When Business Secretary Jonathan Reynolds has sorted out his CV and claims to being a solicitor perhaps he might find time to refocus on Royal Mail.
Reynolds, the Communication Workers Union and the flaccid board of Royal Mail-owner International Distribution Services would find it instructive to look at Dutch postal service PostNL.
The Dutch service, like its British counterpart, suffers from the same ills, notably vanishing letter volumes. It shares a common investor in Czech sphinx Daniel Kretinsky, who owns a 30 per cent stake of PostNL.
Kretinsky, designated as a ‘legitimate businessman’ by Reynolds, has the go ahead to proceed with his £3.6billion (370p-a-share) offer for the Royal Mail owner.
When push came to shove at PostNL, the Czech tycoon, whose wealth stems from running gas pipelines for the Kremlin, failed to step up. Instead, PostNL is seeking a £56m bail-out from the Dutch government which, so far, it refuses to provide.
Kretinsky made a series of pledges to the UK Government on maintaining the Universal Service Obligation (USO) should it win control of IDS. Yet given the Dutch experience and the financing structure of the Czech billionaire’s bid, questions must be asked about the future of Britain’s postal service under his control.
A sign of the times: Daniel Kretinsky made a series of pledges to the UK Government on maintaining the Universal Service Obligation should it win control of IDS
The finances of the Royal Mail will benefit from the review by regulator Ofcom. If accepted, second-class deliveries will be cut back to twice a week and a premium, more expensive first-class service maintained. This could generate up to £400m of extra income, making a material difference to the prospects of IDS. The board of IDS, in a potential breach of fiduciary duty, has failed to update on the impact. This has infuriated advisers to big battalion minority shareholders.
Kretinsky’s public-to-private deal has disaster written all over it. It is financed by £3billion of high-cost debt which, in addition to the £2billion of loans already on IDS’s balance sheet, means huge interest bills.
One only must read across to Thames Water and Asda to know that leads down the road to destruction. The scenario is obvious to everyone except Reynolds and his claque at the low-octane Department for Business. Royal Mail properties face being sold. Global Logistics Services (GLS), the European parcels arm, is likely to be hived off or merged and the rump left bereft of investment funds. The plunderers will be huge winners and the backbone of the postal service – the much-loved posties, along with the letter-writing and receiving public – will be the ultimate victims.
Flying high
British Airways has long been a sceptic of Heathrow expansion.
The most recent quarterly and annual results from Madrid-based parent IAG explains why. Point-to-point journeys between Heathrow and US gateways remain the core of its financial success. Indeed, as the group points out, by the end of this year BA will be the only carrier offering a first-class cabin across the Atlantic.
BA’s domination at Heathrow has been built down the ages by snaffling gates and the best landing slots as competitors such as British Caledonian and British Midland have been absorbed. This has left US rivals, often in and out of Chapter 11 bankruptcy, struggling for breath. Virgin’s path back from Covid-19 has been much tougher.
All of this is reflected in the impressive financial results for the year. IAG chief executive Luis Gallego is delivering, with group pre-tax profits up 23.5 per cent at £3.8billion, operating margins widening and debt (built up in the pandemic) down sharply. IAG’s shares hit a five-year high on the numbers and a share buyback. Now that recovery is assured, Gallego should concentrate some resources on restoring the service levels for which BA was once acclaimed.
Inherited wealth
Overcoming complacency may be the hardest task of leadership.
For decades, investment bank-turned-asset manager Schroders counted on its blue-blooded heritage for growth. That has failed over the last several years with poor earnings outcomes, net outflow of assets and critically a 25 per cent cut in the share price. New boss Richard Oldfield is under pressure from family shareholders, with 44 per cent of the stock, to wield the axe and deliver in the ballooning wealth markets.
That will mean better competing with the biggest of beasts, UBS and Goldman. Not easy.
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