Royal Mail PLC Results for the Half Year Ended 27 September 2015

Royal Mail plc (RMG.L) today announced its results for the half year ended 27 September 2015.

Moya Greene, Chief Executive Officer, commenting on the results, said:

“Royal Mail is the pre-eminent letters and parcels carrier in the UK. We have delivered a resilient performance in the first half, demonstrating our ability to respond to a competitive trading environment.

“We delivered parcel volume and revenue growth in the UK, which continues to be a challenging market. Addressed letter volume decline was at the better end of our forecast range. We are driving through a range of product innovations and service improvements at pace, as well as targeting new areas of growth and enhancing our offering.

250px-Royal_Mail.svg“As a result of an acceleration of our UK cost savings programme and a better than expected performance in GLS, Group operating profit before transformation costs was flat in the first half. Given our strategic focus on costs, we now expect underlying UKPIL operating costs to be down by at least one per cent for the full year.

“As in previous years, the full year outcome will be dependent on our important Christmas period, for which we have extensive preparations in place.”

Group financial highlights

 

 

(£m)

Half year ended

27 September

2015

Half year ended

28 September

20141

Underlying

change2

Revenue

4,395

4,478

Flat

Adjusted3 operating costs before transformation costs

(4,053)

(4,130)

Adjusted3 operating profit before transformation costs

342

348

Margin

7.8%

7.8%

Flat

Transformation costs

(94)

(47)

Adjusted3 operating profit after transformation costs

248

301

Margin

5.6%

6.7%

(110 bps)

Profit before taxation
– Adjusted3

240

287

– Reported4

116

167

Earnings per share
– Adjusted3

18.1p

21.7p

– Reported4 (continuing operations)

8.8p

12.5p

– Reported4(total Group)

11.4p

12.5p

Free cash flow

49

117

(68)

Net debt

369

Interim dividend per share

7.0p

6.7p

Business performance

 

Revenue

Adjusted3 operatingprofit before transformation costs

(£m)

Half year ended

27 September

2015

Half year ended

28 September

2014

Underlying

change2

Half year ended

27 September

2015

Half year ended

28 September

2014

UKPIL

3,651

3,703

(1%)

284

288

GLS

741

766

8%

52

56

Other

3

9

n/m

6

4

4,395

4,478

Flat

342

348

Group financial performance

  • Revenue was flat, with growth in UK and European parcels offsetting the decline in UK letter revenue.
  • Adjusted operating profit and margin before transformation costs were both broadly flat due to an acceleration of our cost savings programme.
  • Transformation costs increased, reflecting higher levels of voluntary redundancy costs. Nearly 3,000 (net) UKPIL employees left the business in the first half.
  • Operating profit margin after transformation costs declined by 110 basis points.
  • Free cash inflow of £49 million reflects higher levels of investment, in particular transformation operating expenditure, due to acceleration of the cost savings programme.
  • Net debt increased to £369 million from £275 million at 29 March 2015, mainly due to payment of dividends, as in the comparative period.

 

Business performance

  • UKPIL revenue was down one per cent:
    • Parcel volumes were up four per cent, driven by new customer wins and initiatives in account parcels, continued growth in lower AUR import products, and strong volume growth in Parcelforce Worldwide. Parcel revenue increased by one per cent.
    • Addressed letter volumes declined by four per cent (excluding elections), at the better end of our forecast range of a 4-6 per cent decline per annum. Total letter revenue declined by three per cent.
  • Our strong focus on UKPIL costs resulted in a one per cent reduction in underlying operating costs before transformation costs:
    • UKPIL people costs decreased by one per cent and non-people costs declined by two per cent.
    • UKPIL collections, processing and delivery productivity improved by 2.9 per cent, at the top end of our target range of a 2.0-3.0 per cent improvement per annum.
  • GLS continued to perform well. Volumes were up nine per cent, benefitting from strong growth in international volumes. Revenue was up eight per cent.

Dividend

  • In line with our stated interim dividend policy, the Board has declared a dividend of 7.0 pence per share for the half year ended 27 September 2015, which will be paid on the 13 January 2016 to shareholders on the register on 4 December 2015.

Outlook

  • Outlook for UK letter and parcel trends over the medium and short term, respectively, remains unchanged.
  • We now expect underlying operating costs in UKPIL (excluding transformation costs) to be down by at least one per cent in 2015-16.
  • We have avoided around £200 million of costs over the last three years5 and have over 70 scoped and resourced projects across UKPIL targeted to avoid around £500 million of additional annualised costs by 2017-186.
  • Transformation costs for 2015-16 are now expected to be at least £180 million, due to the impact of the accelerated efficiency improvements in the first half, as well as higher project costs in relation to transformation in the second half.
  • This would lead to a total net cash investment in 2015-16 of around £620 million, similar to last year.
  • Given our performance in the first half, we now expect GLS operating profit margin decline to be at the better end of the 50-100 basis points range in 2015-16.
  • Our performance in the second half will be dependent on our important Christmas period.

 

1Results for H1 2014-15 have been adjusted to reflect the sale of DPD Systemlogistik GmbH & Co. KG (DPD SL), on 31 March 2015. Revenue £47 million; operating costs before transformation costs £47 million.

2 All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for movements in foreign exchange in GLS, working days in UKPIL and other one-off items that distort the Group’s underlying performance. For volumes, underlying movements are adjusted for working days in UKPIL and exclude elections in letter volumes. In H1 2015-16 there were 152 working days in UKPIL (H1 2014-15 152) and the foreign exchange impact in GLS was £82 million adverse on revenue and £76 million positive on costs, giving a net adverse impact on operating profit of £6 million.

3 Adjusted results are a non-IFRS (International Financial Reporting Standards) measure and exclude specific items. The commentary in this report, unless specified otherwise, focuses on the operating results on an adjusted basis. This is consistent with the way that financial performance is measured by Management and reported to the Board and assists in providing a meaningful analysis of the results of the Group.

4 Reported results are prepared in accordance with IFRS.

5 Cumulative over financial years 2012-13, 2013-14 and 2014-15.

6 Cumulative over financial years 2015-16, 2016-17 and 2017-18.

 

For further information, please contact:

Investor Relations:

Catherine Nash

Phone: 020 7449 8183

Email: investorrelations@royalmail.com

Media Relations:

Beth Longcroft

Phone: 07435 768549

Email: beth.longcroft@royalmail.com

 

Mish Tullar

Phone: 07423 524154

Email: mish.tullar@royalmail.com

Results presentation:

A results presentation for analysts and institutional investors will be held in London at 9:30am on 19 November 2015 and a simultaneous webcast will be available at www.royalmailgroup.com/results

A trading update covering the nine months ending 27 December 2015 is expected to be issued on 21 January 2016.

 

Registered Office:

Royal Mail plc

100 Victoria Embankment

London EC4Y 0HQ

Registered in England and Wales

Company number 08680755