Royal Mail Continued good revenue growth in GLS

Royal Mail plc (LON:RMG) today announced its results for the half year ended 23 September 2018.

Rico Back, Group Chief Executive Officer, commenting on the results, said: “We have put in place a range of actions to improve our performance. We are reconfirming our commitment to our revised £100 million cost avoidance target and adjusted Group operating profit before transformation costs of £500 million – £550 million for the financial year.

“We will update the market next year on our strategy. There will be a greater emphasis on how we connect customers, companies and countries through our domestic and international businesses. There will be a clearer focus on financial performance and management accountability. In March, we will host our first Capital Markets day since IPO in 2013. We will share more detail then about our direction for the next five years.”

Group financial summary¹

Business units

Group performance^1,2

· Revenue up one per cent on an underlying basis. GLS revenue increased nine per cent, more than offsetting one per cent decline in UKPIL revenue.

· Adjusted operating profit before transformation costs of £242 million was down 25 per cent on an underlying basis, primarily reflecting lower revenue in the UK, poor productivity performance and, consequently, lower cost avoidance in the UK, as well as higher than expected cost pressures in GLS.

· In-year trading cash outflow of £100 million arising primarily from, as previously indicated, a £101 million payment in relation to the 2017-18 pay award3.

· Adjusted operating profit margin after transformation costs of 3.9 per cent, down 150 basis points.

· Adjusted profit before tax of £183 million was down 27 per cent on an underlying basis, largely reflecting the operational performance.

· Adjusted basic earnings per share (EPS) of 13.6 pence was down 6.5 pence.

Business performance1,2

UKPIL

· UKPIL revenue down one per cent on an underlying basis.

· UK parcels business performing well. UK parcel revenue and volumes up six per cent. Royal Mail domestic account parcel volumes, excluding Amazon, up eight per cent.

· Addressed letter volumes (excluding the impact of political parties’ election mailings) down seven per cent. Total letter revenue (including marketing mail) down by seven per cent. Excluding the benefit of political parties’ mailings in relation to the general election in H1 2017-18, total letter revenue down five per cent.

· Disappointing UK productivity performance, significantly below plan at -0.2 per cent4. UKPIL total costs up one per cent. Transformation costs of £52 million.

· Costs avoided of £41 million.

· Implementing short-term cost actions, including a review of our organisational structure and management roles, discretionary spend and central costs.

GLS

· GLS revenue up nine per cent on an underlying basis. Volumes up six per cent, excluding recent acquisitions. Including acquisitions, revenue up 11 per cent on a constant currency basis.

· Adjusted GLS operating profit margin declined to 5.7 per cent, due to previously highlighted labour market and other cost pressures across Europe and the US.

· Good revenue growth at Golden State Overnight (GSO). GSO and Postal Express being integrated to create an interstate overnight parcel delivery service with full US west coast coverage. Expected synergies and benefits will now take longer to be realised. This is because of local cost pressures, refocusing the customer base, transitioning to the new business model and ongoing integration costs. Recognising a £68 million impairment against the goodwill and other assets related to the acquisition of these businesses: non-cash operating specific item.

Outlook summary for 2018-19

· Outlook and other guidance for 2018-19 unchanged.

· Adjusted Group operating profit before transformation costs of £500 million to £550 million on a 52 week basis.

· UKPIL parcel volumes and revenue growth rates to be better than in 2017-18.

· Addressed letter volume decline (excluding political parties’ election mailings) similar to decline in first half.

· Committed to £100 million cost avoidance target; UKPIL productivity improvement significantly below our original expectation (towards the upper end of the two to three per cent range).

· Transformation costs of around £150 million due to short-term cost actions.

· Continued good revenue growth in GLS. Targeting adjusted operating profit margins of over six per cent.

· Total net cash investment of around £500 million.

· Royal Mail has a progressive dividend policy. In line with our dividend policy, the interim dividend of 8.0 pence has been set as one third of the prior year’s total dividend.