Royal Mail's recovery cheque is still very much in the post

I PROBABLY have come across managements more dismissive about returning to the black after five years of losses. But I can’t think just when at the moment.

In this age of spin, we are accustomed to politicians and business figures putting the best gloss on anything, exaggerating triumphs and minimising setbacks.

Allan Leighton, Royal Mail’s chairman, and his chief executive Adam Crozier, threw away that modern mould of communication yesterday, instead talking about the major challenges and risks that lay ahead almost before the announcement of progress on the profit front had left their lips.

You can see why. It is obviously better for an organisation to strike a 3 million pre-tax profit as Royal Mail has just done at the halfway stage rather than the 500m loss it registered at this stage last year. Particularly when the organisation has been bleeding money for five years.

But Leighton and Crozier know that small profit is a virtual red herring in the wider shape of things unless management can get staff to accept major changes in working practices.

Without those changes, Royal Mail faces a tide of rising competition with both hands tied behind its back, a situation that could threaten the future of the group.

Leighton made no bones about it in his statement yesterday. The lion’s share of the return to profitability was the 1p rise in first and second class post last May.

None of it has come through the operational efficiency gains it says are vital if Royal Mail is to weather its current challenges.

This includes 500m of future annual commitments, to fund pay settlements and pension deficits - notwithstanding possible fines from the regulator arising from the recent wildcat action among Royal Mail’s London staff.

Meanwhile, the group’s Post Office and Parcelforce Worldwide divisions are still firmly in the red, even if losses are diminishing.

Against this backdrop, management is quite right to stress to the workers that the profits news is far from meaning that corners have been turned and lines drawn under problems.

It is one of those occasions where the numbers are welcome, but their significance is dwarfed by the deeper operational issues of the future.

Royal Mail understandably wants to move to a once a day delivery, given that the second post is responsible for just 4 per cent of letter volumes, but 20 per cent of corporate costs.

This will obviously affect the way Royal Mail’s 165,000 staff work, as will other changes related to efficiencies in the mail centres and streamlining the transport operation.

A small profit after years of haemorrhaging cash is obviously newsworthy. But it is the changes to those work practices - and Royal Mail’s robust debate with the regulator about the terms by which newcomers can enter the postal market - that will govern the health or otherwise of the group in the crucial years to come.

Better safe than sorry

FOLLOWING the fallout from the telecoms boom a few years back, the City would probably look askance at any further seemingly spectacular moves upwards.

As such, the measured positive news seeping out of the sector is probably better for overall sentiment, ironically, than gung-ho statements would be.

On Wednesday, we had one-time basket case Cable & Wire announcing it had slipped back into underlying operating profit at the halfway stage, but that many challenges remained ahead.

Chastened telecoms equipment maker Marconi yesterday reported narrower half-year losses, and said it was targeting a small rise in third-quarter sales.

Meanwhile, fixed-line giant BT tried to take the sting out of a fall in second quarter revenues by sharply raising its dividend and saying that a significant buyback programme was in the pipeline.

The underlying theme now in telecoms is of companies lowering their sights - not attempting to take over the world and making steady, if unspectacular, headway.

BT chief executive Ben Verwaayen is no longer giving ambitious annual revenue growth targets; Francesco Caio and his chairman Richard Lapthorne at Cable & Wireless talk about turning the company around to find a relevant, commercial niche.

And Marconi last month reported its first quarterly sales growth in 18 months, but went out of its way to say that markets remained somewhat difficult to call.

Much of the same news is coming from their rivals, big and small, both here and abroad. The nearest to a high, wide and handsome player remains mobile phone heavyweight Vodafone, but even it has reined in some of its more extravagant comments about growth prospects following its plunge into losses last year.

It is a world away from the aspirational delusion of a few years back. And recent share price rises in the sector suggests the market loves repentant sinners.