Will Royal Mail be broken up and sell GLS?

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Royal Mail is a bit of a basket case for investors at the moment and all the signs are there that a break up is on the cards and that at some point they will sell GLS, or at least float it as a separate entity.

What did Rico Back do?

Rico Back, who was recently ousted as Royal Mail CEO, was appointed the first Managing Director of German Parcel in 1989 and then led it’s sale to Royal Mail in 1999. Through acquisitions and the foundation of new companies a cross-European parcel service was formed and in 2002 a uniform brand, General Logistics Systems (GLS), was established. As the darling of GLS, Rico become CEO of Royal Mail in June 2018.

As you might expect, GLS continued to be profitable but under Rico’s tenure Royal Mail’s fortunes (specifically UKPIL) didn’t turn around, industrial relations with the CWU, relatively good under his predecessor, turned sour with accusations of Rico tearing up the 4 Pillars Agreement, and the Universal service is under threat with a likely conversation with the regulator in the offing.

What did Royal Mail say about GLS?

The wording of Royal Mail Results for the full year ending 29 March 2020 spells trouble ahead:

“Royal Mail and GLS are different businesses, with different strategies. At Royal Mail, our focus is on a step change in transformation; at GLS we aim to continue to grow. Our new structure brings more focus and accountability and whilst there are few synergies today between Royal Mail and GLS, in the medium term an international presence is clearly important, and the opportunity remains to create more value for shareholders. Given the challenges of the current year, the Board does not intend to pay any dividend in relation to 2020-21, but our ambition is to re-commence dividend payments in 2021-22, supported by GLS.”
– Keith Williams, interim Executive Chair, Royal Mail Group

Let’s pick this apart:

  • “Royal Mail and GLS are different businesses, with different strategies”
  • In which case why are they not two separate companies able to deliver results to investors based on their individual achievements?

  • “At Royal Mail, our focus is on a step change in transformation; at GLS we aim to continue to grow”
  • Ditto – the business are probably worth more as two companies than as one

  • “There are few synergies today between Royal Mail and GLS”
  • The argument for keeping GLS within the Royal Mail group is getting weaker

  • “the opportunity remains to create more value for shareholders”
  • Anyone familiar with eBay over the past few years from the spin off of PayPal to the sale of Stubhub and likely soon sale of eBay Advertising will know that ‘creating’ or ‘maximising’ shareholder value means flogging off the company jewels!

  • “our ambition is to re-commence dividend payments in 2021-22, supported by GLS”
  • Royal Mail’s UK profits have gone down the toilet and they will use profits from GLS to keep Royal Mail afloat in the future.

To put Royal Mail’s profits into perspective, their adjusted profits for UKPIL are down 41.2% compared to 2019 and GLS profits are up 17.5%. With no dividend expected for 2020-21 and a hope that GLS profits will enable a dividend in 2021-22, all the signs are pointing to GLS being way better off as a separate entity.

If Royal Mail sell GLS, what next?

If GLS is sold, that leaves Royal Mail as the UK postal operator in dire financial straits. Royal Mail stated that they are “working with all stakeholders to underpin the USO to ensure it reflects user needs and is modern, contemporary and sustainable”. You can take that to mean they want to raise stamp prices and at the same time probably reduce the frequency of letter deliveries – no one really noticed that they didn’t get their credit card statements on Saturdays during the Coronavirus restricted operating times but they still got their parcels and that’s what consumers generally want.

We wouldn’t be surprised to see GLS sold off, a revamped USO resulting in a massive fight with the unions and even a potential separation of UKPIL into (loss making government supported) letters and a parcel division. Without GLS, Royal Mail would be weakened and a target for takeover.

An interesting question is who is running Royal Mail or rather who will run Royal Mail and what will they inherit? Stuart Simpson is the interim CEO of Royal Mail (UKPIL) and it is unusual for interim leaders to make such drastic changes as the wholesale management redundancies just announced – generally an interim leader’s role is to steady the ship until a permanent leader is found, not to make irreversible decisions.

Finally, who would buy GLS? Anyone willing to put a bet that the previous GLS management, possibly even including Rico Back, could pull together a team to put a bid in for the profitable part of the Royal Mail group? Pure speculation on our part – but it’s tough to let go of a business that you dedicated 30 year’s of your life to.

11 Responses

  1. Every time an overseas parcel is not delivered it’s always GLS. They are know for not leaving notification of an attempted delivery. They are the reason I got my only bad review on Facebook.

  2. I’m a postie and that is one of the best and most incisive articles I’ve read on RM’s current situation.
    Nice one Chris.

  3. Royal Mail is a service it should not be a cash cow for investors.
    The company is still making money but the “I want” mentality of those at the top must be listened to.

  4. Royal Mail became a cash cow as soon as it was flogged off by George Osborne for a pittance. How they are not making money is ridiculous. For a start all junk mail should be banned. The amount of begging letters I get from estate agents asking me to sell my house when I don’t even own it is a prime example. The amount of letters I get from Virgin asking me to sign up to a service I am already paying for is also ridiculous. And I can’t get them to stop sending them. RM are delivering too much junk mail.

  5. The Royal Mail ‘service’ is so poor nowadays. Overpriced services that other couriers offer as standard. £2.90 to send a fully tracked parcel with GPS confirmation and a credible phone app for tracking orders. Or RM charging between £4 to £5 for a similar service with tracking information if your lucky! Other Couriers offer quick drop off at small shops and lockers.

  6. Sadly royal mails competitive angle drops off a cliff as soon as you hit anthing bigger than a tiny parcel. As the parcel market is where the future is i think the big issue is obvious!
    Despite some half hearted attempts to modernise it, it is stilla slow plodding dinosaur in the current market and unless both management and unions accept that, and the fact that massive changes are needed in every area… it will continue to get slower until it qucikly reaches a point where it is justa fly in the ointment as they say and no one will notices when it fades away.
    Sad…but a grim reality to any company that fails to move with the times.

  7. Yes buyers want parcels first, statements later. However if it’s RM parcel and it sits 2 weeks at depot due to staff shortages (and whatnot) then RM has bigger problem than only growing their business up for parcels. They need to rethink the whole process.

  8. As a postman with 40years service behind me I feel the business must go forward with a weekend parcel n packet service no letters overtime shift Saturday n Sunday for volunteers Monday/Friday letters delivery longer shifts Monday to clear all letters from Saturday Tuesday/ Friday reduced shift as 4 pillars agreement Monday/ Friday 35 hour week Monday 8hours Tuesday 6 hours Wednesday Thursday Friday 7 hours Why do we need 78.000 staff for a full Saturday delivery waste money and staff get weekends off unless for filling O-T shift its a no brainier

  9. Royal Mail needs to bring back small parcels size (which they did a few years back) i.e. under 250g and charge less for these, then charge 250-500, then up 1kg parcel, they would absolutely kill it, in this parcel category if charged appropriately, like they do with the large letters. Also like America, they should make Chinesse sellers pay the appropriate price for delivering their mail rather then the joke cost that pay.

  10. So royal mail fined for 1.5 percent of non delivery of letters etc considering the volumes we deal with absolutely disgusting i hope someone has told offcom that during the covid19 situation we as postmen and women, are not allowed to van share, to insure van share deliveries continue are using their own means of transport ie cars bikes scooters to deliver parcels letters etc to our valued customers me being one of them. Well let me tell you what unless they get us a van each for the Christmas period which due to the current situation will start earlier probably about September they can get stuffed then offcom will probably be looking at 75% delivery for next year what will they fine us then


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