RMG.L Regulatory News (RMG)

19 January 2017

ROYAL MAIL plc

TRADING UPDATE FOR THE NINE MONTHS ENDED 25 DECEMBER 2016

Royal Mail plc (RMG.L) today issued a trading update covering the nine months ended 25 December 2016.

Moya Greene, Chief Executive Officer, Royal Mail plc, said:

"Our postmen and women delivered a great service at Christmas, even better than last year, with 138m parcels handled in December alone. Our comprehensive planning, which started much earlier this year, enabled us to deliver this service for our customers right across the UK.

"Group revenue in the first nine months was in line with our expectations, with 9% revenue growth in GLS offsetting a 2% decline in UKPIL revenue. UK parcel revenue was up 3% with volumes up 2%. Total letter revenue was down 5% with addressed letter volumes, excluding elections, declining by 6%.

"Our cost avoidance programme is on track. We continue to target a reduction of up to 1% in underlying UKPIL operating costs before transformation costs in 2016-17."

Trading performance for the nine months ended 25 December 2016

· UKPIL revenue was down 2%, with parcel revenue up 3% and total letter revenue declining by 5%.

· Parcel volumes were up 2%, with growth largely driven by Royal Mail account parcels. Parcelforce Worldwide volumes declined by 1%, reflecting the very strong prior period and the increasingly competitive express parcels market.

· Parcel revenue was up 3%, with all our main channels delivering revenue growth. In particular, the consumer channel delivered volume and revenue growth.

· In international parcels, the rate of growth of import parcel volumes slowed but with an improvement in AURs as a result of our initiatives.

· We continued to see an improvement in the rate of decline of export parcel volumes, with growth in the third quarter.

· Addressed letter volumes decreased by 6% (excluding the impact of political parties' election mailings). However, letters performance in the prior period benefitted from the one-off return of direct delivery volumes and a good performance over the peak period. In particular, the third quarter last year was unusually strong.

· We are seeing the impact of overall business uncertainty in the UK on letter volumes, in particular advertising and business letters.

· Total letter revenue was down 5%. We have seen the impact of low inflation on pricing and we continue to be affected by ongoing trends in downtrading.

· We do not report marketing mail revenue on a quarterly basis due to the timing of the required survey data. However, the revenue trend in our main advertising products (which include retail addressed, unaddressed and access) was broadly similar to the first half.

· GLS continued to perform well. Performance in the period benefitted from the timing of Easter and other public holidays across Europe, which accounted for around one percentage point of the volume and revenue movements.

· Revenue growth was achieved in all key markets with the exception of Ireland, with continued strong growth in Italy.

· The recent acquisitions, ASM in Spain and GSO in California, are performing in line with expectations.

Recent developments

On 5 January Royal Mail commenced a consultation process with the active members of the Royal Mail Pension Plan ('the Plan') and its trade unions about its proposal for the future of the Plan from April 2018. This is part of the 2018 pension review process which the Company is undertaking with its unions. The member-wide consultation phase will end on 10 March 2017.

No decisions will be made until the consultation process is completed, Royal Mail has considered members' views, and discussed responses with its unions as part of the pension review process. Royal Mail will write to members again once it has made a decision.

Current trading and outlook

Our performance in the first nine months of the financial year was in line with our expectations. We are seeing the impact of overall business uncertainty in the UK on letter volumes. This impacted UKPIL revenue despite a solid performance from UK parcels against a highly competitive backdrop. GLS continues to perform well.

Our cost avoidance programme remains on track to deliver around £225m of UKPIL operating costs avoided in 2016-17. We continue to target a reduction of up to 1%2 in underlying UKPIL operating costs before transformation costs in 2016-17. In addition, we remain confident that our total net cash investment will be no more than £500m this year and next.

Our outlook for UK letters and parcels trends and other guidance remain unchanged from that set out in our financial results for the half year ended 25 September 2016.

The results for the full year ending 26 March 2017 are expected to be announced on Thursday 18 May 2017.

Notes:

1. All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for working days and eCourier in UKPIL; movements in foreign exchange, ASM and GSO in GLS; and other one-off items that distort the Group's underlying performance. For volumes, underlying movements are adjusted for working days and exclude the impact of political parties' election mailings in UKPIL; and ASM and GSO in GLS. In the first nine months of 2016-17 there were 230.3 working days in UKPIL (9M 2015-16 227.5). We estimate that the impact of working days in UKPIL will be around £65m for the full year (2016-17 305.6; 2015-16 303.0). For comparison purposes all underlying adjustments are made to the prior period.

2. Movements in Sterling exchange rates impact UKPIL import revenue and terminal dues (in distribution and conveyance costs) associated with exports. In the first nine months, weaker Sterling resulted in a positive impact of £20m on UKPIL revenue and a £30m increase in terminal dues. Underlying change will be adjusted for this impact for the full year.

Enquiries:

Investor Relations

Catherine Nash

Phone: 020 7449 8183

Email: investorrelations@royalmail.com 

Dilani Paranavithana

Phone: 07436 546853

Email: investorrelations@royalmail.com

Media Relations 

Peter Tilley

Phone: 07841 803 316

Email: peter.tilley@royalmail.com

Harshna Brahmbhatt

Phone: 0743 595 7464

Email: harshna.brahmbhatt@royalmail.com

Royal Mail press office out of hours: 020 3338 1007

Company Secretary

Kulbinder Dosanjh

Phone: 020 7449 8133

Email: cosec@royalmail.com

Disclaimer

Figures presented in this trading update are not audited. This trading update contains certain statements that constitute "forward-looking statements". Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Persons receiving this release should not place undue reliance on any forward-looking statements.

The Group disclaims any obligation or undertaking to update or revise any forward-looking statements contained in this document to reflect any change in its expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing Rules or the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.

About Royal Mail plc

Royal Mail plc is the parent company of Royal Mail Group Limited, the leading provider of postal and delivery services in the UK and the UK's designated universal postal service provider. UK Parcels, International & Letters (UKPIL) comprises the company's UK and international parcels and letters delivery businesses operating under the "Royal Mail" and "Parcelforce Worldwide" brands. Through the Royal Mail Core Network, the company delivers a one-price-goes-anywhere service on a range of parcels and letters products. Royal Mail has the capability to deliver to more than 29 million addresses in the UK, six days a week (excluding UK public holidays). Parcelforce Worldwide operates a separate UK network which collects and delivers express parcels. Royal Mail also owns General Logistics Systems (GLS) which operates one of the largest ground-based, deferred parcel delivery networks in Europe.