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Royal Mail invests to overcome increasingly challenging outlook 21 November 2019

GLS revenue climbed 14.1% in H1, including acquisitions

Royal Mail has announced its results for the half year ended 29 September 2019. Profitability performance was in line with expectations for the half year, despite considerable UK economic and political uncertainty. Group revenue was up 5.1%, including the best UK revenue performance in five years. UK parcel revenue growth more than offset letter revenue declines. GLS revenue, up 14.1% including acquisitions, underlines the strength of the Group’s international operations.

Reported operating profit of £61.0 million is up £65.0 million due to lower costs relating to specific items. Adjusted Group operating profit of £165.0 million is down 13.2%, primarily due to a decline in UKPIL profitability. Net debt increased to £1,372.0 million, mainly due to adoption of IFRS 16.

Parcel revenue up 5.6%, more than offsetting letter revenue decline of 1.4%. The UK parcels business is performing well, with volumes up 5.0%. Domestic account (excluding Amazon) (up 7.0%) and Tracked 24/48 and Tracked Returns (up 20.0%) delivered good growth. Parcel automation machines have now been installed in 16 Mail Centres. Around 26.0% of parcels now automatically sorted (12.0% during 2018-19).

At GLS, Eastern European markets delivered strong, double digit revenue growth. Three major markets (Germany, France and Italy) accounted for 54.9% of revenue. North America contributed 9.8%. Volumes were up 5.0%, or 7.0%, including the impact of acquisitions. Adjusted operating profit, including acquisitions reached £90.0 million, up 16.9%, or up 8.4%, excluding the impact of acquisitions. The adjusted operating profit margin reached 5.9%, up 20 basis points compared with prior period.

Looking ahead, people are posting fewer letters and receiving more parcels. The Company continue to expect to deliver adjusted Group operating profit of between £300.0 million - £340.0 million (before IFRS 16) in 2019-20, in line with guidance. It noted that its transformation is behind schedule. It is investing more because of the industrial relations environment, the General Election and Christmas, to underpin Quality of Service at this key time. This is likely to impact productivity for the remainder of the year. When combined, revenue and cost headwinds could possibly result in a break-even or loss-making position for the UK business in 2020-21. In 2020-21, GLS is again expected to perform well, delivering adjusted operating profit margin of 6.0% - 7.0%.