TIDMRMG
RNS Number : 3376O
Royal Mail PLC
29 January 2019
Royal Mail plc
(Incorporated in England and Wales)
Company Number: 8680755
LSE Share Code: RMG
ISIN: GB00BDVZYZ77
LEI: 213800TCZZU84G8Z2M70
29 January 2019
ROYAL MAIL plc
TRADING UPDATE FOR THE NINE MONTHSED 23 DECEMBER 2018
Royal Mail plc (RMG.L) today issued a trading update covering
the nine months ended 23 December 2018.
Rico Back, Group Chief Executive Officer, Royal Mail plc,
said:
"We have had a busy Christmas season. In the UK we recruited
23,000 seasonal workers and opened six temporary parcel sorting
centres to make sure we had the capacity to handle the high volumes
of parcels and cards through our network. In the December trading
period alone we handled 164m parcels, up 10% compared with last
year. Our people delivered a great Christmas. I thank them for all
their efforts.
"Overall, our recent trading performance was broadly in line
with our expectations. We now confirm that we expect to deliver
adjusted Group operating profit before transformation costs of
GBP500-530m for 2018-19.
"In the UK, our parcels business continued to perform well, with
volumes and revenue in the nine months both up 6%. Addressed letter
volumes, excluding the impact of elections, were down 8%, with
total letter revenue down 6%, largely reflecting the continuing
impact of GDPR and a relatively strong prior year comparative
period.
"GLS delivered another good performance with revenue up 13%
including acquisitions. Whilst GLS continues to see cost pressures,
we confirm that we are targeting adjusted operating profit margins
of over 6% for the full year. We will continue to focus on margin
protection and as a result we expect to see a slowing in the rate
of GLS volume growth next year.
"Due to our letters performance to date, we expect addressed
letter volume declines, excluding elections, to be in the range of
7-8% for 2018-19. While the rate of e-substitution remains in line
with our expectations, business uncertainty is impacting letter
volumes. As a result, addressed letter volume declines, excluding
elections, are likely to be outside our forecast medium-term range
next year. Otherwise, we are reconfirming the outlook and other
guidance for 2018-19 provided in our half year results."
Summary operating performance
Underlying change(1)
Group revenue 2%
---------------------
UKPIL revenue (1%)
---------------------
Parcels volumes 6%
---------------------
Parcels revenue 6%
---------------------
Addressed letter volumes (8%)
---------------------
Letters revenue (6%)
---------------------
GLS volumes 5%
---------------------
GLS revenue 8%
---------------------
Key points
-- Recent trading performance broadly in line with our expectations
-- Now expect to deliver adjusted Group operating profit before
transformation costs of GBP500-GBP530m for 2018-19 (52 week
basis)
-- Group revenue up 2%
-- UKPIL parcel volumes and revenue both up 6%
-- Addressed letter volumes (excluding election mailings) down
8% and total letter revenue down 6%
-- GLS revenue up 13% including acquisitions and up 8% on an underlying basis
-- Focus on margin protection expected to result in slowing in
rate of GLS volume growth next year
-- Addressed letter volume declines (excluding election
mailings) expected to be 7-8% in 2018-19
-- Addressed letter volume declines (excluding election
mailings) likely to be outside forecast medium-term range next
year
-- Cost avoidance programme on target to deliver GBP100m costs avoided in 2018-19
-- Otherwise, reconfirming outlook and other guidance for 2018-19 provided in half year results
Operating performance
UKPIL
UKPIL revenue declined by 1% on an underlying basis, as the
increase in parcels revenue did not offset the decline in total
letters revenue.
Our cost avoidance programme remains on target to deliver
GBP100m of costs avoided in 2018-19. Costs avoided in the nine
months largely comprised: savings in property, technology and
central functions; benefits from the line haul review;
modernisation of our Heathrow distribution centre; the flow through
from last year's operational management headcount reduction; and
absorption of the shorter working week. Our short-term cost
actions, including a review of our organisational structure and
management roles, discretionary spend and central costs, are being
implemented.
The assessment of the productivity and efficiency opportunities
under our Agreement with the CWU and the UK Network Review are
ongoing. The findings from these reviews will help to inform the
financial framework of our strategic plan.
Parcels
Our UK parcels business performed well over the Christmas
period, with 164m parcels handled in the December trading period,
up 10% over last year.
In the nine months, parcel volumes and revenue were both up 6%
on an underlying basis. Royal Mail domestic account parcels
volumes, excluding Amazon, were up 8%, partly reflecting our
increasing focus on the fast-growing clothing and footwear sector
of the e-commerce market. Royal Mail Tracked 24(R) /48(R) and
Tracked Returns(R) volumes, our key e-commerce products, grew by
24%.
Cross-border volumes in our international parcels business
continued to grow. We saw lower import parcel volume growth,
excluding cross-border. This was largely offset by higher revenue
due to increased import rates.
Parcelforce Worldwide volumes increased by 1%.
Letters
Addressed letter volumes (excluding political parties' election
mailings) declined by 8% on an underlying basis, largely reflecting
the continuing impact of General Data Protection Regulation (GDPR)
and a relatively strong prior year comparative period which
benefited from financial sector mailings (9M 2017-18: 5%
decline).
Total letter revenue (including marketing mail) decreased by 6%.
Excluding the benefit of political parties' election mailings in
the prior year, total letter revenue decreased by around 5%. Price
increases in business mail, which came into effect from January
2019, are expected to have a net positive impact on letter revenue
going forward.
GLS
GLS continued to perform well in terms of revenue in the nine
months. Including the impact of acquisitions, revenue was up 13% on
a constant currency basis. Revenue increased by 8% on an underlying
basis, 3 percentage points higher than volume growth, due to a
combination of customer mix effects and price increases. Revenue
growth was achieved in the majority of markets and from a broad
customer base.
Volumes were up 5% on an underlying basis, with our focus on
margin protection and continued good growth in international
volumes. We will continue to focus on margin protection and as a
result we expect to see a slowing in the rate of GLS volume growth
next year.
Cost pressures in our European and US markets are continuing.
However, through prudent pricing initiatives and cost mitigation
actions we are continuing to target an adjusted operating profit
margin of over 6% for the full year.
The transition of both GSO and Postal Express to an independent
contractor model, as well as their integration, is progressing in
line with our revised expectations. In Canada, Dicom is performing
in line with our expectations.
Recent developments
On 17 January 2019 it was announced that unconditional contracts
had been exchanged for the sale of Plot C at the Nine Elms site to
Galliard Homes for a total consideration of GBP22.2m in cash.
The timing in relation to the planning consent process for Plots
B and D at our Nine Elms site means that we now expect to receive
the remaining GBP98m consideration in 2019-20.
Brexit
We are planning for all the main eventualities and for those
areas within our control our state of readiness is on track. We
believe that the immediate risk to our domestic operations is low.
The shape of the future relationship between the UK and the EU
continues to be unclear. It is therefore not appropriate, at this
stage, to set out with any degree of accuracy the impact of various
Brexit eventualities on the Group. As previously outlined, the main
issues for the Group are expected to relate to any potential
economic downturn and changes associated with customs and VAT
processing.
Current trading and outlook
Overall, our recent trading performance was broadly in line with
our expectations. We now confirm that we expect to deliver adjusted
Group operating profit before transformation costs of GBP500-530m
for 2018-19 on a 52 week basis.
Due to our letters performance to date, we expect addressed
letter volume declines (excluding political parties' election
mailings) to be in the range of 7-8% for 2018-19. While the rate of
e-substitution remains in line with our expectations, business
uncertainty is impacting letter volumes. As a result, addressed
letter volume declines (excluding political parties' election
mailings) are likely to be outside our forecast medium-term range
of 4-6% in 2019-20.
In GLS, through prudent pricing initiatives and cost mitigation
actions we are continuing to target an adjusted operating profit
margin of over 6% for the full year. We will continue to focus on
margin protection and as a result we expect to see a slowing in the
rate of GLS volume growth next year.
Otherwise, our outlook and other guidance for 2018-19 are
unchanged from that set out in our financial results for the half
year ended 23 September 2018.
The results for the full year ending 31 March 2019 are expected
to be announced on Wednesday 22 May 2019. The planned Capital
Markets Day will be held shortly thereafter.
Conference call
A conference call for analysts and institutional investors will
be held at 09:00 today and will be simultaneously webcast at:
https://royalmailgroup.emincote.com/results/tradingupdate
Notes:
(1) All movements are on an underlying basis unless otherwise
stated. Underlying revenue change is calculated after adjusting for
working days in UKPIL, movements in foreign exchange, acquisitions
and other one-off items that distort the Group's underlying
performance. For volumes, underlying movements are adjusted for
working days and exclude the impact of political parties' election
mailings in UKPIL and exclude the impact of acquisitions in GLS. In
the first nine months of 2018-19 there were 230.0 working days in
UKPIL (9M 2017-18: 230.0). For 2018-19 the estimated full year
revenue and profit impact of working days in UKPIL is a reduction
of around GBP15m (52 week basis 2018-19: 304.5 days; 2017-18: 305.0
days). For comparison purposes all underlying adjustments are made
to the prior period.
Enquiries:
Investor Relations
Catherine Nash
Investor Relations contact number: 020 7449 8183
Email: investorrelations@royalmail.com
Media Relations
Beth Longcroft
Phone: 07435 768 549
Email: beth.longcroft@royalmail.com
Royal Mail press office out of hours: 020 7449 8246
Company Secretary
Kulbinder Dosanjh
Phone: 020 7449 8133
Email: cosec@royalmail.com
Disclaimer
Figures presented in this trading update are not audited. This
trading update contains certain statements that constitute
"forward-looking statements". Such forward-looking statements
involve known and unknown risks, uncertainties and other factors,
which may cause the actual results, performance or achievements of
the Group or industry results to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements. Persons receiving this release
should not place undue reliance on any forward-looking
statements.
The Group disclaims any obligation or undertaking to update or
revise any forward-looking statements contained in this document to
reflect any change in its expectations or any change in events,
conditions or circumstances on which such statements are based
unless required to do so by applicable law, the Prospectus Rules,
the Listing Rules or the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority.
About Royal Mail plc
Royal Mail plc is the parent company of Royal Mail Group
Limited, the leading provider of postal and delivery services in
the UK and the UK's designated universal postal service provider.
UK Parcels, International & Letters (UKPIL) comprises the
company's UK and international parcels and letters delivery
businesses operating under the "Royal Mail" and "Parcelforce
Worldwide" brands. Through the Royal Mail Core Network, the company
delivers a one-price-goes-anywhere service on a range of parcels
and letters products. Royal Mail has the capability to deliver to
more than 30 million addresses in the UK, six days a week
(excluding UK public holidays). Parcelforce Worldwide operates a
separate UK network which collects and delivers express parcels.
Royal Mail also owns General Logistics Systems (GLS) which operates
one of the largest ground-based, deferred parcel delivery networks
in Europe.
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.
END
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