TIDMRMG
RNS Number : 5433Z
Royal Mail PLC
25 January 2022
Royal Mail plc
(Incorporated in England and Wales)
Company Number: 8680755
LSE Share Code: RMG
ISIN: GB00BDVZYZ77
LEI: 213800TCZZU84G8Z2M70
Royal Mail plc
25 January 2022
FURTHER PROGRESS ON TRANSFORMATION AND TRADING UPDATE FOR THE
THIRD QUARTER OCTOBER TO DECEMBER 2021
Royal Mail Group (RMG.L) is today providing further information
on its transformation programme in the UK and updating on Group
trading for the third quarter, October to December 2021, and the
nine months ended December 2021.
Highlights
-- Performance in Q3 in line with expectations;
-- Royal Mail:
o Confident there has been a structural shift in parcel volumes
since the start of the COVID-19 pandemic;
-- 439 million parcels handled during the quarter;
-- Q3 domestic parcel(3) revenue grew by 43.9% vs. Q3 2019-20,
and declined by 4.9% year on year;
-- Q3 domestic parcel(3) volumes grew by 33% vs. Q3 2019-20, and
declined by 7% year on year; at least maintaining our market
share;
-- Proud to continue to support the Government's COVID-19
testing effort with increased volumes during the quarter; test kits
accounted for around a mid-single digit % of total parcel volume in
the first 9 months;
o Absence peaked at c.15,000 in early January due to
Omicron;
-- Service levels in some areas of the country and delivery of
Pathway to Change efficiencies impacted;
-- Quality of service: providing targeted support in those areas
most impacted: number of local delivery offices listed on our
service update page reduced from 77 to 10 as of yesterday;
-- Pathway to Change: delivered GBP35 million of benefits to the
end of December; expect to achieve targeted exit run rate to
deliver at least GBP90 million in FY 2022-23; FY 2021-22 expected
benefits of GBP55 to 80 million, dependent on speed of recovery
from Omicron;
o As part of our transformation programme, today entering into
formal consultation on a reorganisation to streamline operational
management to improve focus on performance at a local level;
-- Expected to deliver around GBP40 million annualised benefit,
with around GBP70 million charge to be taken in Q4 2021-22, subject
to consultation;
o Trading in line with previous guidance of around GBP500
million adjusted operating profit for FY 2021-22. Including
restructuring charge as outlined above, guidance is now around
GBP430 million adjusted operating profit.
-- GLS:
o Performing well: Q3 revenue growth of 37.7% in Euros(1) ,
35.2% in Sterling, vs. Q3 2019-20, and 10.7% growth in Euros(1) ,
4.5% in Sterling, year on year;
o Despite upward pressure on costs, full year revenue guidance
now around 9% growth in Euro terms, c. 4% in Sterling (previously
low single digit %), and operating profit margin of c.8%.
Keith Williams, Chair, commented: "We delivered a solid
performance over the Christmas period in particularly challenging
circumstances operationally. I'd like to thank all of our people
for their dedication over the period."
"We expected some decline in parcel volumes given most retail
stores were open during the period, unlike last year. However, the
trend towards customers wanting more parcels remains , and
responding to that change efficiently is key. Our domestic parcels
business in the UK has seen demand increase by around a third over
two years , as has our GLS business across its markets ."
"The past few months have demonstrated that the challenge for
Royal Mail is to improve both quality and efficiency. Looking
forwards, the delivery of our transformation and modernisation
plans remain incredibly important in light of the fast-paced change
we are seeing and ongoing inflationary pressures. Whilst GLS will
also face inflationary pressures, our focus will be on continuing
to leverage its distinctive and proven business model to exploit
growth opportunities in a profitable way, whilst building on the
progress made this year in previously underperforming markets."
Simon Thompson, CEO Royal Mail, commented : "With the rise of
Omicron, absence has been around twice pre-COVID levels, with
around 15,000 staff off sick or isolating in early January.
Thankfully, this is now improving. We are resolutely focussed on
addressing these issues which have affected our service in some
parts of the country. Year to date we have spent more than GBP340
million on overtime, additional temporary staffing and sick pay, as
well as providing targeted support for the offices most impacted.
We have taken steps to maintain as comprehensive a service as
possible, whilst keeping our people and customers safe. I'd like to
thank all our people who have worked incredibly hard, as they have
done throughout the pandemic. I would also thank customers for
their patience in those areas where we have faced operational
challenges and increased absence as we focus on restoring our usual
levels of service everywhere."
"Higher absence has also been a headwind to delivering our
productivity targets, but our Q3 performance gives us confidence in
the delivery of adjusted operating profit for Royal Mail, before
the cost of the reorganisation announced today, in line with
previous guidance at around GBP500 million."
"We have today entered into formal consultation on a management
reorganisation to further streamline our operations and, at the
same time, improve focus on local performance. We are committed to
conducting the process sensitively, working closely with our people
and their representatives. We have a track record of delivering
change through natural turnover, redeployment and voluntary
redundancy, wherever possible. Our full year outlook has been
revised to take account of the costs of this reorganisation."
Martin Seidenberg, CEO GLS, commented : "GLS continues to
deliver good volume and revenue growth, both year on year and
against 2019. Revenue growth was achieved in almost all markets,
with in particular continued strong performance in our Eastern
European businesses. We continue to manage our operations
successfully despite the impact of the Omicron wave which is
spreading across Europe. We are seeing upward pressure on costs
driven by increasing inflation rates in the countries where we
operate, and have recently implemented price increases in
response."
"As previously announced, the acquisition of Rosenau Transport
in Canada was completed on 1 December 2021 and Q3 includes the
first revenue contribution from this business. We have commenced
the programme to realise synergies with our pre-existing GLS Canada
business and are confident that our plan will be delivered."
"Given our good Q3 performance, whilst we expect the rate of
growth to soften in Q4, we now expect full year revenue growth of
around 9% in Euro terms (around 4% in Sterling) and an operating
profit margin of c.8%. This equates to an operating profit of c.
EUR400 million."
PERFORMANCE FOR THE THIRD QUARTER (OCTOBER TO DECEMBER)
Third Quarter % change(4)
Volume (m) 2021 2020 2019 2021 vs. 2021 vs 2019
2020
------ --------- --------------
Royal Mail
Total Parcels 439 496 382 (11)% 15%
------ ------ --------- --------- --------------
Domestic
Parcels (ex. international)(3) 398 428 300 (7)% 33%
------ ------ --------- --------- --------------
International(5) 40 68 82 (41)% (51)%
------ ------ --------- --------- --------------
Addressed
Letters (ex. elections) 2,185 2,248 2,619 (3)% (17)%
------ ------ --------- --------- --------------
GLS 239 228 179 5% 34%
------ ------ --------- --------- --------------
Third Quarter % change(4)
------------------------- -------------------------
Revenue (GBPm) 2021 2020 2019 2021 vs. 2021 vs. 2019
2020
------ --------- --------------
Group (2) 3,554 3,641 3,035 (2.4)% 17.1%
------ ------ --------- --------- --------------
Royal Mail 2,420 2,568 2,204 (5.8)% 9.8%
------ ------ --------- --------- --------------
Total Parcels 1,386 1,529 1,068 (9.4)% 29.7%
------ ------ --------- --------- --------------
Domestic
Parcels (ex. international)(3) 1,164 1,224 809 (4.9)% 43.9%
------ ------ --------- --------- --------------
International(5) 221 306 259 (27.6)% (14.4)%
------ ------ --------- --------- --------------
Letters 1,035 1,039 1,136 (0.4)% (8.9)%
------ ------ --------- --------- --------------
GLS (1) 1,139 1,090 842 4.5% 35.2%(1)
------ ------ --------- --------- --------------
Royal Mail
With the rising incidence of positive COVID-19 tests from the
Omicron wave, absence rates remained elevated during Q3 vs. the
prior year and increased over Christmas and into early January 2022
to peak at around 12% (c. 15,000), double pre-COVID levels. This
has resulted in increased costs and impacted quality of service in
some areas of the country. We are providing targeted support to the
local offices most affected by elevated absence. More recently
absence has begun to reduce to below 10%. Our postmen and women are
continuing to work incredibly hard, as they have done throughout
the pandemic, and we thank them for all of their efforts and
determination.
Overall revenue performance was broadly in line with our
expectations. The COVID-19 pandemic has resulted in a structural
shift, with a permanent step up in the level of domestic parcel
volumes compared to pre-pandemic levels.
Domestic parcel volumes increased by 33% vs. Q3 2019-20, but
fell by 7% year on year, given lockdown restrictions were
successively reimposed during the prior period. We saw a slower
than expected increase in volumes around Black Friday, although
December saw stronger growth, driven by a pick-up in B2C volume in
the run up to Christmas. We believe we are at least maintaining our
share of the market. In addition, Royal Mail was pleased to be able
to respond quickly to Government requests to increase capacity for
the delivery of COVID-19 testing kits due to increased demand. Test
kits accounted for around a mid-single digit % of total parcel
volume in the first 9 months.
Total parcel volumes increased by 15% vs. Q3 2019-20, but fell
by 11% year on year, impacted by weakness in International as a
result of a number of factors previously outlined including
increased customs processing and conveyance costs.
Domestic parcel revenues grew by 43.9% vs. Q3 2019-20 due to
volume growth and positive price/mix.
Total parcel revenues grew by 29.7% vs. Q3 2019-20. Year on year
revenues decreased by 9.4%, primarily due to lower volumes,
partially offset by positive product/channel mix.
Addressed letter volumes (excluding elections) in Q3 were down
17% compared to Q3 2019-20, broadly in line with the trend seen in
the first half and reflecting the ongoing structural decline in
letters. Year on year volumes decreased by 3%, a slower decline
compared to the sharp volume declines seen in the prior period.
Total letter revenue was broadly flat, driven largely by pricing
initiatives.
Overall Royal Mail revenue decreased by 5.8% year on year, but
grew by 9.8% over two years.
We continue to transform our business and seek new ways to
ensure we can adapt quickly to the changing market and ensure more
customer-centric ways of working. Our successful 'Day in the Life
of' initiative has already reduced administration for frontline
managers and allowed us to repurpose over one million annualised
hours so that managers can spend more time focusing on their teams
and customers.
As a next step, subject to consultation, we intend to further
simplify and streamline our operational structures to ensure an
improved focus on local performance, and devolve more
accountability and flexibility to frontline operational managers.
We are engaging with our unions on the proposals, which we expect
will lead to a reduction of around 700 managers and deliver an
annualised benefit of around GBP40 million, with around GBP30
million in FY 2022-23. To deliver this programme, we expect to
incur a restructuring charge of around GBP70 million in Q4 2021-22,
subject to consultation. The proposed changes in management
structure are subject to statutory consultation with Unite/ CMA,
and additionally we will work with the CWU to ensure that the
impact of any proposals remains in line with our existing
agreements.
GLS
Volume growth in Q3 was 5% year on year, a slowdown as expected
from the first half of the year. Growth was 34% compared to Q3
2019-20, a slight improvement compared to the trend seen in the
first half of the year.
Revenue growth was 10.7% in Euros(1) , 4.5% in Sterling, year on
year and 37.7% growth in Euros(1) , 35.2% in Sterling compared to
Q3 2019-20. Underlying revenue growth in Euro terms was driven by
higher volumes and better pricing. Reported revenue growth was
impacted by the strengthening of Sterling.
Trading in the weeks leading up to Christmas was good in most
markets, underpinning the robust Q3 performance that GLS was able
to deliver.
The Omicron wave is spreading across Europe and placing pressure
on the availability of drivers and in-house labour in our
operations. To date we have been able to manage these challenges
successfully, with good quality maintained across the GLS network
during the peak season.
Cost headwinds are being experienced in both our European and
North American businesses driven by higher inflation rates and a
limited pool of available line-haul and delivery drivers. Measures
to protect margin through pricing initiatives and improved
efficiency are being implemented.
The acquisition of Rosenau Transport in Canada was completed on
1 December 2021 after having received regulatory approval. The GLS
Q3 results include the first contribution from this business. The
acquisition has been well received both internally and externally,
and we are confident that the planned synergies with our existing
GLS Canada business can be secured.
YEAR TO DATE PERFORMANCE - NINE MONTHS TO DECEMBER
December year to date % change(4)
Volume (m) 2021 2020 2019 2021 vs. 2021 vs 2019
2020
-------- --------- -------------
Royal Mail
Total Parcels 1,163 1,302 996 (11)% 17%
-------- ------- ------- --------- -------------
Domestic
Parcels (ex. international)(3) 1,044 1,099 786 (5)% 33%
-------- ------- ------- --------- -------------
International 120 202 210 (41)% (43)%
-------- ------- ------- --------- -------------
Addressed
Letters (ex. elections) 6,001 5,672 7,350 6% (18)%
-------- ------- ------- --------- -------------
GLS 656 614 499 7% 31%
-------- ------- ------- --------- -------------
December year to date % change(4)
Revenue (GBPm) 2021 2020 2019 2021 vs. 2021 vs. 2019
2020
-------- --------- --------------
Group (2) 9,626 9,312 8,201 3.4% 17.4%
-------- ------- ------- --------- --------------
Royal Mail 6,494 6,396 5,853 1.5% 11.0%
-------- ------- ------- --------- --------------
Total Parcels 3,694 3,830 2,795 (3.5)% 32.2%
-------- ------- ------- --------- --------------
Domestic
Parcels (ex. international)(3) 3,076 3,053 2,143 0.7% 43.5%
-------- ------- ------- --------- --------------
International 618 776 651 (20.3)% (5.1)%
-------- ------- ------- --------- --------------
Letters 2,801 2,566 3,058 9.1% (8.4)%
-------- ------- ------- --------- --------------
GLS (1) 3,149 2,960 2,379 6.4% 32.4%
-------- ------- ------- --------- --------------
Outlook
As previously stated, there is still some uncertainty over the
evolution of the COVID-19 pandemic and current Omicron wave,
consumer behaviour, and economic factors such as GDP growth and
inflation.
In Royal Mail, we continue to expect month-on-month fluctuations
in parcel volumes, including test kits given periodic changes to
Government guidance on testing. As expected, the operational
gearing benefit seen in the first half is starting to unwind as we
move through the balance of the year and comparators become
tougher.
Given the absence related operating challenges through December
and early January, achieving target productivity performance in our
delivery offices has been made more challenging. It is not possible
to predict how long the operational impacts of Omicron will persist
as the operation recovers. As a consequence, the in-year benefit
from our Pathway to Change agreement is expected to be in the range
of GBP55 million to GBP80 million, depending on how fast the
operation recovers from Omicron. We are focused on delivering
productivity exit rates which will enable at least GBP90 million
flow through in FY 2022-23, which remains our commitment.
Notwithstanding the above, overall performance has been in line
with previous guidance of around GBP500 million adjusted operating
profit for FY 2021-22. Including the restructuring charge of GBP70
million, as outlined above, guidance is now around GBP430 million
adjusted operating profit.
For FY 2022-23, we continue to build our commercial plan to
target growth opportunities and share in a market that we
anticipate will still be in transition from COVID-19. As a result,
we are focused on progressing our transformation and efficiency
plans to mitigate expected cost pressures and sustain
profitability, with around GBP220 million of savings now
identified. We will continue to build on this over the coming
months.
GLS, like Royal Mail, is facing cost headwinds in all of its
markets. We believe the combination of specific pricing actions,
service quality and targeted efficiency measures that are being
undertaken will allow us to deliver full year revenue growth of
around 9% in Euro terms, around 4% in Sterling, and an operating
margin of c.8%. This equates to an operating profit of c. EUR400
million.
Royal Mail Group FY 2021-22 results will be published on 19 May
2022.
1. The impact of acquisitions increased reported growth rates
by: Q3 vs 2019 1.3ppts, 9 Months vs 2019 1.4ppts, Q3 vs 2020
1.1ppts, 9 Months vs 2020 0.3ppts.
2. Royal Mail and GLS revenue does not equal Group revenue due
to the elimination of intragroup trading.
3. Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide.
4. % changes based on reported numbers.
5. International includes import and export for Royal Mail and Parcelforce Worldwide.
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
Royal Mail press office: press.office@royalmail.com
Helen Reynoldson
Phone: 07483 302 245
Email: helen.reynoldson@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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