Member Info for Hounddog10

Beyond 30% have to bid. Board may or may not recommend the offer. If recommended (almost invariably is) then up to shareholders to decide whether to accept. If there are insufficient acceptances the entire offer will lapse (including those who have accepted). No obligation on the offeror to sell down their stake. Cannot (except in certain circumstances - primarily if another competing offer) make another offer for 12 months. If end up over 30% not permitted to buy further shares.

In practice people don’t go over 30%. They get very close to it eg 29.9% and then, if they want, launch a bid. So the position is that if the offer lapses the offeror will be under 30%.

@Derek Rocholl. I find it very depressing that a small number of interested parties (from both sides of the political spectrum) are trying to maintain Saturday delivery based on magazines. The volume is tiny and the cost enormous. I think my 40m figure for annual magazine circulation in the post is broadly correct and I recollect that losing Saturday delivery would get rid of 20,000 FTE posts in RM. That is a saving of around £600m. There is no shortage of VR volunteers, particularly as a large part of the workforce are in their mid 50s. So with VR and natural attrition it could happen fairly painlessly.

Adjust the USO, invest in a few more shift/duties/overtime on Friday (cost - no more than £50m -£100m?) and the public can go into the weekend knowing that they have got all their post at a point in the week when they will probably have the time to look at it most.

If the main reason for Saturday deliveries is magazines and you take the 40m and £600m figures that works out at a subsidy of £15 per magazine.

£600m per year is a huge figure if you think about how it could be invested. There are so many better places it could go.

Below is a link to the ABC circulation figures for magazines. Taking the top few (all are weekly except for Private Eye (fortnightly) & BBC History (monthly)) and their 2022 UK & RoI print circulations per issue with (calculated) approximate numbers for annual circulation:

The Economist: Circulation per issue (95k), Annual circulation (5m)

Private Eye: 238k, 6m

This Week: 115k, 6m

This Week Junior: 80k, 4m

BBC History: 49k, 0.6m

The Spectator: 60k, 3m

So for most of the bigger ones no more than 25m printed copies. Also, this includes the Republic of Ireland and ignores the fact that some are bought in shops (a rough idea of this can be gleaned by comparing the average global circulation with the average paid subscriptions in the link). That probably knocks off 20% of the figures above that would go through the mail. The link also shows print subscriptions declining by around 10% a year.

Even adding in all the other magazines I think at most we are talking about 40m items through the mail and it is declining steadily. None of the magazines are hyper topical. I think Fraser Nelson (Spectator editor) has said that they print Wed night, distribute Thur by first class, aiming for Friday. I think most magazines would prefer ultra reliable Fri delivery rather than uncertain Saturday. They can print one day early if necessary.

RM dealt with 7,280m addressed letters last year.

Please correct my numbers if the maths is significantly out.

https://pressgazette.co.uk/media-audience-and-business-data/media_metrics/magazines-2022-abc-data-current-affairs/

I would be a bit surprised if they can get their paws on the pension fund surplus. Indeed, as others have said it is not a good idea - although the RMPP scheme does have an actuarial surplus of £1,100m (up from £661m previously). You have to get through the pension trustees & regulator and any refund of surplus gets taxed at 35%. (However, the RMPP is closed to any future accrual, will likely accumulate a bigger surplus over time and I suspect there will be, at some stage, a fight over who gets the benefit of the surplus, although legally the company owns it.)

However, RM do hold collateral against the RMPP pension liabilities. Rather unusually, this is in cash - normally it is property assets that are pledged. From last year’s accounts:

“The RMPP pension escrow investment of £192 million (2020-21: £191 million) represents a money market fund investment, established with the agreement of the Pension Trustee for the benefit of members. The RMPP escrow agreement specifies that the funds must be used for the benefit of members, on a basis to be agreed between the Plan Trustee and the Company. The funds are therefore not available to Management for corporate purposes (outside of pension arrangements) and so the RMPP escrow is excluded from net debt.”

Note it has to be used for the benefit of members, not the whole workforce. I think there are about 65,000 currently still in the RMPP scheme. So perhaps RM could substitute property collateral for the money market fund to liberate the money.

I think it rather unlikely that RM is upping its offer - but if it is perhaps the RMPP escrow money is behind it. At the moment it is dead money.

(The ongoing DBCBS scheme has no meaningful surplus).

They specifically mention they are selling a property at Royal College Street London. I suspect this is the DO at 24-58. It is near Kings Cross station.

It is difficult for an individual investor to get any info on surplus land value. I suspect certain investors have done a lot of due diligence by themselves using Land Registry information and consulting local land agents. It is probably not that difficult for an organisation if you are willing to spend a bit of money.

As a generality I think many DOs are in areas which were once considered out of town but are now, due to urban creep, very much in town. Most are not great buildings, probably not in the optimal place any longer, and would be best knocked down for residential and re-sited as a modern building.

Anger. I might being too pessimistic. To clarify I don’t think that the macroeconomic situation is going to be that bad. As you say many eg BoE are not even predicting a recession and Lloyds, for example, recently released some provisioning as it was estimating somewhat better economic times than it did previously.

However, my guess is that parcel volumes are skewed to a younger demographic and mortgage and rental costs are rising sharply. I can’t remember the exact statistic but there were quite a lot of missed rental/mortgage payments across the country in a recent month. Many people saved during Covid and I think those savings are largely used up now. Also of course inflation. As an example Next is predicting a tougher year - although of course Wolfson is famously downbeat to surprise on the upside. However, overall I sense a pullback on retail discretionary spend.

Charlie. They say that COVID tests were 1% of domestic parcel volume for 2022/3 versus 7% the year before. Elsewhere they say that strikes affected domestic parcel revenue by 4%. Domestic parcel revenue fell by almost 20% with volumes falling 22% so revenue should be a good proxy to volume. So looks like the 22% volume decline is 6% covid tests, 4% strikes and 12% macro-economic. I would guess the macro economic factor will probably fall again quite significantly in the next 18 months. However, they say they are trying to win back 80% of lost parcel customers. Rather doubtful on that.

Anger, thanks. It is a difficult one to call but I think RM is OK on funding for now. Quite an interesting situation - less so if your job depends on it.

See BT going to axe 55,000 jobs of 130,000 by FY2028-30 (contractors and BT staff). Something for Dave to get his teeth into, more of his membership empire that will melt away.

Net debt (ie debt net of cash) did go up by £500m, of which £200m was new leases. The remaining £300m came from using up cash to fund operating losses and paying the £127m final dividend for 2021/2 financial year. The dividend won’t repeat until they are in better shape and they have said that the period of heavy capex for RM is now over (I suspect the leases are to do with Daventry/parcel machines).

They still have £990m cash (£800m after netting off overdrafts) and £925m of undrawn facility which, as I suspected, they have renegotiated to effectively loosen the covenants. That should carry them for a considerable period of time even if they struggle with further IA/resistance to revisions.

I think the market has just taken a knee jerk reaction to the impairment provision and no dividend. Neither is a great surprise. In the detail RM are still pointing to RM getting back into profit in two years time and I think they have the cash to get there.

Results a bit better than I expected but it is still pretty awful. £539m (non-cash) impairment charge on RM business bumps up the loss considerably. They do, however, have c£900m of cash and have taken various steps to deal with the €500m Eurobond payment in July 2024 and other liquidity issues. These include:

- adjusting the covenants (temporarily) on the £900m undrawn banking facility so that it only takes into account GLS and not the Group’s results

- getting another banking facility to specifically refinance the eurobond if necessary

Quite belt and braces on the Eurobond. Sensible as it is a real cliff edge. Going concern period has also been extended to look out to September 2024 so as to include the Eurobond payment (they were only obliged to look one year ahead to 18 May 2024). I thought they might do that.

Reiterates that RM must finance itself with no cross subsidy but does leave the door open for some GLS help if it is temporary and there is a route through to RM profitability. Also indicates that RM will sell more property to help finance itself. One specific property is mentioned. (Also RM is due almost £100m this financial year of deferred sales receipts on property sold in the past).

Pages 43-45 set this all out.

Capex looks as though it should reduce sharply this financial year as Daventry said to open in June 2023. So only three months of capex for that. Parcel automation at 80% and estimated, with Daventry, to be 90% by financial year end.

Specific plea again on the USO. They are getting quite desperate. No idea why the government so resistant as they would not want RM going into administration during a 2024 election year. However, at the moment RM does seem to have (just) enough liquidity.

Anger - yes. It rather tells you where the future lies. As I have posted before you only need to look at the figures for physical newspapers, cheque use, bank branch visits (all declining about 15% per annum, some newspapers about 20%) to get a good idea of where the decline in letters will go. Same demographic using these analogue means and progressively passing away.

The other interesting demographic was that the average age of the posties was over 50. Remarkable average for quite a physical job and really explains why it is so difficult to get change through.

Indorama is also backing Polymateria - it is putting in some of the £20m.

https://www.polymateria.com/pfp-invests-2-2-2/

The Times reports over the weekend that Ofcom is gearing up for a major investigation into USO compliance. It does seem very bad in some places with people not receiving their letters for a couple of weeks or so and having to go the DO periodically to pick them up. Perhaps this is the way forward for RM on letters.

Apparently in deepest, darkest Bromley you have less chance of catching a glimpse of the abominable postman than seeing a Yeti in the Himalayas.

Well Polymateria, a SYM rival, are getting some publicity. For those who cannot get behind the paywall the article:

- says that plastic cups were made for Twickenham rugby last year using Polymateria additive and advertised as “This cup self destructs”. That is something of a change as previous sporting events, insofar as they have tried to deal with single use plastic, have gone the compostable route

- says Polymateria are getting £20m more funding - not clear if from investors and/or grants

- still (wrongly) conflates the issue with recycling but notes Polymateria has a different approach - “The idea is that if a plastic item is not disposed of properly, a sequence of chemical reactions will help break the material’s bonds”. Of course this is what d2w does as well

- Polymateria seems to have an issue with the additive being evenly distributed through the plastic structure. SYM does not seem to have this problem

- points to L’Oreal about to set up a recycling facility using enzymes to break down plastic bottles. I think this is in conjunction with Carbios

- concludes with a Polymateria researcher saying that until the world can capture and recycle all plastic material then Polymateria’s product will be needed. This is right up to a point. All plastic will never be fully captured so additives like that of SYM and Polymateria should always be needed as a backstop.

It is a pity that SYM cannot get this sort of publicity - particularly as they are much further along than Polymateria and seem to have a proven product.

https://www.thetimes.co.uk/article/funding-pours-in-for-plastic-cups-that-self-destruct-vrf7sshjw

https://www.thetimes.co.uk/article/funding-pours-in-for-plastic-cups-that-self-destruct-vrf7sshjw

There is starting to be a bit more comment on the ability to recycle single use plastic. The lack of being able to recycle single use plastic has always been a significant factor in the eco mob trying to demonise plastic and hence impact SYM’s proposition. There is quite a bit going on in various directions eg Mura Technology is opening a recycling plant this year on Teesside, a small plant opened last year in Scotland in conjunction with one of the major supermarkets (Asda I think) and the Norwegians are also looking to open up a Teesside recycling plant. These rely on pyrolysis techniques. Carbios in France is already working towards a commercial recycling plant using enzymes (having done successful test runs).

If people begin to understand that plastic can be broken down in recycling plants they may better grasp what SYM’s d2w product does when plastic is littered.

https://bioplasticsnews.com/2023/05/01/michael-stephen-big-names-and-fungi-that-eat-plastic/

https://www.theguardian.com/science/2023/may/10/microbes-digest-plastics-low-temperatures-recycling

Skier. It seems Octopus are only in the foothills as to using AI and there could be massive (staff) savings going forward. Of course they want to downplay this. As you say there are other matters going the other way such as cyber security, particularly relevant for a bank. From memory I think of 64,000 staff Lloyds employs 30,000 in “central” functions. I have always assumed much of this is in call centres. I might be wrong.

The CEO role of IDS rather reminds me of a comment one telecoms executive said of being CEO of BT - you do your five years and if you are lucky you get let out for good behaviour.

What could the two organisations have in common I wonder?

Interesting article in The Times about AI and the fast growing Octopus Energy. They have started using AI to deal with customer enquiries. They reckon it is saving them about the equivalent of 250 people (they have about 1,200 people dealing with customers). The AI gets much better customer feedback (80% v 65%). They only started using it 16 weeks ago and it is currently involved in handling 34% of customer enquiries. They are about to move it on to more complex enquiries (or perhaps it might decide to do that by itself).

What impact would this have on Lloyds etc?