Will Royal Mail declare itself insolvent?

[ReturnToSenderrr]

https://www.investorschronicle.co.uk/ne ... insolvent/

[Acca Dacca]

Should be in the news/articles section

[Gary55]

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[demon]

No as Royal Mail have not even said they are in any sort of difficulty it is the union who have said this and leaked the story

[ReturnToSenderrr]

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According to newspaper reports, bosses at Royal Mail have threatened to declare the company insolvent if postal strikes are not resolved soon. The courier has neither confirmed nor denied the claims, saying it is doing “all it can” to reach an agreement with the Communication Workers Union (CWU) over pay and conditions.

As industrial relations remain toxic, however, it is certainly worth exploring the potential implications of administration for International Distributions Services (IDS) shareholders.

IDS:LSE
International Distributions Services PLC

1mth
Today change
-0.93%Price (£)
222.50

First things first: can Royal Mail actually be placed in special administration? According to the Postal Services Act 2011, the courts can only make a postal administration order if Royal Mail “is unable, or is likely to be unable, to pay its debts” or if it would be “just and equitable” to wind up the company in the public interest. An application for such an order must be made by or with the consent of the secretary of state.

Here is where we run into some difficulties, however. Can Royal Mail pay its debt? At first glance, the situation doesn’t look good. IDS had £1.47bn of net debt on its balance sheet in September 2022, and Royal Mail expects to report an adjusted operating loss of £350mn-£450mn for the year ended 26 March 2022, and warned that further strikes “would continue to cause losses”.

However, Royal Mail is just one part of IDS. There’s also General Logistics Systems (GLS), a European courier headquartered in the Netherlands, which is still thriving; in the six months to September 2022, it achieved an adjusted operating profit of £162mn, and provided a lot of the firepower for the 20p dividend announced in May last year.

In a recent note, UBS analysts said they thought debt had been raised by IDS at a group level rather than a divisional level. This chimes with a comment made by chief financial officer Mick Jeavons in November. When asked about the amount of cash held by Royal Mail compared with GLS, Jeavons said the group doesn’t split up the cash positions in this way, and that finance had been raised at a group level. CWU general secretary Dave Ward said any financial difficulties were “down to the company and the way they’ve dealt with this dispute right from the start”. He said Royal Mail was effectively “threatening the union with administration”.
But the UBS analysts added that it was unclear whether a declaration of insolvency was feasible at all. Its analysts did say any further industrial action would be an “incremental headwind” for profits in the current financial year, and forecast an operating loss of £151mn for 2024, assuming no further strike action. This is an improvement on the forecast £540mn operating loss in the year just gone.

Nevertheless, the threat of a wind-down is a powerful one – and could prompt the government to rethink the demands placed on Royal Mail by the universal service obligation. After all, it is not in the government’s interest for the group to become unviable. “At the moment, it doesn’t cost the government a penny to have a universal service and it’s not their problem,” said Liberum analyst Gerald Khoo.

There is no sign of this yet, however. In November, the government rejected the proposal to end six-day letter deliveries and, in March, the Business, Energy and Industrial Strategy Committee referred the courier to the communications regulator for “deprioritising delivery of letters as a matter of company policy”.

As things stand, therefore, the chances of a group split seem to be growing. IDS said last summer that it would consider separating Royal Mail and GLS unless “significant operational change” was achieved, and now the possibility of insolvency has also been thrown into the mix. As such, equity analysts are trying to figure out what a division would mean for shareholders.

UBS calculated, for example, that the equity value of Royal Mail was zero, and went on to consider a hypothetical scenario of insolvency/separation. Using peer group analysis and financial year 2024 estimates, and adjusting for debt and leases, it calculated an equity value for GLS of 220- 430p per share, compared with IDS’s current share price of 225p.

It’s certainly not an exact science, however, and such calculations underline how hard it is to assess the impact of IDS’s debt pile on investors. In a group structure, the distribution borrowings and lease liabilities are often fuzzy. It seems unlikely, though, that profitable GLS will be able to escape entirely unscathed, as shareholders, bondholders and taxpayers battle for the best deal.

Given the threat of administration was followed by a resumption of talks between the CWU and IDS and “some progress”, as per the union, this gambit may have paid off.

[ReturnToSenderrr]

Should be in the news/articles section

Can't be bothered re-posting it.

[Burghboy]

The company can’t place itself into admin, only the Govt or the regulator can.

And it’s not going to happen. DK has now increased his share holding to over 25%. He is now eligible to ask for a seat on the board, however that can be refused. If he continues to increase his share holding and goes over 30% plus 1 share he is legally obligated to offer to buy all the shares. The price thats being quoted for that is seemingly around £4. Hence why even though the mess we are in there is little movement in the share price.

[mishmash02]

He's got 29.9% in Dutch NL post and stopped there.
Guessing he will do the same with RM

[Pharox]

He's got 29.9% in Dutch NL post and stopped there.
Guessing he will do the same with RM

If I remember correctly, he stop there so it does not 'trigger' a full take over, but gives him enough voting shares and a seat on the board, that way he can 'control' various aspects of the business. I do believe he will do the same with RM.

[zz666]

No. Although there should be intense scrutiny of the royal mail's finances. Where has the money gone? If their financial management is anything like the way revisions are going then it's probably incompetence.

[datasaint]

He's got 29.9% in Dutch NL post and stopped there.
Guessing he will do the same with RM

If I remember correctly, he stop there so it does not 'trigger' a full take over, but gives him enough voting shares and a seat on the board, that way he can 'control' various aspects of the business. I do believe he will do the same with RM.

Unless he is not interested in RM and wants GLS .. then he might take it over and split it up.

[postslippete]

If you read the article, only the courts with the consent of the secretary of state can place Royal Mail into administration via the Postal Services Act 2011.

I don't think it will come to this right away because the government really don't like running companies. RM have spent billions on these new parcel superhubs and it is this what has led to its net debt on its balance sheet - not the industrial action that the RM board are claiming it to be. Like I've said a few times on this forum, after all these revisions and duties failing on a daily basis are we still losing a million pound a day??

This is all part of Royal Mail's long term game plan. I don't doubt that during the pandemic the company made a killing because they weren't hindered by the USO. If Royal Mail really can't pay back these huge debts then the government may allow RM certain concessions to enable them to be more profitable like a day off the USO, which is what they are hankering after.

The CWU is between a rock and a hard place. They know that it is the RM board's gross mismanagement that has caused all this. It is not the strikes although the company seem to be doing their level best to insist on needing the changes that they are after, even though there is no guarantee it is going to make us profitable in the long term. Now wouldn't that be ironic??

[Ppat98]

So instead of paying a percentage of that debt pile off, they choose to give the covid profit's to shareholders. Mismanagement 101. Dave ward was right when he said those who put RM in this mess shouldn't be the one's to take us out of it.
Now we know why no strikes are being called. At real risk of going under.

[Gary55]

You need to subscribe to read it also

I'm not subscribed and I was able to read it. I've copied and pasted it for you.

According to newspaper reports, bosses at Royal Mail have threatened to declare the company insolvent if postal strikes are not resolved soon. The courier has neither confirmed nor denied the claims, saying it is doing “all it can” to reach an agreement with the Communication Workers Union (CWU) over pay and conditions.

As industrial relations remain toxic, however, it is certainly worth exploring the potential implications of administration for International Distributions Services (IDS) shareholders.

IDS:LSE
International Distributions Services PLC

1mth
Today change
-0.93%Price (£)
222.50

First things first: can Royal Mail actually be placed in special administration? According to the Postal Services Act 2011, the courts can only make a postal administration order if Royal Mail “is unable, or is likely to be unable, to pay its debts” or if it would be “just and equitable” to wind up the company in the public interest. An application for such an order must be made by or with the consent of the secretary of state.

Here is where we run into some difficulties, however. Can Royal Mail pay its debt? At first glance, the situation doesn’t look good. IDS had £1.47bn of net debt on its balance sheet in September 2022, and Royal Mail expects to report an adjusted operating loss of £350mn-£450mn for the year ended 26 March 2022, and warned that further strikes “would continue to cause losses”.

However, Royal Mail is just one part of IDS. There’s also General Logistics Systems (GLS), a European courier headquartered in the Netherlands, which is still thriving; in the six months to September 2022, it achieved an adjusted operating profit of £162mn, and provided a lot of the firepower for the 20p dividend announced in May last year.

In a recent note, UBS analysts said they thought debt had been raised by IDS at a group level rather than a divisional level. This chimes with a comment made by chief financial officer Mick Jeavons in November. When asked about the amount of cash held by Royal Mail compared with GLS, Jeavons said the group doesn’t split up the cash positions in this way, and that finance had been raised at a group level. CWU general secretary Dave Ward said any financial difficulties were “down to the company and the way they’ve dealt with this dispute right from the start”. He said Royal Mail was effectively “threatening the union with administration”.
But the UBS analysts added that it was unclear whether a declaration of insolvency was feasible at all. Its analysts did say any further industrial action would be an “incremental headwind” for profits in the current financial year, and forecast an operating loss of £151mn for 2024, assuming no further strike action. This is an improvement on the forecast £540mn operating loss in the year just gone.

Nevertheless, the threat of a wind-down is a powerful one – and could prompt the government to rethink the demands placed on Royal Mail by the universal service obligation. After all, it is not in the government’s interest for the group to become unviable. “At the moment, it doesn’t cost the government a penny to have a universal service and it’s not their problem,” said Liberum analyst Gerald Khoo.

There is no sign of this yet, however. In November, the government rejected the proposal to end six-day letter deliveries and, in March, the Business, Energy and Industrial Strategy Committee referred the courier to the communications regulator for “deprioritising delivery of letters as a matter of company policy”.

As things stand, therefore, the chances of a group split seem to be growing. IDS said last summer that it would consider separating Royal Mail and GLS unless “significant operational change” was achieved, and now the possibility of insolvency has also been thrown into the mix. As such, equity analysts are trying to figure out what a division would mean for shareholders.

UBS calculated, for example, that the equity value of Royal Mail was zero, and went on to consider a hypothetical scenario of insolvency/separation. Using peer group analysis and financial year 2024 estimates, and adjusting for debt and leases, it calculated an equity value for GLS of 220- 430p per share, compared with IDS’s current share price of 225p.

It’s certainly not an exact science, however, and such calculations underline how hard it is to assess the impact of IDS’s debt pile on investors. In a group structure, the distribution borrowings and lease liabilities are often fuzzy. It seems unlikely, though, that profitable GLS will be able to escape entirely unscathed, as shareholders, bondholders and taxpayers battle for the best deal.

Given the threat of administration was followed by a resumption of talks between the CWU and IDS and “some progress”, as per the union, this gambit may have paid off.

Thanks mate

[Mr Rush]

If Royal Mail really can't pay back these huge debts then the government may allow RM certain concessions to enable them to be more profitable like a day off the USO, which is what they are hankering after.

A bit like shooting yourself in the foot to get out of going over the top. By rights they should be brought before a drumhead, yet Ofcom slumbers.