Potential for Hays from Consignias difficulties

THE last few months have not been the quiet farewell period wished by Ronnie
Frost, the ebullient founder chairman of distributor Hays, who steps down
today. But all is not lost. After the profits warnings and management upheavals of
recent months, which saw the shares scythed in half, there are some signs of
life. The sell-off of its non-core chemicals distribution business to a management
buyout team for £107m was enough to give the shares a lift. Now the company has declared a new strategy of focusing on its key logistics
businesses – express mail delivery, goods distribution and staff recruitment. The real upside potential for Hays, if it can retain its independence for long
enough, comes from the difficulties of Consignia, owner of the Royal Mail. The mail service may have a fancy new name and logo but its problems are
legion, ranging from poor ability to implement new technologies to overmanning
and falling quality of service. The new postal regulator, Post-comm, is determined to keep it on its toes. It is increasingly minded to award licences for a range of competitive postal
services to those who come up with the most creative ideas and have the best
chance to deliver their promises. In the case of a prolonged postal strike, this programme of change might be
brought forward. There are three main contenders for a postal licence. They are: Deutsche Post, the former state-owned German postal service, which
has stakes in the DHL and Securicor delivery services and has been mentioned as
a buyer for Hays; TNT, which has been bought by the Dutch postal service; and
Hays itself, the only UK-quoted company with a look-in. Hays already operates an upmarket delivery service for lawyers and accountants,
and has made a convincing case that it could run highly competitive deliveries
in major cities, including London, Manchester and Edinburgh. Moreover, if the regulator were to slice away one sector of the market, such as
direct advertising, then an application from Hays or Deutsche Post, whose
shares are now quoted, would find favour. Hays will clearly have to demonstrate that it has the capacity to deliver its
licence commitments without undermining a ‘universal’ postal service. Given the deteriorating service and profits record of Consignia, that may not
be too difficult.