Half-year Report

RNS Number : 3991P

Royal Mail PLC

17 November 2016

 



17 November 2016

Royal Mail plc

Results for the half year ended 25 September 2016

To view the Financial Report for the half year ended 25 September 2016 please click here:

http://www.rns-pdf.londonstockexchange.com/rns/3991P_-2016-11-16.pdf

Royal Mail plc (RMG.L) today announced its results for the half year ended 25 September 2016.

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

"Our performance was broadly in line with our expectations. Group revenue increased by one per cent on an underlying basis, driven by a good performance from GLS, our continental European parcels business. We delivered UK parcel volume and revenue growth including new contract wins. Addressed letter volume decline was within our forecast range. The recent acquisition of ASM in Spain and GSO in California supports GLS' strategy of targeted and focused geographic expansion.

"We have increased our cost avoidance target from £500 million to £600 million of annualised costs cumulative over the three financial years ending 2017-18. We are targeting to reduce underlying UKPIL operating costs before transformation by up to one per cent in 2016-17, depending on the absorbable rate of change within our organisation. We are past the peak of investment. Net cash investment is expected to be no more than £500 million per annum, compared with an average of £615 million over the past three years.

"As always, our performance for the full year will be dependent on the important Christmas period. Extensive planning, which began in the spring, will help us to manage our busiest time. This includes the recruitment of over 19,000 temporary staff and opening nine temporary parcel sort centres."

Group financial highlights

Adjusted1 results (£m)	26 weeks ended 25 September 2016	26 weeks ended 27 September 2015	Underlying change2
Revenue	4,583	4,395	1%
Operating profit before transformation costs	320	342	(5%)
Operating profit after transformation costs	262	248
Margin	5.7%	5.6%	40bps
Profit before tax	252	240
Earnings per share	19.2p	18.1p
Reported3 results (£m)
Operating profit before transformation costs	206	208
Operating profit after transformation costs	148	114
Profit before tax (continuing operations)	110	116
Earnings per share (continuing operations)	8.6p	8.8p
In-year trading cash flow	116	1	115
Net debt4	(452)	(369)
Interim dividend per share	7.4p	7.0p	0.4p

Business performance

	Revenue				Adjusted operating profit before transformation costs
(£m)	26 weeks ended 25 September 2016	26 weeks ended 27 September 2015	Underlying change2		26 weeks ended 25 September 2016	26 weeks ended 27 September 2015
UKPIL5	3,641	3,654	(1%)		247	290
GLS	942	741	9%		73	52
Group	4,583	4,395	1%		320	342

Group financial performance

•	Revenue was up one per cent on an underlying basis, with good growth in GLS offsetting the decline in UKPIL revenue.
•	Adjusted operating profit before transformation costs was £320 million.
•	Adjusted operating profit margin after transformation costs increased by 40 basis points.
•	In-year trading cash flow increased to £116 million, reflecting more efficient investment spend.
•	In line with our stated interim dividend policy, the Board has declared a dividend of 7.4 pence per share for the half year ended 25 September 2016.

Business performance

•	UKPIL revenue declined one per cent on an underlying basis. Parcel volumes were up two per cent, driven by growth in Royal Mail account and import parcels. Parcel revenue increased by three per cent.
•	Addressed letter volumes declined by four per cent on an underlying basis within our forecast range of a 4-6 per cent decline per annum. Total letter revenue declined by three per cent. Marketing mail revenue was down eight per cent. Uncertainty leading up to and after the EU Referendum led to a reduction in overall UK marketing activity.
•	On an underlying basis, total adjusted UKPIL operating costs before transformation costs were flat.
•	UKPIL collections, processing and delivery productivity increased by 2.2 per cent, within our target range of a 2.0-3.0 per cent improvement per annum.
•	GLS continued to perform well over the period, taking into account the impact of public holidays across Europe. Volumes were up 10 per cent on an underlying basis, benefiting from strong growth in export volumes. Revenue increased by nine per cent, with growth in almost all markets. Operating profit was up 25 per cent on an underlying basis.
•	GLS recently acquired ASM in Spain and Golden State Overnight in California, supporting its strategy of targeted and focused geographic expansion.

Outlook summary

•	The key drivers for the UK letters and parcels markets remain unchanged. Letter volumes, particularly advertising letter volumes, are linked to movements in GDP and we are monitoring developments in the UK economy closely.
•	We are now targeting to avoid around £225 million of UKPIL operating costs in 2016-17 and around £600 million of annualised operating costs cumulative over the three financial years ending 2017-18.
•	We are now targeting to reduce underlying UKPIL operating costs before transformation costs by up to one per cent in 2016-17. The outcome of our cost performance will be dependent on the absorbable rate of change within our organisation.
•	Transformation costs are now expected to be between £130-160 million for 2016-17.
•	GLS will remain a focus for investment to help drive growth.
•	We are reprofiling our investment spend, which will be lower overall and weighted to growth. We now expect net cash investment to be no more than £500 million per annum going forward, compared with an average over the last three financial years of £615 million.
•	We remain very focused on improving our products and services, controlling costs, improving the efficiency of our spending and investing in new areas to support growth. The outcome for the full year will be dependent on the important Christmas period.

1	Adjusted results are a non-IFRS measure and exclude specific items and the pension charge to cash difference adjustment. The commentary in this review, 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. A reconciliation between adjusted and reported numbers is included on page 14 of the Financial Report.
2	All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for working days in UKPIL, movements in foreign exchange and ASM in GLS and other one-off items that distort the Group's underlying performance. For volumes, underlying movements are adjusted for working days and exclude the impact of political parties' election mailings in UKPIL and ASM in GLS.
3	Reported - prepared in accordance with International Financial Reporting Standards (IFRS).
4	Net debt is calculated by netting the value of financial liabilities (excluding derivatives) against cash and other liquid assets.
5	Following the Group's acquisition of the remaining 49 per cent shareholding in Romec Limited (Romec) at the beginning of 2016-17, Romec has been consolidated into the UKPIL segment (previously the Group's 51 per cent shareholding was reported within the 'Other' segment). The 2015-16 UKPIL results have been re-presented to reflect this change.

For further information, please contact:

Investor Relations:

Catherine Nash

Phone: [phone]

Email: [e-mail]

Dilani Paranavithana

Phone: [phone]

Email: [e-mail] 

Media Relations:

Beth Longcroft

Phone: [phone]

Email: [e-mail]

Registered Office:

Royal Mail plc

100 Victoria Embankment

London EC4Y 0HQ

Registered in England and Wales

Company number 08680755

A trading update covering the nine months ending 25 December 2016 is expected to be issued on 19 January 2017.

Results presentation:

A results presentation for analysts and institutional investors will be held in London at 9:30am on 17 November 2016 and a simultaneous webcast will be available at www.royalmailgroup.com/results.

Disclaimer

This document contains certain forward-looking statements concerning the Group's business, financial condition, results of operations and certain of the Group's plans, objectives, assumptions, projections, expectations or beliefs with respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'will', 'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'targets', 'goal' or 'estimates'.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group's actual financial condition, performance and results to differ materially from the plans, goals, objectives and expectations set out in the forward-looking statements included in this document. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements.

By their nature, forward-looking statements relate to events and depend on circumstances that will occur in the future and are inherently unpredictable. Such forward-looking statements should, therefore, be considered in light of various important factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, among other things: changes in the economies and markets in which the Group operates; changes in the regulatory regime within which the Group operates; changes in interest and exchange rates; the impact of competitive products and pricing; the occurrence of major operational problems; the loss of major customers; undertakings and guarantees relating to pension funds; contingent liabilities; the impact of legal or other proceedings against, or which otherwise affect, the Group; and risks associated with the Group's overseas operations.

All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurance can be given that the forward-looking statements in this document will be realised; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Subject to compliance with applicable law and regulation, the Group does not intend to update the forward-looking statements in this document to reflect events or circumstances after the date of this document, and does not undertake any obligation to do so.

 

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