Hedge funds press RM for more savings as profits rise

[TrueBlueTerrier]

Hedge funds press Royal Mail for more savings as profits rise

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Aggressive activist investors in the privatised postal delivery service believe Royal Mail can boost profits with deeper cuts

American activist investors in Royal Mail believe that cost savings could be “far more aggressive” at the newly privatised delivery company, raising the prospect that the business could come under pressure from shareholders.

Brokers said that US hedge funds and fund managers have become the “main buyers” of shares in Royal Mail in the run up to the company’s first set of results as a public company.

Royal Mail is on Wednesday expected to report record half-year profits as a result of an ongoing turnaround programme. Analysts are expecting operating profits to be up sharply from £144m a year ago. At the end of the full-year in March, operating profits had doubled to £440m.

The group results will be heavily distorted by a £1bn windfall from a change in accountancy treatments.

Gert Zonneveld, an analyst at Panmure Gordon, said: “We would expect single-digit revenue growth as a result of the ongoing cost control which is allowing underlying profits to improve.”

Shares in Royal Mail have soared from their 330p offer price to as high as 600p. On Friday they closed at 539p.

Vince Cable, the Business Secretary who is facing questioning by MPs on the valuation of the company this week, has dismissed the rise as “froth”. Last week, UBS, one of the banks that helped list the company, issued a sell note, saying the stock looked overpriced.

But some US hedge funds think that Royal Mail could execute deeper cost cuts and yield far bigger profits.

Staff costs are one of the key areas being analysed.

“The productivity improvement rate is really pretty low, given the amount of new technology at the company,” said one source.

“Now 80pc of mail is sorted by technology, yet the productivity costs have only come down marginally in comparison. The company could be far more aggressive on driving the costs savings through.”

Another source said: “There’s been interest from London-based hedge funds, particularly since TCI disclosed its stake. American funds have started looking at the company later but they are becoming the main buyers.”

TCI, the hedge fund run by Chris Hohn, was the first investor to build a disclosable stake in Royal Mail. The London-based firm, which is known as one of the most aggressive funds in the world, is Royal Mail’s biggest shareholder with a 5.8pc stake.

[TrueBlueTerrier]

[UnhappyGremlin]

Hardly surprising news.
Didn't take long for the calls to screw us over to begin, did it?

[DirtyHarry]

Any more cuts to staff/duties in our office, and there will be no bugger able to go out and deliver anything.

[UnhappyGremlin]

Any more cuts to staff/duties in our office, and there will be no bugger able to go out and deliver anything.

Deliveries every other day?
Cancel Saturdays.
Cut pay, etc. etc.
Many options available to cut staffing costs.
Unfortunately.

[knackeredneedadayoff]

80% sorted by technology are they having a laugh,its more like 50%, with all flats ,packets and 50% of letters that are ready to be thrown off.The technology they have is old tech with some 2nd hand from other carriers who knew they were crap.The letters have to be put through up to 3 or 4 times to walk sequence.

[fishtank]

The London-based firm, which is known as one of the most aggressive funds in the world, is Royal Mail’s biggest shareholder with a 5.8pc stake.

No it isn't.
The Government still holds 29.9%.

[meweavy]

God help us if this lot become the majority stakeholders, they will destroy our pay, conditions and ultimately jobs if they take control.

[UnhappyGremlin]

God help us if this lot become the majority stakeholders, they will destroy our pay, conditions and ultimately jobs if they take control.

Pretty sure this will be attempted at some point, no matter who owns RM.
And long term, probably inevitable.

[Budfrog]

It won't be aimed at OPGs (too much risk of IA >> though at the moment you wouldn't think it ) .... it will be middle/junior management (and a few at the top who don't toe the line).

[UnhappyGremlin]

It won't be aimed at OPGs (too much risk of IA >> though at the moment you wouldn't think it ) .... it will be middle/junior management (and a few at the top who don't toe the line).

Yes it will. Maybe not at first, but it will.
OPG's are by far the largest pool of staff, and therefore the easiest way to make a very large saving in one go.
Not to mention the second, third, fourth, fifth etc. attacks that could be subsequently made.

[Budfrog]

The letters have to be put through up to 3 or 4 times to walk sequence.

4/5 Times - Outward (iLSM), Inward (iLSM), 3 CSS passes (Cut out the Inward for Local to Local).

CFC is also counted as a mech process - so maybe up to 6 (assuming no interplans).

[Budfrog]

It won't be aimed at OPGs (too much risk of IA >> though at the moment you wouldn't think it ) .... it will be middle/junior management (and a few at the top who don't toe the line).

Yes it will. Maybe not at first, but it will.
OPG's are by far the largest pool of staff, and therefore the easiest way to make a very large saving in one go.
Not to mention the second, third, fourth, fifth etc. attacks that could be subsequently made.

You are correct UnhappyGremlin, I omitted to qualify my statement by saying in the short term.

[martin the green]

surely we the staff own 10% of the company as well

[Budfrog]

Now if I wanted some quick savings there are only three letters that would spring to mind WCM but in the words of Chris Tarrant - Moya will tell the investors "But we don't want to give you that"