Member Info for Hounddog10

AS. Yes, JPM’s note is not particularly surprising. I have thought for a while RM’s operating losses would be about £300m for the year and could possibly be much more. I certainly thought the dividend would be significantly reduced and at this rate JPM are probably right it will go.

JPM actually used the word “doubtful” over whether the GLS demerger will happen but it amounts to the same as “unlikely”. Personally, I think the probability is higher than that. K will be sitting on big paper losses and will begin, I think, to use his legal rights and influence to effect change. I agree with you - why would he want the whole group rather than just GLS? To turn around RM, if possible, will take several years. I don’t think he is the restructuring sort of specialist. However, it is difficult to know how it will fall with all sorts of parties involved.

However, I think a key point is that even retaining GLS cannot save RM. The problem is that RM has plateaued or declining parcel revenue and more rapidly declining letters (7%). The letters volume reduction knocks off £250m per year and say a 3% pay increase per year to the posties might cost sort of £150m. So put £400m of extra losses per year onto JPM’s £400m this year loss you get £800m of losses next year, £1,200m year after etc. GLS only makes about £350m.

Estimated annual operating losses for Royal Mail for this year - £404m
Dividend likely to be scrapped
GLS demerger “unlikely” while Royal Mail in current state

https://www.thetimes.co.uk/article/rivals-alert-and-broker-warning-unnerve-royal-mail-investors-8wrqcphz9

DillyD. I think that is pretty much it. The other canary in the coal mine was ASOS warning a little while ago about reduced sales going forward.

https://www.bbc.co.uk/news/health-62797775

I think this team are a bit behind the curve. It is not only SYM that has an additive but I believe a number of others as well eg Wells Plastics has Bactiglas. The main issue for us is that SYM gets the regulatory approvals which they were hoping to get by end of Q3. I suspect that might be a bit optimistic.

68,000 - 76,000 oz is the guidance for this year.

Scamp - OK I see your point. It certainly could work like that and I am sure he is wargaming with his investment bankers. However, I would guess he does not want to end up with Royal Mail given its’ very messy situation right now. Royal Mail solo is certainly not worthless - there is hope value and it could be very valuable once restructured but it will be a long and painful journey. I think he would prefer to take a quickie big gain if GLS was spun out. GLS would show its true value and Royal Mail would have some value (in the current share price it is quite significantly negative). He could then progressively exit both through sell down.

As has been pointed out he is also hampered at the moment by Blue Book rules on minimum cash price he can offer. So he has to wait until the high prices he has bought at are time elapsed.

However it happens I don’t really see any way that RMG will not be split and it will not be good for the posties. I hope some agreement can be reached but I think positions are entrenched.

SYM have tried to get the message out to the general public with the limited resources they have. The big problem is, ironically, the Green lobby. The Green lobby’s position is the completely unrealistic: no plastic at all. I think a great deal of this goes back to the fact that many of them have anti-capitalist Marxist-socialist views and because plastic comes from oil. They hate the big oil companies because in their mind it embodies everything they hate about capitalism. There are also the idealists who want plastic gone but cannot explain how that will work. So overall you get a position where practical solutions are batted away.

This is all happening in the West but not so much in developing economies where they are interested in practical solutions. Hence SYM’s greater success abroad.

However, I think that as with the energy crisis a good deal of this eco extremism is beginning to unravel and considerations of cost and practicality start to get the attention they deserve. There is other stuff such as chemical recycling for plastics which may indirectly help SYM in the West (another big objection to plastic is that not much of it is recycled).

The worse the results of the RM side of the business the more likely the share price will go up as restructuring becomes more inevitable. Odd situation.

Scamp - I think you are talking “pay” and AZ “worth”. Slightly different things. I agree with AZ that GLS is probably worth £3.5 - 4bn. I think you are also right to say that no one would offer that sort of sum initially. However, I very much doubt many shareholders would accept that - grabbing GLS on the cheap. So a bidder would be forced up towards the £3.5 - 4bn. Also likely to be a number of bidders.

I think the most likely scenario is that K pressures the RMG board into a spin off of GLS (or possibly sale to a non-K party). I cannot imagine he wants the hassle of dealing with the Royal Mail side (if he were to buy the whole company) and I don’t think he wants to take operational control of GLS. He is an investor not someone engrained in the post/logistics business. With a spin off he gets an immediate uplift on his ~30% stake and probably GLS will in due course be bought by one of the big players.

I think the interim results are likely to be important in this dispute. I would imagine that they are going to show for the Royal Mail side of the business it will have lost around £300m at the “adjusted” operating profit/loss level. Possibly more. This comprises the £1m per day that they have said is the current run rate plus the £100m they have said the strikes will cost. There may also be weakening in parcel volumes as the cost of living bites on discretionary spending on internet purchases. I think this may give the CWU some pause for thought.

I think it also has to be realised that the RMG Board has fiduciary legal responsibilities to shareholders to act in their best interests. So aside from the fact that they won’t want to back down from the position they have taken they could face the prospect of being sued if they don’t go through with a plan which they themselves have said is in the best interests of RMG (absent agreement with the workforce).

For those who may be unaware Michael Stephen is SYM’s commercial director and he writes a regular column in Bioplastic News. The columns mainly talk about his ongoing activities in trying to push the cause of d2w with the same issues recurring. I think gradually the battle is being won but it is a slow grind. His latest column is interesting in that he is trying to get out of DEFRA comment letters on a consultation about d2w technology and has had to get the FOI commissioner to order them to do so. I wonder what DEFRA is hiding and why.

https://bioplasticsnews.com/2022/08/22/michael-stephen-defra-and-plastic-in-agriculture/

Ctw. I am probably rather more optimistic than my last post suggests but I do find the divergence between the messaging and the cold hard numbers when they come out rather unsettling. As you say the commodity gloves is a big players’ game which I have never liked very much as it no doubt has razor thin margins.

If they do get to £8-9m revenue in the second half then 2023 could be very exciting. I don’t think SYM’s revenue is seasonal, more like uneven. £8-9m (per half year) should be some sort of basis for estimating revenue going forward. Indeed, as most of the new initiatives in H2 2022 are only starting part way through it might be expected that revenue could be a fair bit higher in 2023 (or at least underpinned) as the full impact comes through in 2023.

We will know better end Sept but I hope any update to guidance given is realistic and has an appropriate level of buffer in it. SYM should know that the golden rule is to surprise on the upside.

Contrasting views here - but any of us could be right. I swing back and forward on SYM. I retain some optimism because I think Bimbo d2p contract is likely to be big, the Rivulis relationship seems to be going well and I do think there will be more wins. But there are questions. Revenue did not “soften” in H1 it cratered - by 40% (£1.9m). Of this drop £1m was due to no, yes no, nil, sales of commodity gloves as waiting for EU regulatory approval to sell premium gloves. But that does not explain why SYM did not continue to sell the commodity gloves - lost customer, loss making, shipping charges? Similarly they compare d2p sales to H1 2021 saying a 300% leap but H2 2021 would be more appropriate and sales are about the same.

£11-12m revenue this year would get them to break even. But Bristow’s forecasting has been lousy. Last year around this time forecasting c£500k profit for 2021, became a c£700k loss just before Xmas and double that in the final audited results. Couldn’t even forecast 8 days. Partly blamed on £0.7m sales missing the accounting cut off (which will have gone into H1 2022).

Let’s hope for some good RNSs.

Guidance is for £11-12m revenue for the full year. H1 2022 has been £3m. So they are suggesting that they can triple revenue in the second half! We shall have to see.

Also seems that the Indorama entity they are JVing with (there are more than one) is part of Vincel aka Pearl aka Sea Salt. SYM’s ultimate future may be to be bought by Vincel.

Back to the same old SYM. Late announcement of much lower revenue than expected. Jam tomorrow. Another fund raising because no doubt cash is now very tight.

The 0.80p interim dividend was better than expected and shows confidence. Based on Q2 after tax profit of £1.6bn we are probably heading for £7bn+ annual after tax profit run rate (assuming, of course, no big hikes in loan losses). Lloyds also have about £3bn or so excess capital over the 13.5% target. So £10bn in total. The reason the dividend/distributions are not higher is, I think, the following future capital requirements:

(1). All banks required by BoE to rebuild the counter cyclical buffer - 1% of Risk Weighted Assets by end 2022, a further 1% by 31 July 2023. £4bn in total.
(2). End of last bit of IFRS 9 (loan loss) transitional capital regulatory relief and completely new insurance accounting (might make it understandable) on 1 January 2023. £1-2bn extra capital needed.
(3). Pension fund deficit - probably now about £4bn. Lloyds curing it at £2bn per year.
(4). “One off” possible hits. HBOS Reading (they think fully provided but not sure), PPI legal judgments in second half (does it ever end?), call on Visa/MasterCard sale indemnity (possible £400m) and a tax case that could cost £1bn. With the exception of the tax case where the hearing is pushed out to 2023 none likely to be big.

So (1) to (3) is £7-8bn in the year to 31 July 2023 and the current total 2.4p dividend policy costs £1.6bn. That chews up most of the £10bn likely capital available but leaves enough for buybacks or a special.

However, for me the key point is that this time next year Lloyds could be looking at £7bn+ annual capital generation (and I think it could be a good deal higher) with only a further possible £2bn to go to the pension fund and the £1bn tax case (which if lost is probably a 2024 item anyway). So £4-5bn capital to be distributed.

Cliveas. Yes clearly someone has pointed out to these journalists that the comparative period was anomalous - and the 2022 H1 results are very good. Hopeless journalism on their first attempt.

I think these numbers show the difficulty. They are for full year 2022.

Royal Mail: People costs - £5,502m; Non-people costs - £2,515m; Operating profit - £416m.
GLS: People costs - £908m; Non-people costs - £2,606m; Operating profit - £342m.

So both have roughly the same non-people costs but Royal Mail has people costs over double of its non-people costs whilst GLS’s people costs are a third of its non-people costs. Presumably this is because GLS is highly automated and Royal Mail not so much so. Royal Mail also has to contend with letters and the USO.

Non-people costs are, I think are mainly terminal dues, Post Office/overseas operator handling charges, fuel, annual cost (depreciation) of capex. These are costs that are generally not much in the short term control of management and/or fairly fixed. Others may know better. However, they are coming down somewhat (6%). But for Royal Mail people costs is by far the biggest number.

Royal Mail’s revenue fell £243m in the first quarter of this year. So will probably be at least £1,000m down for the year. Management’s offer at 5.5% will add something like £250-300m to people costs. Certain variable costs will come down as revenue falls and efficiencies are expected but these are strong headwinds when operating profit was £416m last year.

I had a bit more of a look at this. Quite big - $400m sales in 2019. Has been bought by Temersek (Sing sovereign wealth fund) who are an aggressive and savvy bunch. They would not have invested if they didn’t see Rivulis as s fast growing.

Insects are a big problem for drip irrigation - damaged pipes lose not only water, but fertiliser and require more labour for repairs. According to the Rivulis brochure SYM’s additive reduced the instance of successful insect attacks to nil (one of the other untreated pipes had 66 attacks). Means that the pipes can be made thinner (one response to insect attacks is to make the pipe much thicker) - so less material/cost. The constraint on deployment seems to be making sure not subject to regulatory approval (or getting it if so). SYM treated pipes only in four countries so far and Rivulis operates in many more countries than that. Also it seems that the pipes (or tapes) are only used for one year. So constant replacement cycle.

I did wonder that. They are stretching the definition of “around mid July”. I hope it is not due to bad news. I am not expecting a profit but hope they will be much closer to break even. The action should be in HY2 and beyond. It will be interesting to see if/how weak Sterling benefits SYM. It could be significant particularly going forward as Bailey dawdles on rate rises.