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@ Derek Rocholl.
"""Where RM does well is on small parcels/large letters because it delivers them alongside letters."""
Totally agree. Yet they take away the quickest and least physical means of delivering them.
If only the hierarchy had asked a postie!!!!
Derek, let's finish this one for ever.
"On 1 April 2012, Post Office Ltd became independent of Royal Mail Group, and was reorganised to become a subsidiary of Royal Mail Holdings, with a separate management and board of directors." Wikipedia.
That event took place eighteen months before Cable floated RMG on the stock market.
RMG and POCL are never ever getting back together again (to quote Ms Taylor Swift) so get over it please!
AngerZ if RMG had retained ownership of the Post Office they would already have an FS business to invest in. It is a very common model for Post Office organisations - see Japan and France.
Your figure of 141bn Parcels growth globally by 20205 is spread amongst millions of couriers and logistics companies of whom RMG is just one.
As for better and more relevant parcel companies in the U.K.
DHL Is probably at the top of the pile for complex logistics and B2B
DPD is probably best for next day B2C
Amazon is growing fastest
There are several markets where RM is not present in a meaningful way - cold chain, high value/secure, food delivery
In the same day space RM’s offering is weak and incoherent.
Where RM does well is on small parcels/large letters because it delivers them alongside letters.
Agreed Anger, we need to concentrate on delivering what we have now even, without even pursuing more parcels, let alone another business altogether!
DerekRocholl - Parcel markets haven’t fallen. It is growing. Who in the UK are a better more ‘relevant’ parcel delivery service than the Royal Mail?
You talk like RMG could just set up financials and banking services tomorrow and all will be rosy…..they would be squashed like a bug by those already in the sector. How much is it going to cost to set this up? Why would they and what is it worth? Who are they going to employ to run it? How much are they going to have to spend on marketing for this? Who are there market? How are they going to get new clients?
You could be a maverick and everything you’re saying could be right…..but given that you avoid a lot of the questions I’m asking I think you’re living in a dream world. Royal Mail need to continue to expand and improve upon the services they’re already involved in - parcel delivery. They need to look at margins and costs and improve the efficiency of their existing parcel delivery business and continue to grow GLS and continue expanding into overseas markets like the recent acquisition in Canada. Globally the parcel and freight services are going to grow by 141bn by 2025! I’ve used this number several times but I think your choosing not to read it.
Angerz, as for your numbers they show that the profitability of the business was on the slide until the windfall pandemic year. Over the period and in the decade before RMs market share in both the communications market (where letters operate) and the parcels market have fallen. It is now quite easy to envisage a fully functioning U.K. C2X and B2C parcels collection and delivery system without Royal Mail. It would have been very difficult to see that prospect before 2012. Hence my point about declining relevance.
Oligarch, before privatisation 2012 Post Office Ltd was part of Royal Mail Group.
Post Office Ltd was kept in public ownership when the Government sold off the rest of RMG.
I noticed today that Nick Landon has made an appointment to a new position of Managing Director of Royal Mail Medical.
If this signals some real investment in diversified capability to serve such a huge and growing market it will be very positive move.
Derek, I'm not sure that RMG ever owned the Post Office?
As I understand the situation, POCL is owned by the Government.
Angerz - diversification involves attacking different markets with different products and services. Investing in the capability to handle parcels more sustainably and efficiently using eVans and automation may be positive but it isn’t diversification, and it is to a large extent a catch up exercise.
RMG could and should diversify by expanding into other areas of the logistics supply chain to drive more value out of its client relationships e.g. by: building cold chain logistics capability to extend its offer to the medical sector into high value high growth areas; buying a significant capability in the warehouse/fulfilment space, adding a comprehensive packaging capability to its offer, building an extended footprint in the circular economy, or even buying the Post Office back and investing in a banking and financial services business.
OliGarch - According to Derek acquisitions, electric fleets, parcel hubs, automation….none of this is diversification it’s all just ‘business as usual’ ……Parcel volumes are up 33% in what is being described as a ‘structural shift’ the industry is going to grow globally by an estimated 141bn by 2025 and RMG is has its market share but Derek is going to break it all down for us as to why it’s so critical that RMG diversifies in order to save this failing business.
AngerSharkz, on the subject of diversification, we already know that both the BoD and CWU are both actively seeking to roll out a seven day parcels service whilst keeping the letter deliveries and USO viable. This may mean that letter deliveries drop to a five day service (Act of Parliament required) however a seven day parcel delivery service will require extra hours to achieve this which I am sure will meet with approval from the CWU.
RM have also been trialling different types of electric vehicles which will be needed very soon to replace the current ageing fleet. I would imagine that this will be phased on over many years however no one is talking about costs...yet.
DerekRocholl - I’m going to give some numbers now from the last 5 years all of which I’ve obtained off stockopedia (they may not be 100% accurate I’m happy to be corrected if so)
Total revenue……2016 - 9.251bn, 2017 - 9.776bn, 2018 - 10.17bn, 2019 - 10.58bn, 2020 - 10.84bn, TTM - 13.04bn.
Net Profit……2016 - 241m, 2017 - 272m, 2018 - 259m, 2019 - 175m, 2020 - 161m, TTM - 876m.
Operating Margain…… 2016 - 2.71%, 2017 - 3.45m, 2018 - 1.54%, 2019 - 2.26%, 2020 - 1.30%, TTM - 7.91%.
For anyone that found it boring to go through the numbers of the last 5 years I’ll summarise, since 2016 revenues are increasing, net profit is increasing, operating margain is increasing. Can you explain how that means that RMG is becoming ‘less significant’ and ‘they’ve been on that track since 2012’?
Again, you’re talking about RMG diversifying the business….. Can you please explain how they should diversify, how much it would cost, how many more employees are they going to need to do so, who’s going to be responsible for training them? Can you also explain the competitors in the sector that have diversified, how they’ve done it and could you give some numbers to compare so we can see the evidence that the diversification has been successful? I’d be interested to know which competitors are doing so much better than RMG now that they’ve branched out from the parcel and freight sector.
I don’t have a beef with RMG, I want to see it thrive but don’t see that happening unless it stops giving away profits that it should be investing in diversification.
If you could have a £10 share and OTT dividends on the way, we would be there now. The company is falling further and further behind peer group companies it used to lead.
The market capitalisation of a business is the share price x the number of shares. If the number of shares is reduced and the share price remains static the market capitalisation is lower. It’s not rocket science.
Angerz I don’t have a beef with RMG I just want it to invest in diversification so that I can be more successful in the long run. Handing out profits in OTT dividends will just result in it becoming increasingly less significant, and we have been on that track since 2012.
There are many ways to value a business. And none of them are perfect. The price of the shares is fluid, hence the wide daily range of movement. The price may or may not reflect the current or future turnover that is expected, the profit or loss from the turnover or the distribution of proceeds from profits or disposl of assets.
The market cap is a snapshot of value on formal dates and changes based on share price movement is relative between such announcement.
Alas Smith, isn’t market capitalisation calculated by multiplying the number of shares by the share price ? If there were fewer shares and the share price remains static after a buy back how could market capitalisation increase ?
DerekRocholl - Or…..why not have the shares worth £10 each in 5 years time AND pick up massive divi’s along the way? The £400m given back to the shareholders is a small portion of the cash generated by RMG over the last couple of years?
What’s your beef with RMG Derek? You seem very bitter about something?
Personally I would rather my shares are worth £10 each in 5 years time than have them worth £3 each having had a 20p dividend payment for 5 years.
Short term greed from shareholders is a blight on companies like RMG.
Immediately cancelled post being bought
Are the 200m shares burned forever or is it possible that they may be reissued at a later stage?
There is a chasm difference between a Director purchase and bargains executed in a share buy back.
The buy back is undertaken at the discretion of a Merchant Bank in amounts and timings that are determined through the timescale of the company and algorithim chosen by the Bank. Director dealings are of minimal importance and negligible effect on the market cap. The market cap is of interest to all investors and with fewer shares in circulation, the M Cap will rise even if the share price remains static.
The share price is only relevent at the point when an investor wishes to deal in the shares. The market cap is of particular interest to fund managers that can only deal or hold shares in companies whose mkt cap exceeds a minimm level in their articles.
DerekRocholl - seeing as though they’ve got 200m quids worth to buy they need to get on with it. They’ll be buying shares every week I’m guessing we’ll into next year…..if the directors want shares when would you suggest would be an adequate time to do so? As a shareholder I see nothing underhand at all, in fact director purchases are most welcome!
Ask the other shareholders on the board how they feel about them ‘wasting the windfall’ with a very generous 27p dividend and 200m shares bought back to add shareholder value……its reasons like this that most of us invested here in the first place - to be rewarded as shareholders!
When directors buy shares three days ahead of the company buying its own shares at higher prices and the amounts of shares involved is almost the same, the optics aren’t good.
Apart from which this company needs to invest in diversification to improve its long term prospects instead of wasting windfall profits with share buy backs and OTT dividend payments.
OliGarch - Absolutely. Directors buying in is not a certainty that the share price won’t head south! It is however seen by most as a sign of confidence and should only be taken into consideration alongside solid fundamental analysis.
AngerSharkz, on a side note, it's also worth noting that Rickenbacker started buying shares at over 300p and then bought all the way down to the low 180p region.
I know that history never repeats itself but never say never etc...