September 3, 2018 / 7:29 AM / in 3 months

UK's Royal Mail heads into Canada as part of overseas expansion

(Reuters) - Britain’s Royal Mail Plc (RMG.L) expanded into the Canadian market on Monday with the purchase of parcel delivery firm Dicom Canada for C$360 million ($275.7 million), adding to a series of recent bets on markets in Europe and North America.

Royal Mail vans are parked in the Leytonstone post office depot in London, Britain early July 6, 2017. REUTERS/Russell Boyce

Britain’s former postal monopoly has been struggling with a fall in letter volumes and has invested heavily in foreign markets under the Global Logistics Systems (GLS) brand since its privatization in 2013.

The purchase of Dicom from private equity firm Wind Point Partners adds to a growing North American operation which already covers eight U.S. states and follows the appointment of GLS boss Rico Back as Royal Mail’s new chief executive in April.

GLS had initially focused mainly on Europe but has begun to look further afield.

“This acquisition is in line with GLS’ strategy to grow through targeted and focused acquisitions to capture higher growth segments outside Europe,” Back said on Monday.

GLS accounted for a third of Royal Mail’s 2017-18 adjusted operating profit after transformation costs, up from 29 percent a year earlier, the company said.

It served 212,000 customers last year in a network that takes in 37 European states and 660 delivery depots.

Dicom Canada, which offers ground-based parcel, freight and logistics services, operates a network of 28 depots and works with partners to provide pan-Canadian logistics services, Royal Mail said.

Fiona Cincotta, a senior market analyst CityIndex, said the deal and the continuing investment in GLS could be a game-changer for Royal Mail shares, which have drifted lower since a flying start following its initial public offering in 2013.

Company shares rose as much as 1.3 percent in morning trade and stood at 452.4 pence at 1010 GMT. The shares were priced at 330 pence in the flotation five years ago.

“Royal Mail, which has been cutting its UK operations aggressively over the last few years, surprised the market with (the deal) news,” Cincotta said.

“It will give Royal Mail... a foothold in Canada, which is expected to be earning money for the company from the off.”

The deal was funded through existing borrowing facilities and will be earnings and cash flow accretive in the financial year ending March 31, 2019, the company said.

($1 = 1.3056 Canadian dollars)

Reporting by Justin George Varghese in Bengaluru; Editing by Patrick Graham/Keith Weir

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