Royal Mail plc Results for the half year ended 26 September 2021

H1 2021-22 Highlights

  1. 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;
  2. Royal Mail adjusted operating profit £235 million, 5.8% margin; GLS £169 million, 8.4% margin;
  3. Structural shift in parcel volumes from COVID-19 pandemic:
  4. Royal Mail domestic parcel volumes (ex. international) up 33% vs. H1 2019-20; GLS parcel volumes up 30% in the same period;
  5. Compared to H1 2020-21, Royal Mail domestic parcel volumes (ex. international) down 4%, GLS parcel volumes up 8%;
  6. Royal Mail making progress on change agenda, focused on delivering benefits of union agreements:
  7. £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;
  8. Over 1,700 revisions and realignment activities deployed;
  9. “Scan-in / Scan-out” technology in all Mail Centres and Regional Distribution Centres;
  10. Seeing benefits of actions on costs: £56 million from management restructure and £42 million from non-people costs;
  11. 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;
  12. 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:
  13. Equal contribution from both Royal Mail (£151 million) and GLS (£147 million);
  14. Interim dividend: 6.7 pence per share in line with policy;
  15. 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;
  16. Outlook for FY 2021-22:
  17. Royal Mail expected to be around £500 million adjusted operating profit;
  18. GLS guidance unchanged: low single digit % revenue growth and c. 8% operating profit margin.

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.”

Source: Royal Mail Group

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