Half-year Report

RNS Number : 7541S

Royal Mail PLC

18 November 2021

Royal Mail plc

(Incorporated in England and Wales)

Company Number: 8680755

LSE Share Code: RMG

ISIN: GB00BDVZYZ77

LEI: 213800TCZZU84G8Z2M70

Royal Mail plc

18 November 2021

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR

ROYAL MAIL plc

RESULTS FOR THE HALF YEAR ENDED 26 SEPTEMBER 2021

Reported measures (£m)¹	Reported 26 weeks ended 26 September 2021	Reported 26 weeks ended 27 September 2020	Change³
Revenue	6,072	5,671	7.1%
Operating profit/(loss)	311	(20)	n.m.
Profit before tax	315	17	n.m.
Basic earnings per share (pence)	27.0p	1.4p	n.m.


Adjusted measures (£m)^1,2
Operating profit	404	37	n.m.%
Operating margin (%)	6.7%	0.7%	600 bps
Profit before tax	378	18	n.m.
Basic earnings per share (pence)	30.3p	0.4p	n.m.
In-year trading cash flow⁴	298	219	36.1%
Net debt	(540)	(1,006)	(46.3)%
Net cash (pre-IFRS 16)	685	47	n.m.

H1 2021-22 Highlights

· Continued revenue momentum, Group reported operating profit £311 million, up £331 million year on year, driven by recovery in profitability in Royal Mail after negative impact of COVID-19 pandemic and restructuring charges in H1 2020-21;

· Royal Mail adjusted operating profit £235 million, 5.8% margin; GLS £169 million, 8.4% margin;

· Structural shift in parcel volumes from COVID-19 pandemic:

· Royal Mail domestic parcel volumes (ex. international) up 33% vs. H1 2019-20; GLS parcel volumes up 30% in the same period;

· Compared to H1 2020-21, Royal Mail domestic parcel volumes (ex. international) down 4%, GLS parcel volumes up 8%;

· Royal Mail making progress on change agenda, focused on delivering benefits of union agreements:

· £15 million benefit from Pathway to Change agreement delivered in first half; now expect at least £80 million full year benefit (previously £100+ million), with year-end exit run rate unchanged;

· Over 1,700 revisions and realignment activities deployed;

· "Scan-in / Scan-out" technology in all Mail Centres and Regional Distribution Centres;

· Seeing benefits of actions on costs: £56 million from management restructure and £42 million from non-people costs;

· Universal Service Obligation (USO): want to ensure USO remains relevant and sustainable; customer needs have changed and we want to level up by investing in a one-price, seven day "go everywhere" parcel service;

· Strong cash generation: in-year trading cash flow of £298 million improved by 36.1% year on year, including increased capex as Royal Mail transformation progresses:

· Equal contribution from both Royal Mail (£151 million) and GLS (£147 million);

· Interim dividend: 6.7 pence per share in line with policy;

· Expect to move towards a net nil cash position (pre-IFRS 16) over the next two years. Returning £400 million capital to shareholders: £200 million share buyback commencing immediately and £200 million special dividend to be paid alongside interim dividend;

· Outlook for FY 2021-22:

· Royal Mail expected to be around £500 million adjusted operating profit;

· GLS guidance unchanged: low single digit % revenue growth and c. 8% operating profit margin.

Summary segmental results^1,2

Revenue			Adjusted operating profit
(£m)	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020	Change³	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020	Change³
Royal Mail	4,074	3,828	6.4%	235	(129)	n.m.
GLS	2,010	1,870	7.5%	169	166	1.8%
Intragroup	(12)	(27)	(55.6%)	-	-	-
Group	6,072	5,671	7.1%	404	37	n.m.

Keith Williams, Non-Executive Chair, commented:

"The first half saw continued revenue growth across the Group, with improved profitability in Royal Mail and GLS performing strongly.

In Royal Mail, we are progressing our change agenda and remain focused on securing the financial benefits of the Pathway to Change agreement. FY 2021-22 adjusted operating profit is expected to be around £500 million.

GLS continues to deliver good volume and revenue growth, both year on year and against H1 2019-20. Whilst we are seeing upward pressure on costs in all of our markets, we maintain our outlook for the full year of low single digit % revenue growth and c. 8% operating profit margin.

We believe that both Royal Mail and GLS will be able to fund their respective investment pipelines from future cash flows and continue to invest in growth, technology, digital services and the environment. Royal Mail will remain focused on transformation and GLS will continue to look for selective bolt-on acquisitions to extend its current footprint, enhance its portfolio and exploit network synergies.

We now have more visibility on the strategic progress and performance of both businesses, and while there is more to do, the Board has decided that we should re-examine our retained cash balance. We believe it is appropriate now progressively to move towards a net nil cash position pre-IFRS 16. As a first step, we will return £400 million of cash to shareholders, partly through a share buyback and partly from a special dividend."

Simon Thompson, Chief Executive, Royal Mail said:

"Re-invention of Royal Mail is inflight; we are making pleasing progress with our change agenda. We're seeing the benefits of our programmes to reduce costs, and are developing our plans to address inflationary pressures which will impact next year and beyond. We're also taking steps to equalise performance across our whole operation to ensure that our customers always get the great levels of service they expect from Royal Mail.

The pandemic has resulted in a structural shift and accelerated the trends we have been seeing. Domestic parcel volumes, excluding international, are up around a third since the pandemic, whilst addressed letter volumes, excluding elections, are down around a fifth. This reaffirms that our strategy to rebalance our offering more towards parcels is the right one, and demonstrates the need to start defining what a sustainable Universal Service is for the future. I want to thank our teams for what we have delivered so far: it is an impressive start but there is still much more to do together."

Martin Seidenberg, Chief Executive, GLS added:

"GLS continues to deliver good results and is successfully executing on its Accelerate strategy.

We are delivering change and growth, launched our refreshed GLS brand and continue to invest in our international network. We are excited to continue our growth path going forward."

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 For further details on Adjusted Group operating profit, reported results and Alternative Performance Measures (APMs) used, see section entitled 'Presentation of results and Alternative Performance Measures'.

3 All percentage changes reflect the movement between figures as presented, unless otherwise stated. "n.m." is not meaningful.

4 In-year trading cash flow is reported as net cash inflow from operating activities, adjusted to exclude other working capital movements, the cash cost of operating specific items and dividends received from associate undertakings and to include the cash cost of property, plant and equipment, intangible asset acquisitions and net finance payments.

Results presentation

A results webcast presentation for analysts and institutional investors will be held at 9:00am today, Thursday 18 November 2021 at www.royalmailgroup.com/results .

Enquiries:

Investor Relations

John Crosse

Email: investorrelations@royalmail.com

Royal Mail investor relations line: 020 7449 8183

Media Relations

Jenny Hall

Phone: 07776 993 036

Email: jenny.hall@royalmail.com

Helen Reynoldson

Phone: 07483 302 245

Email: helen.reynoldson@royalmail.com

Royal Mail press office: press.office@royalmail.com

Company Secretary

Mark Amsden

Email: cosec@royalmail.com

The person responsible for arranging the release of this announcement on behalf of Royal Mail is Mark Amsden, Company Secretary

Financial Calendar

Ex-dividend date	2 December 2021
Dividend record date	3 December 2021
Dividend payment date	12 January 2022
Q3 trading update	10 February 2022

GROUP REVIEW:

Our first half results show that we are making progress. The new management team have now been in place for ten months or more, and in Royal Mail we are successfully starting our transition into a business which delivers what customers want - more parcels, more often. The first half also demonstrates the ability of both Royal Mail and GLS to be self-sufficient financially, particularly against the backdrop of economic uncertainty caused by the COVID-19 pandemic.

The first half was not without its challenges as markets emerged from COVID-19 restrictions, leading to changes in consumer behaviour, ongoing volatility in parcel volumes and shifts in mix, as well as a recovery in letter volumes in Royal Mail. We believe the COVID-19 pandemic resulted in a structural shift, with a permanent step up in the level of parcel volumes compared to pre-pandemic levels, driven by increased online e-commerce activity. This is reflected in our first half performance.

Group revenue grew by 7.1%, with Group operating profit £311 million on a reported basis (H1 2020-21: £20 million loss) and on an adjusted basis, £404 million (H1 2020-21: £37 million), driven by a turnaround in the profitability of Royal Mail and restructuring charges incurred in the prior year. Adjusted basic earnings per share was 30.3 pence (H1 2020-21: 0.4 pence).

The Board would like to thank again all of our colleagues across Royal Mail and GLS who have worked relentlessly to play a key role and for their unstinting efforts to keep people, businesses and countries connected.

Strategy

The changing marketplace has already had a significant impact on Royal Mail. It has started to expand its customer offering in the growing parcels market - for example starting Sunday deliveries - which is important to offset the structural decline in letters. The pandemic has accelerated the trends we were already seeing, with addressed letter volumes (excluding elections) down around a fifth compared to pre-COVID levels in H1 2019-20, and domestic parcel volumes (excluding international) up around a third compared to the same period.

Improved colleague and trade union engagement is showing early signs of enabling us to adapt more quickly to the market and the needs of customers and consumers, and successfully leverage the Pathway to Change agreement with CWU to improve efficiency and drive growth. Progress on these is vital to deliver a sustainably profitable, growing, and competitive business in the UK.

More than 1,700 revisions and realignment activities have been deployed across the operation. This has been a significant undertaking and is an important step which shows we can work together with CWU, at scale and at pace. "Scan-in / Scan-out" technology has now replaced handwritten sign-in / sign-out systems at 43 processing sites. Our focus now is on translating that progress into delivering the expected efficiency savings in the second half. We have also agreed a new and quicker dispute resolution process to enable agreement on change to happen more rapidly.

GLS already has a distinctive and proven business model in parcels which places it in a great position for future growth, both organically and inorganically, in attractive markets, as outlined in its Accelerate strategy. It is already starting to see a recovery in its core business of B2B parcels post the pandemic, as well as continuing growth in B2C. There are also signs of progress in previously underperforming markets - the US and France. The Board is supportive of GLS' plan to grow internationally and to leverage opportunities in digital and technology under its Accelerate plan. This is now underway with the recent agreement to acquire Rosenau Transport in Canada ( subject to customary closing conditions and regulatory approvals), which will be complementary to our existing business, strengthen our unique hybrid parcels and freight business model, and will have revenue and cost benefits.

However, there is more to do in both companies, particularly to combat competitive and inflationary pressures which we see ahead.

GLS is already taking steps around pricing and operational efficiency, whilst at the same time investing across its existing international network to improve cross border flows. It is also looking to expand its customer proposition by investing in new products and services, with greater use of digital.

At Royal Mail the key to offsetting inflationary pressures remains delivery of our existing union agreements. We have made significant change already, but this needs to translate into real efficiency savings which deliver a financial benefit into the rest of this year and next. We will continue our focus on further revision activity, automation and changes to our way of working to drive further efficiency into next year. Delivery of our existing agreements and the successful transition into the next agreements will be key to future profitable growth.

At the same time, we can see further growth opportunities - for example Sunday deliveries and Parcel Collect - as well as opportunities to drive further efficiency from optimising delivery offices and equalising performance across all our sites. We have a clearer definition of what our services as part of and outside the Universal Service Obligation (USO) should look like and we will be putting these forward as we work with stakeholders going forward.

As indicated earlier in the year, we do not see significant synergies between GLS and Royal Mail. There are however opportunities for collaboration across a number of areas - for example as GLS expands its footprint internationally and Royal Mail transitions to the new trading relationship with the EU, both companies can benefit from joint working on customs simplification.

The first half has demonstrated the self-sufficiency of both companies and the Board continues to be happy with the Group structure at present.

Capital allocation and balance sheet

We have a clear capital allocation framework:

· invest in our business to support organic growth and innovation;

· maintain our investment grade rating;

· pay a progressive ordinary dividend from a 20 pence per share base;

· retain flexibility for accretive and complementary acquisition opportunities;

· with excess cash returned periodically to shareholders.

The Board believes that both Royal Mail and GLS will be able to fund their respective investment pipelines from future cash flows. For Royal Mail, capex requirements this year remain unchanged, with well over £400 million expected to be invested in our parcel hubs, technology such as "Scan In / Scan Out", PDAs for our frontline to enable new digital services and our fleet, including electric vehicles. GLS capex is expected to be around £160 million this year to provide additional capacity and support current and future organic growth, with investments in hubs in Germany, Czech Republic, Slovakia and Romania, as well as direct city to city linehaul routes. GLS also has opportunities for inorganic growth: we hope to complete the acquisition of Rosenau Transport on 1 December (subject to customary closing conditions and regulatory approvals), leading to a cash outflow of around £215 million, subject to foreign exchange movements. GLS will continue to look for selective bolt-on acquisitions to extend its current footprint, enhance its portfolio and exploit network synergies. Whilst we wish to maintain flexibility, we would currently expect GLS to be capable of financing its optimal acquisition programme from its own resources over the medium term.

Given the significant cash flow generation potential of each business, both should be seen as capable of investing in and supporting their own organic growth and innovation with no constraint to growth.

S&P recently re-affirmed our BBB rating, now with a positive outlook.

The ordinary dividend is fully underpinned and secure.

The Board believes therefore that, in line with our capital allocation policy, there is cash available to return to shareholders. Recognising the challenges of high levels of both operational and financial leverage and with COVID-19 and economic uncertainty remaining, in May the Board preserved a prudent balance sheet with a substantial net cash position (pre-IFRS 16). We also committed to regularly review that position. Excluding operating lease debt (IFRS 16), there was a net cash balance of £685 million as at 26 September 2021, reflecting constrained investment and temporary suspension of ordinary dividends during COVID-19, and improved business performance.

Whilst there is work to do in both businesses to address inflationary pressure and specifically in Royal Mail to deliver the financial benefits of our existing union agreement and transition to new agreements to deliver further change and efficiencies into next year and beyond, the new management team have had time to assess the position and prospects for both GLS and Royal Mail and to make progress in executing their respective strategies. We also now have more insight into how our markets are unwinding from COVID-19. The Board has therefore concluded that it is now appropriate to start to reduce our cash holdings. Given the current trading position and outlook, if our economic, commercial and industrial relations environment remains stable, then over the next two years we will look to return to our historic position of a broadly net nil cash position (pre-IFRS 16). We will keep this under review periodically, taking into account any capital requirements for M&A.

As a first step, we intend to return £400 million of capital to shareholders, via a share buyback and special dividend. A £200 million share buyback will commence immediately and is due to complete ahead of the AGM in July 2022. Reflecting our large retail shareholder base, including many of our colleagues, a special dividend of £200 million will be paid alongside the interim dividend of 6.7 pence per share on 12 January 2022.

We will assess our leverage position further at the end of the current financial year.

Board changes

Shashi Verma was appointed as a Non-Executive Director on 29 September. Shashi also joined the Nomination Committee and the Corporate Responsibility Committee from this date.

Shashi is Director of Strategy and Chief Technology Officer at Transport for London (TfL) and a Trustee for the Centre for London. The Board will benefit greatly from his experience of implementing new technologies and innovation in the public sector and his appointment is a further step in refreshing and strengthening the Board.

Outlook 2021-22

While the market is progressively becoming more stable it is still adjusting as we emerge from the COVID-19 pandemic and we are about to lap strong comparators in the prior year when most of our markets were still under significant COVID-19 restrictions. Consumer behaviours through the peak trading period will therefore be very important for our full year outturn.

For Royal Mail, back in May 2021 we outlined the potential movement in certain costs in FY 2021-22 vs FY 2020-21. The table below shows the expected outturn for each category as presented in May, along with the position at the half year. Against each we have given a current status: green indicates a high level of confidence in the full year outturn, whilst amber indicates we see some risk.

	FY 2021-22 expected outturn as at May 2021 £m	Position at end of H1 2021-22 £m	Status: A (Amber), G (Green)
Management restructure (charge and savings)	208	149	G
Non-people cost programme (flow though and remainder)	c. 110	42	G
Pay award	(110)	(43)	G
Pathway to Change efficiencies	100+	15	A
COVID-19 costs and conveyance cost unwind	c. 100	24	A
Transformation and investment related spend	c. (60)	(20)	G
Service and convenience investment	c. (90)	(38)	G
Other cost pressures incl. inflation	c. (110)	(25)	A
Operational gearing	-	213	A

In Royal Mail, a major focus for the second half is to secure the financial benefits from the Pathway to Change agreement and to complete the revisions programme. Whilst we expect the exit run rate for this year to remain unchanged, given the timing of delivery of benefits to date, we now expect at least an £80 million benefit in FY 2021-22 vs. £100+ million, with the majority of the remaining benefits due to accrue in the last 3 months of the year. The exit rate is clearly vital to provide a tailwind into next year.

COVID-19 and international conveyance costs are unwinding at a slower rate than anticipated, as our absence rates remain higher than would be normal, social distancing costs have persisted and international conveyance costs are still high.

Operating cost pressures of £45 million are included in other cost pressures.

We would expect the operational gearing benefit seen in the first half to start to unwind as we move through the balance of the year and comparators become tougher. The operation is currently facing challenges with higher than expected sick absence and level of vacancies. This, along with the bedding-in of the significant change from the recently deployed revisions, is impacting productivity and quality performance. We expect performance on both of these measures to improve as the anticipated benefits of the Pathway to Change agreement are delivered and initiatives to improve quality take effect. The challenge in the second half will be for the operation to respond rapidly to changes in volumes and workload, so that we can deliver great service, efficiently.

If revenue maintains a similar profile vs. 2019-20, as is currently being experienced, then we forecast adjusted operating profit of around £500 million for FY 2021-22.

The impact of other inflationary pressures is limited in the short term given our hedging programmes on fuel and electricity and our largely permanent workforce and agreed pay deal for this year, although we have seen unit costs for temporary workers over peak increase year on year, including HGV drivers in linehaul.

In the second half GLS, like Royal Mail, will be lapping strong comparators from H2 2020-21, when lockdown restrictions were in place in most of our markets. GLS is also facing into significant cost headwinds in all of our markets. This means we are likely to see lower revenue growth in the second half compared to the level seen in H1, and reduced operating profit vs. H2 2020-21.

In spite of this, we believe a combination of specific pricing actions, good service quality and targeted efficiency measures will allow us to meet our original guidance of low single digit percent revenue growth and an operating margin of around 8%.

Outlook beyond 2021-22

It seems increasingly clear that inflationary pressures will persist. In Royal Mail, employer National Insurance contributions will increase by 1.25% from April 2022, impacting employment costs in FY 2022-23 by c.£50 million. We expect the flow through costs of the shorter working week, to be around £40 million in FY 2022-23 We will also need to secure pay deals with both Unite/CMA and CWU.

Inflation risk in fuel and energy is covered by existing hedges, although these will start to unwind.

We are already looking at cost mitigation plans, with over £190 million identified so far, including:

· We anticipate Pathway to Change initiatives from FY 2021-22 will deliver flow through benefits in FY 2022-23;

· Additional savings will come from increased automation as we push towards 70%, including the launch of our North West Hub in Spring 2022;

· Benefits from further revision and change activity (including equalising performance between units);

· We also expect flow through savings in FY 2022-23 from non-people programmes launched in FY 2021-22.

We will also implement tariff increases where we can on certain letter services from January 2022.

In GLS, we are maintaining our Accelerate targets of operating profit of €500 million in 2024-25 and €1 billion cumulative free cash flow¹ over the five years to 2024-25, on an organic basis. If inflation remains high in the medium term there will be increased risk to our medium-term operating profit margin guidance of c. 8%, in particular from fuel and energy costs and ongoing upwards pressure on wage rates.

1. Free cash flow after IFRS 16 lease payments

OPERATING REVIEW

ROYAL MAIL

Operating performance

We believe that trust in our people, our brand, and our nationwide hyper-local network is a platform for profitable growth. We are focused on transforming our network as quickly as possible to ensure we are operating efficiently and profitably, to make the most of the opportunity we have in front of us. Increasing our parcels automation and delivering the benefits associated with the agreement we reached with CWU are key areas of focus this year.

At the same time as improving our efficiency, we are becoming a more agile, customer-focused business. We are changing faster, and delivering more of what our customers need and want - such as Sunday deliveries, home collections of parcels through Parcel Collect, and trialling new services such as same day prescriptions, or as we call it 'instant pain relief'.

We are making progress working alongside both CWU and Unite/CMA. Change at this scale and pace is very difficult, but we are embracing it and learning how to be even better at it as we move forward. We still have much more to do together.

In the first half Royal Mail revenue was £4,074 million, an increase of 6.4% year on year, supported by the partial recovery in letter volumes following the significant decline seen during the COVID-19 pandemic. Adjusted operating profit was £235 million (H1 2020-21: £129 million loss) with an adjusted operating profit margin of 5.8%.

In-year trading cash inflow was £151 million, compared with £38 million in the prior period. Gross capital expenditure increased by £64 million largely driven by investment in parcel hubs, automation and PDAs. Further detail is included in the Financial Review.

Parcels

Domestic parcel volumes (ex. international) increased by 33% compared to pre-COVID levels (H1 2019-20), reinforcing our view that we have seen a structural shift in the market. Reflecting the progressive removal of lockdown restrictions during the Spring and Summer, domestic volumes (ex. international) decreased by 4% compared to the same period last year, which included the first lockdown and closure of non-essential retail.

Tracked 24^® / 48^® and Tracked Returns^® performed strongly with 21% growth. Account parcel volumes were down 3% year on year.

Total parcel volume declined by 10% year on year in the first half, a result of reduced volumes in international which has been impacted by a number of factors previously outlined, including increased customs processing, and reduced air freight capacity. Recent data from the Office of National Statistics (ONS) shows consumer goods exports down 41%¹ compared to 2019, broadly in line with the decline in international parcel volumes in the first half of 37% compared to H1 2019-20.

Domestic parcel revenue (ex. international) grew by 43.3% compared to the first half of 2019-20, due to volume growth and positive price/mix. Total parcel revenue however grew by 33.6% compared to the same period, reflecting the lower growth in international. Year on year domestic parcel revenue (ex. international) grew by 4.4%, with total parcel revenue broadly flat.

As customers increasingly look for convenient and flexible solutions, we are looking to grow our Parcel Collect service with innovations such as "Bring my label" for those without a printer at home. We have been running trials in Bath, Cheltenham, Doncaster and Newton Mearns, and have now completed a national roll out.

Sunday parcel deliveries continue to grow strongly. We have started with some of the larger retailers, and 45 companies are using the service so far. Volumes have ramped up quickly since April and we are rapidly approaching a 15 million items a year business. We have only scratched the surface and want to accelerate from here. In the future, we envisage a seven day parcel service, and we are discussing with our unions how to make Sunday part of our regular duty pattern.

1. ONS Monthly Review of External Trade Statistics (MRETS) shows that UK export is down 41% in July 2021 vs. 2019.

Letters

We have seen a partial recovery in letter volumes compared to the significant decline we experienced during the COVID-19 pandemic. Year on year addressed letter volumes (excluding elections) grew by 11%, but were still down 19% compared to two years ago.

Total letter revenue grew by 15.6% year on year, reflecting volume growth and positive price/mix, but fell by 8.1% compared to H1 2019-20, reflecting the ongoing structural decline.

Strategic focus for this year

In May 2021 we outlined six key areas of focus for this year. They were:

· achieving our quality of service targets and being number one on NPS (Net Promoter Score);

· deliver the CWU agreement on time and realise £100 million+ benefits;

· continuing to increase our own internal Trust score;

· a rapid reduction in managers' daily activities and policies;

· parcel automation at 50%+ by the end of the year; and

· deliver £110 million of non-people cost savings.

Quality of Service and Net Promoter Score

Trust at the doorstep is what makes us different and is our competitive advantage. The target for this year is to be number one on NPS and at the halfway point that is where we are. We are first for customers receiving parcels and joint first for retailers sending parcels. However, we know it is an incredibly competitive market. We will continue to focus on improving Quality of Service for our customers and developing new products and services so that we can maintain this position. We are rolling out improved estimated delivery windows, and as of today, c. 6% of our deliveries now have a 30-minute window and there is much more to come in this space.

On quality of service, as we entered 2021, we showed continued progression in the early months of the year. Between January and April, First Class mail delivered the next working day rose from around 70% to 85% and in May and June, we saw further improvements. However, more recently we have been negatively impacted by high levels of sick absence and COVID-19 self-isolation in addition to vacancies. In Q2, we delivered 82.4% of First Class mail the next working day. 95.7% of Second Class mail was delivered within three working days. We are delivering a good service in most delivery offices, but there are a small number where the quality performance is disproportionately impacting overall numbers. We have over 1,200 delivery offices, and around 2% are responsible for around 14% of delayed items and around 4% for a quarter of delayed items. To help equalise performance, we have created a Delivery Performance taskforce to support those units that need the most help. The results so far have been very encouraging. We are working hard to get our Quality of Service back to the levels our customers expect everywhere.

Delivering the CWU agreement

We are making good progress executing our CWU agreement and we are now focused on realising the benefits. Change at this scale and pace is difficult but we have deployed over 1,700 revisions (including more than 1,200 in delivery) and realignment activities across the operation in less than 6 months. Our previous best was 132 delivery revisions in 12 months. This has been a significant undertaking, delivered in partnership with our unions, CWU and Unite/CMA. We now have a fairer and more equal workload which we can build on. We plan to complete the less than 70 remaining revisions in January, after the Christmas peak period. We have learnt some important lessons along the way, and are already acting on the feedback ahead of further revisions next year.

Change includes more than just the revisions. We have an agreed productivity standard for the first time with flightpaths to achieve them. "Scan-in / Scan-out" technology has now replaced handwritten sign-in / sign-out systems at 43 sites, including all Mail Centres and Regional Distribution Centres, with benefits expected to be realised in the second half. Similarly, "Delivery to Specification", an algorithm to deliver mail as per the product specification and therefore reduce costs, is fully rolled out with benefits from the second half onwards. Trials of Resource Scheduler, technology that draws together data from across the operation to enable better alignment of duty sets and rosters to demand, identified a number of areas we want to improve.

In the first half we have delivered £15 million of benefits from the Pathway to Change agreement. Our plan was for benefits to be weighted towards the second half, given the timing of implementation of revisions and technology rollout. Whilst we expect the exit run rate for this year to remain unchanged, given the timing of delivery of benefits to date, we now expect at least an £80 million benefit in FY 2021-22 vs. £100+ million previously.

We have also agreed and implemented a revised and quicker dispute resolution process which enables agreement on change to happen more quickly. During November 2019 we had 595 disagreements, on average taking 80 days to resolve. At the end of October 2021 we had 33 disagreements in the framework, each on average taking 33 days to resolve.

The findings of the network review, conducted jointly with CWU, supports the need for greater automation. We do not believe we will need to start building a third hub in the next three years. Increasing automation in the existing Mail Centre estate and optimising performance of our parcel sorting machines i.e. using what we have in a better way, is a good option.

Increasing our internal Trust score & reducing managers' daily activities and policies

Our Trust agenda is progressing very well. We have been carrying out regular pulse surveys in different regions since our Big Trust survey in April 2021. Not only are our scores improving, with our most recent October survey reaching a Trust score of 68%, but this has been achieved during a large-scale change. Participation in the survey has also significantly increased. This improvement is based on being transparent with our people, and listening to and acting on feedback from our frontline colleagues. The difference between our best and most challenging sites is still too wide and the opportunity here is again to equalise performance.

Our programme to simplify delivery office managers' daily activities and reduce the number of policies ( Day in the Life Of or "DILO") is now implemented in all our delivery offices. We have reduced the number of policies from over 200 to 16. This will save an annualised 1.1 million hours of administrative time which managers can use to spend working with their teams to improve performance. Our Sale delivery office, which pioneered DILO, has improved its ranking on ten key performance indicators to move from the bottom half of all offices to the top 20% since implementing these changes.

The reduction in administrative duties for our managers as a result of our DILO initiative provides a platform to equalise and improve performance, and allows us to deliver additional cost benefits in the future. Going forward, there is a significant opportunity in equalising performance across all offices to our agreed productivity standard.

Parcel automation at 50%+ by the end of the year

Transforming our network to handle more parcels is a key part of our plan. Automation is good for costs, but it is also good for quality and capacity at the critical times of the day. Our North West Hub is in the commission phase and on track to launch in Spring 2022. Our Midlands Hub is progressing well and is expected to open in Summer 2023.

We have made further progress on automation. In 2018-19, our parcel automation was 12%, in March 2021 it was 33%, and in the first week of November we were at 40% of parcels sorted at least once automatically. Our improvements have largely been driven by new ways of working, not new parcel sorting machines. 50%+ automation was always an ambitious target as an exit rate for this year, but is increasingly looking possible. This would equate to an annualised £30 million benefit.

We have recently installed a parcel sorting machine in our Tyneside Mail Centre. In December we expect to start operating a new parcel sort machine in North West Midlands Mail Centre. By the end of the financial year a further three parcel sort machines will be operational in our Nottingham, Chester and London Central Mail Centres.

Costs

Total adjusted operating costs in the first half of this year were down 3.0% compared with the first half of last year. This was largely driven by actions taken last year to reduce costs, restructuring charges in the prior year and a reduction in costs related to the COVID-19 pandemic. These were partially offset by the frontline pay award and investment in areas such as transformation, service and convenience, along with operational cost pressures.

People costs were down 4.4% year on year, including a £56 million benefit from the management restructure programme which commenced last year; the first half of 2020-21 also included a one-off charge of £140 million associated with the programme. We have also seen the initial benefits of the Pathway to Change agreement. These were partially offset by pay, costs associated with working time regulation on holiday pay and operational cost pressures.

Part of this increase in operational costs was anticipated as a result of services resuming after COVID-19 restrictions were eased - for example, at the start of the pandemic, Post Offices and businesses were closed, reducing the number of collections that were made - or due to social distancing measures (which did not commence immediately at the start of the pandemic but have existed for a prolonged period this financial year). However, part of the increase was due to the re-opening of the UK High Street earlier this year, which occurred more rapidly than we anticipated, and which had a more immediate impact on parcel volumes. We were slower to react to these lower than expected volumes than we would have liked. In addition, whilst Q1 absence levels were lower versus the same period in the prior year, there has been a step up in absence in Q2 compared to last year.

Non-people costs rose by 0.4% year on year. We are on track with our two-year non-people cost savings, with a £42 million saving in non-people costs in the first half, against an expected in year benefit of £110 million this year.

Variable costs in distribution and conveyance increased year on year, including investment in additional vehicle hires and maintenance to support social distancing measures.

Universal Service Obligation

It is a privilege to be the UK's Universal Service Provider. Whether you live in the highlands of Scotland, the valleys in Wales, on the Isle of Wight, in Ballymena or London - we will deliver and collect from you, for one price. We remain committed to the universal, affordable, 'one price goes anywhere' nature of the Universal Service and have a responsibility to keep it relevant and sustainable.

The world has changed, and the pandemic has accelerated the trends we have been seeing. Customers are demanding more parcels, and using fewer letters. Domestic parcel volumes (excluding international) are up around a third compared to pre-COVID, and customers are demanding more convenient deliveries, more often, and with greater control and visibility over when their parcel will arrive. Letters are in long term structural decline, with letter volumes down by more than 60% since their peak in 2004/5. Our posties are only delivering around a third of the volumes they were then - down from more than 20 billion letters to around 7 billion now - whilst the number of addresses they have to deliver to has grown by around 3.5 million in the same period.

Given the significant changes we continue to see in the market we continue to believe the best way to ensure that the USO meets customers' needs is to rebalance our UK business model more towards parcels. We are rebalancing our offering with the launch of Sunday parcel deliveries for the largest retailers this year, more tracking and precise delivery windows, and new services such as Parcel Collect.

Looking ahead, we want to invest in a seven day parcel service that goes everywhere in the country, at the same price, no matter where you live. We want to offer 'Sundays for all', levelling up service provision and ensuring that every household in the UK and every business whether small, medium or large, can participate in the e-commerce revolution.

We believe there is an important role for letters as part of the UK's social fabric. But as demand for letters reduces, Ofcom's recent User Needs Review suggests that our customers are open to change. As customer needs change, so must we. And this means putting our resources behind the services that customers want. The opportunity to invest in our future is now, and we look forward to working with all our stakeholders to ensure we keep the Universal Service relevant and sustainable.

An increased focus on sustainability

With the UK's largest "Feet on the Street" network of over 85,000 postmen and women, Royal Mail already has the lowest reported¹ CO₂e emissions per parcel amongst major UK delivery companies.

We announced earlier this year that we would introduce 3,000 electric vans into our final mile network this year. We are continuing to trial and deploy new technology to reduce the environmental impact of our fleet, including telemetry, Micro Electric Vehicles (MEVs), dual fuel hydrogen vans and Bio-CNG trucks.

We also conducted trials of scheduled, autonomous flights between Kirkwall and North Ronaldsay (both in the Orkney Islands) to help better connect remote island communities. These are the first steps towards our goal of developing permanent, reliable, lower emission delivery solutions for remote communities entirely by an Uncrewed Aerial Vehicle (UAV).

We now have two all-electric delivery offices, in Bristol and Glasgow. The Delivery Office in the Govan area of Glasgow has had its 13 diesel delivery and collection vans replaced by fully electric vehicles. Two micro electric vehicles will also be joining the fleet. The Bristol East Central Delivery Office, located in the City's Easton area, has had its 23 diesel delivery and collection vans replaced by fully electric equivalents.

1. Based on competitors' 2019 published reports

GLS

Operating performance

Our 'Accelerate GLS' strategy, which builds on our strengths and addresses the growth opportunities in our various markets has three key objectives: strengthen GLS' top position in the cross border deferred parcel segment; strongly position GLS in the 2C parcel market, whilst securing its leading position in the 2B segment; and inspire the market. The first half saw continued execution, with a good balance of growth and profitability, driven by B2C and international, with further expansions of customer focused solutions, including increasing our number of parcel shops and parcel lockers, and more options for customers to perform inflight redirections and take advantage of alternative drop off locations.

GLS performed well in the first half with revenue growth of 7.5% to £2,010 million, driven by higher parcel volumes and growth in freight compared to the first half of 2020-21. Volume growth slowed during the period as a result of lapping strong volumes seen during the first COVID-19 lockdown in 2020 and the easing of restrictions in a number of countries over the summer, but still grew 8% year on year, with a recovery in B2B volumes partially offsetting some softening in B2C volumes, with B2C share at around 55% in the first half compared to 56% in the first half of last year, and 57% in FY 2020-21.

During the first half, the impact of foreign exchange movements, primarily the strengthening of Sterling, decreased revenue by £87 million, which led to a foreign exchange headwind of 4.7% on revenue growth. Operating costs also decreased by £80 million, resulting in a net negative impact from foreign exchange on adjusted operating profit of £7 million compared to the prior year.

Market performance

Similar to Royal Mail, there has been a structural shift in consumer behaviour driven by the COVID-19 pandemic, with parcel volume growth of 30% compared to pre-pandemic levels in the first half of 2019-20, and revenue growth of 30.8% (35.4% in Euro terms, of which 33.2% is organic) compared to the same period.

The first half saw growth in almost all markets driven by volume and price/mix, with inflationary cost pressures leading to a small reduction in margin. GLS adjusted operating profit margin in the first half was 8.4% compared to 8.9% last year, in line with expectations and reflecting one-off COVID-19 benefits in H1 2020-21.

Performance in our key markets is highlighted below, with revenue growth and cost development detailed in Euro terms.

France and US performed well and in line with expectations. France grew revenues by 8.8%, driven by B2C volumes, building on customer wins achieved during the COVID-19 pandemic.

The US reported revenue growth of 16.3%, again driven by higher B2C volumes and increasing freight revenues. Higher unit operational costs, driven by a shortage of drivers, which impacted final mile and line-haul costs, resulted in a reduced operating margin. Operating profit broadly in absolute terms was in line with the prior year. Measures to improve unit costs and actions on pricing are underway.

In other major markets, Germany revenue grew by 12.0% driven by a combination of volume growth and better pricing. Operating profit grew by 6.0%. In Italy revenue grew by 12.6%, benefitting from a recovery in B2B volumes, with operating profit slightly below the prior year.

Spain continued to perform well, with revenue growth of 9.9%, and flat operating profit year on year.

GLS Canada revenue increased by 16.8% benefiting from good growth in parcel volumes and a recovery in freight revenues as well as improved pricing. The business continues to perform well, delivering margins above the group average. On 8 October we announced we had agreed to acquire Rosenau Transport, a freight business operating in Western Canada. The transaction is expected to complete on 1 December 2021, subject to customary closing conditions and regulatory approvals. Rosenau will be complementary to our existing business Dicom and the combination will give full national coverage, as well as connecting our US and Canadian networks. It will strengthen our unique hybrid parcels and freight business model, and is highly synergistic, unlocking revenue and cost benefits.

We continue to invest in growth, with capital expenditure in the first half of £52 million (H1 2020-21: £54 million). In year trading cash flow remained strong, at £147 million, compared with £181 million in the prior period. The decrease was primarily due to a lower trading working capital inflow and higher income tax payments.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has considered the principal risks faced by the Group for the remaining six months of the year and has provided an update on those risks as described at pages 48 to 53 of the Royal Mail plc Annual Report and Financial Statements 2020-21: https://www.royalmailgroup.com/media/11465/rmg_ar2020-21.pdf

In common with many businesses the Group continues to face challenges caused by the COVID-19 pandemic recovery and the end of the implementation period following the UK's departure from the European Union which have resulted in disruption to global supply chains.

These factors are overarching and interrelated to existing principal risks and include:

· structural labour and skills shortage

· inflationary cost pressures caused by lack of capacity in domestic and international linehaul, energy and fuel costs, and global material shortages

· employee absence higher than pre-pandemic levels

· UK-EU border disruption caused by changes to customs data requirements

These factors have resulted in increased operational costs, put pressure on productivity, quality of service and adversely affected customer demand for International products. The external economic environment remains uncertain, prolonged disruption to supply chain or a potential resurgence in COVID-19 may exacerbate these factors.

The Board continues to monitor the external risk environment including the ongoing impact of COVID-19 and UK-EU trading arrangements. Management have taken actions to address resourcing issues through recruitment campaigns, secure supply and continue to adapt and mitigate any potential disruption by working closely with suppliers and haulage providers.

The principal risks affected are as follows:

· Efficiency

· Economic and political environment

· Customer expectations and Royal Mail's responsiveness to market changes

· Health, safety and wellbeing

The following risks remain materially unchanged from those disclosed in the 2020-21 Annual Report and Financial Statements:

· Major breach of information security, data protection regulation and/or cyber attack

· Competition Act investigation

· Industrial action

· Capability - talent and strategic workforce planning

· Our UK regulatory framework

· Environmental and sustainability

· Business continuity and crisis management

· Pension arrangements

FINANCIAL REVIEW

Reported results, Alternative Performance Measures (APMs) and reporting periods

Reported results are prepared in accordance with International Financial Reporting Standards (IFRS). In addition, the Group's performance is also explained through the use of APMs that are not defined under IFRS. Management is of the view that these measures provide a more meaningful basis on which to analyse business performance. They are also consistent with the way financial performance is measured by Management and reported to the Board.

The APMs used are explained at the end of this Financial Review in the section "Presentation of Results and APMs" and reconciliations to the closest measure prescribed under IFRS are provided where appropriate.

Group and Royal Mail results are for the 26 week period to 26 September 2021. GLS financial performance is presented for the 6 months to 30 September 2021.

Group results

Summary reported results (£m)

	Reported 26 weeks ended 26 September 2021	Reported 26 weeks ended 27 September 2020
Revenue	6,072	5,671
Operating costs	(5,751)	(5,678)
Operating profit / (loss) before specific items	321	(7)
Operating specific items	(10)	(13)
Operating profit / (loss)	311	(20)
Non-operating specific items	(2)	(3)
Net finance costs	(26)	(19)
Net pension interest (non-operating specific item)	32	59
Profit before tax	315	17
Earnings per share (basic)	27.0p	1.4p

Group revenue increased by £401 million. Royal Mail revenue increased due to the recovery in letter revenue which declined significantly in the prior period, driven by the COVID-19 pandemic. Domestic parcel revenues also contributed to the Royal Mail revenue growth. Strong revenue growth was also achieved in GLS, driven by higher parcel volumes, better pricing and recovery in freight. The impact of foreign exchange movements decreased revenue by £87 million.

Operating costs increased by £73 million, driven mainly by an increase in non-people costs as a result of volume growth in GLS. The increased costs in GLS have been partially offset by the impact of foreign exchange which has reduced operating costs by £80 million. People costs fell, driven mainly by the Royal Mail management reorganisation voluntary redundancy charge of £140 million included in the comparative.

Operating profit before specific items was £321 million, £328 million higher than the prior period. Operating specific items were a cost of £10 million and non-operating specific items were a cost of £2 million. Further details on specific items are included in the section entitled 'Specific items and pension charge to cash difference adjustment.'

Profit before tax of £315 million comprises a £159 million profit in Royal Mail (H1 2020-21: £133 million loss) and a £156 million profit in GLS (H1 2020-21: £150 million profit). Basic earnings per share increased to 27.0 pence. A full reconciliation of reported to adjusted results is set out at the end of this Financial Review in the section entitled "Presentation of results and APMs."

Summary segmental results (£m)

The Group makes adjustments to reported results under IFRS to exclude specific items and the IAS 19 pension charge to cash difference adjustment as set out in the section entitled 'Specific items and pension charge to cash difference adjustment'.

	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020	Change
Reported
Royal Mail	4,074	3,828	6.4%
GLS	2,010	1,870	7.5%
Intragroup revenue	(12)	(27)	(55.6%)
Group revenue	6,072	5,671	7.1%
Adjusted¹
Royal Mail	(3,839)	(3,957)	(3.0%)
GLS	(1,841)	(1,704)	8.0%
Intragroup costs	12	27	(55.6%)
Group operating costs	(5,668)	(5,634)	0.6%

Adjusted¹

Royal Mail	235	(129)	282.2%
GLS	169	166	1.8%
Group operating profit	404	37	n.m.
Operating profit margin	6.7%	0.7%	600 bps

	26 weeks ending September			% change⁵
Revenue (£m)	2021	2020²	2019²	2021 vs. 2020	2021 vs. 2019
Group³	6,072	5,671	5,166	7.1%	17.5%
Royal Mail	4,074	3,828	3,649	6.4%	11.6%
Total Parcels	2,308	2,300	1,727	0.3%	33.6%
Domestic Parcels (ex. international)⁴	1,911	1,830	1,334	4.4%	43.3%
Letters	1,766	1,528	1,922	15.6%	(8.1)%
GLS	2,010	1,870	1,537	7.5%	30.8%

	26 weeks ending September			% change⁵
Volume (m)	2021	2020	2019	2021 vs. 2020	2021 vs. 2019
Royal Mail
Total Parcels	725	806	613	(10)%	18%
Domestic Parcels (ex. international)⁴	645	672	486	(4)%	33%
Addressed Letters (ex. elections)	3,816	3,423	4,731	11%	(19)%
GLS	417	387	321	8%	30%

Group revenue grew by 7.1% in the period and 17.5% compared to the same period in 2019. Total Group parcel revenue grew 3.9% in the period (32.7% compared to H1 2019-20). Parcel revenue accounted for 70.9% of total revenue (H1 2020-21: 73.1%, H1 2019-20: 62.8%), a slight reduction to the prior period due to the recovery of letter revenue but a significant increase on the pre-pandemic period.

Group operating costs increased by 0.6%.

Intragroup revenue and costs represent trading between Royal Mail and GLS, principally a result of Parcelforce Worldwide operating as GLS' partner in the UK.

Group operating profit margin was up 600 basis points, driven by significant improvements in the profitability of Royal Mail.

The main factors impacting revenue and operating costs are described throughout this Financial Review.

Specific items and pension charge to cash difference adjustment

(£m)	Reported 26 weeks ended 26 September 2021	Reported 26 weeks ended 27 September 2020
Pension charge to cash difference adjustment (within people costs)	(83)	(44)
Operating specific items
Legacy / other items and Impairments	(2)	(3)
Amortisation of intangible assets in acquisitions	(8)	(10)
Total operating specific items	(10)	(13)
Non-operating specific items
Loss on disposal of property, plant and equipment	(2)	(3)
Net pension interest	32	59
Total non-operating specific items	30	56
Total specific items and pensions adjustment before tax	(63)	(1)
Total tax credit on specific items and pensions adjustment	30	11

The difference between the pension charge and cash cost (pension charge to cash difference adjustment) comprises the difference between the IAS 19 income statement pension charge rate of 24.4% for the Defined Benefit Cash Balance Scheme (DBCBS) from 29 March 2021 and the actual cash payments agreed with the Trustee of 15.6%.

The pension charge to cash difference adjustment was £83 million in the period (H1 2020-21: £44 million). The increase in the adjustment is largely due to an increase in the IAS 19 pension charge rate for the DBCBS from 19.7% in H1 2020-21 to 24.4% in H1 2021-22. It is expected to be around £165 million for the full year.

Amortisation of intangible assets in acquisitions of £8 million (H1 2020-21: £10 million) relates to acquisitions in GLS.

Net pension interest credit of £32 million (H1 2020-21: £59 million) is calculated by reference to the pension surplus at the start of the financial period. The decrease in the period of £27 million is largely as a result of a lower net pension surplus position at 28 March 2021 compared with 29 March 2020.

Net finance costs

Reported net finance costs of £26 million (H1 2020-21: £19 million) largely comprised interest on bonds (including cross-currency swaps) of £12 million (H1 2020-21: £12 million), and interest on leases of £14 million (H1 2020-21: £14 million). This is offset by interest income of £3 million (H1 2020-21: £13 million). H1 2020-21 included £10 million relating to interest received on RMPP pension escrow after the market price of the investments recovered following a large fall in H2 2019-20.

The bank syndicate loan facility was extended by one year to September 2026, there are no further extension options in the agreement. In the period the interest reference rate was amended from LIBOR to SONIA⁶ (SOFR⁷ for any drawings in US Dollars). Interest is compounded daily and a credit adjustment spread (CAS) of between 0.0% and 0.3% is added using the ISDA⁸ published 5-year historical mean on fixing date (5 March 2021).

Facility	Rate	Facility (£m)	Drawn (£m)	Facility end date
€500 million bond	2.5%	428	428	2024
€550 million bond	2.7%	469	469	2026
Bank syndicate loan facility	SONIA + CAS +0.475%	925	-	2026
Total		1,822	897

The blended interest rate on gross debt, including leases for 2021-22, is approximately 3%. The impact of retranslating the €500 million and €550 million bonds is accounted for in equity.

Taxation

	26 weeks ended 26 September 2021			26 weeks ended 27 September 2020
(£m)	Royal Mail	GLS	Group	Royal Mail	GLS	Group
Reported
Profit / (loss) before tax	159	156	315	(133)	150	17
Tax (charge) / credit	(9)	(36)	(45)	33	(36)	(3)
Effective tax rate	5.7%	23.1%	14.3%	24.8%	24.0%	17.6%
Adjusted
Profit / (loss) before tax	215	163	378	(142)	160	18
Tax (charge) / credit	(37)	(38)	(75)	24	(38)	(14)
Effective tax rate	17.2%	23.3%	19.8%	16.9%	23.8%	77.8%

The Royal Mail adjusted effective tax rate of 17.2% (H1 2020-21: 16.9%) is lower than the UK statutory rate of 19% mainly due to the impact of the Super-deduction allowance on eligible capital expenditure introduced in the Chancellor's budget in March 2021.

The GLS adjusted effective tax rate of 23.3% (H1 2020-21: 23.8%) is higher than the UK statutory rate as there are higher rates of tax in some of the countries in which it operates.

The Group reported effective rate of 14.3% (H1 2020-21: 17.6%) is lower than the Group adjusted effective tax rate of 19.8% (H1 2020-21: 77.8%). This is mainly due to the tax credit arising following the revaluation of Royal Mail's net deferred tax asset at the future headline rate of corporation tax of 25% and the impact of the non-taxable pension interest income.

Earnings per share (EPS)

Reported basic EPS was 27.0 pence (H1 2020-21: 1.4 pence) and adjusted basic EPS was 30.3 pence (H1 2020-21: 0.4 pence), reflecting the improved trading performance of the Group.

In-year trading cash flow

(£m)	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020
Adjusted operating profit	404	37
Depreciation and amortisation	267	259
Adjusted EBITDA	671	296
Trading working capital movements	(103)	94
Share-based awards (LTIP and DSBP) charge adjustment	2	3
Gross capital expenditure	(194)	(132)
Net finance costs paid	(30)	(24)
Dividend received from associate undertaking	5	-
Research and development expenditure credit	-	1
Income tax paid	(53)	(19)
In-year trading cash flow	298	219
Capital element of operating lease repayments⁹	(80)	(78)
Pre-IFRS 16 in-year trading cash flow	218	141
Attributable to Royal Mail	101	(9)
Attributable to GLS	117	150
Royal Mail Group	218	141

In-year trading cash inflow was £298 million, compared with £219 million in the prior period, mainly due to higher adjusted EBITDA. This has been offset by the movement in trading working capital, increased capital expenditure and higher income tax paid.

The capital element of operating lease repayments of £80 million reflects the net impact on in-year trading cash flow as a result of adopting IFRS 16. Excluding the impact of this, in-year trading cash flow was £218 million.

GLS in-year trading cash flow (pre-IFRS 16) was £117 million (H1 2020-21: £150 million), or €136 million (H1 2020-21: €168 million).

The segmental in-year trading cash flows can be found in the Royal Mail and GLS sections of this Financial Review.

Gross capital expenditure

(£m)	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020
GLS total capital expenditure	(52)	(54)
Royal Mail transformation capital expenditure	(89)	(19)
Royal Mail maintenance capital expenditure	(53)	(59)
Royal Mail Group	(194)	(132)

Total gross capital expenditure was £194 million, of which GLS spend was £52 million. Royal Mail capital expenditure was £142 million in total, of which £89 million was transformational spend. Transformation spend has increased by £70 million due to investment in parcel hubs, automation and Postal Digital Assistants (PDAs) to support our frontline colleagues. Royal Mail maintenance expenditure has decreased by £6 million, mainly due to the timing of vehicle spend.

Net debt

A reconciliation of net debt is set out below.

(£m)	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020
Net debt brought forward 29 March 2021 and 30 March 2020	(457)	(1,132)
Free cash flow	254	188
In-year trading cash flow	298	219
Other working capital movements	(43)	(14)
Cash cost of operating specific items	(3)	(2)
Proceeds from disposal of property (excluding London Development Portfolio), plant and equipment	5	2
Deferred consideration in respect of prior years' acquisitions	-	(3)
Cash flows relating to London Development Portfolio	(3)	(14)
Purchase of own shares	(10)	-
New or increased lease obligations under IFRS 16 (non-cash)	(225)	(38)
Foreign currency exchange impact	(2)	(24)
Dividends paid to equity holders of the Parent Company	(100)	-
Net debt carried forward	(540)	(1,006)
Operating leases	1,225	1,053
Pre-IFRS 16 Net cash	685	47

Other working capital movements include an outflow for stamps used but purchased in prior periods of £45 million (H1 2020-21: £23 million outflow), deferred revenue £8 million inflow (H1 2020-21: £4 million outflow) and movements in GLS client cash of £6 million outflow (H1 2020-21: £13 million inflow). The amount of client cash held at 26 September 2021 was £35 million (H1 2020-21: £34 million).

The cash cost of operating specific items was an outflow of £3 million (H1 2020-21: £2 million) consisting of industrial diseases claims and National Insurance related to employee free share payments.

Proceeds from disposal of property, plant and equipment (excluding London Development Portfolio) relate to plant and machinery (£3 million) and vehicle disposals (£2 million). The prior year proceeds of £2 million predominately relate to vehicle disposals.

The prior period acquisition payment of £3 million relates to deferred consideration paid following the acquisition of Mountain Valley Express (MVE) and Mountain Valley Freight Solutions businesses in FY 2019-20.

The net cash outflows relating to the London Development Portfolio were £3 million, consisting of the cost of enabling works of £1 million at Mount Pleasant (H1 2020-21: £14 million outflow) and £2 million at Nine Elms (H1 2020-21: £1 million outflow). The prior period costs were offset by a £1 million receipt relating to Nine Elms.

New or increased lease obligations under IFRS 16 of £225 million relate to additional or modified lease commitments that were entered into during the period. The majority relates to Royal Mail properties, which includes the addition of the Midlands Parcel Hub and lease renewals on Mail Centres and delivery offices. Lease obligations have also increased as a result of Royal Mail vehicle additions and GLS properties.

During the period a final dividend for FY 2020-21 of 10 pence per share was paid (outflow of £100 million). The dividend was suspended in the prior period.

Pensions

Details of each of the UK plans operated by Royal Mail are set out below.

Defined Benefit Cash Balance Scheme (DBCBS)

An IAS 19 pension service charge of 24.4% (H1 2020-21: 19.7%), equivalent to £210 million (H1 2020-21: £180 million), has been charged to the income statement for the DBCBS scheme. The pension charge is greater than the cash contribution rate as the assumed rate of future increases in benefits at 28 March 2021 (4.8%) was greater than the assumed discount rate (1.9%).

The Group has made contributions at 15.6% (H1 2021-22: £134 million; H1 2020-21: £143 million) of DBCBS pensionable pay in respect of the scheme. Members contribute at 6.0%.

An IAS 19 deficit of £504 million (28 March 2021: £394 million) is shown on the balance sheet, comprising assets of £1,412 million (28 March 2021: £1,192 million) and liabilities of £1,916 million (28 March 2021: £1,586 million). The scheme is not in funding deficit and it is not anticipated that deficit payments will be required. The DBCBS will be subject to triennial valuations and the first one, which will be performed as at 31 March 2021, is currently underway.

Royal Mail Defined Contribution Plan (RMDCP)

Under the RMDCP, members in the standard section contribute at the highest contribution tier (employee: 6.0%; employer: 10.0%) unless they opt to contribute at a lower level. The contribution rate for members not in the standard section is employee: 5.0%; employer: 3.0%).

Royal Mail Pension Plan (RMPP)

The RMPP closed in March 2018 to future accrual in its previous form and the Group makes no contributions in respect of service.

The pre-withholding tax accounting surplus of the RMPP at 26 September 2021 was £3,720 million (28 March 2021: £3,666 million), comprising assets of £12,201 million (28 March 2021: £11,441 million) and liabilities of £8,481 million (28 March 2021: £7,775 million). The pre-withholding tax accounting surplus has increased by £54 million in the period. Real gilt yields have decreased in the period, significantly increasing the value of the scheme's liability hedging assets. Since discount rates for accounting purposes are set by reference to corporate bond yields rather than gilts, this gain has been offset by a decrease in the 'real' discount rate (the difference between RPI and the accounting discount rate) since the prior period, which has also resulted in an increase in the valuation of scheme liabilities. After the withholding tax adjustment, the accounting surplus of the RMPP was £2,418 million at 26 September 2021 (28 March 2021: £2,383 million). This is an accounting adjustment with no cash benefit to the Group.

The triennial valuation of RMPP at 31 March 2021 is still in progress. The actuarial funding position at that date will not be known until the actuarial valuation has been completed, with the results being very sensitive to the assumptions adopted at that date. However, based on the assumptions used in the last triennial valuation as at 31 March 2018 rolled forward, the RMPP actuarial surplus at 30 September 2021 was estimated to be around £119 million (31 March 2021: £163 million).

Royal Mail Senior Executives Pension Plan (RMSEPP)

The RMSEPP closed in December 2012 to future accrual and the Group makes no regular service contributions.

Substantially all the liabilities of this scheme are now covered by insurance policies and these significantly reduce the potential risk to the Group in respect of this scheme. These insurance policies are considered assets of the RMSEPP and do not confer any rights to individual members.

Following the purchase of the last buy-in policy of insurance in 2018-19 in respect of all remaining pensioners and deferred members, it was subsequently decided to proceed to buy out and wind up the Plan. This had previously been expected to complete in 2020-21; however, it was delayed by the need for further clarity over the approach to Guaranteed Minimum Pensions (GMP) equalisation. The GMP equalisation is now progressing well and the Trustees currently expect the buy out to complete in 2022.

Since the scheme is expected to be wound up imminently, an updated Schedule of Contributions was agreed in May 2021, with no further contributions to be paid for the remainder of this financial year. Contributions in respect of death-in-service lump sum benefits and administration and wind-up expenses after that point, should the scheme remain in operation, will be set at £500,000 per annum from April 2022, and will be paid annually in arrears.

Based on the rolled forward assumptions used for the 31 March 2018 triennial valuation, the RMSEPP actuarial surplus at 30 September 2021 was estimated to be £9 million (31 March 2021: £9 million). The pre withholding tax accounting surplus at 26 September 2021 was £10 million (28 March 2021: £9 million).

Royal Mail Collective Pension Plan: Comprising the Collective Defined Contribution (CDC) Section and Defined Benefit Lump Sum Section (DBLS)

We have, for some time, been working closely with CWU and other stakeholders to make CDC a reality for Royal Mail and its people.

The Pension Schemes Act, which became law in February 2021, legislates for the creation of CDC pension schemes for the first time under UK law. Royal Mail aims to set up the first scheme of this kind in the UK and has now launched a formal consultation with unions and impacted colleagues on our proposed pensions changes which will close on 21 November 2021.

Based on current expectations, the CDC section of the Plan will be accounted for as a defined contribution scheme and the DBLS section as a defined benefit scheme with the accounting treatment expected to be similar to the transitional DBCBS. The new arrangements will have fixed employer contributions of 13.6%, plus an additional 1.0% for employees who choose to save for an additional lump sum payment. Standard employee contributions will be 6.0%.

Cash pension costs for 2021-22

The Group expects to contribute around £270 million in the 2021-22 financial year in respect of DBCBS and RMPP with employees expected to contribute around £100 million. The Group also expects to contribute around £120 million into the Royal Mail defined contribution plans in the Group. Total employer contributions in respect of all Royal Mail pension schemes will therefore be around £390 million for the year.

London Development Portfolio

1) Mount Pleasant

This development site includes the sale of 6.25 acres to develop circa 680 residential units. In 2017 an agreement was reached with Taylor Wimpey UK Ltd ('Taylor Wimpey') for the sale of the Calthorpe Street development site, subject to specific separation and enabling works for the site being completed. The sale was completed, and the site handed over to Taylor Wimpey in March 2021, following the successful completion of the separation and enabling works. The combined proceeds for the Calthorpe Street site, and the adjacent Phoenix Place site (sold to Taylor Wimpey in 2017-18) was £193.5 million (including £3.5 million non-cash consideration). For accounting purposes, £39.5 million of the proceeds were allocated to Phoenix Place and £154 million to Calthorpe Street. £115 million of the total combined cash proceeds for both sites have been received to date (no cash has been received in the 26 weeks to 26 September 2021). The remainder of the cash is currently due to be received through a stage payment in 2023-24 and a final payment in 2024-25.

The costs of the completed enabling works of circa £100 million were incurred over a three and a half year period (2017-18 to 2020-21). There remain minor post completion costs through to 2024-25, in the current period £1 million of these costs were incurred. All proceeds received up to March 2021, in aggregate, cover Royal Mail's outgoings on the separation and enabling works.

2) Nine Elms

This site covers the sale of 13.9 acres with planning consent to develop 1,911 residential units, split into various plots:

· Plots B/D sale completed June 2019 for £101 million to Greystar Real Estate Partners, LLC.

· Plot C1 sale completed June 2019 for £22.2 million to Galliard Homes.

· Plot A sale completed December 2020.

We remain engaged in a disposal process for Plots E, F and G. Further investment will be required in relation to infrastructure for the remaining plots, subject to future sales.

3) Investment

In total we have invested £3 million in the period on works to separate the retained operational sites from the development plots at Mount Pleasant and infrastructure works at Nine Elms.

Dividends

A final dividend for FY 2020-21 of 10 pence per share was paid on 6 September 2021.

The Board adopts a sustainable progressive ordinary dividend policy and expects to propose a full year dividend for 2021-22 of 20 pence per share. The Board has reviewed the performance of the Group and will pay an interim dividend of a third of this amount (6.7 pence per share). The Board has also agreed a special dividend of £200 million which will be paid alongside the interim dividend. Dividends will be paid on 12 January 2022 to shareholders on the register at the close of business on 3 December 2021. The ex-dividend date is 2 December 2021.

Footnotes for Financial Review - Group section

2. The prior period's letter and parcel revenue split has been re-presented to reflect a reallocation of international revenue between letters and parcels.

3. Royal Mail and GLS revenue does not equal Group revenue due to the elimination of intragroup trading (H1 2021-22 £12 million, H1 2020-21 £27 million).

4. Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide.

5. % changes based on reported numbers.

6. SONIA - Sterling OverNight Indexed Average

7. SOFR - Secured OverNight Financing Rate

8. ISDA - International swaps and derivatives association

9. The capital element of lease payments of £91 million (H1 2020-21: £91 million) shown in the consolidated statement of cash flows is made up of the capital element of operating lease payments of £80 million (H1 2020-21: £78 million) and the capital element of finance lease payments of £11 million (H1 2020-21: £13 million).

Royal Mail

Reported summary results (£m)

	Reported 26 weeks ended 26 September 2021	Reported 26 weeks ended 27 September 2020
Revenue	4,074	3,828
Operating costs	(3,922)	(4,001)
Operating profit / (loss) before specific items	152	(173)
Operating specific items	(2)	(3)
Operating profit / (loss)	150	(176)
Operating profit / (loss) margin	3.7%	(4.6%)

Revenue was £246 million higher than the prior period, driven by the recovery in letter revenue. Total parcel revenues were flat compared to the prior period, though have increased 33.6% versus H1 2019-20. Domestic parcels revenues, excluding international, are up 4.4% on the prior period. This was offset by a decline in international revenue which has been impacted by a number of factors previously called out including air freight capacity, increased conveyance costs and the transition to a new trade deal with the European Union.

Operating costs decreased by £79 million, driven by a reduction in people costs. People costs have reduced primarily as a result of the prior period including the management reorganisation voluntary redundancy charge of £140 million. A more detailed narrative relating to period on period cost movements can be found in the adjusted operating costs section. Operating specific items of £2 million largely relate to employee free share costs, the prior period balance of £3 million primarily related to asset impairments.

Adjusted¹ trading results (£m)

	Adjusted 26 weeks ended 26 September 2021	Re-presented adjusted² 26 weeks ended 27 September 2020	Change
Letters	1,766	1,528	15.6%
Parcels	2,308	2,300	0.3%
Revenue	4,074	3,828	6.4%
Operating costs	(3,839)	(3,957)	(3.0%)
Operating profit / (loss)	235	(129)	282.2%
Operating profit / (loss) margin	5.8%	(3.4%)	920 bps

	26 weeks ending September			% change⁵
Revenue (£m)	2021	2020²	2019²	2021 vs. 2020	2021 vs. 2019
Royal Mail	4,074	3,828	3,649	6.4%	11.6%
Total Parcels	2,308	2,300	1,727	0.3%	33.6%
Domestic Parcels (excluding international)³	1,911	1,830	1,334	4.4%	43.3%
International⁴	397	470	393	(15.5)%	1.0%
Letters	1,766	1,528	1,922	15.6%	(8.1)%

	26 weeks ending September			% change⁵
Volume (m units)	2021	2020	2019	2021 vs. 2020	2021 vs. 2019
Royal Mail
Total Parcels	725	806	613	(10)%	18%
Domestic Parcels (excluding international)³	645	672	486	(4)%	33%
International⁴	80	134	127	(40)%	(37)%
Addressed Letters (excluding elections)	3,816	3,423	4,731	11%	(19)%

Total revenue was up 6.4% on the prior period and 11.6% versus H1 2019-20.

Parcels

The comparative period included three months of national lockdowns which resulted in the closure of non-essential retail followed by local lockdowns. During the current period non-essential retail was closed for just two weeks.

Total parcel revenue in the period was broadly in line with H1 2020-21 although, as expected, volumes were down 10% versus an exceptional prior period. Compared to H1 2019-20, parcel revenues were up 33.6%, with volumes up 18%. Parcels revenue represented 56.7% of total Royal Mail revenue, compared with 60.1% in the prior period.

Compared to pre COVID-19 levels, domestic parcel revenues increased by 43.3% with volumes up by a third. Domestic parcel revenue increased 4.4% versus the prior period, with volumes down 4%, driven by the relaxation of COVID-19 restrictions.

Account parcels volumes were down versus the prior period by 3% although revenue grew. The differential between revenue and volume is due to a strong performance from Royal Mail's premium products, Tracked 24^®/48^® and Tracked Returns^®, where volumes grew 21% (H1 2020-21: 72% growth). Revenue from COVID-19 test kits delivered on behalf of the Government has been significantly stronger compared to the prior period.

Parcelforce Worldwide revenue was down 3.8% versus the prior period due to reduced domestic volume and a significant reduction in export revenue due to Britain's withdrawal from the European Union. This was offset in part by strong import revenue with European posts switching volume from commercial customs to postal due to the less complex customs regime.

Royal Mail International (excluding Parcelforce Worldwide) has seen significant headwinds with volumes down 43%, driven by largely external factors outlined previously including reduced air freight capacity, increased conveyance costs and the transition to a new trade deal with the European Union.

Letters

Total letter revenue grew 15.6% versus the prior period, with volumes for addressed letters excluding elections up 11%, reflecting positive price/mix. In addition, these increases are against a prior period base which included sharp declines seen at the start of the COVID-19 pandemic.

Total letter revenue is down 8.1% versus H1 2019-20, with volumes for addressed letters excluding elections down 19% in the same period, reflecting the ongoing structural decline in the letters market.

The pandemic significantly impacted Advertising mail volumes. In H1 2021-22, Advertising mail volumes recovered significantly versus the prior period, rising by 51% but declined 19% versus H1 2019-20. Unaddressed letter volumes, which is part of Advertising mail and attracts a much lower Average Unit Revenue (AUR) than Consumer and Business mail, were up 55% on the prior period but down 14% versus H1 2019-20. Business mail was also affected by the pandemic; however, this market is less volatile and as a result volume growth was lower than the growth in advertising mail. Business mail volumes grew 6% but remained lower than H1 2019-20 levels by 15%. Stamped letter revenues have been more resilient and are up in the period versus both H1 2020-21 and H1 2019-20.

Adjusted operating costs (£m)

	Adjusted 26 weeks ended 26 September 2021	Adjusted 26 weeks ended 27 September 2020	Change
People costs	(2,651)	(2,774)	(4.4%)
People costs excluding voluntary redundancy	(2,648)	(2,627)	0.8%
Voluntary redundancy costs	(3)	(147)	(98.0%)
Non-people costs	(1,188)	(1,183)	0.4%
Distribution and conveyance costs	(456)	(434)	5.1%
Infrastructure costs	(387)	(381)	1.6%
Other operating costs	(345)	(368)	(6.3%)
Total	(3,839)	(3,957)	(3.0%)

Total adjusted operating costs decreased by 3.0%.

People costs

Royal Mail adjusted people costs were 4.4% lower, compared to the prior period. Movements are mainly a result of:

· Reduced transformation costs - £18 million of transformation costs are included within people costs, comprising project costs of £15 million and voluntary redundancy costs of £3 million. Versus the prior period, project costs have reduced £3 million and voluntary redundancy costs are down £144 million as the prior period included a £140 million charge for the management restructure programme;

· The benefits from the management restructure programme which has resulted in H1 2021-22 savings of (£56 million);

· Pathway to Change efficiencies in operations of c. £15 million;

· Lower COVID-19 costs - prior period COVID-19 people costs were £41 million, mainly related to increased levels of COVID-19 sick absence. This period, COVID-19 people costs have reduced by £12 million, as absence rates have reduced.

These improvements were partially offset by:

· Frontline pay costs (£43 million). This includes a) the cost of the 1% pay award, effective from the start of FY 2021-22, b) costs for the 1 hour reduction in the working week (in line with expectations, the majority of the cost associated with the shorter working week (SWW) will be incurred in the second half of FY 2021-22) and c) costs associated with working time regulation holiday pay;

· An increase in operational costs of c. £45 million. This was partly anticipated as a result of services resuming after COVID-19 restrictions were eased. For example, at the start of the pandemic, Post Offices and businesses were closed, reducing the number of collections that were made - or due to social distancing measures such as one person only in a van (which did not commence immediately at the start of the pandemic but have existed for a prolonged period this financial year). However, part of the increase was due to the re-opening of the UK High Street during the period, which occurred more rapidly than we anticipated, and which had a more immediate impact on parcel volumes. The business was slower to react that we would have liked to these lower than expected volumes. In addition, whilst Q1 absence levels were lower versus the same period in the prior year, there has been a step up in absence in Q2 versus the same period last year. This absence is not all COVID-19 related. These cost pressures were partially offset by an improved outlook and reduction in the provision for bad debt.

There was a decrease versus March 2021 of 8,824 full time equivalent (FTE) employees to around 150,579 FTEs.

Non-people costs

Non-people costs increased by 0.4%. We have delivered circa £42 million of non-people cost savings in the first half, as part of our two-year non-people cost savings plan. Within non-people costs, we estimate the costs associated with the COVID-19 pandemic to be £32 million (H1 2020-21: £44 million). The prior period COVID-19 non-people costs mainly related to the purchase of protective equipment to safeguard our frontline employees. In the current period, additional costs have been incurred in order to maintain social distancing measures, these costs include investment in additional vehicle hires, vehicle spares and maintenance in order to run older vehicles and fuel to support the increased number of fleet.

Distribution and conveyance costs increased by 5.1%. This includes the additional cost of vehicle hires and fuel referred to above. Terminal dues costs were £23 million lower, driven by reduced volumes and weights. These savings were partially offset by international rate increases along with additional costs due to a change in the mix of items. Total diesel and jet fuel costs increased to £89 million (H1 2020-21: £83 million), mainly as a result of volume related network growth, inefficiencies driven by the impact of social distancing on our operations and, to a lesser extent price, on the unhedged volume which is subject to spot prices. However, in the second half of the year we are forecasting that diesel fuel volumes will decrease due to the removal of social distancing measures. For 2021-22 we have hedged over 80% of forecasted fuel volumes and we therefore expect diesel and jet fuel costs to be around £188 million in 2021-22, in line with what we communicated in the 2020-21 annual report.

Infrastructure costs increased by 1.6%. Depreciation and amortisation costs were £5 million higher than the prior period driven mainly by accelerated depreciation and amortisation following a review of the fixed asset portfolio.

Other operating costs decreased by 6.3%. The prior period included the purchase of protective equipment to safeguard frontline employees in response to the COVID-19 pandemic (circa £40 million). Transformation project costs of £29 million (H1 2020-21: £14 million) are also included in other operating costs.

Adjusted operating profit

Adjusted operating profit was £235 million (H1 2020-21: £129 million loss). Adjusted operating profit margin of 5.8% was up 920 basis points compared with the first half of 2020-21. The key period on period movements to help explain performance are outlined below, a number of which are explained above:

(£m)
Adjusted operating loss 26 weeks ended 27 September 2020	(129)
Net impact of gearing	213
Management restructure voluntary redundancy savings	140
Management restructure recurring savings	56
Non-people cost programme	42
Frontline pay costs	(43)
Pathway to Change savings	15
COVID-19	24
Transformation and investment related costs	(20)
Service and convenience investment	(38)
Other net cost pressures incl. inflation	(25)
Adjusted operating profit 26 weeks ended 26 September 2021	235

The net impact of gearing represents increased revenues of £246 million (£8 million on parcels and £238 million on letters), offset by the gearing costs which have been derived using the gearing ratios previously disclosed in May 2021. This figure also includes the net contribution impact of Royal Mail International and Parcelforce Worldwide, both of which are subject to separate gearing dynamics which are not separately disclosed.

Transformation and investment related costs have increased by £20 million.

We have invested £38 million in service and convenience costs for our customers, including services on Sundays and later acceptance times.

Other net cost pressures include provision and accrual releases for example in relation to bad debts. Also included are inflationary cost pressures and operational cost pressures of c. £45 million.

In-year trading cash flow

(£m)	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020
Adjusted operating profit	235	(129)
Depreciation and amortisation	199	194
Adjusted EBITDA	434	65
Trading working capital movements	(109)	61
Share-based awards (LTIP and DSBP) charge adjustment	2	3
Gross capital expenditure	(142)	(78)
Net finance costs paid	(22)	(14)
Dividend received from associate undertaking	5	-
Research and development expenditure credit	-	1
Income tax paid	(17)	-
In-year trading cash flow	151	38
Capital element of operating lease repayments	(50)	(47)
Pre-IFRS 16 in-year trading cash flow	101	(9)

In-year trading cash inflow was £151 million, compared with £38 million in the prior period, mainly due to higher adjusted EBITDA. This has been offset by the movement in trading working capital, increased capital expenditure and higher income tax paid.

The prior period trading working capital was significantly affected by the provision for the management restructure of £140 million. By excluding the effect of the provision, the prior period comparative trading working capital movement would have been a £79 million outflow, compared to a £109 million outflow in the current period. The remaining movement period on period reflects the improved trading performance.

Gross capital expenditure increased by £64 million largely driven by transformation expenditure due to investment in parcel hubs, automation and PDAs.

Income tax paid increased by £17 million. This is mainly due to the increase in profits relative to the prior period which are only partially offset by the Super-deduction allowance on eligible capital expenditure.

Footnotes for Financial Review - Royal Mail section

2. The prior period's letter and parcel revenue split has been re-presented to reflect a reallocation of international revenue between letters and parcels.

3. Domestic Parcels excludes Royal Mail and Parcelforce Worldwide import and export.

4. International includes import and export for Royal Mail and Parcelforce Worldwide

5. % changes based on reported numbers.

GLS

Reported¹ summary results (£m)

Summary results (£m)	6 months to 30 September 2021	6 months to 30 September 2020	Change
Revenue	2,010	1,870	7.5%
Operating costs	(1,841)	(1,704)	8.0%
Operating profit before specific items	169	166	1.8%
Operating specific items	(8)	(10)	(20.0)%
Operating profit	161	156	3.2%
Operating profit margin	8.0%	8.3%	(30bps)

(€m)
Revenue	2,342	2,088	12.2%
Operating costs	(2,145)	(1,903)	12.7%
Operating profit before specific items	197	185	6.5%

Average £1 = €	1.16	1.12

Summary results	Reported 6 months to 30 September 2021	Reported 6 months to 30 September 2020	Reported 6 months to 30 September 2019	Change 2021 v 2020	Change 2021 v 2019
Revenue (£m)	2,010	1,870	1,537	7.5%	30.8%
Volume (m units)	417	387	321	8%	30%

GLS revenue grew by 7.5% or £140 million, equivalent to 12.2% growth in Euro terms, driven by higher domestic and international volumes and growth in freight revenues. Revenue growth was achieved in the majority of markets.

During the period, the impact of the strengthening of Sterling decreased revenue by £87 million and decreased operating costs by £80 million, resulting in a net negative impact from foreign exchange on adjusted operating profit before specific items of £7 million compared to the prior year.

Operating profit before specific items increased by £3 million to £169 million. The operating specific items charge of £8 million was in respect of the amortisation of intangible assets in acquisitions. GLS operating profit was £5 million higher than in the prior period.

Volumes were up 8% benefiting from a recovery in B2B volumes which mitigated some slowdown in B2C volume growth. International volume growth was also good despite some negative effects from Britain's withdrawal from the European Union. B2C volume share decreased by one percentage point to 55% compared with H1 of the prior period, as B2B volumes recovered. However, the H1 2021-22 B2C share was significantly higher than in H1 2019-20 (46%). Overall domestic and international volumes grew in almost all markets.

The following individual market summaries detail growth in Euro terms.

Germany

In Germany, the largest GLS revenue market, revenue grew by 12.0%, driven by a combination of strong domestic and export volume growth and better pricing. Cost development was impacted by inflationary pressures which resulted in higher unit operational costs which slightly reduced operating margin. Operating profit in absolute terms increased by 6.0%.

Italy

GLS Italy revenue grew by 12.6%, driven by a combination of higher volumes and higher average prices. Recovery in B2B volumes, with a higher average weight, benefited average price development. The impact of inflationary pressures on operational costs resulted in a decline in margin, with profits slightly below the prior period.

Spain

GLS Spain performed well during the period, with revenue growth of 9.9%, driven by higher volumes and better pricing. In absolute terms, operating profit was flat period on period, with higher unit operational labour costs leading to a slight reduction in margin.

France

GLS France revenue grew by 8.8% primarily due to higher domestic volumes. Customer wins during the prior year have been retained due to good quality performance. B2C volumes grew at a higher rate than B2B, highlighting the successful bedding-in of the customers acquired during the early stages of the COVID-19 pandemic last year.

North America

In the US, GLS reported revenue growth of 16.3% driven by higher B2C volumes and increasing freight revenues. Inflationary pressure on operational costs driven by a shortage of drivers in the market has impacted the development of final mile and line-haul costs in the US and reduced operating margin. Counter-measures targeting an improvement in unit operational costs and better pricing to improve margins are underway. Profits in absolute terms were broadly in line with the prior year.

GLS Canada revenue increased by 16.8% benefiting from good growth in parcel volumes and freight revenues as well as improved pricing. The business continues to perform well, delivering margins above the group average. On 8 October we announced we had agreed to acquire Rosenau, a freight business operating in western Canada. The transaction is expected to complete on 1 December 2021 subject to customary closing conditions and regulatory approval. Rosenau will be complementary to our existing business Dicom and will result in a significant increase in scale in Canada.

Other developed European markets (including Austria, Belgium, Denmark, Ireland, Netherlands and Portugal)

Revenue growth was achieved in most of GLS' other developed European markets. In particular there was good revenue growth reported in Portugal and Denmark. Revenues declined by 2.7% in Ireland due to the impact from Britain's withdrawal from the European Union on international traffic to and from the UK.

Other developing/emerging European markets (including Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia)

Other developing/emerging European markets (including Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia), continued to grow strongly, with overall revenue growth of 17.5%.

Reported operating costs (£m)

(£m)	Reported 6 months to 30 September 2021	Reported 6 months to 30 September 2020	Change
People costs	(431)	(398)	8.3%
Non-people costs	(1,410)	(1,306)	8.0%
Distribution and conveyance costs	(1,247)	(1,152)	8.2%
Infrastructure costs	(117)	(111)	5.4%
Other operating costs	(46)	(43)	7.0%
Total	(1,841)	(1,704)	8.0%

Total reported operating costs increased by 8.0% (12.7% in Euro terms) mainly driven by increased distribution and conveyance costs.

People costs increased by 8.3% (13.0% in Euro terms) due to a combination of higher unit operational labour costs driven by wage inflation across GLS markets and investment in the organisation to support the roll-out of the Accelerate strategy.

Non-people costs increased by 8.0% (12.6% in Euro terms). Distribution and conveyance costs grew by 8.2% (12.9% in Euro terms) driven by higher volumes and inflationary effects impacting collection, delivery and line-haul rates. Infrastructure and other operating costs increased by 5.4% and 7.0% respectively, (10.0% and 11.6% in Euro terms respectively) due to higher technology, marketing and depreciation costs.

Foreign exchange movements reduced total adjusted operating costs by £80 million.

Reported operating profit before specific items

Reported operating profit before specific items was £169 million, foreign exchange movements reduced operating profit before specific items by £7 million. Reported operating profit before specific items margin of 8.4% was 50 basis points lower than the prior period.

In-year trading cash flow

(£m)	6 months ended 30 September 2021	6 months ended 30 September 2020
Adjusted operating profit	169	166
Depreciation and amortisation	68	65
Adjusted EBITDA	237	231
Trading working capital movements	6	33
Gross capital expenditure	(52)	(54)
Net finance costs paid	(8)	(10)
Income tax paid	(36)	(19)
In-year trading cash flow	147	181
Capital element of operating lease repayments	(30)	(31)
Pre-IFRS 16 in-year trading cash flow	117	150

In-year trading cash inflow was £147 million, compared with £181 million in the prior period. The decrease was primarily due to a decline in trading working capital and higher income tax payments.

GLS trading working capital inflow reduced by £27 million period on period. This was principally due to the part unwinding of an unusually favourable working capital position at 31 March 2021, caused by higher than normal customer payments prior to the Easter weekend.

Income tax paid of £36 million was £17 million higher than the prior period as tax assessments relating to the higher profits in the prior year came through.

Footnotes for Financial Review - GLS section

1. The Group makes adjustments to reported results under IFRS to exclude specific items and the IAS 19 pension charge to cash difference adjustment as set out in the section entitled 'Specific items and pension charge to cash difference adjustment'. As the pension charge to cash difference is not applicable in GLS the operating profit before specific items is the same on a reported and adjusted basis and thus there are no separate adjusted measures have been presented.

Presentation of results and Alternative Performance Measures (APMs)

The Group uses certain APMs in its financial reporting that are not defined under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group produces its statutory financial information. These APMs are not a substitute, or superior to, any IFRS measures of performance. They are used by Management, who considers them to be an important means of comparing performance period-on-period and are key measures used within the business for assessing performance.

APMs should not be considered in isolation from, or as a substitute to, financial information presented in compliance with GAAP. Where appropriate, reconciliations to the nearest GAAP measure have been provided. The APMs used may not be directly comparable with similarly titled APMs used by other companies.

A full list of APMs used are set out in the section entitled 'Alternative Performance Measures'.

Reported to adjusted results

The Group makes adjustments to results reported under IFRS to exclude specific items and the IAS 19 pension charge to cash difference adjustment (see definitions in the paragraph entitled 'Alternative Performance Measures'). Management believes this is a more meaningful basis upon which to analyse the business performance (in particular given the volatile nature of the IAS 19 charge) and is consistent with the way financial performance is reported to the Board.

Further details on specific items excluded from adjusted operating profit are included in the paragraph 'Specific items and pension charge to cash difference adjustment' in the Group results section. A reconciliation showing the adjustments made between reported and adjusted Group results can be found in the paragraph 'Consolidated reported and adjusted results.'

Presentation of results

Consolidated reported and adjusted results

The following table reconciles the consolidated reported results, prepared in accordance with IFRS, to the consolidated 26 week adjusted results.

	26 weeks ended 26 September 2021			26 weeks ended 27 September 2020
(£m)	Reported	Specific items and pension adjustment¹	Adjusted	Reported	Specific items and pension adjustment¹	Adjusted
Revenue	6,072	-	6,072	5,671	-	5,671
Operating costs	(5,751)	(83)	(5,668)	(5,678)	(44)	(5,634)
People costs	(3,165)	(83)	(3,082)	(3,216)	(44)	(3,172)
People costs	(3,162)	(83)	(3,079)	(3,069)	(44)	(3,025)
Voluntary redundancy	(3)	-	(3)	(147)	-	(147)
Non-people costs	(2,586)	-	(2,586)	(2,462)	-	(2,462)
Distribution and conveyance costs	(1,691)	-	(1,691)	(1,559)	-	(1,559)
Infrastructure costs	(504)	-	(504)	(492)	-	(492)
Other operating costs	(391)	-	(391)	(411)	-	(411)
Operating profit / (loss) before specific items	321	(83)	404	(7)	(44)	37
Operating specific items:
Amortisation of intangible assets in acquisitions	(8)	(8)	-	(10)	(10)	-
Legacy / other items and impairments	(2)	(2)	-	(3)	(3)	-
Operating profit / (loss)	311	(93)	404	(20)	(57)	37
Non-operating specific items:
Loss on disposal of property, plant and equipment	(2)	(2)	-	(3)	(3)	-
Profit / (loss) before interest and tax	309	(95)	404	(23)	(60)	37
Finance costs	(29)	-	(29)	(32)	-	(32)
Finance income	3	-	3	13	-	13
Net pension interest (non-operating specific item)	32	32	-	59	59	-
Profit before tax	315	(63)	378	17	(1)	18
Tax (charge) / credit	(45)	30	(75)	(3)	11	(14)
Profit for the period	270	(33)	303	14	10	4
Earnings per share
Basic	27.0p	(3.3)p	30.3p	1.4p	1.0p	0.4p
Diluted	26.9p	(3.3)p	30.2p	1.4p	1.0p	0.4p

Segmental reported results

The following table presents the segmental reported results, prepared in accordance with IFRS.

	26 weeks ended 26 September 2021				26 weeks ended 27 September 2020
(£m)	Royal Mail	GLS	Intragroup Eliminations	Group	Royal Mail	GLS	Intragroup Eliminations	Group
Revenue	4,074	2,010	(12)	6,072	3,828	1,870	(27)	5,671
People costs	(2,734)	(431)	-	(3,165)	(2,818)	(398)	-	(3,216)
Non-people costs	(1,188)	(1,410)	12	(2,586)	(1,183)	(1,306)	27	(2,462)
Operating profit / (loss) before specific items	152	169	-	321	(173)	166	-	(7)
Operating specific items¹	(2)	(8)	-	(10)	(3)	(10)	-	(13)
Operating profit / (loss)	150	161	-	311	(176)	156	-	(20)
Non-operating specific items¹	(3)	1	-	(2)	(3)	-	-	(3)
Profit / (loss) before interest and tax	147	162	-	309	(179)	156	-	(23)
Net finance costs	(20)	(6)	-	(26)	(13)	(6)	-	(19)
Net pension interest (non-operating specific item)	32	-	-	32	59	-	-	59
Profit / (loss) before tax	159	156	-	315	(133)	150	-	17
Tax (charge) / credit	(9)	(36)	-	(45)	33	(36)	-	(3)
Profit / (loss) for the period	150	120	-	270	(100)	114	-	14

Footnotes for Financial Review - Presentation of Results and Alternative Performance Measures section

1. Details of specific items and the pension adjustment can be found under 'Specific items and pension charge to cash difference adjustment' in the Group Results section.

Alternative Performance Measures (APMs)

APMs are used by Management throughout the Annual Report and Accounts and Financial Review, who consider them to be an important means of comparing performance period on period and are key measures used within the business for assessing Business performance. APMs used in this report are consistent with the 2020-21 Annual Report. Updates to any APMs and reconciliations to IFRS measures are set out in the section below.

Earnings before interest, tax, depreciation and amortisation (EBITDA) before specific items

EBITDA before specific items is reported operating profit before specific items with depreciation and amortisation and share of associate company profits added back.

Adjusted EBITDA is EBITDA before specific items with the pension charge to cash difference adjustment added back.

The following table reconciles adjusted EBITDA to reported operating profit before specific items.

(£m)	26 weeks ended 26 September 2021	26 weeks ended 27 September 2020
Reported operating profit / (loss) before specific items	321	(7)
Depreciation and amortisation	267	259
EBITDA before specific items	588	252
Pension charge to cash difference adjustment	83	44
Adjusted EBITDA	671	296

Pension charge to cash difference adjustment

This adjustment largely represents the difference between the IAS 19 income statement pension charge and the actual cash payments. Management believes this adjustment is appropriate in order to eliminate the volatility of the IAS 19 accounting charge and to include only the true cash cost of the pension plans in the adjusted operating profit of the Group.

For the DBCBS this largely represents the difference between the IAS 19 income statement pension charge rate of 24.4% (H1 2020-21: 19.7%) and the actual cash payments of 15.6% (H1 2020-21: 15.6%).

In-year trading cash flow

The following table reconciles in-year trading cash flow to the nearest IFRS measure 'net cash inflow from operating activities'.

(£m)	Reported 26 weeks ended 26 September 2021	Reported 26 weeks ended 27 September 2020
Net cash inflow from operating activities	471	359
Adjustments for:
Other working capital movements	43	14
Cash cost of operating specific items	3	2
Dividend received from associate undertaking	5	-
Purchase of property, plant and equipment	(162)	(101)
Purchase of intangible assets	(32)	(31)
Net finance costs paid	(30)	(24)
In-year trading cash flow	298	219
Capital element of operating lease repayment	(80)	(78)
Pre IFRS 16 in-year trading cash flow	218	141

Free cash flow (FCF)

Free cash flow (FCF) is calculated as statutory (reported) net cash flow before financing activities, adjusted to include finance costs paid and exclude net cash from the purchase/sale of financial asset investments. FCF represents the cash that the Group generates after spending the money required to maintain or expand its asset base. Free cash flow is also shown on a pre-IFRS 16 basis as it is used to support dividend cover analysis, taking into account all cashflows related to the operating businesses. The following table reconciles free cash flow to the nearest IFRS measure 'net cash inflow before financing activities.'

(£m)	Reported 26 weeks ended 26 September 2021	Reported 26 weeks ended 27 September 2020
Net cash inflow before financing activities	246	254
Adjustments for:
Finance costs paid	(32)	(36)
Purchase / (sale) of financial asset investments	40	(30)
Free cash flow	254	188
Capital element of operating lease repayments	(80)	(78)
Pre-IFRS 16 free cash flow	174	110

Net debt

A reconciliation of net debt to reported balance sheet line items is shown below.

(£m)	At 26 September 2021	At 28 March 2021
Loans / bonds	(897)	(895)
Leases	(1,291)	(1,156)
Cash and cash equivalents	1,552	1,532
Investments	40	-
Client cash	35	41
Pension escrow (RMSEPP)	21	21
Net debt	(540)	(457)
Operating leases	1,225	1,079
Pre IFRS 16 net cash	685	622

Cash and cash equivalents including investments increased by £60 million largely as a result of free cash flow in H1 2021-22 of £254 million (FY 2020-21: £800 million inflow). This was partially offset by the payment of capital element of obligations under lease contracts in H1 2021-22 of £91 million (FY 2020-21 £188 million). It was further offset by a dividend paid in H1 2021-22 of £100 million (FY 2020-21 no dividend paid).

Net debt excludes £192 million (FY 2020-21: £191 million) related to the RMPP pension scheme of the total £213 million (FY 2020-21: £212 million) pension escrow investments on the balance sheet which is not considered to fall within the definition of net debt.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed consolidated income statement

		Reported 26 weeks ended 26 September 2021	Reported 26 weeks ended 27 September 2020
	Notes	£m	£m
Continuing operations
Revenue	2	6,072	5,671
Operating costs ^1,2		(5,751)	(5,678)
People costs	3	(3,165)	(3,216)
Distribution and conveyance costs		(1,691)	(1,559)
Infrastructure costs		(504)	(492)
Other operating costs		(391)	(411)
Operating profit/(loss) before specific items ²		321	(7)
Operating specific items²
Legacy/other items and impairments		(2)	(3)
Amortisation of intangible assets in acquisitions		(8)	(10)
Operating profit/(loss)		311	(20)
Loss on disposal of property, plant and equipment (non-operating specific item)²		(2)	(3)
Profit/(loss) before interest and tax		309	(23)
Finance costs		(29)	(32)
Finance income		3	13
Net pension interest (non-operating specific item)²		32	59
Profit before tax		315	17
Tax charge	4	(45)	(3)
Profit for the period		270	14

Earnings per share	5
Basic		27.0p	1.4p
Diluted		26.9p	1.4p

¹ Operating costs are stated before operating specific items which comprise: legacy/other items and impairments and amortisation of intangible assets in acquisitions.

² Details of Alternative Performance Measures (APMs) are provided in the Financial Review.

Condensed consolidated statement of comprehensive income

	Notes	Reported 26 weeks ended 26 September 2021 £m	Reported 26 weeks ended 27 September 2020 £m
Profit for the period		270	14
Other comprehensive income/(expense) for the period from continuing operations:
Items that will not be subsequently reclassified to profit or loss:
Amounts relating to pensions accounting		(8)	(822)
Withholding tax adjustment relating to the defined benefit surplus	6	(20)	358
Remeasurement gains/(losses) of the surplus in RMPP and RMSEPP		23	(1,078)
Remeasurement losses of the deficit in DBCBS		(27)	(126)
Deferred tax		16	24
Items that may be subsequently reclassified to profit or loss:
Foreign exchange translation differences		2	14
Exchange differences on translation of foreign operations (GLS)		3	25
Net loss on hedge of a net investment (€500 million bond)		(1)	(10)
Net loss on hedge of a net investment (Euro-denominated lease payables)		-	(1)
Designated cash flow hedges		32	3
Gains/(losses) on cash flow hedges deferred into equity		37	(4)
Losses on cash flow hedges released from equity to income		1	12
Loss on cross currency swap cash flow hedge deferred into equity		-	(6)
Loss on cross currency swap cash flow hedge released from equity to income - interest payable		4	4
Loss on cost of hedging deferred into equity		-	(1)
Gain on cost of hedging released from equity to income - interest payable		(1)	(1)
Tax on above items		(9)	(1)
Total other comprehensive income/(expense) for the period		26	(805)
Total comprehensive income/(expense) for the period		296	(791)

Condensed consolidated balance sheet

	Notes	Reported At 26 September 2021 £m	Reported At 28 March 2021 £m
Non-current assets
Property, plant and equipment		3,175	3,007
Goodwill		379	378
Intangible assets		445	468
Investment in associates	8	-	5
Financial assets	7
Pension escrow investments		213	212
Derivatives		15	5
RMPP/RMSEPP retirement benefit surplus - net of withholding tax payable	6	2,424	2,389
Other receivables		96	100
Deferred tax assets		163	153
		6,910	6,717
Assets held for sale		26	26
Current assets
Inventories		21	18
Trade and other receivables		1,547	1,640
Income tax receivable		13	9
Financial assets	7
Investments		40	-
Derivatives		23	2
Cash and cash equivalents	7	1,587	1,573
		3,231	3,242
Total assets		10,167	9,985
Current liabilities
Trade and other payables		(2,151)	(2,377)
Financial liabilities	7
Lease liabilities		(203)	(197)
Derivatives		(4)	(12)
Income tax payable		(15)	(15)
Provisions	9	(111)	(124)
		(2,484)	(2,725)
Non-current liabilities
Financial liabilities	7
Interest-bearing loans and borrowings		(897)	(895)
Lease liabilities		(1,088)	(959)
Derivatives		(29)	(36)
DBCBS retirement benefit deficit	6	(504)	(394)
Provisions	9	(107)	(105)
Other payables		(17)	(18)
Deferred tax liabilities		(47)	(48)
		(2,689)	(2,455)
Total liabilities		(5,173)	(5,180)
Net assets		4,994	4,805
Equity
Share capital		10	10
Retained earnings		4,957	4,802
Other reserves		27	(7)
Total equity		4,994	4,805

Condensed consolidated statement of changes in equity

	Share capital £m	Retained earnings £m	Foreign currency translation reserve £m	Hedging reserve £m	Total equity £m
Reported at 29 March 2020	10	5,625	30	(44)	5,621
Profit for the period	-	14	-	-	14
Other comprehensive (expense)/ income for the period	-	(822)	14	3	(805)
Total comprehensive (expense)/ income for the period	-	(808)	14	3	(791)
Share-based payments
Long-Term Incentive Plan (LTIP)	-	1	-	-	1
Deferred Share Bonus Plan (DSBP)	-	1	-	-	1
Reported at 27 September 2020	10	4,819	44	(41)	4,832
Profit for the period	-	606	-	-	606
Other comprehensive (expense)/ income for the period	-	(626)	(37)	27	(636)
Total comprehensive (expense)/ income for the period	-	(20)	(37)	27	(30)
Share-based payments
Employee Free Shares issue	-	1	-	-	1
Deferred Share Bonus Plan (DSBP)	-	2	-	-	2
Deferred tax on share-based payments	-	1	-	-	1
Settlement of DSBP	-	(1)	-	-	(1)
Reported at 28 March 2021	10	4,802	7	(14)	4,805
Profit for the period	-	270	-	-	270
Other comprehensive (expense)/income for the period	-	(8)	2	32	26
Total comprehensive income for the period	-	262	2	32	296
Transactions with owners of the Company, recognised directly in equity
Dividend paid to equity holders of the Parent Company	-	(100)	-	-	(100)
Share-based payments
Employee Free Shares issue	-	1	-	-	1
Long-Term Incentive Plan (LTIP)	-	1	-	-	1
Deferred Share Bonus Plan (DSBP)	-	1	-	-	1
Purchase of own shares¹	-	(10)	-	-	(10)
Reported at 26 September 2021	10	4,957	9	18	4,994

¹ Purchase in respect of employee share schemes.

Condensed consolidated statement of cash flows

	Notes	Reported 26 weeks ended 26 September 2021 £m	Reported 26 weeks ended 27 September 2020 £m
Cash flow from operating activities
Profit before tax		315	17
Adjustment for:
Net pension interest		(32)	(59)
Net finance costs		26	19
Loss on disposal of property, plant and equipment		2	3
Legacy/other items and impairments		2	3
Amortisation of intangible assets in acquisitions		8	10
Operating profit/(loss) before specific items¹		321	(7)
Adjustment for:
Depreciation and amortisation		267	259
EBITDA before specific items¹		588	252
Working capital movements		(146)	80
(Increase)/decrease in inventories		(3)	1
Decrease/(increase) in receivables		95	(111)
(Decrease)/increase in payables		(222)	68
Net increase in derivatives		(5)	(16)
(Decrease)/increase in provisions (non-specific items)	9	(11)	138
Pension charge to cash difference adjustment	6	83	44
Share-based awards (LTIP and DSBP) charge		2	3
Cash cost of operating specific items		(3)	(2)
Cash inflow from operations		524	377
Income tax paid		(53)	(19)
Research and development expenditure credit		-	1
Net cash inflow from operating activities		471	359
Cash flow from investing activities
Dividend received from associate undertaking	8	5	-
Finance income received		2	12
Proceeds from disposal of property (excluding London Development Portfolio), plant and equipment (non-operating specific item)		5	2
London Development Portfolio net costs (non-operating specific item)		(3)	(14)
Purchase of property, plant and equipment		(162)	(101)
Purchase of intangible assets (software)		(32)	(31)
Payment of deferred consideration in respect of prior years' acquisitions		-	(3)
(Purchase)/sale of financial assets investments (current)		(40)	30
Net cash outflow from investing activities		(225)	(105)
Net cash inflow before financing activities		246	254
Cash flow from financing activities
Finance costs paid		(32)	(36)
Purchase of own shares		(10)	-
Payment of capital element of obligations under lease contracts		(91)	(91)
Repayment of loans and borrowings		-	(700)
Dividend paid to equity holders of the parent Company		(100)	-
Net cash outflow from financing activities		(233)	(827)
Net increase/(decrease) in cash and cash equivalents		13	(573)
Effect of foreign currency exchange rates on cash and cash equivalents		1	5
Cash and cash equivalents at the beginning of the period		1,573	1,640
Cash and cash equivalents at the end of the period		1,587	1,072

¹ Details of Alternative Performance Measures (APMs) are provided in the Financial Review.

Notes to the condensed consolidated financial statements

1. Basis of preparation

The comparative figures for the 52 weeks ended 28 March 2021 are not the Company's statutory accounts for that financial period. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified; (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The annual financial statements of the Group are prepared in accordance with UK-adopted international accounting standards. As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, this condensed consolidated set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the 52 weeks ended 28 March 2021, which were prepared in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

This condensed consolidated set of unaudited financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the UK i.e. on a 'Reported' basis.

In some instances, Alternative Performance Measures (APMs) are used by the Group. This is because Management is of the view that these APMs provide a more meaningful basis on which to analyse business performance and are consistent with the way that financial performance is measured by Management and reported to the Board. Details of the Group's APMs are included in the Financial Review.

Going Concern

In assessing the going concern status of the Group, the Directors are required to look forward a minimum of 12 months from the date of approval of these financial statements to consider whether it is appropriate to prepare the financial statements on a going concern basis.

The Directors have reviewed both the current business projections and a severe but plausible downside scenario and assessed these against committed and undrawn funding facilities of £925 million at 26 September 2021 through the bank syndicate loan facility (available until September 2026) and other liquid resources available to the Group (cash at bank £337 million, cash equivalent investments of £1,250 million and current asset investments of £40 million at 26 September 2021).

The Directors obtained a covenant waiver from the Group's bank syndicate which removed the bank syndicate loan facility net debt/EBITDA and EBITDA/interest covenant tests for September 2020, March 2021 and September 2021. These tests were replaced by a minimum liquidity covenant of £250 million. From March 2022, the relevant covenants will revert back to net debt/EBITDA and EBITDA/interest and the minimum liquidity covenants will no longer apply.

The business plan projections include the recent agreement to acquire Rosenau Transport in Canada (subject to customary closing conditions and regulatory approvals, see Note 10) and additional capital distributions, comprising a £200 million special dividend to be paid in January 2022 and a £200 million share buyback.

When considering our principal risks, the severe but plausible downside scenario considers competition in the UK parcels sector, a slower pace of transformation in the UK business and deteriorating economic and market conditions. The severe but plausible downside scenario was tested to determine whether the Group would remain solvent. Conclusions indicate that the Group would not need to draw on the bank syndicate loan facility in order to maintain sufficient liquidity and Royal Mail would not breach any of its covenants.

Whilst not required in the severe but plausible downside scenario, short-term mitigating cost and cash actions are available and include reducing variable hours and cost of sales; reducing discretionary pay; reducing internal investment; and reducing one-off projects.

Consequently, the Directors, having reviewed the Group's projections for the next 12 months, are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

1. Basis of preparation (continued)

New accounting standards and interpretations in 2021-22

No new UK Accounting Standards, which affect the presentation of these condensed consolidated financial statements, have been issued.

Key sources of estimation uncertainty and critical accounting judgements

The preparation of the condensed consolidated financial statements requires management to make certain estimates and judgements that can have a significant impact on the financial statements. These estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The significant judgements and estimates applied by the Group in these condensed consolidated financial statements are consistent with those applied in the Annual Report and Financial Statements 2020-21.

2. Segment information

The Group's operating segments are based on geographic business units whose primary services and products relate to the delivery of parcels and letters. These segments are evaluated regularly by the Royal Mail plc Board - the Chief Operating Decision Maker (CODM) as defined by IFRS 8 'Operating Segments' - in deciding how to allocate resources and assess performance.

The key measure of segment performance is operating profit before specific items (used internally for the Corporate Balanced Scorecard). This measure of performance is disclosed on an 'adjusted' basis i.e. excluding specific items and the pension charge to cash difference adjustment, which is consistent with how financial performance is measured internally and reported to the CODM.

Segment revenues have been attributed to the respective countries based on the primary location of the service performed.

Seasonality

Parcel and letter volumes are subject to seasonal variation. The Group's busiest period is from September to December, when there is: typically an increase in marketing mail as businesses seek to maximise sales in the period leading up to Christmas; an increase in parcel volumes as a result of online Christmas shopping; and an increase in addressed letter volumes as a result of the delivery of Christmas cards. During this period, Royal Mail and GLS would expect to record higher revenue, as greater volumes of parcels and letters are delivered through their respective networks. We also incur higher costs, particularly in Royal Mail as we hire large numbers of temporary workers to assist in handling the increased workload.

Other seasonal factors that can affect the Group's results include the Easter period, the number of bank holidays in a reporting period and weather conditions. Typically, late spring and summer months are less busy in Royal Mail and GLS.

2. Segment information (continued)

26 weeks ended 26 September 2021	Adjusted				Specific items and pension adjustment		Reported
Continuing operations	Royal Mail £m	GLS £m	Eliminations¹ £m	Group £m	Royal Mail £m	GLS £m	Group £m
Revenue	4,074	2,010	(12)	6,072	-	-	6,072
People costs	(2,651)	(431)	-	(3,082)	(83)	-	(3,165)
Non-people costs	(1,188)	(1,410)	12	(2,586)	-	-	(2,586)
Operating profit before specific items	235	169	-	404	(83)	-	321
Operating specific items
Legacy/other items	-	-	-	-	(2)	-	(2)
Amortisation of intangible assets in acquisitions	-	-	-	-	-	(8)	(8)
Operating profit	235	169	-	404	(85)	(8)	311
(Loss)/profit on disposal of property, plant and equipment (non-operating specific item)	-	-	-	-	(3)	1	(2)
Profit before interest and tax	235	169	-	404	(88)	(7)	309
Finance costs	(25)	(7)	3	(29)	-	-	(29)
Finance income	5	1	(3)	3	-	-	3
Net pension interest (non-operating specific item)	-	-	-	-	32	-	32
Profit before tax	215	163	-	378	(56)	(7)	315

26 weeks ended 27 September 2020	Adjusted				Specific items and pension adjustment		Reported
Continuing operations	Royal Mail £m	GLS £m	Eliminations¹ £m	Group £m	Royal Mail £m	GLS £m	Group £m
Revenue	3,828	1,870	(27)	5,671	-	-	5,671
People costs	(2,774)	(398)	-	(3,172)	(44)	-	(3,216)
Non-people costs	(1,183)	(1,306)	27	(2,462)	-	-	(2,462)
Operating (loss)/profit before specific items	(129)	166	-	37	(44)	-	(7)
Operating specific items
Impairments	-	-	-	-	(3)	-	(3)
Amortisation of intangible assets in acquisitions	-	-	-	-	-	(10)	(10)
Operating (loss)/profit	(129)	166	-	37	(47)	(10)	(20)
Loss on disposal of property, plant and equipment (non-operating specific item)	-	-	-	-	(3)	-	(3)
(Loss)/profit before interest and tax	(129)	166	-	37	(50)	(10)	(23)
Finance costs	(28)	(7)	3	(32)	-	-	(32)
Finance income	15	1	(3)	13	-	-	13
Net pension interest (non-operating specific item)	-	-	-		59	-	59
(Loss)/profit before tax	(142)	160	-	18	9	(10)	17

¹ Revenue and non-people costs eliminations relate to intragroup trading between Royal Mail and GLS, due to Parcelforce Worldwide being GLS' partner in the UK. Finance costs/income eliminations relate to intragroup loans between Royal Mail and GLS.

3. People information

	Reported 26 weeks ended 26 September 2021 £m	Reported 26 weeks ended 27 September 2020 £m
Wages and salaries	(2,544)	(2,639)
Royal Mail	(2,160)	(2,284)
GLS	(384)	(355)
Pensions (see Note 6)	(367)	(334)
Royal Mail defined benefit plans (including administration costs)	(217)	(187)
Royal Mail defined contribution plan	(56)	(52)
Royal Mail defined benefit and defined contribution plans' Pension Salary Exchange (PSE) employer contributions	(90)	(91)
GLS	(4)	(4)
Social security	(254)	(243)
Royal Mail	(211)	(204)
GLS	(43)	(39)

Total people costs	(3,165)	(3,216)

People numbers

The number of people employed, expressed as both full-time equivalents and headcount, during the reporting period was as follows:

	Full-time equivalents (FTEs)¹				Headcount²
	Half-year end		Average		Half-year end		Average
	26 weeks 2022	26 weeks 2021	26 weeks 2022	26 weeks 2021	26 weeks 2022	26 weeks 2021	26 weeks 2022	26 weeks 2021
Royal Mail	150,579	149,708	151,030	150,791	137,437	139,036	137,445	139,797
GLS	18,734	15,315	18,208	15,693	22,844	19,149	22,218	19,531
Total	169,313	165,023	169,238	166,484	160,281	158,185	159,663	159,328

1 These people numbers relate to the total number of paid hours (including part-time, full-time and agency hours) divided by the number of standard full-time working hours in the same year.

2 These people numbers are based on permanent employees.

4. Taxation

The Group reported tax charge is £45 million (H1 2020-21: £3 million) on a reported profit before tax of £315 million (H1 2020-21: £17 million). This consists of a tax charge in the UK of £9 million (H1 2020-21: £33 million credit) on a reported profit of £159 million (H1 2020-21: £133 million loss) and a tax charge in GLS of £36 million (H1 2020-21: £36 million) on a profit of £156 million (H1 2020-21: £150 million).

The Royal Mail effective tax rate is lower than the UK statutory tax rate mainly due to the tax credit arising as a result of the recalculation of the net deferred tax asset at the substantively enacted corporation tax rate of 25%. Other factors include the impact of the 130% Super-deduction for eligible capital expenditure and the non-taxable net pension interest income.

The Group's policy in respect of the recognition of the deferred tax credit arising following the change in substantively enacted tax rate, is to spread it over the annual reporting period via an adjustment to the estimated annual effective income tax rate. The effect of this policy is the recognition of a deferred tax credit of £12 million in the interim tax charge in the income statement.

The GLS effective tax rate is higher than the UK statutory tax rate mainly due to higher tax rates in the countries in which it operates.

Details of the adjusted tax results and effective tax rates are provided in the Financial Review.

5. Earnings per share

	26 weeks ended 26 September 2021			26 weeks ended 27 September 2020
	Reported	Specific items and pension adjustment ¹	Adjusted	Reported	Specific items and pension adjustment¹	Adjusted
Attributable to equity holders of the parent Company
Profit from continuing operations (£ million)	270	(33)	303	14	10	4
Weighted average number of shares issued (million)	1,000	n/a	1,000	999	n/a	999
Basic earnings per share (pence)	27.0	n/a	30.3	1.4	n/a	0.4
Diluted earnings per share (pence)	26.9	n/a	30.2	1.4	n/a	0.4

¹ Details of Alternative Performance Measures (APMs) are provided in the Financial Review.

The diluted earnings per share for the 26 weeks ended 26 September 2021 is based on a weighted average number of shares of 1,004,337,921 (H1 2020-21: 1,002,184,169) to take account of the potential issue of 2,070,299 (H1 2020-21: 1,242,463) ordinary shares resulting from the Deferred Share Bonus Plan (DSBP) and 2,632,630 (H1 2020-21: 1,574,342) ordinary shares resulting from the Long-Term Incentive Plan (LTIP). Management have historically elected to settle this scheme using shares purchased from the market.

The 365,008 (H1 2020-21: 632,636) shares held in an Employee Benefit Trust for the settlement of options and awards to current and former employees, are treated as treasury shares for accounting purposes. The Company, however, does not hold any shares in treasury.

6. Retirement benefit plans

Summary pension information

	26 weeks ended 26 September 2021 £m	26 weeks ended 27 September 2020 £m
Ongoing Royal Mail pension service costs
Defined benefit plans (including administration costs)¹	(217)	(187)
Defined contribution plans	(56)	(52)
Defined benefit and defined contribution plans' Pension Salary Exchange (PSE) employer contributions²	(90)	(91)
Total Royal Mail ongoing pension service costs	(363)	(330)
GLS defined contribution plan costs	(4)	(4)
Total Group ongoing pension service costs	(367)	(334)
Cash flows relating to Royal Mail ongoing pension service costs
Defined benefit plans' employer contributions³	(134)	(143)
Defined contribution plans' employer contributions	(60)	(56)
Defined benefit and defined contribution plans' PSE employer contributions	(90)	(91)
Total Group cash flows relating to ongoing pension service costs	(284)	(290)
Pension charge to cash difference adjustment	(83)	(44)

¹ These pension service costs are charged to the income statement. They represent the cost (as a percentage of pensionable payroll - 24.4% for the DBCBS (H1 2020-21: 19.7%)) of the increase in the defined benefit obligation, due to members earning one more half year's worth of pension benefits. They are calculated in accordance with IAS 19 and are based on market yields (high quality corporate bonds and inflation) at the beginning of the reporting period. Pensions administration costs for the RMPP of £5 million (H1 2020-21: £5 million) and the DBCBS of £2 million (H1 2020-21: £2 million) continue to be included within the Group's ongoing UK pension service costs.

² Eligible employees who are enrolled into PSE opt out of making employee contributions to their pension and the Group makes additional contributions in return for a reduction in basic pay.

³ The employer contribution cash flow rate of 15.6% (H1 2020-21: 15.6%) forms part of the payroll expense and is paid in respect of the DBCBS. The contribution rate is set following each actuarial funding valuation, usually every three years, with the latest valuations having taken place as at 31 March 2018. These actuarial valuations are required to be carried out on assumptions determined by the Trustee and agreed by Royal Mail. The valuations as at 31 March 2021 are currently being undertaken.

6. Retirement benefit plans (continued)

Accounting and actuarial surplus/(deficit) position - DBCBS, RMPP and RMSEPP

The plans' assets and liabilities are shown below:

		DBCBS Accounting (IAS 19)			DBCBS Actuarial funding			RMPP and RMSEPP Accounting (IAS 19)			RMPP and RMSEPP Actuarial funding
	At 26 September 2021 £m		At 28 March 2021 £m	At 30 September 2021 £m		At 31 March 2021 £m	At 26 September 2021 £m		At 28 March 2021 £m	At 30 September 2021 £m		At 31 March 2021 £m
Fair value of plans' assets^4,5	1,412		1,192	1,387		1,182	12,592		11,814	12,194		11,566
Present value of plans' liabilities	(1,916)		(1,586)	(1,348)		(1,153)	(8,862)		(8,139)	(12,066)		(11,394)
(Deficit)/surplus in plans (pre withholding tax payable)⁶	(504)		(394)	39		29	3,730		3,675	128		172
Withholding tax payable	n/a		n/a	n/a		n/a	(1,306)		(1,286)	n/a		n/a
(Deficit)/surplus in plans⁷	(504)		(394)	39		29	2,424		2,389	128		172

⁴ The difference between accounting and actuarial funding asset fair values arises from the different period end dates used for the valuation of the assets under each method.

⁵ An agreement has been made with the Pension Trustee to ringfence certain RMPP employer contributions in an escrow arrangement. These contributions are not considered to be Plan assets as the Trustee does not have any control over the assets.

⁶ The withholding tax adjustment relates to withholding tax payable on the distribution of a pension surplus.

⁷ On an actuarial funding basis, the excess of DBCBS assets over liabilities is as a result of the risk reserve.

Major long-term assumptions used for accounting (IAS 19) purposes - DBCBS, RMPP and RMSEPP

The major assumptions used to calculate the accounting position of the pension plans are as follows:

	DBCBS At 26 September 2021	RMPP and RMSEPP At 26 September 2021	DBCBS At 28 March 2021	RMPP and RMSEPP At 28 March 2021
Retail Price Index (RPI)	3.5%	3.4%	3.3%	3.2%
Consumer Price Index (CPI)	3.0%	3.1%	2.8%	2.9%
Discount rate
- nominal	1.8%	1.9%	1.9%	2.0%
- real (nominal less RPI) ⁸	(1.7)%	(1.5)%	(1.4)%	(1.2)%
Constructive obligation for increases	5.0%	-	4.8%	-

⁸ The real discount rate used reflects the average duration of the RMPP of around 25 years and the DBCBS of 15 years.

7. Financial assets and liabilities

Classification, carrying amount and fair value of financial assets and liabilities

The following analysis shows the classification, carrying amount and fair value of the Group's financial assets.

	Level	Classification	At 26 September 2021 Carrying amount £m	At 26 September 2021 Fair value £m	At 28 March 2021 Carrying amount £m	At 28 March 2021 Fair value £m
Financial assets
Cash	1		337	337	306	306
Cash equivalent investments	1		1,250	1,250	1,267	1,267
Money market funds		FVTPL	1,090	1,090	1,207	1,207
Short-term deposits - bank		Amortised cost	160	160	60	60
Cash and cash equivalents	1		1,587	1,587	1,573	1,573
Current asset investments - short-term deposits - bank	1	Amortised cost	40	40	-	-
Pension escrow investments	1	FVTPL	213	213	212	212
Trade and other receivables	2	Amortised cost	1,547	1,547	1,640	1,640
Derivative assets (current)	2	FVTPL	23	23	2	2
Derivative assets (non-current)	2	FVTPL	15	15	5	5
Total financial assets			3,425	3,425	3,432	3,432

The following analysis shows the classification, carrying amount and fair value of the Group's financial liabilities.

	Level	Classification	At 26 September 2021 Carrying amount £m	At 26 September 2021 Fair value £m	At 28 March 2021 Carrying amount £m		At 28 March 2021 Fair value £m
Financial liabilities
Lease liabilities (current)	2	Amortised cost	(203)	(203)	(197)		(197)
Interest-bearing loans and borrowings:
€500 million bond	2	Amortised cost	(428)	(457)	(427)		(460)
€550 million bond	2	Amortised cost	(469)	(495)	(468)		(495)
Lease liabilities (non-current)	2	Amortised cost	(1,088)	(1,110)	(959)		(993)
Trade and other payables	2	Amortised cost	(2,151)	(2,151)	(2,377)		(2,377)
Derivative liabilities (current)	2	FVTPL	(4)	(4)	(12)		(12)
Derivative liabilities (non-current)	2	FVTPL	(29)	(29)	(36)		(36)
Total financial liabilities			(4,372)	(4,449)		(4,476)		(4,570)
Net total financial liabilities			(947)	(1,024)		(1,044)		(1,138)

7. Financial assets and liabilities (continued)

Derivatives that do not qualify for hedge accounting are classified as fair value through profit and loss (FVTPL) and any gains or losses arising from changes in fair value are taken directly to the income statement in the period.

The main purpose of these financial instruments is to raise finance and manage the liquidity needs of the business' operations. The Group has various other financial instruments such as trade receivables and trade payables which arise directly from operations and are not considered further in this Note.

No speculative trading in financial instruments has been undertaken during the current or comparative reporting periods, in line with Group policy.

Fair value measurement of financial instruments

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet date.

Where there is no active market, fair value is determined using valuation techniques. These include using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; and discounted cash flow analysis and pricing models.

The Group determines whether any transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period. For the purposes of disclosing the Level 2 fair value of investments held at amortised cost in the balance sheet, in the absence of quoted market prices, fair values are calculated by discounting the future cash flows of the financial instrument using quoted equivalent interest rates as at close of business at the balance sheet date. For the €500 million and €550 million bonds, the disclosed fair value is calculated as the closing market bond price converted to Sterling using the closing spot Sterling/Euro exchange rate.

For the purposes of comparing carrying amounts to fair value, fair values have been calculated using current market prices (bond price, interest rates, forward exchange rates and commodity prices) and discounted using appropriate discount rates.

8. Investment in associates

Quadrant Catering Ltd ('Quadrant'), an associate company of the Group, ceased trading with effect from 30 September 2020 and is now in the process of being wound up. As part of this process, on 18 June 2021 the Company received a final dividend from Quadrant of £5.1 million.

9. Provisions

	Charged as specific items			Charged in operating costs
	Industrial diseases £m	Regulatory fine £m	Other m	Voluntary redundancy £m	Property decomm- issioning £m	Litigation claims £m	Other m	Total £m
At 29 March 2021	(69)	(52)	(7)	(14)	(23)	(47)	(17)	(229)
(Charged)/released	-	-	-	(3)	1	(17)	(1)	(20)
Reclassifications	-	-	-	-	-	(3)	1	(2)
Utilised	2	-	1	11	-	17	2	33
At 26 September 2021	(67)	(52)	(6)	(6)	(22)	(50)	(15)	(218)
Disclosed as:
Current	(5)	(52)	-	(6)	(4)	(41)	(3)	(111)
Non-current	(62)	-	(6)	-	(18)	(9)	(12)	(107)
At 26 September 2021	(67)	(52)	(6)	(6)	(22)	(50)	(15)	(218)
Disclosed as:
Current	(6)	(52)	(1)	(14)	(3)	(44)	(4)	(124)
Non-current	(63)	-	(6)	-	(20)	(3)	(13)	(105)
At 28 March 2021	(69)	(52)	(7)	(14)	(23)	(47)	(17)	(229)

Industrial diseases

The Group has a potential liability for industrial diseases claims relating to individuals who were employed in the General Post Office Telecommunications division and whose employment ceased prior to October 1981. The provision is derived using estimates and ranges calculated by its actuarial adviser, based on current experience of claims, and an assessment of potential future claims, the majority of which are expected to be received over the next 25 to 30 years. The Group has a rigorous process for ensuring that only valid claims are accepted.

The Institute and Faculty of Actuaries (UK Asbestos Working Party (AWP)), on whose modelling actuaries rely for their calculations for asbestos-related ill-health claims, have issued further guidance during the reporting period which is in line with their guidance issued in February 2021, which resulted in a £16 million release of the provision at 28 March 2021. No further changes to the provision are considered appropriate at 26 September 2021 as a result of the additional AWP guidance.

Regulatory fine

In January 2020, Royal Mail requested permission to appeal the Competition Appeal Tribunal's judgment to the Court of Appeal (CoA) in respect of the Ofcom fine. On 30 March 2020, the CoA granted Royal Mail permission and the hearing took place on 20 and 21 April 2021. The Court of Appeal handed down judgment on 7 May, dismissing our appeal. We await a decision on our subsequent request for permission to appeal, from the Supreme Court. The fine remains payable to Ofcom.

Litigation claims

Provisions for litigation claims, based on best estimates as advised by external legal experts, mainly comprise outstanding liabilities in relation to road traffic accident and personal injury claims .

10. Events after the balance sheet date

GLS acquisition of Rosenau Transport in Canada

On 8 October 2021, the Group announced that GLS has agreed to acquire Canadian logistics company Mid ‐ Nite Sun Transportation Ltd (the 'Acquisition'), one of the largest independent freight carriers in Western Canada that operates as 'Rosenau Transport'.

The combination of the two businesses will create a network stretching across Canada which will enable GLS to cover the vast majority of the Canadian population and deliver further growth and synergies. It also provides a link to GLS operations along the US West Coast, unlocking significant growth opportunities with new and existing customers as the Rosenau Transport network moves to the combined GLS freight and parcel model. There is also the opportunity for revenue synergies by selling freight and parcel services into/out of the Rosenau Transport network, including cross border services.

The total consideration is C$360.0 million (around £215 million, subject to foreign exchange) on a debt and cash free basis. The Acquisition will be funded through existing cash and borrowing facilities and is expected to be earnings and cash flow accretive to GLS and the Group in the current financial year ended 27 March 2022.

The Acquisition is subject to customary closing conditions and regulatory approvals.

The parties intend to close the transaction on 1 December 2021, subject to these approvals.

Return of capital

The Board has stated its intention to return £400 million of capital to shareholders, via a share buyback and special dividend. A £200 million share buyback will commence immediately and is due to complete ahead of the AGM in July 2022. Reflecting our large retail shareholder base, including many of our colleagues, a special dividend of £200 million will be paid alongside the interim dividend of 6.7 pence per share on 12 January 2022.

11. Contingent liabilities

In October 2018, Whistl filed a damages claim against Royal Mail at the High Court relating to Ofcom's decision of 14 August 2018, which found that Royal Mail had abused its dominant position (see details of regulatory fine in Note 9). Whistl's High Court claim is on hold until after the completion of any further appeal process. Royal Mail believes Whistl's claim is without merit and will defend it robustly if Whistl decides to pursue the claim.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF YEAR FINANCIAL REPORT

The Directors confirm that to the best of our knowledge:

· The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the UK; and

· The Interim Management Report includes a fair review of the information required by:

· DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

· DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Directors of Royal Mail plc are as listed in the Royal Mail plc Annual Report and Financial Statements 2020-21, with the exception of the following changes:

Mr Shashi Verma, appointed as Director on 29 September 2021.

A list of current Directors is maintained at www.royalmailgroup.com .

By order of the Board

Mick Jeavons

Group Chief Financial Officer of Royal Mail

17 November 2021

INDEPENDENT REVIEW REPORT TO ROYAL MAIL PLC

Conclusion

We have been engaged by the Company to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 26 September 2021 which comprises the Condensed consolidated income statement, the Condensed consolidated statement of comprehensive income, the Condensed consolidated balance sheet, the Condensed consolidated statement of changes in equity, the Condensed consolidated statement of cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 26 September 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the latest annual financial statements of the Group were prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the next annual financial statements will be prepared in accordance with UK-adopted international accounting standards. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Ian Griffiths

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

17 November 2021

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements concerning the Group's business, financial condition, results of operations and certain 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', 'would', 'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'targets', 'goal', 'forecasts' or 'estimates' or similar expressions or negatives thereof.

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.

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 its behalf are expressly qualified in their entirety by the factors referred to above. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. 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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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