Examination of Witnesses (Questions 500
MONDAY 25 MARCH 2002
ROBERTS CBE, MARISA
500. You will not have those again this year?
(Mr Roberts) No.
501. So you are expecting to be profitable without
making any change?
(Mr Roberts) No because what has happened then is
that the mail market has collapsed and the revenues from
502. Let me take you on to that one. As I understand
it, when you say the mail market has collapsed, you do not mean
the mail market has gone down, you simply mean that the increase
in the mail market is not as big as it was before.
(Mr Roberts) The expectation we have for growth in
revenue has been cut by about 50 per cent. A year ago we were
growing in the main advertising market at about 12 per cent, this
year we are growing at something like five. That has impacted
on the revenues that we thought we were going to have when we
set budgets a year ago, and of course you set the level of cost
to make a profit, we have not been able to reduce the cost levels
as fast as the revenue levels have gone down which is one of the
503. You took on more staff because you expected
the amount of mail to go up by a certain amount. You have taken
on rather too much staff given that the mail has not gone up by
quite so much.
(Mr Roberts) Yes.
504. Hopefully it will go up again next year
by which time your staff will be where you expect them to be so
if you do not increase your staff this year by next year you will
be back making a profit again?
(Mr Roberts) Exactly. What we have said is we will
expect with the business as a wholemail, parcels and Post
Office Limitedto be back in profit in probably about two
years' time because a lot of the changes we have made today in
parcels, those will result in exceptional costs over the next
year while we pay for redundancy. When we have got through all
of that change we believe that we will get back into profit within
a three year period. The Chairman has said this morning it is
very much a three year recovery plan.
505. It looks like you will get back into profit
even in one year with such changes.
(Mr Roberts) There will be a lot of exceptional costs
for 30,000 redundancies.
506. If you did not make all the redundancies
you would not have those exceptional costs.
(Mr Roberts) No but we are making the redundances
because we need to get the cost base down permanently and to refocus
the whole of our parcel business.
507. Let me take you on to trials, if I may,
because that affects me directly as my constituency is one of
the trial areas. A lot of small business men do work from home
and they are very concerned about the changes which are going
to affect them and will not affect small businesses in other parts
of the country. What are you going to do about the fact that some
people in Newbury make go bankrupt simply because you have changed
it on a trial basis and by the time you decide the trial is not
working and go back by that time they will have lost their jobs?
(Mr Roberts) I am not sure it is as bad as that, is
it? If we are delivering mail an hour later or an hour and a half
later, I am not sure that is going to create people going bankrupt.
Really I cannot see that you can claim that.
508. It puts them at a competitive disadvantage
from other companies running the same sort of business in other
parts of the country.
(Mr Roberts) I think I would dispute that, I really
would. I am not sure an extra hour or an hour and a half is going
to make that much difference. I do think this is not something
which has been dreamt up in a novel way here, it is something
that works throughout the whole of the rest of Europe. I am not
aware at all that when these changes were brought in, now some
considerable years back in many other places, that it resulted
in the fairly catastrophic changes that you are talking about.
509. Let me take you on to the extra investment.
You said I think that had you had the money you would have invested
about a billion dollars more. My understanding is the Government
took off about two billion pounds in dividends during that period.
That was the figure in the statement.
(Mr Roberts) Yes.
510. The money was clearly there had the Government
chosen to use it for investment during the last seven or eight
years. What would you have used the money for and if it had been
done would you have expected it still to be in profit now?
(Mr Roberts) I think on the last point, it is very
difficult to forecast that, yes we would have hoped to have been.
I would not have forecast a few years ago what has happened to
the mail market over the last year or so. We would have invested
it in a combination of automation, particularly in automation
for what we call flat sorting, these kind of documents, which
are quite difficult to sort. We would have invested it certainly
in bricks and mortar because many of the delivery offices that
we work through now are quite small, they sort of bust in terms
of size and space. We would have invested it probably in technology
internally in terms of the customer facing systems that we are
now just starting on, customer contact systems, which are quite
expensive pieces of technology which are very important for understanding
the market and customers overall.
511. This whole problem has arisen because of
a failure to invest which I accept is not your fault, you were
not allowed to do so. The money was there and the country did
not invest in it so now you are making a loss and you have to
face up to some horrendous changes.
(Mr Roberts) I would not say for one moment that was
the whole problem. It was certainly something which for any normal
business would have been a major factor. It was a major factor
in Parcelforce because there was no investment and across the
rest of the company. There were other issues, as we have talked
about this afternoon, in cultural, industrial relations, all of
which had to be changed as well.
Chairman: Thank you, Mr Rendel.
512. I will not take my full 15 minutes because
so much has been asked already. I find it puzzling about this
concept of the subsidy. It tells us in the report that 86 per
cent of all mail delivered in the United Kingdom is for business
customers, is that correct?
(Mr Roberts) That is correct.
513. So if you did not have a single private
customer, non-business customer, you would still have to have
basically the same network?
(Mr Roberts) Yes.
514. With the same costs?
(Mr Roberts) But it is not business to business.
515. No, I understand that. When the Gas Board
wants to send me a bill, it is they who want to send me the bill,
I am not saying to them "please send it to me", they
are sending it to me. So if I happen to live in the Outer Hebrides
I am not being subsidised as you con all these poor people in
the rural areas that they are being subsidised, the subsidy is
on most of the business mail that is coming into the rural areas.
(Mr Roberts) The subsidy in many ways is for the poster,
the person who pays the price of the stamp.
516. Exactly right. So in effect it would be
the exact opposite of what is generally supposed to be the situation
with rural clients. The individual customer is a minor element
in your cost, the major recipient in so far as there is a cross-subsidy
is business which is cross-subsidising itself because it is urban
based mainly, it is sending out to all parts of the country and,
therefore, the myth of the rural subsidy should be exploded because
we, the poor individual customers, are a marginal cost, are we
(Mr Roberts) If you are the recipient, yes.
517. Even as far as we are sending, to a large
extent we are the marginal cost.
(Mr Roberts) Whoever pays the price of the stamp is
paying an average price and they are paying an average price calculated
on the average cost across every route. If you were sending a
letter from one end of the city to another and that was all we
518. I understand all that. All I am trying
to get at is this: we do tend to perpetuate a myth about who is
subsidising who and who are the main beneficiaries of the universal
postal system. The main beneficiaries of the universal postal
system are businesses. I think that point needs to be borne in
mind. I am a bit puzzled by one or two things I have seen but
nothing fundamental. There is this strange arrangement that you
havewe have a Treasury official hereon the way in
which you pay your dividend and so on. The report does say that
you have a target dividend which you have to pay as you would
have to pay any shareholder but unusually you have a floor, a
90 per cent floor, of the anticipated dividends. In paragraph
3.31 it is commented by the NAO that it is highly unusual for
a shareholder to direct a company's management to pay a guaranteed
minimum dividend and in this case it works out at 36 per cent
of the post-tax profit. Perhaps I could ask the Treasury that.
Why is this an unusual arrangement? If it is reasonable, why is
it that no-one else does it, or hardly anyone else does it?
(Mr Glicksman) I think the answer is that Consignia
is a rather unusual animal in that it is a company that is in
the public sector and it is not subject to the normal market pressures
that a private sector company would be subject to which would
require it to provide a degree of stability in its dividend payment
to its shareholders. This arrangement was introduced in order
to provide a substitute for the normal market pressures that would
exist on a private company.
519. In that case why then not allow them to
increase costs in accordance with RPI since they are a labour
intensive industry? Can I ask you this question. I assume your
workforce expect understandably at least to be compensated for
RPI each year?
(Mr Roberts) Yes, they do.