TIDMRMG
RNS Number : 0525T
Royal Mail PLC
20 July 2022
Royal Mail plc
(Incorporated in England and Wales)
Company Number: 8680755
LSE Share Code: RMG
ISIN: GB00BDVZYZ77
LEI: 213800TCZZU84G8Z2M70
20 July 2022
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
TRADING UPDATE FOR THE FIRST QUARTER APRIL TO JUNE 2022
Royal Mail plc (RMG.L) will hold its 2022 Annual General Meeting
(AGM) today at 11.00 and is providing an update on trading for the
first quarter, April to June 2022.
Royal Mail(1) :
-- Revenue down 11.5% year on year in the first quarter,
reflecting weakening retail trends, lower test kit volumes and a
return to structural decline in letters
-- Adjusted operating loss of GBP92 million, reflecting
inflexibility in the cost base to adjust to lower volumes and
disappointing performance on delivery of further efficiencies
-- Progress on Pathway to Change stalled, creating GBP100
million risk to GBP350 million of benefits identified for FY
2022-23; other cost saving programmes on track, albeit with
headwinds from recent increases in absence due to COVID-19
-- Q1 performance emphasises the need to act now to make the
most of our new infrastructure, find more flexible ways of matching
resource to workload and ensure we have a more agile and
sustainable relationship with the CWU
-- Now moving ahead with actions where we do not need further
union agreement, notably revisions and Scan-in Scan-out (SISO) in
Delivery
-- Outlook for FY 2022-23: weaker parcels market and lower than
anticipated efficiency savings in-year. Provided progress can be
made on above actions, now likely to be around breakeven at
adjusted operating profit level, excluding any impact from
industrial action.
GLS:
-- Volume declined 3% year on year in the first quarter; revenue
growth of 7.8% in Sterling, (9.8% in Euros), including
acquisitions(2) , benefitted from better pricing and higher freight
revenues
-- Given current inflationary environment and COVID-19
restrictions in place during Q1 2021-22, some margin compression
year on year, as expected
-- Operating profit of GBP94 million (EUR112 million), broadly in line with prior year
-- Maintaining FY 2022-23 outlook: revenue growth year on year
of high single digit % in Euros and operating profit in the range
of EUR370 to EUR410 million
Group:
-- Holding company Royal Mail plc to be renamed International
Distributions Services plc to reflect the group structure of two
separate companies (Royal Mail and GLS). Our intention is to have
clearer financial separation with no cross subsidy , reflecting the
increased importance of GLS to the group and our position in the
wider logistics and distribution markets
-- No impact on Royal Mail and GLS brands
-- In the event that significant operational change within Royal
Mail in the UK is not achieved, the Board will consider all options
to protect the value and prospects of the Group, including
separation of the two companies.
Keith Williams, Chair, commented : " Whilst GLS delivered a
solid performance in the first quarter, the performance of Royal
Mail was disappointing with an adjusted operating loss of GBP92
million resulting from of a decline in parcel volumes post the
pandemic and a lack of progress in delivering efficiencies."
"The pandemic boom in parcel volumes bolstered by the delivery
of test kits and parcels is over. Royal Mail is currently losing
one million pounds per day and the efficiency improvements which
are needed for long term success have stalled."
'We can however be a long-term success story. We have advantages
in scale and reach and a strong balance sheet and asset base which
are the foundations for a successful future. We need to act now in
moving to that future in the interests of all stakeholders,
employing those advantages to the maximum."
Simon Thompson, CEO Royal Mail, commented : " We have made
progress building the infrastructure we need for Royal Mail to
compete, especially given the growing demand for more larger
parcels, delivering the next day - including Sundays - and in a
more environmentally friendly way. But building the infrastructure
is not enough. We have to transform the way we work too. We need to
change - and change now. This is how we can give our team the job
security that they deserve for tomorrow and not just for today. I
am ready to talk about pay and change at any time. But it has to be
both."
Martin Seidenberg, CEO GLS, commented : "GLS continues to
deliver a good performance, with weaker B2C volumes partly offset
by growth in B2B. Pricing actions have mitigated volume declines
and revenue grew by 9.8% year on year in Euro terms. Given
inflationary pressures, operating profit margin contracted, as
expected. Whilst we anticipate further cost pressures in the second
half, we are maintaining our full year outlook."
PERFORMANCE FOR THE FIRST QUARTER (APRIL TO JUNE)
3 months ended June % change(5)
2022 vs. 2022 vs
Volume (m) 2022 2021 2019 2021 2019
------ --------- -------------
Royal Mail
Total Parcels(1) 314 371 310 (15)% 1%
------ ------ --------- --------- -------------
Domestic
Parcels (ex. international)(4) 276 326 242 (15)% 14%
------ ------ --------- --------- -------------
International(6) 37 45 69 (16)% (44)%
------ ------ --------- --------- -------------
Addressed(1)
Letters (ex. elections) 1,856 1,982 2,416 (6)% (23)%
------ ------ --------- --------- -------------
GLS 211 216 160 (3)% 31%
------ ------ --------- --------- -------------
3 months ended June % change(5)
------------------------- ------------------------
2022 vs.
Revenue (GBPm) 2022 2021 2019 2021 2022 vs 2019
------ --------- -------------
Group(3) 2,998 3,158 2,627 (5.1)% 14.1%
------ ------ --------- --------- -------------
Royal Mail 1,883 2,126 1,876 (11.5)% 0.4%
------ ------ --------- --------- -------------
Total Parcels(1) 1,012 1,192 875 (15.1)% 15.6%
------ ------ --------- --------- -------------
Domestic
Parcels (ex. international)(4) 843 979 668 (13.9)% 26.1%
------ ------ --------- --------- -------------
International(6) 169 213 207 (20.7)% (18.4)%
------ ------ --------- --------- -------------
Letters(1) 871 934 1,000 (6.7)% (12.9)%
------ ------ --------- --------- -------------
GLS(2) 1,120 1,039 760 7.8% 47.3%
------ ------ --------- --------- -------------
Group
With the financial benefits from parcel growth during the
pandemic now dissipating, the difference in performance between our
two businesses is re-emerging. GLS continues to make positive
progress, but results at Royal Mail have worsened
significantly.
The Group has increasingly become reliant on GLS for returns.
Over the last three years more than two thirds of reported Group
operating profit has come from GLS. It is a growing business with a
great future.
Royal Mail showed it can be profitable during the pandemic due
to the combination of a surge in parcels and the delivery of test
kits. It is still well positioned to take advantage of the
opportunities presented by a changing market. It has around GBP8
billion of assets as at March 2022, including around GBP1.5 billion
in property, net assets of just over GBP4 billion, and has an
estimated domestic parcel market revenue share of around 40%(7) in
the UK, as well as being the provider of the Universal Service. It
also has a strong and trusted brand and unparalleled scale and
reach in the UK. These give Royal Mail the potential to succeed and
to grow.
Both shareholders and employees are an important part of that
future. Our employees at Royal Mail in the UK are important
stakeholders. 1 in 175 employed people in the UK work for Royal
Mail. Our overall package pays up to 40% more than our competitors.
We want to do all we can to protect Royal Mail's position as the
leading employer in the industry, and to offer long term job
security.
We are confident that if our people work with us to make the
changes we are asking for, we can offer jobs to all that want them
on terms which will continue to be industry leading. Our current
pay offer is made against the backdrop of post-lockdown losses, and
more challenging economic prospects for the UK. The ability to make
good on that offer largely depends on being able to make the
changes that will fund it.
We note with regret the result of the CWU ballot yesterday.
Action on the part of the CWU to delay necessary changes or engage
in industrial action will only damage our ability to continue to
offer everyone at Royal Mail a job and is an abdication of their
responsibility for the future security of their members. In the
long term, the interests of shareholders and employees are aligned.
Success for both depends on being able to create a more competitive
business.
We are announcing today that we are changing the name of the
holding company to International Distributions Services plc. This
reflects the increased importance of GLS to the group, our strength
in markets outside the UK, the shape and performance of the group
today, and our position in the wider logistics and distribution
markets. It will not have any impact on the brands Royal Mail and
GLS.
The Board has always maintained that there should be no cross
subsidy in the Group and recognises the need to address
improvements in Royal Mail's performance quickly. In the event that
significant change within Royal Mail is not achieved, the Board
will consider all options to protect the value and prospects of the
Group, including separation of the two companies.
Royal Mail
We are seeing the impact of macro-economic trends on Q1
performance - high inflation and increased cost of living for
consumers - plus the unwinding of the exceptionally high volumes of
parcels we saw during COVID-19 restrictions.
Total parcel volume was down 15%(1) and revenue was down
15.1%(1) compared to the prior year. Compared to pre-pandemic (Q1
2019-20) total parcel volume grew by 1% and revenue by 15.6%.
Domestic parcel volumes were 15% lower year on year, which
reflected: recent wider trends in retail and the impact of cost of
living increases; reduced test kit volumes, following the end of
free universal COVID-19 tests; and lockdown restrictions during the
prior year which resulted in elevated volumes. Domestic parcel
revenue was 13.9% lower, reflecting price increases and mix.
Compared to pre-pandemic (Q1 2019-20), domestic parcel volumes
were up 14% and revenue up 26.1%, reflecting strong positive
price/mix.
International volumes were down 16% year on year, an improvement
on recent trends but reflecting ongoing challenges in the cross
border parcel market, as previously outlined. Volumes were down 44%
when compared to Q1 2019-20, with revenue down 18.4%, due to price
increases and import/export mix.
Letter performance was slightly ahead of our expectations: total
letter revenue was down 6.7%(1) year on year, with addressed letter
volume (ex. elections) down 6%(1) , reflecting a return to the
long-term structural decline in letters. Compared to Q1 2019-20,
total letter revenue was 12.9% lower, which also reflected the
benefit of local and EU elections in May 2019.
Overall, total revenue declined by 11.5% year on year in the
first quarter and was broadly flat compared to Q1 2019-20.
Cost performance was disappointing. Although we have taken
action focused on variable labour costs, including reducing
reliance on temporary resources and overtime, we were unable to
reduce costs quickly enough in line with lower parcel and letter
volumes.
In addition, whilst other elements of our cost programmes are on
track (albeit with some pressure from a recent rise in COVID-19
absence), progress on transformation has stalled due to the current
industrial relations environment and lack of CWU support. Whilst we
are seeing flow-through benefits from Pathway to Change savings
last year, there has been no progress on planned annual revisions
in the operation and ways of working, to deliver additional
benefits this year. As a result, we are not achieving our agreed
productivity trajectory, which creates a GBP100 million risk around
delivery of our GBP350 million targeted benefits for FY 2022-23.
Overall productivity was 1.8% lower year on year in Q1, with an
improvement in Processing offset by declines in Delivery.
As a result of the above, Q1 financial performance was
materially impacted, resulting in an adjusted operating loss of
GBP92 million.
Outside of Pathway to Change, we made progress in a number of
areas. We opened our first Super Hub in Warrington in June, and are
on track to hit our target of 70% of parcels automated by year end.
W e are moving ahead with plans to roll out dedicated parcel routes
from around 350 parcel depots across the country, to meet the
growing demand for next day and larger parcels, with our first
depot planned to go live in October.
We have also recently launched Royal Mail Health, which will
address the growing healthcare at home industry and continue to
grow our Sunday delivery volumes.
The new Royal Mail Academy launched in June and is delivering
best-in-class training to develop the next generation of leadership
talent in our business and support a culture of continuous
learning.
However, as our Q1 performance demonstrates, we are at a
crossroads. The need to reach agreement with CWU on the changes
that are essential to grow our business and ensure long term job
security for our team is becoming ever more urgent.
We need to deliver changes to our ways of working to ensure that
Royal Mail can deliver more of what our customers want and compete
effectively in the market. This includes making the most of our new
infrastructure, finding more flexible ways of matching resource to
workload and ensuring we have a more agile and sustainable
relationship with the CWU so that we can adapt quickly to changing
dynamics in the market.
On 19 July members of the CWU voted in favour of industrial
action. We have offered a package worth up to 5.5% for CWU grade
colleagues, the biggest increase for many years. The pay offer
includes a 2% unconditional pay increase (which has now been
applied and backdated to April 2022), a further 1.5% which would be
paid from the date upon which we implement the changes agreed and a
new "above and beyond" bonus scheme worth up to 2% or GBP520 a
year.
However, we can only fund this if we have agreement to implement
change in the business, which will support growth, deliver
efficiencies, and provide job security. This includes:
-- flexible working, meaning our core team might work around one
hour a day less in the Summer and around one hour a day more in the
Winter, whilst getting the same weekly pay all year round;
-- over the next three years some of our core team in Delivery
working one Sunday every four weeks, although based on our current
volumes one Sunday every 40 weeks;
-- changes to our absence policy to make sure that as many
people as possible attend work every day;
-- moving to later start times over a number of years, with the
majority of our team starting between one and two hours later.
We remain committed to reaching agreement with the CWU.
Industrial action by the CWU will only serve to damage the future
prospects of the business and undermine the long-term job security
we want to offer our team.
We will now move ahead with change where we do not need further
union agreement and make progress on the actions we have already
agreed as part of Pathway to Change, notably revisions, Scan-in
Scan-out (SISO) in Delivery and agreeing a business model for
Parcelforce that guarantees long term profitability.
We were pleased to reach agreement with Unite/CMA, avoid
industrial action and secure the benefits of our changes in
operational management.
G LS
Volume declined 3% year on year in the first quarter. Most
countries saw a decline in volumes vs. the prior year, although in
Europe East we saw volume growth, despite lapping a period which
included COVID-19 tailwinds in the prior year. Weaker B2C volumes
were partly mitigated by growth in B2B volumes. The overall decline
in B2C volumes reflected an unwinding of the positive effects from
lockdown restrictions which benefitted Q1 2021-22.
Revenue growth was 9.8% in Euros, 7.8% in Sterling, compared to
Q1 2021-22. This reflected price increases and fuel surcharges
implemented at the start of the year, and included the impact from
acquisitions.(2) Foreign exchange movements adversely impacted
revenue by c. GBP20 million.
Pricing actions across markets and higher freight revenues
mitigated parcel volume declines. Revenue growth was achieved in
almost all markets. However, cost pressures driven by inflationary
effects, in particular higher subcontractor rates due to higher
fuel costs, resulted in margin compression compared with Q1
2021-22, as expected.
GLS Canada continued to trade well, including a strong
contribution from Rosenau. In Europe East, GLS Hungary also
performed well, growing revenues double-digit percent year on
year.
Outlook
Since May, the economic backdrop has continued to weaken. Q1
parcel volumes in Royal Mail were down 15% year on year and only 1%
higher than pre-COVID levels. Mix is being negatively impacted by
lower volumes of higher AUR (average unit revenue) test kits. We
continue to review opportunities to adjust prices, though we must
balance this with our requirement to maintain volumes in our
largely fixed cost network and market dynamics.
The CWU dispute is already impacting negatively on our ability
to deliver the urgently required change in Royal Mail. This has
caused progress on Pathway to Change to stall resulting in a GBP100
million risk to GBP350 million of benefits identified for FY
2022-23. In addition, we have not been able to respond quickly
enough to declining parcel volumes, with now also an increasing
likelihood that material planned savings linked to a CWU pay deal
will be not be realised in FY 2022-23.
The market outlook for parcels has weakened and we now
anticipate a lower level of efficiency savings in FY 2022-23.
Provided progress can be made on the change items highlighted where
we do not need further union agreement, it is now likely Royal Mail
will be around breakeven at the adjusted operating profit level for
FY 2022-23, excluding the impact of industrial action.
GLS, like Royal Mail, is facing cost headwinds in all of its
markets. Whilst we anticipate further cost pressure in the second
half, absent any significant deterioration in the macro
environment, the combination of specific pricing actions, service
quality and targeted efficiency measures that are being undertaken
should allow us to deliver our full year outlook of high single
digit % revenue growth and operating profit in the range of EUR370
to EUR410 million.
Financial Calendar
Ex-dividend date* 28 July 2022
Dividend record date* 29 July 2022
Dividend payment date* 6 September 2022
FY 2022-23 Interim Results 17 November 2022
* subject to approval at the 2022 AGM.
1. Includes negative working day effect of c. 1% on Royal Mail
total letter and parcel revenue, and addressed letter and total
parcel volumes.
2. Revenue growth year on year in Euros was 6.1%, adjusting for
the impact of acquisitions and working day effects.
3. Royal Mail and GLS revenue does not equal Group revenue due
to the elimination of intragroup trading.
4. Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide.
5. % changes based on reported numbers.
6. International includes import and export for Royal Mail and Parcelforce Worldwide.
7. Domestic parcels revenue share for FY 2020-21 including Royal
Mail 24/48 large letters, Specialist Services and Bespoke
Collections.
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
Greg Sage
Phone: 07483 421374
Email: greg.sage@royalmail.com
Royal Mail press office: press.office@royalmail.com
Company Secretary
Mark Amsden
Email: cosec@royalmail.com
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.
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END
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