“We have had a busy Christmas season,” says Royal Mail chief executive Rico Back. Too busy, it seems, for management to offer even a sketchy answer to the question that has hung over the postal operator since last October’s thumping profits warning. Were last year’s cost-saving targets completely implausible or can they be salvaged? It’s a bigger issue than the drop-off in Christmas cards and junk mail.
It was as recently as May last year that Royal Mail, fresh from settling its pay and pension dispute with the CWU union, proclaimed that it could find £230m of “cost avoidance” measures in its UK parcels and letters division in the current financial year. Outgoing chief executive Moya Greene, it seemed, had left shareholders with a golden inheritance (her own golden farewell, they later discovered, was a near-£1m payment) and the shares soared above 600p.
By October, new boss Back had to confess Royal Mail wouldn’t get near the £230m figure. Productivity improvements were proving tricky and only £100m would arrive on time. But is the missing £130m merely delayed, or was it a product of Greene’s over-optimism? That’s the pressing issue and Back didn’t address it in Tuesday’s update. Indeed, it seems a worked-up productivity plan won’t arrive until May.
While they wait, shareholders must digest news that the decline in letter volumes is getting worse. The pace has accelerated to minus 8%, well outside the 4%-6% range that has proved reliable until now. That problem is beyond the company’s control but it makes the need for a credible plan more urgent.
Everything at Royal Mail is always a negotiation with the unions, which may explain Back’s current reluctance to commit to a hard savings target, but he needs to hurry up. There are excellent parts with the group, notably the GLS international parcels division, but the core UK operation is shrouded in fog.
In the absence of a full account of how £230m became £100m, and what comes next, shareholders’ loss of confidence is understandable. In the space of only eight months, Royal Mail’s shares, down 13% at 261p on Tuesday, have travelled from an all-time high to an all-time low.
Along the way, remember, the group lost its over-extended chairman, Peter Long, and saw shareholders revolt over pay. If MPs weren’t obsessing with Brexit, they might be asking hard questions about the performance of a board charged with running a critical UK company. What’s the strategy?
Long may no-frills Norwegian fly
The death – or takeover – of Norwegian Air Shuttle has been predicted many times, usually by Ryanair’s Michael O’Leary, but it’s still not happening. Instead, there’s a plan to refinance the budget airline with a 3 billion krone (£270m) rights issue and, since the fund-raising is underwritten, with chief executive Bjørn Kjos coughing up for his slice, the immediate future ought to be secure.
Long-term prospects remain anybody’s guess, of course. Norwegian also announced heavy operating losses and the new strategy to switch from “growth to profitability” was overdue. The group has 160 aircraft and has expanded rapidly with long-haul flights to North and South America – probably too rapidly.
But one should applaud the independent ambition. An alternative flight-path imagined Norwegian being consumed by IAG, the colossus that houses British Airways. Such an outcome would have been straightforwardly anticompetitive in the view of most outsiders, which was presumably why IAG was sufficiently interested to buy a 4% stake in Norwegian last year. Those shares will be sold, IAG said last week, a development for which passengers should give thanks.
Norwegian’s no-frills style is not to everybody’s taste, but the disappearance of Europe’s third-largest low-cost carrier – and the main one with long-haul ambitions – would have made life too easy for bigger operators. Let it continue to annoy them simply by existing.
Mike Ashley should keep his eye on the main event
Really, Mike Ashley, you want to buy Sofa.com? It seems there is no struggling retailer that escapes the attention of the Sports Direct founder and chief executive. The furniture firm put itself up for sale last month and Ashley is one of two bidders, reported Sky News.
Ashley’s thin justification will be that Sofa.com operates a few concession stores within House of Fraser, the department store chain that Sports Direct bought from the administrators last year, so it might be possible to harvest a few savings. Well, maybe, but surely Ashley’s time would be better spent fixing the whole of HoF rather than fiddling with minor pieces. It’s his money – or, rather, his and his shareholders – but mission-creep seems to have set in.
