Examination of Witnesses (Questions 260
MONDAY 25 MARCH 2002
ROBERTS CBE, MARISA
(Mr Sweetman) Forty per cent of revenue.
261. Why did you tell MPs it was 50 per cent
in a letter to us dated 6th March?
(Mr Sweetman) I think we said that it is 50 per cent
262. You implied it was half. You questioned
Postcomm's figure of 30 per cent as though Postcomm were lying.
Now you are telling it is not 50 per cent it is 40 per cent. Were
you lying in this letter to MPs?
(Mr Sweetman) No, no. Postcomm used a set of figures
that we provided them for other purposes and they have taken that
as representative of the whole population of postings. When they
came out with their proposals we then started a complete review
of what happens within Consignia and we have come out with these
fresh figures. Just over half of our mail is covered by postings
over 4,000, which I think the letter said.
Mr Gibb: It implied the revenues and profits
were as well. I am out of time.
263. Thank you very much. Good afternoon. Can
I just ask you some questions about basic information. I wonder
how strong your information systems are. First of all, there are
now private sector comparators elsewhere as we have just been
discussing. What are the unit costs for items under 350 grams
in your private sector comparators? What does that imply in terms
of savings and job cuts?
(Mr Roberts) We will not know the unit costs, the
private sector companies would not let us see unit costs.
(Ms Cassoni) It is price sensitive.
(Mr Roberts) It is price sensitive information.
264. You have not been able to find out at all
what it costs to deliver an item of mail in Germany or Holland?
(Ms Cassoni) No.
265. The cost to the company? You have no idea.
(Ms Cassoni) You can calculate the overall margins.
266. Have you tried to get the information?
Presumably the information is out there, it is a matter of just
working through it?
(Ms Cassoni) No. We have access to the information
that is in the public domain on our competitors and through that
information you cannot tell those unit costs.
(Mr Roberts) That includes analysts' reports.
267. You have not got a clue?
(Ms Cassoni) No. We can tell you what the overall
margins are but not individual margins.
268. The relationship of overhead costs to direct
costs in relation to these private sector comparators, how do
you compare them?
(Ms Cassoni) It depends how you define overhead costs.
The answer would be we can only analyse the information that we
see on our competitors against what they publish. It is their
published information, what we get from analysts' reports. What
we do observe in our competitors is they have a higher proportion
of variable costs than we do. If the markets change they are more
able to change their cost structure more quickly.
269. What does that imply then? Whenever I have
had to make economies, which I have had to from time to time in
large and small organisations, my first objective has been to
cut down senior management and other overheads, you seem to be
cutting the bottom of the chain, do you not, the food chain, the
manual workers and others? I just wonder really, given the fact
that you have just described the ratio of overheads to direct
costs, it seemed to me unfavourable in your organisation, favourable
in the sense that your overheads and fixed costs are too high
relative to elsewhere. How is it we are cutting manual and other
staff rather than overheads and fixed costs?
(Mr Roberts) We are doing both. We are intending to
take about £30 million out of some of the headquarters' costs
that we have got and that is probably about a thousand jobs in
total, management jobs in the corporate centre, in the sales functions
and other managerial functions as well as dealing with the things
that we have just talked about.
270. If you were to set yourself a target of
achieving the same kind of ratios with your private sector comparators,
how much does that imply you are taking out of overheads and fixed
(Ms Cassoni) When we calculated the cost reductions
it was based on benchmarking our competitors so we are trying
to achieve the same kind of ratios as they are.
271. What does that imply in terms of savings
on fixed costs and overheads?
(Ms Cassoni) The £1.2 billion is the savings
that we are targeting.
272. I know but that is both overheads, fixed
costs and variable costs, in other words labour.
(Ms Cassoni) Then the overheads are costs that John
273. £30 million?
(Mr Roberts) We are taking £30 million out.
274. I know. The question I am asking you is
if you are to achieve the same kind of ratios as your private
sector comparators, how much will you be taking out of fixed costs
and overheads? I have already heard what you have said, how much
will you be taking out?
(Mr Roberts) Fifteen per cent. The £1.2 billion
is roughly equivalent to taking about 15 per cent out of our costs
right across the board and that includes overheads.
275. It is falling disproportionately on non
overhead costs, it seems to me. If £30 million out of that
is fixed and overhead costs, it follows that the rest of it is
out of labour costs and other variable costs.
(Mr Roberts) Seventy per cent of our costs are labour
276. I know.
(Mr Roberts) So inevitably there will be a disproportionate
impact in that cost saving.
277. You have told the Committee already that
the ratio of overheads and fixed costs to variable costs is inappropriately
balanced relative to other private sector comparators, in other
words you have too much in fixed and overhead costs. I am asking
you a very simple question really, if you were to take out a comparable
amount how much would that imply or do you not know?
(Ms Cassoni) It is £100 million taken out of
278. Can I ask you another question. I am trying
to explore your management information systems because there is
a general view that you are competent as senior management as
you know but I have to say so far you are not making much progress
in demonstrating otherwise in the answers you have given us so
far. I am interested in the rural/urban split because this is
at the core of the debate about the Universal Service Obligation.
What is the differential unit costs between rural and urban services
if you take, for example, the 350 gram limit as what is eventually
going to be up for grabs?
(Mr Sweetman) Do not know.
279. Why not? Why do you not know?
(Mr Roberts) We just do not have it with us.
2 Ev, Appendix 2, p 51. Back