TIDMRMG
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 YEARED 26 SEPTEMBER 2021
Reported 26 weeks Reported 26 weeks
ended 26 September ended 27 September
Reported measures (GBPm)(1) 2021 2020 Change(3)
------------------------------- -------------------- -------------------- ----------
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 (GBPm)(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
flow(4) 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
GBP311 million, up GBP331 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 GBP235 million, 5.8%
margin; GLS GBP169 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:
-- GBP15 million benefit from Pathway to Change agreement
delivered in first half; now expect at least GBP80 million full
year benefit (previously GBP100+ 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: GBP56 million from
management restructure and GBP42 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 GBP298
million improved by 36.1% year on year, including increased capex
as Royal Mail transformation progresses:
-- Equal contribution from both Royal Mail (GBP151 million) and GLS (GBP147 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 GBP400 million capital to
shareholders: GBP200 million share buyback commencing immediately
and GBP200 million special dividend to be paid alongside interim
dividend;
-- Outlook for FY 2021-22:
-- Royal Mail expected to be around GBP500 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
------------------------------------------------------------- -------------------------------------------------------
26 weeks
26 weeks ended 26 weeks ended 26 weeks ended ended
26 September 27 September 26 September 27 September
(GBPm) 2021 2020 Change(3) 2021 2020 Change(3)
----------------- -------------------- -------------------- ---------- --------------- -------------- ----------
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 GBP500 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 GBP400 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 GBP311
million on a reported basis (H1 2020-21: GBP20 million loss) and on
an adjusted basis, GBP404 million (H1 2020-21: GBP37 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 GBP400 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 GBP160
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
GBP215 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 GBP685
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 GBP400 million of capital
to shareholders, via a share buyback and special dividend. A GBP200
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 GBP200 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 Position Status: A
expected outturn at end of (Amber), G
as at May 2021 H1 2021-22 (Green)
GBPm GBPm
Management restructure (charge
and savings) 208 149 G
------------------ ------------ ------------
Non-people cost programme (flow c. 110 42 G
though and remainder)
------------------ ------------ ------------
Pay award (110) (43) G
------------------ ------------ ------------
Pathway to Change efficiencies 100+ 15 A
------------------ ------------ ------------
COVID-19 costs and conveyance cost c. 100 24 A
unwind
------------------ ------------ ------------
Transformation and investment related c. (60) (20) G
spend
------------------ ------------ ------------
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 GBP80
million benefit in FY 2021-22 vs. GBP100+ 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 GBP45 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 GBP500 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.GBP50 million. We expect the flow through costs
of the shorter working week, to be around GBP40 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
GBP190 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 EUR500 million in 2024-25 and EUR1 billion cumulative
free cash flow(1) 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 GBP4,074 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 GBP235 million (H1
2020-21: GBP129 million loss) with an adjusted operating profit
margin of 5.8%.
In-year trading cash inflow was GBP151 million, compared with
GBP38 million in the prior period. Gross capital expenditure
increased by GBP64 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(R) / 48(R) and Tracked Returns(R) 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 GBP100 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 GBP110 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 GBP15 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 GBP80 million benefit in FY 2021-22 vs. GBP100+ 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 GBP30 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 GBP56
million benefit from the management restructure programme which
commenced last year; the first half of 2020-21 also included a
one-off charge of GBP140 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 GBP42 million saving
in non-people costs in the first half, against an expected in year
benefit of GBP110 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
reported(1) CO(2) e 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 GBP2,010 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 GBP87
million, which led to a foreign exchange headwind of 4.7% on
revenue growth. Operating costs also decreased by GBP80 million,
resulting in a net negative impact from foreign exchange on
adjusted operating profit of GBP7 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 GBP52 million (H1 2020-21: GBP54 million). In year
trading cash flow remained strong, at GBP147 million, compared with
GBP181 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 (GBPm)
Reported Reported
26 weeks ended 26 weeks ended
26 September 27 September
2021 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 GBP401 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 GBP87
million.
Operating costs increased by GBP73 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 GBP80
million. People costs fell, driven mainly by the Royal Mail
management reorganisation voluntary redundancy charge of GBP140
million included in the comparative.
Operating profit before specific items was GBP321 million,
GBP328 million higher than the prior period. Operating specific
items were a cost of GBP10 million and non-operating specific items
were a cost of GBP2 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 GBP315 million comprises a GBP159 million
profit in Royal Mail (H1 2020-21: GBP133 million loss) and a GBP156
million profit in GLS (H1 2020-21: GBP150 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 (GBPm)
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 weeks ended
26 September 27 September
2021 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%
------------------------ --------------- --------------- --------
Adjusted(1)
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%
------------------------ --------------- --------------- --------
Adjusted(1)
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 % change(5)
2021 vs. 2021 vs.
Revenue (GBPm) 2021 2020(2) 2019(2) 2020 2019
------------------------------------------- -------- --------- --------- --------- ---------
Group(3) 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 % change(5)
2021 vs. 2021 vs.
Volume (m) 2021 2020 2019 2020 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
Reported Reported
26 weeks ended 26 weeks ended
26 September 27 September
(GBPm) 2021 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 GBP83
million in the period (H1 2020-21: GBP44 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 GBP165 million for the full
year.
Amortisation of intangible assets in acquisitions of GBP8
million (H1 2020-21: GBP10 million) relates to acquisitions in
GLS.
Net pension interest credit of GBP32 million (H1 2020-21: GBP59
million) is calculated by reference to the pension surplus at the
start of the financial period. The decrease in the period of GBP27
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 GBP26 million (H1 2020-21: GBP19
million) largely comprised interest on bonds (including
cross-currency swaps) of GBP12 million (H1 2020-21: GBP12 million),
and interest on leases of GBP14 million (H1 2020-21: GBP14
million). This is offset by interest income of GBP3 million (H1
2020-21: GBP13 million). H1 2020-21 included GBP10 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 SONIA(6) (SOFR(7) 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 ISDA(8) published
5-year historical mean on fixing date (5 March 2021).
Facility Drawn Facility
Facility Rate (GBPm) (GBPm) end date
----------------------------- ----------- -------- ------- ---------
EUR500 million bond 2.5% 428 428 2024
EUR550 million bond 2.7% 469 469 2026
SONIA + CAS
Bank syndicate loan facility +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
EUR500 million and EUR550 million bonds is accounted for in
equity.
Taxation
26 weeks ended 26 September 26 weeks ended 27 September
2021 2020
-------------------- -------------------------------- --------------------------------
(GBPm) 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
26 weeks ended 26 weeks ended
(GBPm) 26 September 2021 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
repayments(9) (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 GBP298 million, compared with
GBP219 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 GBP80
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 GBP218 million.
GLS in-year trading cash flow (pre-IFRS 16) was GBP117 million
(H1 2020-21: GBP150 million), or EUR136 million (H1 2020-21: EUR168
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
26 weeks ended 26 weeks ended
(GBPm) 26 September 2021 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 GBP194 million, of which GLS
spend was GBP52 million. Royal Mail capital expenditure was GBP142
million in total, of which GBP89 million was transformational
spend. Transformation spend has increased by GBP70 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 GBP6 million, mainly due to the timing
of vehicle spend.
Net debt
A reconciliation of net debt is set out below.
26 weeks ended 26 weeks ended
26 September 27 September
(GBPm) 2021 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 GBP45 million (H1 2020-21:
GBP23 million outflow), deferred revenue GBP8 million inflow (H1
2020-21: GBP4 million outflow) and movements in GLS client cash of
GBP6 million outflow (H1 2020-21: GBP13 million inflow). The amount
of client cash held at 26 September 2021 was GBP35 million (H1
2020-21: GBP34 million).
The cash cost of operating specific items was an outflow of GBP3
million (H1 2020-21: GBP2 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 (GBP3 million) and vehicle disposals (GBP2 million). The
prior year proceeds of GBP2 million predominately relate to vehicle
disposals.
The prior period acquisition payment of GBP3 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 GBP3 million, consisting of the cost of enabling
works of GBP1 million at Mount Pleasant (H1 2020-21: GBP14 million
outflow) and GBP2 million at Nine Elms (H1 2020-21: GBP1 million
outflow). The prior period costs were offset by a GBP1 million
receipt relating to Nine Elms.
New or increased lease obligations under IFRS 16 of GBP225
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 GBP100 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 GBP210 million (H1 2020-21: GBP180 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: GBP134
million; H1 2020-21: GBP143 million) of DBCBS pensionable pay in
respect of the scheme. Members contribute at 6.0%.
An IAS 19 deficit of GBP504 million (28 March 2021: GBP394
million) is shown on the balance sheet, comprising assets of
GBP1,412 million (28 March 2021: GBP1,192 million) and liabilities
of GBP1,916 million (28 March 2021: GBP1,586 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 GBP3,720 million (28 March 2021: GBP3,666
million), comprising assets of GBP12,201 million (28 March 2021:
GBP11,441 million) and liabilities of GBP8,481 million (28 March
2021: GBP7,775 million). The pre-withholding tax accounting surplus
has increased by GBP54 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
GBP2,418 million at 26 September 2021 (28 March 2021: GBP2,383
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 GBP119
million (31 March 2021: GBP163 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
GBP500,000 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 GBP9 million (31 March 2021:
GBP9 million). The pre withholding tax accounting surplus at 26
September 2021 was GBP10 million (28 March 2021: GBP9 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 GBP270 million in the
2021-22 financial year in respect of DBCBS and RMPP with employees
expected to contribute around GBP100 million. The Group also
expects to contribute around GBP120 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 GBP390 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
GBP193.5 million (including GBP3.5 million non-cash consideration).
For accounting purposes, GBP39.5 million of the proceeds were
allocated to Phoenix Place and GBP154 million to Calthorpe Street.
GBP115 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 GBP100
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 GBP1 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 GBP101 million to
Greystar Real Estate Partners, LLC.
-- Plot C1 sale completed June 2019 for GBP22.2 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 GBP3 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 GBP200 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
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'.
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 GBP12 million,
H1 2020-21 GBP27 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 GBP91 million (H1
2020-21: GBP91 million) shown in the consolidated statement of cash
flows is made up of the capital element of operating lease payments
of GBP80 million (H1 2020-21: GBP78 million) and the capital
element of finance lease payments of GBP11 million (H1 2020-21:
GBP13 million).
Royal Mail
Reported summary results (GBPm)
Reported
Reported 26 weeks ended
26 weeks ended 27 September
26 September 2021 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 GBP246 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 GBP79 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 GBP140 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 GBP2 million largely relate to employee free share costs, the
prior period balance of GBP3 million primarily related to asset
impairments.
Adjusted(1) trading results (GBPm)
Adjusted Re-presented adjusted(2)
26 weeks ended 26 weeks ended
26 September 27 September
2021 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 % change(5)
2021 vs. 2021 vs.
Revenue (GBPm) 2021 2020(2) 2019(2) 2020 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%
International(4) 397 470 393 (15.5)% 1.0%
Letters 1,766 1,528 1,922 15.6% (8.1)%
------------------------------ -------- --------- --------- --------- ---------
26 weeks ending September % change(5)
2021 vs. 2021 vs.
Volume (m units) 2021 2020 2019 2020 2019
------------------------------- --------- --------- -------- --------- ---------
Royal Mail
Total Parcels 725 806 613 (10)% 18%
Domestic Parcels (excluding
international)(3) 645 672 486 (4)% 33%
International(4) 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(R) /48(R) and Tracked Returns(R) , 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 (GBPm)
Adjusted Adjusted
26 weeks ended 26 weeks ended
26 September 27 September
2021 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 - GBP18 million of
transformation costs are included within people costs, comprising
project costs of GBP15 million and voluntary redundancy costs of
GBP3 million. Versus the prior period, project costs have reduced
GBP3 million and voluntary redundancy costs are down GBP144 million
as the prior period included a GBP140 million charge for the
management restructure programme;
-- The benefits from the management restructure programme which
has resulted in H1 2021-22 savings of (GBP56 million);
-- Pathway to Change efficiencies in operations of c. GBP15 million;
-- Lower COVID-19 costs - prior period COVID-19 people costs
were GBP41 million, mainly related to increased levels of COVID-19
sick absence. This period, COVID-19 people costs have reduced by
GBP12 million, as absence rates have reduced.
These improvements were partially offset by:
-- Frontline pay costs (GBP43 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. GBP45 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
GBP42 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 GBP32 million (H1 2020-21: GBP44 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 GBP23 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 GBP89 million (H1 2020-21: GBP83 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 GBP188 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 GBP5 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
GBP40 million). Transformation project costs of GBP29 million (H1
2020-21: GBP14 million) are also included in other operating
costs.
Adjusted operating profit
Adjusted operating profit was GBP235 million (H1 2020-21: GBP129
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:
(GBPm)
------------------------------------------------------- ------
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
GBP246 million (GBP8 million on parcels and GBP238 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
GBP20 million.
We have invested GBP38 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.
GBP45 million.
In-year trading cash flow
26 weeks ended 26 weeks ended
(GBPm) 26 September 2021 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 GBP151 million, compared with
GBP38 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 GBP140
million. By excluding the effect of the provision, the prior period
comparative trading working capital movement would have been a
GBP79 million outflow, compared to a GBP109 million outflow in the
current period. The remaining movement period on period reflects
the improved trading performance.
Gross capital expenditure increased by GBP64 million largely
driven by transformation expenditure due to investment in parcel
hubs, automation and PDAs.
Income tax paid increased by GBP17 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
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' .
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
Reported(1) summary results (GBPm)
6 months to 6 months to
30 September 30 September
Summary results (GBPm) 2021 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)
(EURm)
-------------------------- -------------- -------------- --------
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 GBP1 = EUR 1.16 1.12
-------------------------- -------------- -------------- --------
Reported Reported Reported
6 months 6 months 6 months
to to to Change Change
30 September 30 September 30 September 2021 v 2021 v
Summary results 2021 2020 2019 2020 2019
------------------ -------------- -------------- -------------- --------- --------
Revenue (GBPm) 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 GBP140 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 GBP87 million and decreased operating costs by
GBP80 million, resulting in a net negative impact from foreign
exchange on adjusted operating profit before specific items of GBP7
million compared to the prior year.
Operating profit before specific items increased by GBP3 million
to GBP169 million. The operating specific items charge of GBP8
million was in respect of the amortisation of intangible assets in
acquisitions. GLS operating profit was GBP5 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 (GBPm)
Reported
Reported 6 months
6 months to to
30 September 30 September
(GBPm) 2021 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 GBP80 million.
Reported operating profit before specific items
Reported operating profit before specific items was GBP169
million, foreign exchange movements reduced operating profit before
specific items by GBP7 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
6 months ended 6 months ended
(GBPm) 30 September 2021 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 GBP147 million, compared with
GBP181 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 GBP27 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 GBP36 million was GBP17 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 weeks ended
26 September 2021 27 September 2020
================================== ==================================
Specific Specific
items and items and
pension pension
(GBPm) Reported adjustment(1) Adjusted Reported adjustment(1) 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 weeks ended
26 September 2021 27 September 2020
---------------------------------------- ----------------------------------------
Royal Intragroup Royal Intragroup
(GBPm) Mail GLS Eliminations Group Mail GLS 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
items(1) (2) (8) - (10) (3) (10) - (13)
Operating profit
/ (loss) 150 161 - 311 (176) 156 - (20)
Non-operating specific
items(1) (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.
26 weeks ended
26 weeks ended 27 September
(GBPm) 26 September 2021 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'.
Reported Reported
26 weeks ended 26 weeks ended
26 September 27 September
(GBPm) 2021 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.'
Reported Reported
26 weeks ended 26 weeks ended
26 September 27 September
(GBPm) 2021 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.
At
26 September At
(GBPm) 2021 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
GBP60 million largely as a result of free cash flow in H1 2021-22
of GBP254 million (FY 2020-21: GBP800 million inflow). This was
partially offset by the payment of capital element of obligations
under lease contracts in H1 2021-22 of GBP91 million (FY 2020-21
GBP188 million). It was further offset by a dividend paid in H1
2021-22 of GBP100 million (FY 2020-21 no dividend paid).
Net debt excludes GBP192 million (FY 2020-21: GBP191 million)
related to the RMPP pension scheme of the total GBP213 million (FY
2020-21: GBP212 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 Reported
26 weeks 26 weeks
ended ended
26 September 27 September
2021 2020
Notes GBPm GBPm
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 items(2)
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
Reported Reported
26 weeks 26 weeks
ended ended
26 September 27 September
2021 2020
Notes GBPm GBPm
------------------------------------------------------------ --------- ------------- -------------
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 (EUR500
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
Reported Reported
At 26 September At 28 March
2021 2021
Notes GBPm GBPm
--------------------------------------------- ----- ---------------- ------------
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
Foreign
currency
Share Retained translation Hedging Total
capital earnings reserve reserve equity
GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- --------- ------------ --------- -------
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 shares(1) - (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
Reported Reported
26 weeks 26 weeks
ended ended
26 September 27 September
2021 2020
Notes GBPm GBPm
------------------------------------------------------- ----- ------------- -------------
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 items(1) 321 (7)
Adjustment for:
Depreciation and amortisation 267 259
EBITDA before specific items(1) 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
GBP925 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 GBP337 million, cash
equivalent investments of GBP1,250 million and current asset
investments of GBP40 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 GBP250 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 GBP200 million special dividend
to be paid in January 2022 and a GBP200 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)
Specific items
26 weeks ended 26 September and pension
2021 Adjusted adjustment Reported
------------------------------------ ------------------------------------------ ---------------- --------
Royal Royal
Mail GLS Eliminations(1) Group Mail GLS Group
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------- ------- --------------- ------- ------- ------- --------
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
------------------------------------ ------- ------- --------------- ------- ------- ------- --------
Specific items
26 weeks ended 27 September and pension
2020 Adjusted adjustment Reported
------------------------------------ ------------------------------------------- ---------------- --------
Royal Royal
Mail GLS Eliminations(1) Group Mail GLS Group
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------- ------- ---------------- ------- -------- ------ --------
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 Reported
ended 26 weeks ended
26 September 27 September
2021 2020
GBPm GBPm
===================================================== ============= ===============
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) Headcount(2)
------------ ------------------------------------------ ------------------------------------------
Half-year end Average Half-year end Average
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks
2022 2021 2022 2021 2022 2021 2022 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 GBP45 million (H1 2020-21: GBP3
million) on a reported profit before tax of GBP315 million (H1
2020-21: GBP17 million). This consists of a tax charge in the UK of
GBP9 million (H1 2020-21: GBP33 million credit) on a reported
profit of GBP159 million (H1 2020-21: GBP133 million loss) and a
tax charge in GLS of GBP36 million (H1 2020-21: GBP36 million) on a
profit of GBP156 million (H1 2020-21: GBP150 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 GBP12 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 26 weeks ended 27 September
2021 2020
----------------------------------- ------------------------------- ----------------------------------
Specific
items and Specific
pension items and
adjustment pension
Reported (1) Adjusted Reported adjustment(1) Adjusted
----------------------------------- -------- ----------- -------- -------- -------------- --------
Attributable to equity holders
of the parent Company
Profit from continuing operations
(GBP 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 weeks ended
26 September 27 September
2021 2020
GBPm GBPm
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 contributions(2) (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 contributions(3) (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 GBP5 million
(H1 2020-21: GBP5 million) and the DBCBS of GBP2 million (H1
2020-21: GBP2 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 RMPP and RMSEPP
Accounting (IAS DBCBS Accounting (IAS RMPP and RMSEPP
19) Actuarial funding 19) Actuarial funding
At 26 At At 30 At At 26 At At 30 At
September 28 March September 31 March September 28 March September 31 March
2021 2021 2021 2021 2021 2021 2021 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
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 plans(7) (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:
RMPP and RMPP and
DBCBS RMSEPP DBCBS RMSEPP
At 26 September At 26 September At 28 March At 28 March
2021 2021 2021 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.
At 26 At 26
September September At 28 March
2021 2021 2021 At 28 March
Carrying Fair Carrying 2021
amount value amount Fair value
Level Classification GBPm GBPm GBPm GBPm
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
Amortised
Short-term deposits - bank cost 160 160 60 60
Cash and cash equivalents 1 1,587 1,587 1,573 1,573
Current asset investments
- short-term deposits - Amortised
bank 1 cost 40 40 - -
Pension escrow investments 1 FVTPL 213 213 212 212
Amortised
Trade and other receivables 2 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.
At 26 At 26
September September At 28 March
2021 2021 2021 At 28 March
Carrying Fair Carrying 2021
amount value amount Fair value
Level Classification GBPm GBPm GBPm GBPm
Financial liabilities
Amortised
Lease liabilities (current) 2 cost (203) (203) (197) (197)
Interest-bearing loans
and borrowings:
Amortised
EUR500 million bond 2 cost (428) (457) (427) (460)
Amortised
EUR550 million bond 2 cost (469) (495) (468) (495)
Amortised
Lease liabilities (non-current) 2 cost (1,088) (1,110) (959) (993)
Amortised
Trade and other payables 2 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 EUR500 million and
EUR550 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
GBP5.1 million.
9. Provisions
Charged as specific
items Charged in operating costs
Property
Industrial Regulatory Voluntary decomm- Litigation
diseases fine Other redundancy issioning claims Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
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 GBP16
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 GBP215
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 GBP400 million of
capital to shareholders, via a share buyback and special dividend.
A GBP200 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 GBP200 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
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END
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