Royal Mail plc Reported revenue up £409 million

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Royal Mail plc (LON:RMG) is today announced its results for the full year ended 31 March 2019 and setting out an Outlook for 2019-20. The Company is also presenting its strategy, financial and business performance ambitions for the next three and five years. A range of presentations will set out detailed and comprehensive measures to deliver sustainable shareholder returns and underpin the Universal Service in the UK. This document summarises the main points in the Full Year 2018-19 Results and the strategic plan. A webcast of the presentations referred to above, which commences at 9.30am on 22 May 2019, will be available at www.royalmailgroup.com/results.

Rico Back, Group Chief Executive Officer, said: “Our ambition is to build a parcels-led, more balanced and more diversified international business, delivering adjusted Group operating profit margin of over four per cent in 2021-22, increasing to over five per cent in 2023-24.”
“At the heart of our refreshed strategy is a UK ‘turnaround and grow’ programme. In 2018-19, after a challenging year, we delivered productivity improvements and cost avoidance in line with our revised expectations. Over the next five years, through a focus on new ways of working and extending our network, we will ensure a contemporary UK Universal Service.
“The investment in the UK, and expected lower cash flow in the early years, means we are rebasing the dividend and changing our dividend policy. This is not a decision we have taken lightly as we know how important the dividend is to our shareholders. We have sought to find an appropriate balance between sustainable shareholder returns, and investing in the future.
“GLS is a key part of our strategic plan and will make a major contribution to our product and geographical diversification. By combining the best of Royal Mail and GLS, we will enhance our cross-border proposition in this large, growing and global market.”

FULL YEAR 2018-19 RESULTS

Reported Group Financial Summary1,2

Reported Results (£m)	53 weeks March 2019	52 weeks March 2018
Revenue	10,581	10,172
Operating profit before transformation costs	474	236
Operating profit after transformation costs	341	123
Profit before tax	241	212
-Basic earnings per share – continuing operations (pence)	17.5p	25.9p
Proposed full year dividend per share (pence)	25.0p	24.0p

· Reported revenue up £409 million due to impact of 53rd week in UKPIL and higher parcels revenue in UKPIL and GLS.

· Reported operating profit before transformation costs up £238 million, largely due to £371 million reduction in IAS 19 pension
charge partly offset by higher costs in GLS and increased people costs (excluding pension costs) in UKPIL.

· Operating specific items charge of £181 million, up £124 million.

Adjusted Group Financial Summary^2,3

Adjusted Results (£m)	53 weeks March 2019	52 weeks March 2019	52 weeks March 2018	Underlying change²
Revenue³	10,581	10,444	10,172	2%
Operating profit before transformation costs³	544	509	694	(26%)
Operating profit after transformation costs³	411	376	581	(34%)
Margin³	3.9%	3.6%	5.7%	(200bps)
Profit before tax	398		565
Basic earnings per share (pence)	30.5p		45.5p
In-year trading cash flow	117		545
Net (debt)/cash	(300)		14

· Revenue up two per cent to £10.4 billion, driven by good revenue growth in UKPIL parcels and GLS which more than offset letter revenue decline.

· Adjusted operating profit before transformation costs of £509 million, in line with our expected range of £500-530 million.

· Transformation costs of £133 million.

· Adjusted operating profit margin after transformation costs of 3.6 per cent, down 200 basis points.

· Total net cash investment² of £462 million, lower than expected due to lower transformation operating expenditure.

· In-year trading cash flow² of £117 million, negatively impacted by timing differences in working capital associated with the 2017-18 frontline pay award and the 53rd week.

Business Units^2,3

	Revenue	Adjusted operating profit before transformation costs
(£m)	52 weeks March 2019	52 weeksMarch 2018	Underlying change²	52 weeks March 2019	52 weeksMarch 2018	Underlying change²
UKPIL	7,595	7,615	Flat	332	503	(32%)
GLS	2,888	2,557	8%	177	191	(9%)
Intragroup	(39)	–	–	–	–	–
Group	10,444	10,172	2%	509	694	(26%)

Business unit performance

· UKPIL revenue flat at £7,595 million with good parcel revenue growth offsetting total letter revenue decline.

· UKPIL parcel performance better than 2017-18 with volumes up eight per cent and revenue up seven per cent.

· Addressed letter volumes (excluding political parties’ election mailings) declined eight per cent, in line with our revised expectations. Total letter revenue down six per cent.

· Achieved £107 million of costs avoided, compared with revised target of £100 million.

· Productivity improvement of 0.9 per cent for full year, 1.9 per cent achieved in second half.

· Adjusted UKPIL operating costs before transformation costs up two per cent, due to lower productivity and cost avoidance.

· Adjusted UKPIL operating profit margin after transformation costs of 2.6 per cent, down 240 basis points.

· GLS delivered continued good revenue growth, up eight per cent on volume growth of five per cent.

· Adjusted GLS operating profit of £177 million, down nine per cent.

· Adjusted GLS operating profit margin of 6.1 per cent, in line with our expectations.

2019-20 Outlook (see Targets and Ambitions Table for a three and five year view)

· We expect addressed letter volume declines of five-seven per cent (excluding political parties’ election mailings), due to continuing business uncertainty and its impact on the economy and the ongoing impact of GDPR.

· UKPIL parcel volume growth expected to outpace UK addressable market growth of four-five per cent.

· We expect productivity improvements of over two per cent.

· We anticipate costs avoided of £150-200 million.

· We expect Group adjusted operating profit after transformation costs of £300-340 million.

· The Board is recommending a final dividend of 17.0 pence per share, giving a full year dividend of 25.0 pence per share for 2018-19, an increase of one pence per share, or four per cent.

· It is then rebasing the dividend and changing the dividend policy. From 2019-20, the policy is for a full year dividend underpin of 15.0 pence per share, which may be supplemented by additional payouts in years with substantial excess cashflow. The dividend is expected to be covered by cumulative trading cashflows over both three and five years.

· Our new dividend policy reflects the additional investment to turnaround and grow our UK business and expected lower cash generation in the early years of the plan.

STRATEGY AND FINANCIAL OUTLOOK: THREE AND FIVE YEARS

Strategy

Our ambition is to build a parcels-led, more balanced and more diversified international business, delivering an adjusted Group operating profit margin of over four per cent in 2021-22, increasing to over five per cent in 2023-24. Our purpose is to connect customers, companies and countries.

To achieve this ambition, our strategy is focused on the delivery of three key priorities:

‘Turnaround and grow’ in the UK:

· following an extensive review of our UK business, a new transformation plan is now required, with a renewed focus on improved service, efficiency and productivity supported by a focus on productivity initiatives, a range of new, digitally enabled work tools and targeted investments

· continued success in UK parcels

· an extension of our UK network to handle large parcels and small tracked parcels more efficiently

As part of our overall UK strategy, Royal Mail will invest around £1.8 billion over five years in the UK’s postal service. This will be made up of the Company’s existing investment projects and additional expenditure to fund the UK ‘turnaround and grow’ programme. This investment, alongside the £2.1 billion invested in the UK since 2013, the year Royal Mail floated on the London Stock Exchange, means almost £4 billion has been committed to the UK since our privatisation.

Scale up and grow GLS:

· ongoing focus on profitable revenue growth including yield management

· continued focus on B2B, with selective growth in B2C

· integration of existing acquisitions

Enhancing our cross-border proposition:

· focus on driving incremental value from the combined strengths of Royal Mail and GLS in small and deferred parcel shipments

· growth in share of UK export parcels market

The pursuit of these priorities allows us to have the ambition to improve the financial outlook for the Group.