Business View: Put Royal Mail up to the light and you can see straight through the profits

My post, which used to arrive nice and early, now plops through the letterbox at any time between about 8.30am and noon. Consequently, I tend not to see it until I get home in the evening, making a bit of a mockery of next-day delivery. But this is supposedly a small price to pay for returning the Royal Mail to profitability, under the grand plan of the multi-tasking Allan Leighton and the ideas-rich Adam Crozier, late of the Football Association.

Both of the Mail's bosses were on our TV screens last week, trumpeting the return to profitability for the group en route to the financial turnaround they have promised at the Post Office. Even they admit that making £3m of profits on £4,120m of turnover in the six months to the end of September is hardly anything to crow about. But the profit was struck after some racy accounting and the gloss hides a terrible truth.

First let's look at these figures. To get to the £3m profit, you need £7m of interest income from a cash pile the Royal Mail has almost entirely used up, and £44m of property profits - five times what it made in the same period last year. Most of this is related to selling a site in trendy Islington, and the group doesn't have too many of those sorts of gems left.

Not included, because it is timed to kick in after the accounting period, is the new pay deal Mr Leighton agreed to avoid another of the strikes that have crippled this business. This will cost some £340m extra a year. Also not included is the £7.5m fine received for poor service delivery.

And also not included is the effect of the wildcat strike last month, which will not only hit revenue but will bring further fines from the postal regulator and compensation for customers. The long-term effects of this strike, coming after Mr Leighton promised that he had put the Royal Mail's industrial relations problems behind it, are almost impossible to calculate.

Other issues that will hit the Royal Mail's bottom line are just around the corner. The valuation of the pension fund will be published in January, and should show a funding gap of £2.5bn and a deficit of over £4bn. Mr Leighton said earlier this year that an extra £100m a year would need to be pumped into the fund to sort it out; this estimate has now been upped to £160m. Then there is the Postcomm review that will bring competition to Royal Mail. Mr Leighton has threatened to take court action against this ruling if it goes against the Royal Mail, and reckons it could cost the state-owned monopoly as much as £650m.

Finally, there are long-unresolved problem areas like Parcelforce, which lost £59m, and the European parcels business, which lost £31m. Mr Leighton will not be able to solve these without having to accept some big losses.

Taking all this into account, the running losses at Royal Mail stand at more than £600m a year - which is a way off this modest profit that Mr Leighton reported. As the wildcat strikes showed, progress at the Royal Mail is often slower that it might appear. Has Mr Leighton the patience for it? And, more important, has the Government the patience for a slow-moving Allan Leighton?

So BSkyB wants an 'independent'?

Lest we forget that Mr Leighton is a busy man, he was on the stage at BSkyB's annual general meeting on Friday, being a non-executive director and chairman of the audit committee. It was athletic Allan who, with Gail Rebuck of Random House, went round the City to quell the revolt over the appointment of James Murdoch as the new chief executive.

James's dad has now said he will review executive pay at his son's train set and appoint a new non-executive director (this is in addition to Lord Rothschild, who cunningly joins the board tomorrow, so avoiding a vote on his appointment). Unless there is a better candidate, I think Rupert Murdoch should appoint me.

I am clearly "independent" (not just on Sunday). I understand the media and the City. And, importantly for the institutional shareholders, I am quite happy to stand up to anyone, as anyone who knows me will attest. The fact that I work for a rival to businesses owned by News Corporation, BSkyB's minority but controlling shareholder, is clearly not an issue, as Ms Rebuck's Random House competes with News Corp's Harper Collins.

So go on Rupert. You know where to find me.

j.nisse@independent.co.uk

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