Royal Mail profit sparks an outcry

'The public aren't interested that we make a couple of million pounds for the Treasury's coffers. So what? They want their letters'

Royal Mail will unveil operating profits of well over £200m this week, the first time the state-owned company has been in the black for four years.

Its chairman, Allan Leighton, and chief executive, Adam Cro-zier, will also reveal that the company made a modest pre-tax profit in the year to the end of March. The pair will use the announcement to claim that their turnaround plan for the troubled group is starting to deliver results.

The company posted a £197m operating loss last year and a £611m bottom-line loss.

Royal Mail has made 13,000 redundancies, slashed costs and negotiated higher stamp prices with the regulator, Postcomm, in the past three years.

But critics will seize on the results as evidence that the company has sacrificed customer service for profits. It has been slated in the past few weeks for poor performance, and Postwatch, the consumer watchdog, believes it is on track to miss all 15 of the minimum service requirements in its contract. And in the East End of London, some postal services have ground to a halt altogether.

A spokesman for the Communications Workers Union (CWU) said: "The public aren't terribly interested that we make a couple of million pounds for the Treasury's coffers. So what? They want their letters.

"The Government should be saying, 'We have had enough. There will be public funds to support losses if there are any, but get Royal Mail back on its feet.' Postmen were quite respected in society - suddenly there are turning up late and there are millions of small businesses in this country giving them a real slagging off."

Much of the disruption has been blamed on cost-cutting, including scrapping the second delivery. The switch to one delivery a day is said to be responsible for the build-up at the Whitechapel sorting office in east London, which claims 100,000 items remain unsorted. Other areas affected include the Basildon office in Essex, where insiders claim there was a backlog of one million stamped items.

Yet management believes it is on the right track to overhaul the unwieldy Royal Mail structure. A senior source said: "We're concerned, but this is the biggest change in 25 years. It's the modernisation of the Royal Mail. It should have been done 10 years ago and when you change things, you do get some things wrong. It's going to take a couple of months to work things through.

"We're trying to build a business that will compete in five years' time, not one that will make a profit today."

Meanwhile, Postwatch believes that Royal Mail executives should be offered a new bonus incentive scheme to reward them for meeting customer service targets rather than turning a profit. The watchdog is expected to raise the idea with the postal services minister, Stephen Timms, this week.

A spokesman for the watchdog said: "The customer should be apparent in the minds of Royal Mail's board. The incentive scheme should therefore be based on the performance to the customer rather than financial performance. If Royal Mail had any competitors for domestic deliveries then it would have lost customers this year."

However, unions are worried that the Government, Postwatch, Postcomm and postal staff are not working together. The CWU spokesman said it had sought a meeting between the parties but had been refused. "We've said, 'Let's have a summit meeting and spell out what we want. Do you want the profits or do you want the service?' "