Royal Mail Steam Packet Company Kylsant Empire

From SN Guides

Introduction & Contents

In 1903 the RMSP was rescued from extinction by Owen Cosby Philipps, who went on to create the largest shipping and shipbuilding group in the world and in the process was ennobled as Baron Kylsant. The group reached its maximum size at the end of 1928, but by 1930 the entire enterprise had collapsed. In 1931 Kylsant was arrested, convicted of fraud and imprisoned.

There are a considerable number of similarities between the fate of the Royal Mail group and the problems facing many venture capital owned and publically quoted companies at the time of completing this history (January 2009). To enhance the equity shareholders’ earnings, Debenture Loan Stock is issued. This works well during boom times, when earnings on capital are greater than the fixed rate of interest paid on loans. The surplus accrues to the Ordinary Shareholders. This “gearing” adds to an indebted company’s burden in a slump however, when the fixed payments become greater than the profits earned. The loans eventually need to be repaid. In a boom new loans can be raised to repay loans as they mature, but in a slump lenders are unwilling to support a struggling company. Eventually the company collapses.

Royal Mail entered into a variety of long and short term borrowing arrangements. To maintain voting control of his companies, Kylsant also frequently resorted to the issue of non-voting Preference Shares that paid a fixed annual dividend. He survived the short lived pre-World War 1 slumps, so when trade turned down after the war Kylsant again attempted to ride out the bad times by increasing his fixed rate borrowing. Government loan guarantees were utilised. Unfortunately for Royal Mail the slump was far longer and more severe and Kylsant’s efforts to raise money became more and more desperate until the burden was greater than the group could sustain.

Although Kylsant is the central character in this history there are two other major players in the narrative. The first is the Harland & Wolff chairman, William James Pirrie, later Baron Pirrie and later still, Viscount Pirrie, whose unbridled ambitions were responsible for most of the wild expansion of the Royal Mail group that led to its ultimate collapse. Secondly there is the brilliant accountant Sir William McLintock, who rescued the vast majority of the collapsed companies that were to be of such incalculable value to Britain in the Second World War.

As this is a detailed narrative of these tumultuous events, the Article is divided into seven parts: -

• Part 1. Rescue and renaissance of RMSP
• Part 2. World War One, during which RMSP fatally takes control of Harland & Wolff
• Part 3. Pirrie’s disastrous over-expansion of Harland & Wolff using RMSP funds
• Part 4. Kylsant’s discovery of the Harland & Wolff nightmare after Pirrie’s death
• Part 5. The futile purchase of Oceanic Steam Navigation (White Star)
• Part 6. The pinnacle, implosion and retribution
• Part 7. The aftermath and the rescue operation

Please click on Part 1 in the box below to read the start of this history: