain millions more from long-term incentive schemes.

As one City source puts it, there seems little reason for Swann to move on: "Royal Mail is a political crap shoot, and that brings lots of constraints. I think she likes to work reasonably unconstrained."