It is only two years since Moya Greene departed as chief executive of the Royal Mail, accompanied by a near-£1m golden goodbye and claims that the organisation had been “transformed” since privatisation.
The share price in 2018 was close to an all-time high of 600p. Now it is 157.5p, down 12% on Thursday – not quite at an all-time low, but less than half 2013’s float price. Whatever has happened at Royal Mail over the past seven years, it wasn’t transformation as the rest of the world understands the term.
The restructuring process seems to have stalled before Greene left. Her successor, Rico Back, whose personal bonanza was even larger thanks to his time running the international GLS subsidiary, only jammed the gears further. He left an almighty, and unresolved, quarrel with the CWU union over technology and working practices.
The result is that Royal Mail’s finances were severely exposed to Covid-19 pressures in the form of a slump in letter volumes and a spike in parcels – an acceleration of established trends, in other words. You might assume the two factors would balance, but they don’t: letters are more valuable to the Royal Mail, and the parcels side still inefficiently sorts 70% of items by hand.
New-ish chairman Keith Williams put it starkly: the UK business is currently making losses of around £1m a day. That’s a better guide to the financial mess than the headline 25% fall in group pre-tax profits last year to £180m, where the chunkiest contribution came from the successful GLS operation.
Royal Mail is now trying to perform several feats at once. It plans to cut 2,000 management jobs; it needs to build two new automation hubs for the parcels side, and is a year behind schedule already; it must simultaneously cut capital expenditure; and it must make peace with its unions, whose negotiating hand is probably strengthened by the fact staff kept the show on the road during Covid.
Williams, an industrial relations veteran from his British Airways days, is probably a useful person to preach a firmer “we need to change” message. It is, however, easy to imagine how life could become trickier yet. A Czech billionaire, Daniel Křetínský, has turned up with an 8% stake, and his motives are unknown. A breakup bid to seize GLS? That would be politically explosive.
So would any tweak to the universal service obligation (USO), via which Royal Mail must deliver to every address in the land six days a week at a uniform price. A regulatory review is under way. Would a four-days-a-week service ease pressures or push the letters business over a cliff? Hard to tell, but the USO is another unpredictable element since reform would have to go through parliament.
Ministers may have assumed they could tune out of the Royal Mail saga after privatisation. They should pay attention now. The postal service looks alarmingly unstable.
An unfortunate pair for EY
Don’t blame us, guv. That was not EY’s precise wording in its reflections on the fall of Wirecard, the German payments processor whose books it audited for a decade. But you get the drift.
“There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world in different institutions, with a deliberate aim of deception,” said EY. For good measure, it added: “Even the most robust and extended audit procedures may not uncover a collusive fraud.”
We’ll see what the regulatory post-mortem makes of this plea. Not much, one suspects. For starters, it doesn’t explain how the Financial Times could unearth so much evidence of fraud without the privileged access that an auditor can demand. Nor did the statement address timings. Sceptical analysts have been warning about Wirecard for years, long before EY refused to sign off the 2019 accounts.
EY has now scored a spectacular double: auditor to both Wirecard, the biggest failure in Germany’s Dax 30 index, and NMC Health, this year’s big FTSE 100 blow-up. Could the audit committee of any large quoted company really now hire EY?
… and a happier double for easyJet
A double win for easyJet’s board: it got its £419m share placing away with ease, and Sir Stelios Haji-Ioannou didn’t subscribe for a penny. It means the founder’s holding is diluted from 33% to 28%. He never won a formal showdown with the board with his old stake; future battles will be marginally harder now.
