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It’s a triumph. Instead of losing £1m a day in its core UK business, which was the statistic in June, Royal Mail got the rate down to an average of £700,000 a day across the April to September period. If that doesn’t sound much to cheer, look at the share price: it has roughly doubled in value since the summer.
Part of the explanation for the improvement in the shares lies elsewhere, it should be said. GLS, the international business, is enjoying the e-commerce boom. Its operating profits surged 84% to £166m in the half-year on revenues up a fifth.
But the stock market also spotted that the same lockdown-inspired e-commerce fun is a big opportunity for the core Royal Mail – that’s if the trend holds and the company capitalises. The UK postal business deals with more parcels than letters for the first time, and the switchover has flipped the operation into meaningful growth.
Parcel revenues were up 33% in the half-year and letter revenues down by 20%. So overall postal revenues were up 4.9%, a positive number that hasn’t been achieved since privatisation in 2013.
Life would be easier if parcels were as profitable as letters (they’re not) and if Royal Mail wasn’t shouldering extra Covid costs, but more income still makes the financial gears turn more smoothly. It is easier to manage a growing businesses than a shrinking one.
On the latest projections of a £380m-£580m increase in revenues over the full financial year, Royal Mail’s “adjusted” operating profits in the UK would be “better than breakeven”. That’s a lot better than minus-£1m a day.
To win in the e-commerce game, heavy investment in automation will be required to match the likes of Amazon. And, if management decides parcels should be delivered seven days a week, it will have to negotiate new terms and conditions for the workers. The process is rarely quick or simple at Royal Mail.
Still, current talks on pay and conditions are said to have intensified in recent weeks and the executive chairman, Keith Williams, reports “common ground” with the CWU in the “vision” of delivering “a growth agenda to support jobs”.
We’ll see, but, despite some ugly headline numbers, the tone at Royal Mail sounds more upbeat than it ever did under the hapless and overpaid former chief executive Rico Back. His vision, if it existed, was impossible to make out.
Cineworld’s biggest problem isn’t the size of its rent bill
In Cineworld’s position, you’d try anything. The 657 cinemas in the US and UK are closed, borrowings are $8.2bn (£6.2bn) and banking covenants may be breached next month. Thus a company voluntary arrangement, or CVA, is being contemplated for the UK business as a way to bounce landlords into agreeing to rent cuts. A few sites could close.
It is futile at this point for those landlords to ask why Cineworld’s balance sheet was so overloaded with debt in the first place (answer: a land grab was under way before the pandemic struck). But, before they agree any rent reductions, the property owners could demand to see how much financial pain Cineworld’s lenders and shareholders are willing to take.
Cineworld’s primary problem isn’t the size of its rent bill. If you believe the hype, customers will eventually return in droves when cinemas reopen and Hollywood studios release their delayed blockbusters.
The challenge is getting to that happy point. That’s really one for the banks and the shareholders. The answer could be a debt-for-equity swap, a rights issue or something else. But a UK-only CVA – so 127 cinemas out of a global tally of 700-plus – wouldn’t advance the plot significantly.
Meerkats should keep their heads down over CMA fine
Comparethemarket and its irritating meerkats are considering their options after a thumping £17.9m fine from the Competition and Markets Authority, which found the website breached competition law. Their best option is to take the hit.
The CMA was riled by the company’s use of “most-favoured nation” clauses, which prevented home insurers on Comparethemarket’s platform from offering lower prices on other comparison websites.
Such clauses aren’t anti-competitive in their own right. But the CMA’s argument is strong: competitive pressures on all home insurers competing on price comparison websites will have been reduced. That’s a bad look for a firm that is supposed to be a consumer champion. The meerkats should accept the judgment and keep their heads down.
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