Royal Mail plc results for the half year ended 23 September 2018

Royal Mail plc results for the half year ended 23 September 2018

Key points

Royal Mail plc (RMG.L) today announces 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

Reported results (£m)

26 weeks ended 23 September 2018

26 weeks ended 24 September 2017

Underlying change2

Revenue

4,932

4,829

1%

Operating profit before transformation costs

208

89

 

Operating profit after transformation costs

156

26

 

Profit before tax

33

77

 

Profit after tax

5

168

 

Basic earnings per share (pence)

0.5p

17.1p

 

In-year trading cash flow

(100)

125

 

Net debt

(470)

(382)

 

Interim dividend per share (pence)

8.0p

7.7p

4%

Adjusted results (£m)

Revenue

4,932

4,829

1%

Operating profit before transformation costs

242

323

(25%)

Operating profit after transformation costs

190

260

 

Margin

3.9%

5.4%

(150bps)

Profit before tax

183

250

(27%)

Profit after tax

136

198

 

Basic earnings per share (pence)

13.6p

20.1p

 

 

Business units

 

Revenue

Adjusted operating profit before transformation costs

(£m)

26 weeks ended 23 September 2018

26 weeks ended 24 September 2017

Underlying change

26 weeks ended 23 September 2018

26 weeks

ended 24 September 2017

UKPIL

3,585

3,624

(1%)

165

233

GLS

1,347

1,205

9%

77

90

GROUP

4,932

4,829

1%

242

323

 

Group performance1,2

  • 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.
  • The Group 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.

Note to Editors

 

1 Reported results are in accordance with International Financial Reporting Standards (IFRS). Adjusted results exclude the pension charge to cash difference adjustment and specific items, consistent with the way financial performance is measured by Management and reported to the Board.

2 Movements are presented on an underlying basis. For further details of reported results, adjusted and underlying Alternative Performance Measures (APMs) used in the Financial Report for the half year ended 23 September 2018, including reconciliations to the closest IFRS measures where appropriate, see section entitled ‘Presentation of results and Alternative Performance Measures.’

3 The Agreement applies to employees in CWU represented grades in Core Operations, Logistics (excluding RM Fleet), Engineers, RMSS and Royal Mail International. It is subject to contract. A separate agreement has been finalised between Parcelforce Worldwide and the CWU. Details of arrangements for RM Fleet and Parcelforce Worldwide employees are appended to the Agreement. Separate negotiations will take place for other CWU grade employees within Royal Mail as per current arrangements. It does not apply to Unite-represented grades.

4 We have refined the calculation of workload since the October trading update, resulting in a change to the productivity performance for the first half.

For further information, please contact:

 

Investor Relations:
Catherine Nash
Phone: 020 7449 8183
Email: investorrelations@royalmail.com

 

Media Relations:
Beth Longcroft
Phone: 07435 768 549
Email: beth.longcroft@royalmail.com

 

Company Secretary:
Kulbinder Dosanjh
Phone: 020 7449 8133
Email: cosec@royalmail.com           

 

Results presentation:

A results presentation for analysts and institutional investors will be held in London at 9:30am on Thursday 15 November 2018. A simultaneous webcast will be available at www.royalmailgroup.com/results.

A trading update covering the nine months ending 23 December 2018 is expected to be issued on 29 January 2019. A conference call for analysts and institutional investors will be held on that date.

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