RMG.L Regulatory News (RMG)

18 January 2018

ROYAL MAIL plc

TRADING UPDATE FOR THE NINE MONTHS ENDED 24 DECEMBER 2017

Royal Mail plc (RMG.L) today issued a trading update covering the nine months ended 24 December 2017.

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

"We have had a good performance over the important Christmas period thanks to the hard work and dedication of our people. They pulled out all the stops to deliver a great Christmas for the UK.

"We remain the number one facilitator of e-commerce in the UK due to our significant investments to improve our customer offering. Parcel volumes in the nine months were up 6%, with 149m parcels handled over the December trading period. Letters performance was better than expected with addressed letter volumes down 5%. GLS delivered another strong performance with volumes and revenue up 10%. Overall, Group revenue was up 2%.

"Given our performance to date, we expect to see broadly similar volume and revenue trends in UK parcels and letters for the full year as in the nine months. In GLS, we expect underlying revenue growth for the full year to be broadly in line with the first half.

"We have continued to make progress in talks with our unions on pay, pensions and the other issues under discussion. We have agreed the fundamental principles on some of the key issues and talks are ongoing to finalise these and other areas. We believe we can reach agreement on an affordable and sustainable pension solution and a pay deal that will enable us to continue to innovate and grow."

Trading performance for the nine months ended 24 December 2017

· UKPIL revenue was flat, with parcel revenue up 4% offsetting total letter revenue which was down 3%.

· In UK parcels, the overall trends in the first nine months were broadly unchanged from the first half.

· Parcel volumes were up 6%, with growth largely driven by a good performance in Royal Mail account parcels. Royal Mail Tracked 24®/48® and Tracked Returns® services saw continued strong volume growth of 31%.

· Our international parcels business continued to benefit from our new cross-border traffic initiative2 which accounted for around 2 percentage points of total parcel volume growth and around 1 percentage point of parcel revenue growth in the period. Outside of this initiative, we saw an increase in lower AUR import volumes, largely from Asia.

· Parcelforce Worldwide volumes were up 2% benefitting from new customer wins.

· Total parcel volumes in the December trading period were 149m, up 6% over the same period last year.

· Total parcel revenue was up 4%, reflecting trends in the international traffic mix with a decline in higher AUR consumer export traffic due to the competitive market.

· Letters performance in part reflected lapping a relatively weak period in the prior year.

· Addressed letter volumes (excluding political parties' election mailings) decreased by 5%.

· 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 the first nine months in our main advertising products (retail addressed, unaddressed and access advertising letters) was broadly similar to the first half.

· Total letter revenue (including marketing mail) was down 3%. 

· GLS continued to perform strongly with volumes and revenue up 10%. Revenue growth was achieved in all its main markets, with continued strong growth in Italy. Good growth was also seen in Denmark and Eastern Europe.

· Performance in the period reflects the timing of Easter and other public holidays across Europe. Excluding this impact, underlying volume and revenue movements would have been around 3 percentage points higher. This impact is expected to be around 2 percentage points for the full year.

· In the US we continue to integrate GSO and Postal Express to realise operational synergies and commercial benefits.

Recent developments

We have continued to make progress in talks with our unions on pay, pensions and the other issues under discussion. We have agreed the fundamental principles on some of the key issues and talks are ongoing to finalise these and other areas. We believe we can reach agreement on an affordable and sustainable pension solution and a pay deal that will enable us to continue to innovate and grow.

Current trading and outlook

Overall, our trading performance in the first nine months of the financial year was good and in line with our performance in the first half. GLS continues to deliver strong volume and revenue growth. UK parcels performed well, underlining our position as the UK's leading e-commerce facilitator. UK addressed letter volumes (excluding political parties' election mailings) were better than expected.

For the full year, we expect parcels performance to be broadly in line with the performance in the first nine months reflecting progress in account parcels, as we continue to make improvements to our network and services. We continue to monitor the impact of overall business uncertainty in the UK on letter volumes, but given the performance to date we would expect addressed letter volumes (excluding political parties' election mailings) to be in the middle of the range of 4-6% decline for the full year.

In GLS, we expect underlying revenue growth for the full year to be broadly in line with the first half. We are, however, continuing to see cost pressures due to labour market conditions in many of GLS' European markets, as well as in the US, which may slightly impact margins this year.

Our cost avoidance programme is on track to deliver around £190m of UKPIL operating costs avoided in 2017-18. Given the impact of the industrial relations environment on the pace of change, we now expect transformation costs to be around £130m for the full year.

We continue to expect that our total net cash investment will be around £450m for the full year.

Otherwise, our outlook and other guidance are unchanged from that set out in our financial results for the half year ended 24 September 2017.

The results for the full year ending 25 March 2018 are expected to be announced on Thursday 17 May 2018.

Notes:

1All movements are on an underlying basis unless otherwise stated. Underlying revenue change is calculated after adjusting for working days in UKPIL, movements in foreign exchange, acquisitions and other one-off items that distort the Group's underlying performance. For volumes, underlying movements are adjusted for working days and exclude the impact of political parties' election mailings in UKPIL and exclude the impact of ASM, GSO and Postal Express in GLS. In the first nine months of 2017-18 there were 230.0 working days in UKPIL (9M 2016-17: 230.3). For 2017-18 the estimated full year revenue and profit impact of working days in UKPIL is a reduction of around £15m (2017-18: 305.0 days; 2016-17: 305.6 days). For comparison purposes all underlying adjustments are made to the prior period.

2Cross-border traffic arrives into our Heathrow processing plant mainly from Asia for customs clearance and onward transit into mainland Europe. We are responsible for paying the associated terminal dues to the local postal operator.

Enquiries:

Investor Relations

Catherine Nash

Phone: 020 7449 8183

Email: investorrelations@royalmail.com 

Sabreen Flores

Phone: 07841 466 378

Email: investorrelations@royalmail.com

Media Relations 

Peter Tilley

Phone: 07841 803 316

Email: peter.tilley@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 30 million addresses in the UK, six days a week (excluding UK public holidays). Parcelforce Worldwide operates a separate UK network which collects and delivers express parcels. Royal Mail also owns General Logistics Systems (GLS) which operates one of the largest ground-based, deferred parcel delivery networks in Europe.