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The Guardian - UK
The Guardian - UK
Nils Pratley

Royal Mail boss has a shocker as meeting with MPs doesn’t go well

Stand By Your Post rally in Parliament Square, London in December.
Stand By Your Post rally in Parliament Square, London in December. Photograph: Thomas Krych/ZUMA Press Wire/REX/Shutterstock

There have been worse performers in front of a business select committee, but Simon Thompson, chief executive of Royal Mail, had a shocker on Tuesday. When the session ends with the committee chair – the normally mild-mannered Labour MP Darren Jones – issuing a warning about the seriousness of misleading parliament, you know it did not go well.

Jones’s irritation was understandable because Thompson arrived seemingly determined not to answer the questions he was asked. It took three goes to extract a minor piece of information about the use of “total shareholder return” metrics in his remuneration package. When Jones mistakenly referred to a “PVA” device, Thompson said he hadn’t heard of such a thing when it was obvious – and became clear two minutes later – that what was meant was a “PDA”, or postal digital assistant, the gadgets carried on delivery rounds.

Simon Thompson.
Simon Thompson. Photograph: ROYAL MAIL GROUP/AFP/Getty Images

Given that Thompson was trying to deflect the allegation that he and Royal Mail have been overly confrontational – a criticism made by his own predecessor, Rico Back, a few weeks ago – riling MPs unnecessarily was an odd tactic to adopt. The effect was to undercut Thompson’s argument on other matters – notably his claim that Royal Mail hasn’t been prioritising the delivery of parcels over letters, which was the moment at which Jones boiled over.

But let’s be even-handed. Dave Ward, general secretary of the CWU, was given a gentle ride by MPs on his big claim that Royal Mail made two “catastrophic decisions” last year that amounted to “gross mismanagement”. Only on the first can one have some sympathy.

It was indeed tin-eared or bull-headed for the group, now rebranded International Distribution Systems (IDS), to hand shareholders an extra £400m via a special dividend and share buyback in late 2021. The sum was the spoils of inflated demand during the pandemic, in effect, and was very close to the £416m that Royal Mail made in operating profits that year. The timing of the payment was terrible. Royal Mail was about to enter the current talks that have proved so tricky on changes to working practices and pay. As Back, Thompson’s predecessor, said to the Sunday Times, it would have been better to use the £400m to ease the inevitable transition towards parcels.

But Ward should have been pressed far harder by MPs on his claim that it was somehow outrageous for IDS to end the cross-subsidisation of Royal Mail from the profits of GLS, the far more successful Amsterdam-based parcels business that operates in continental Europe and North America.

Come on, the shareholders in a private company – as the parent has now been for a decade – are never going to tolerate indefinitely a situation in which the loss-making bit is propped up by the operation making good money. The numbers in this case are too stark: Royal Mail, with the lockdown now over, is losing £1m a day currently while GLS is on course for adjusted operating profits of €370m to €410m this year.

Ward and the CWU may wish the shareholders were more sentimental about Royal Mail, but they’re not. The Czech Sphinx, Daniel Křetínský, sitting on a 23% stake and with clearance from the UK government to go above 25%, may not say much but you can be sure he has noticed that GLS would have a standalone value of £4bn-ish while City analysts usually ascribe a negative value to Royal Mail.

The board’s threat to pursue a full demerger may or may not be credible, but there was always going to be a moment when the owners insisted on some form of a no-cross-subsidy rule. It is economically rational for them to do so. It is a consequence of privatisation – or rather, it flows from the way in which GLS has grown over the decade to dominate the group’s finances. If the MPs have appetite for a follow-up session, they could usefully summon Křetínský; he is the other player here.

Talks between Royal Mail and the CWU continue at Acas, the conciliation service. We’ll wait to see if they bring a deal but, in the meantime, outsiders are now better able to see how this dispute could have dragged on for nine months already. Charm and trust does not ooze from the boardroom; realism over Royal Mail’s weak finances is in short supply on the other side.

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