How Royal Mail’s Czech suitor is plotting the Amazon of Europe

[Basildon Bond]

Daniel Kretinsky’s swoop for the postal service is just one step in a far grander plan

James Warrington and Luke Barr | 21 July 2024 • 2:05pm

https://www.telegraph.co.uk/business/20 ... l-parcels/

As the dust settled on the general election earlier this month, Czech tycoon Daniel Kretinsky jetted his top lieutenant over to London to scope out the new political landscape.

Settled at a table in Claridge’s, Roman Silha, his chief dealmaker, held meetings with a raft of advisers, including former shadow business secretary Chuka Umunna, as he considered what the change of power will mean for Kretinsky’s planned £3.6bn takeover of Royal Mail.

The swoop by the tycoon – known as the “Czech sphinx” for his inscrutable approach to business – has raised eyebrows amid concerns that Britain’s postal service will pass into private ownership, and foreign hands, for the first time in its 508-year history.

But while posties and politicians fret over the future of letter deliveries, Kretinsky is cooking up grander plans to create a new e-commerce empire that can take on Amazon.

He regards Royal Mail as just the first step in a broader strategy that has seen the tycoon’s interest in the UK extended to investments in Currys and even Marks & Spencer.

“There are all these pieces of the jigsaw, so I think he is looking to do something,” says retail analyst Jonathan de Mello.

“The logistics investments and the retail investments he’s made... it does smack of a potential grand plan.”

While letter deliveries have occupied much of the political discourse surrounding Royal Mail, bosses know that the future of the postal business lies elsewhere.

Letters still account for the majority of Royal Mail’s business by volume, but it was parcels that earned the company more than half of its £7.8bn in revenues last year. That trend shows no signs of slowing, with parcel volumes up 11pc in the three months to the end of June.

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In a sign of the changing winds, Royal Mail has submitted proposals to Ofcom that would see second-class post delivered just three times a week. The company has repeatedly warned that a sharp decline in the sending of letters has made its current regulatory obligations unsustainable.

Meanwhile, the struggling letters business is being consistently outshone by profitable parcel arm GLS, which is also owned by Royal Mail’s parent company International Distribution Services (IDS).

Royal Mail’s second-largest shareholder, Red Wheel, has previously argued that GLS alone is worth 350p per share. Kretinsky has offered 370p per share for the entire group.

EP Group, Kretinsky’s business, says it is committed to the postal service. Undertakings linked to the deal will protect the Royal Mail brand and services such as Saturday letter deliveries for first-class post. Still, there is no doubt that Kretinsky’s focus lies with parcels.

The Telegraph last week revealed that the tycoon plans to invest as much as £800m in the next three to five years on a network of 20,000 Amazon-style parcel lockers, as well as slashing prices for parcel deliveries.

Executives hope this strategy will help the company win back market share from rivals such as DPD, Evri and InPost.

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The disparity between letters and parcels is so pronounced that analysts have suggested Kretinsky could seek to break up IDS and merge GLS with Dutch operator PostNL, in which he owns a major stake.

EP Group has insisted there are no plans to do so and undertakings linked to the takeover block him from splitting up the business for at least three years. Instead, the Czech billionaire has wider plans to combine his sprawling network of interests across Europe.

By acquiring IDS, Kretinsky will significantly bolster his logistics operations beyond PostNL.

Meanwhile, he has been building a retail empire that includes major stakes in Sainsbury’s, French supermarket chain Casino and German wholesale group Metro – alongside holdings in Foot Locker, French retailer Fnac and various other grocery and e-commerce operators in Central and Eastern Europe.

Retail and logistics will make up two of the three “pillars” in the new-look EP Group, with energy and infrastructure businesses forming the third. By bringing together the retail and parcels operations, the Czech tycoon has spied an opportunity to create a new pan-European e-commerce empire.

Alex Paterson, an analyst at Peel Hunt, says there are clear benefits for a retailer that controls its own distribution network.

“Clearly, owning retail and logistics increases control and allows the group to prioritise what is important for the customer – such as speed of delivery, returns, click and collect options and sustainability,” he says.

Other businesses have pursued similar strategies. The budget airline Jet2 last year brought in-flight retail operations in-house after being let down by suppliers during the pandemic.

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Kretinsky’s ambitious plans have been backed up by a fevered acquisition spree that has accelerated since 2018, when the tycoon began to diversify his business away from energy.

This week, Fnac tabled a €249m (£210m) offer to buy Italy’s Unieuro in a deal that would create a major new player in consumer electronics and domestic appliances in Southern and Western Europe.

In the UK, too, Kretinsky has been on the prowl. The Telegraph has learned that EP Group explored a takeover bid for Currys but walked away after baulking at the price.

The consumer electronics group courted interest from China’s JD.com and received multiple offers from US private equity firm Elliott Advisors, but ultimately rebuffed the deal.

Meanwhile, it is understood that Kretinsky explored a potential investment in Marks & Spencer. One source said EP Group executives had started making clandestine trips to M&S stores following official visits to Sainsbury’s to compare the two retailers.

The takeover talks are no longer believed to be active and Kretinsky, who is also the second-largest shareholder in West Ham Football Club, is now focused on the takeover of Royal Mail.

Still, the manoeuvres highlight the scale of the tycoon’s ambitions as he attempts to consolidate his sprawling empire into a new powerhouse to take on Amazon. EP Group declined to comment.

It may not all be plain sailing. Paterson warns that there are disadvantages to combining retail and logistics operations amid rapidly developing technology and increased use of robotics.

“My sense is that working with a variety of different customers, rather than one group, can lead to faster and better innovation and adoption and from a cost perspective, retailers often benefit from going out to tender and changing suppliers,” he says.

De Mello is also sceptical about whether Kretinsky would seek to compete with Jeff Bezos’s “everything store”, suggesting that he could instead focus on a specific area such as consumer electronics.

“The replacement cycle is such now that people are starting to replace their TVs and laptops that they bought during Covid, so it’s definitely a good time to be looking to invest in audiovisual,” he says.

Nevertheless, Kretinsky’s voracious appetite for deals means he now presides over an enviable collection of e-commerce assets spanning the Continent, and his expansion plans show no signs of slowing down.

Once his takeover of Royal Mail is complete, the Czech sphinx will be poised to strike again.

[enskied]

"while letters make up the largest volume, it's the parcels that make the most profit"

That's the rough quote and it is untrue. Royal Mail are making a fortune on the mail by not honouring the USO. First class mail is left sitting in frames for days and even weeks. That is pure profit, taking money without any intention of delivering the customer what they have paid for.

[Barnacle]

"while letters make up the largest volume, it's the parcels that make the most profit"

That's the rough quote and it is untrue. Royal Mail are making a fortune on the mail by not honouring the USO. First class mail is left sitting in frames for days and even weeks. That is pure profit, taking money without any intention of delivering the customer what they have paid for.

They are failing mail routinely and it’s infuriating.

Also, all this chat about parcels doing this and parcels doing that, what about the ELEPHANT? Yes letters have declined but 6-7billion letters per year is still too many to simply ignore.

[Mr Rush]

"while letters make up the largest volume, it's the parcels that make the most profit"

Wasn't the company telling us the exact opposite as recently as last year? If they've since solved the poor margins on packets, perchance was the innovative solution to replace their employees with newer ones on worse contracts?

[Barnacle]

"while letters make up the largest volume, it's the parcels that make the most profit"

Wasn't the company telling us the exact opposite as recently as last year? If they've since solved the poor margins on packets, perchance was the innovative solution to replace their employees with newer ones on worse contracts?

Something else they have done is bury the cost of the DPR delivery, in with mail. So it is nigh on impossible to calculate from the figures they release, what the actual cost of the separate DPR delivery is. It is obvious that DPR means less profit from parcels but the exact cost is hidden.

[Mr Rush]

Yay, just what the market needed: a second place to place to buy cheap subpar rubbish from China and have it delivered to your door (or maybe not) by someone earning a pittance with a dashcam pointing the wrong way analysing the driver's facial expressions for signs of nascent insubordination toward their billionaire fief!

Does Dan remember what happened in Prague in 1419?