Royal Mail first profit in five years

THE Royal Mail is likely to plunge back into the red at the full year despite posting its first interim profit in five years.

Midway through a three-year rescue plan, chairman Allan Leighton today said a £3m pre-tax profit in the six months to the end of September did not represent a successful turnaround, indicating the recent strike and rising wage and pension costs will hit the bottom line in the second half.

'We can't be triumphant about making a profit because we've got a hell of a way to go,' said Leighton. 'We did not earn this profit from efficiency gains but through much-needed operational changes. We've got our heads above water again but there is still a long way to go before we achieve sustainable profitability.'

He expects the recent strikes to cost £50m even before potential regulatory fines and lost long-term business from the likes of Tesco.

In addition, the first effects of an incremental 14.5% pay rise, costing £340m a year, will be kicking in, while Royal Mail must contribute £130m a year to make up a £2.5bn hole in its pension fund.

Chief executive Adam Crozier further warned that forecast operating profits could also disappear if the group cannot force through its 'big idea' of scrapping the daily second delivery and if it fails to push through a further 17,000 job cuts planned for the next 18 months.

'Unless we make these changes we will immediately return into loss,' Crozier cautioned.

Royal Mail swung into profit on the back of an inflation busting 1p increase in first and second-class stamps. Its Post Office and Parcelforce operations racked up losses of £150m in the half year.

Crozier gave his strongest hint yet that the group is likely to take the Postcomm regulator to court if it forces Royal Mail to open its network up to rival operators at low access tariffs.

'The initial proposals would cost us £650m and, if that is the case, that would leave us no option but to go for a judicial review,' he