RMG.L Regulatory News (RMG)

17 July 2018

ROYAL MAIL plc

TRADING UPDATE FOR THE THREE MONTHS ENDED 24 JUNE 2018

Royal Mail plc (RMG.L) today issued a trading update covering the three months ended 24 June 2018.

Rico Back, Group Chief Executive Officer, Royal Mail plc, said:

"Overall, trading in the first three months of our 2018-19 financial year was in line with our expectations.

"Our performance in UK letters and parcels was as anticipated and GLS continued to perform strongly. In the UK, we are making progress with the trials and initiatives under our new Pensions, Pay and Pipeline agreement. We, together with the CWU, are working with Government to enable the introduction of a Collective Defined Contribution scheme.

"Our outlook and other guidance are unchanged from that set out in our financial report for the full year ended 25 March 2018."

Trading performance for the three months ended 24 June 2018

· UKPIL revenue was down 1%, with parcel revenue up 6% and total letter revenue down 7%.

· Excluding the benefit of elections in the prior period, UKPIL revenue was flat and total letter revenue was down around 5%.

· Parcel volumes were up 7%, largely driven by higher volumes from retailer account customers. Royal Mail Tracked 24®/48® and Tracked Returns® services saw volume growth of 24%.

· Our international parcels business continued to benefit from our cross-border traffic initiative 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. UPU price rises, effective from January 2018, accounted for around 1 percentage point of parcel revenue growth in the period.

· Parcelforce Worldwide volumes were up 4% benefitting from better than expected volumes from contract customers. However, due to a customer withdrawing from the market, we do not expect this level of performance to continue throughout the remainder of the year.

· Total parcel revenue was up 6%, reflecting trends in the domestic traffic mix.

· Addressed letter volumes (excluding political parties' election mailings) decreased by 6%, in line with our expectations.

· Some customers remain uncertain about the application of GDPR which came into effect on 25 May 2018. We are monitoring any potential impact closely. We continue to work with customers to find solutions for their marketing mail needs.

· Total letter revenue (including marketing mail) was down 7%. Excluding the benefit of elections in the prior period, total letter revenue was down around 5%.  

· GLS continued to perform strongly, with volumes up 10% and revenue up 11%. Excluding the impact of working days across Europe, volumes were up 9% and revenue was up 10%.

· Revenue growth was achieved in almost all markets, with continued strong growth in Italy, Denmark and Spain. Poland, where we have opened three new depots in response to demand, and our other Eastern European businesses all saw double digit revenue growth in the period.

· In the US, work continues on the integration of GSO and Postal Express and we have seen growth in interstate traffic.

· Redyser, acquired in February 2018, is being consolidated within our existing Spanish operations.

Recent developments

On 1 June 2018, Rico Back assumed the role of Group CEO of the Company and joined the Board. Sue Whalley was appointed CEO of UK Post and Parcels and joined the Board on the same date.

Ofcom announced it was commencing an investigation into our Quality of Service performance for the 2017-18 financial year on 1 June 2018. We welcome the opportunity to continue discussions with Ofcom about a number of factors that impacted our Quality of Service performance, as well as the actions we have taken to address those challenges. Were these factors taken into account by Ofcom, we estimate that we would have achieved our First Class and exceeded our Second Class Quality of Service targets in 2017-18. It will be for Ofcom to decide. We are participating fully in the investigation.

We are making progress on the trials and initiatives covered by the new Pensions, Pay and Pipeline agreement. We have launched our 01:30 later acceptance time service for parcels from our larger account customers. Trials of different delivery methods have started at eight sites. Trials using tools and technology to better align resource to workload are in train. Together with the CWU, we continue to engage with Government to make the necessary regulatory and legislative changes to enable a Collective Defined Contribution (CDC) scheme to be established. We welcome the recent report from the Work and Pensions Select Committee, which has recommended that the Government introduce CDC pensions in the UK.

Financial reporting for 2018-19

The 2018-19 financial year is a 53-week year ending 31 March. To provide meaningful comparison with 2017-18, adjusted Group and UKPIL revenue, costs (including operating costs, but not transformation costs) and operating profit for 2018-19 will also be presented on a 52-week basis to exclude the revenue earned during the 53rd week but only the incremental operating costs associated with that revenue. The Group's balance sheet and cash flow statement will be presented on a 53-week basis. GLS reports on the basis of a calendar year ending 31 March.

The frontline pay award of £101m was paid in the first quarter of 2018-19. The £20m overage payment in respect of the sale of the Paddington Mail Centre in 2014 was received in April 2018. As a result of the timing of payments, we expect an additional outflow in 'trading working capital' in relation to VAT payments and in 'other working capital' related to monthly paid staff in 2018-19.

Current trading and outlook

Overall, our trading performance in the first three months of the financial year was in line with our expectations.

We maintain our outlook for addressed letter volume declines of between 4-6% per annum (excluding political parties' election mailings). Due to the potential impact of GDPR and, or, if business uncertainty persists, we still expect to be at the higher end of the range of decline for 2018-19 and may fall outside the range in a period. In GLS, we continue to expect a good performance in 2018-19, although margins may be impacted by continuing labour market pressures in many of its markets.

Our outlook and other guidance are also unchanged from that set out in our financial report for the full year ended 25 March 2018.

The results for the half year ending 23 September 2018 are expected to be announced on Thursday 15 November 2018.

Note:

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 (Redyser 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 the impact of Redyser in GLS. For comparison purposes all underlying adjustments are made to the prior period.

In the first three months of 2018-19 there were 74.8 working days in UKPIL (3M 2017-18: 74.8). In the first half of 2018-19 there will be 152.0 working days in UKPIL (H1 2017-18: 152.0 days). The 2018-19 financial year is a 53-week year (310 working days). The 53rd week occurs in the last quarter. For 2018-19 the estimated full year 52-week revenue and profit impact of working days in UKPIL is a decrease of around £15m (2018-19: 304.5 days; 2017-18: 305.0 days).

Enquiries

Investor Relations

Catherine Nash

Phone: 020 7449 8183

Email: investorrelations@royalmail.com 

Media Relations 

Rebecca Hammond

Phone: 07841 103 824

Email: rebecca.hammond@royalmail.com

Royal Mail press office out of hours: 020 3338 1007

Company Secretary

Kulbinder Dosanjh

Phone: 020 7449 8133

Email: cosec@royalmail.com

LEI 213800TCZZU84G8Z2M70

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.