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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Royal Mail Plc | LSE:RMG | London | Ordinary Share | GB00BDVZYZ77 | Royal Mail Plc |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 207.00 | 206.00 | 206.30 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMRMG
RNS Number : 2314G
Royal Mail PLC
19 November 2015
FINANCIAL RESULTS
19 November 2015
ROYAL MAIL PLC
RESULTS FOR THE HALF YEAR ENDED 27 SEPTEMBER 2015
Royal Mail plc (RMG.L) today announced its results for the half year ended 27 September 2015.
Moya Greene, Chief Executive Officer, commenting on the results, said:
"Royal Mail is the pre-eminent letters and parcels carrier in the UK. We have delivered a resilient performance in the first half, demonstrating our ability to respond to a competitive trading environment.
"We delivered parcel volume and revenue growth in the UK, which continues to be a challenging market. Addressed letter volume decline was at the better end of our forecast range. We are driving through a range of product innovations and service improvements at pace, as well as targeting new areas of growth and enhancing our offering.
"As a result of an acceleration of our UK cost savings programme and a better than expected performance in GLS, Group operating profit before transformation costs was flat in the first half. Given our strategic focus on costs, we now expect underlying UKPIL operating costs to be down by at least one per cent for the full year.
"As in previous years, the full year outcome will be dependent on our important Christmas period, for which we have extensive preparations in place."
Group financial highlights
Hot Features
Premium
Half year Half year
ended ended
27 September 28 September Underlying
(GBPm) 2015 2014(1) change(2)
------------------------------ ------------- ------------- ----------
Revenue 4,395 4,478 Flat
Adjusted(3) operating
costs before transformation
costs (4,053) (4,130)
------------- -------------
Adjusted(3) operating
profit before transformation
costs 342 348
Margin 7.8% 7.8% Flat
Transformation costs (94) (47)
------------- -------------
Adjusted(3) operating
profit after transformation
costs 248 301
Margin 5.6% 6.7% (110 bps)
Profit before taxation
- Adjusted(3) 240 287
- Reported(4) 116 167
Earnings per share
- Adjusted(3) 18.1p 21.7p
- Reported(4) (continuing
operations) 8.8p 12.5p
- Reported(4) (total
Group) 11.4p 12.5p
Free cash flow 49 117 (68)
Net debt 369
Interim dividend per
share 7.0p 6.7p
------------------------------ ------------- ------------- ----------
Business performance
Adjusted(3) operating
profit before transformation
Revenue costs
------- ---------------------------------------- -------------------------------
Half year Half year Half year Half year
ended ended ended ended
27 September 28 September Underlying 27 September 28 September
(GBPm) 2015 2014 change(2) 2015 2014
------- ------------- ------------- ---------- --------------- --------------
UKPIL 3,651 3,703 (1%) 284 288
GLS 741 766 8% 52 56
Other 3 9 n/m 6 4
------- ------------- ------------- ---------- --------------- --------------
4,395 4,478 Flat 342 348
Group financial performance
-- Revenue was flat, with growth in UK and European
parcels offsetting the decline in UK letter
revenue.
-- Adjusted operating profit and margin before
transformation costs were both broadly flat
due to an acceleration of our cost savings
programme.
-- Transformation costs increased, reflecting
higher levels of voluntary redundancy costs.
Nearly 3,000 (net) UKPIL employees left the
business in the first half.
-- Operating profit margin after transformation
costs declined by 110 basis points.
-- Free cash inflow of GBP49 million reflects
higher levels of investment, in particular
transformation operating expenditure, due to
acceleration of the cost savings programme.
-- Net debt increased to GBP369 million from GBP275
million at 29 March 2015, mainly due to payment
of dividends, as in the comparative period.
Business performance
-- UKPIL revenue was down one per cent:
o Parcel volumes were up four per cent, driven
by new customer wins and initiatives in account
parcels, continued growth in lower AUR import
products, and strong volume growth in Parcelforce
Worldwide. Parcel revenue increased by one
per cent.
o Addressed letter volumes declined by four
per cent (excluding elections), at the better
end of our forecast range of a 4-6 per cent
decline per annum. Total letter revenue declined
by three per cent.
-- Our strong focus on UKPIL costs resulted in
a one per cent reduction in underlying operating
costs before transformation costs:
o UKPIL people costs decreased by one per cent
and non-people costs declined by two per
cent.
o UKPIL collections, processing and delivery
productivity improved by 2.9 per cent, at
the top end of our target range of a 2.0-3.0
per cent improvement per annum.
-- GLS continued to perform well. Volumes were
up nine per cent, benefitting from strong
growth in international volumes. Revenue was
up eight per cent.
Dividend
-- In line with our stated interim dividend policy,
the Board has declared a dividend of 7.0 pence
per share for the half year ended 27 September
2015, which will be paid on the 13 January
2016 to shareholders on the register on 4
December 2015.
Outlook
-- Outlook for UK letter and parcel trends over
the medium and short term, respectively, remains
unchanged.
-- We now expect underlying operating costs in
UKPIL (excluding transformation costs) to be
down by at least one per cent in 2015-16.
-- We have avoided around GBP200 million of costs
over the last three years(5) and have over
70 scoped and resourced projects across UKPIL
targeted to avoid around GBP500 million of
additional annualised costs by 2017-18(6) .
-- Transformation costs for 2015-16 are now expected
to be at least GBP180 million, due to the impact
of the accelerated efficiency improvements
in the first half, as well as higher project
costs in relation to transformation in the
second half.
-- This would lead to a total net cash investment
in 2015-16 of around GBP620 million, similar
to last year.
-- Given our performance in the first half, we
now expect GLS operating profit margin decline
to be at the better end of the 50-100 basis
points range in 2015-16.
-- Our performance in the second half will be
dependent on our important Christmas period.
(1) Results for H1 2014-15 have been adjusted to reflect the sale of DPD Systemlogistik GmbH & Co. KG (DPD SL), on 31 March 2015. Revenue GBP47 million; operating costs before transformation costs GBP47 million.
(2) All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for movements in foreign exchange in GLS, working days in UKPIL and other one-off items that distort the Group's underlying performance. For volumes, underlying movements are adjusted for working days in UKPIL and exclude elections in letter volumes. In H1 2015-16 there were 152 working days in UKPIL (H1 2014-15 152) and the foreign exchange impact in GLS was GBP82 million adverse on revenue and GBP76 million positive on costs, giving a net adverse impact on operating profit of GBP6 million.
(3) Adjusted results are a non-IFRS (International Financial Reporting Standards) measure and exclude specific items. The commentary in this report, unless specified otherwise, focuses on the operating results on an adjusted basis. This is consistent with the way that financial performance is measured by Management and reported to the Board and assists in providing a meaningful analysis of the results of the Group.
(4) Reported results are prepared in accordance with IFRS.
(5) Cumulative over financial years 2012-13, 2013-14 and 2014-15.
(6) Cumulative over financial years 2015-16, 2016-17 and 2017-18.
For further information, please contact:
Investor Relations:
Catherine Nash
Phone: 020 7449 8183
Email: investorrelations@royalmail.com
Media Relations:
Beth Longcroft
Phone: 07435 768549
Email: beth.longcroft@royalmail.com
Mish Tullar
Phone: 07423 524154
Email: mish.tullar@royalmail.com
Results presentation:
(MORE TO FOLLOW) Dow Jones Newswires
November 19, 2015 02:01 ET (07:01 GMT)
A results presentation for analysts and institutional investors will be held in London at 9:30am on 19 November 2015 and a simultaneous webcast will be available at www.royalmailgroup.com/results
A trading update covering the nine months ending 27 December 2015 is expected to be issued on 21 January 2016.
Registered Office:
Royal Mail plc
100 Victoria Embankment
London EC4Y 0HQ
Registered in England and Wales
Company number 08680755
CHIEF EXECUTIVE OFFICER'S REVIEW
In a challenging trading environment, we have maintained Group operating profit before transformation costs. This reflects our commitment to continue to drive down costs across our UK operations.
UKPIL revenue decreased by one per cent, as the one per cent increase in UK parcel revenue only partially offset total letter revenue decline of three per cent. UK parcel volumes were up four per cent, driven by new customer wins and initiatives in account parcels, continued growth in lower AUR import products and strong volume growth in Parcelforce Worldwide. This more than offset the declines we saw in higher AUR export and consumer/SME parcels. Addressed letter volume decline(1) of four per cent was at the better end of our forecast range of a 4-6 per cent decline per annum, with the return of direct delivery volumes having a positive impact of around one percentage point. Price increases were largely offset by mix impact resulting in letter revenue decline of three per cent. Due to an acceleration of our cost savings programme, UKPIL operating profit margin before transformation costs was flat.
GLS continues to perform well with revenue up eight per cent. Volumes grew by nine per cent, with strong growth in international volumes. Revenue growth was achieved in almost all of its markets. GLS profit grew from EUR69 million to EUR72 million, despite the impact of German minimum wage legislation.
Strategic focus on costs
We delivered a strong cost performance. UKPIL operating costs before transformation costs were down one per cent. We have avoided around GBP200 million of costs over the last three years(2) and have over 70 scoped and resourced projects across UKPIL targeted to avoid around GBP500 million of additional annualised costs by 2017-18(3) .
UKPIL people costs decreased by one per cent as we achieved productivity improvements of 2.9 per cent, offsetting the 2.8 per cent frontline pay award, and benefitted from management reorganisation programme savings.
Since the beginning of the financial year, we have seen a net reduction of nearly 3,000 UKPIL employees, the majority of which were achieved through voluntary redundancy. I am always very sorry to see colleagues leave our business. We work closely with our unions to ensure our people exiting the business do so with dignity and respect.
UKPIL non-people costs declined by two per cent. We have a broad range of initiatives in place to reduce costs in logistics, including better route planning and promoting better driver behaviour through workplace training.
Growth and innovation
Our aim remains the same; to be the pre-eminent delivery company in the UK and across Europe. We are maintaining our leading position by driving through a considerable amount of innovation and change at pace, including: later acceptance times and weekend collections at Mail Centres; trialling doorstep collections for marketplace sellers; making customer collections and returns easier with our Local Collect network and online returns portal; barcoding and scanning significantly more parcels at Mail Centres, Regional Distribution Centres and on the doorstep; rolling out parcels automation, and driving take-up of Mailmark(R).
We are also looking at ways of leveraging our existing assets and skills, such as data, and fleet servicing. On 18 November 2015, we announced that we had agreed to acquire eCourier, a leading same day delivery company. Royal Mail is already a leading player in the B2B and B2C parcel market segments. The combination of eCourier and Royal Mail Sameday(R), Royal Mail's existing courier business, will create a significant player in the national same day delivery market.
Being a successful parcels business
E-retail continues to drive parcel volume growth. However, as a result of Amazon's roll-out of its own delivery network, we estimate that volume growth in our UK addressable parcel market(4) has, on average, been reduced to around 1-2 per cent per annum in the short term(5) . Additionally, we estimate there is around 20 per cent annual spare capacity in the market. These factors are putting pressure on prices across the industry. While we have seen growth in account and import parcels, competitors continue to target the attractive consumer/SME and export parcels market segments.
Maintaining our pre-eminent position in a challenging environment
We are successfully targeting the faster growing sectors of the UK parcels market and are developing initiatives to address the impact of increased competition in the export market.
Royal Mail is winning new volumes from well-known 'bricks & mortar' retailers and e-retailers. New contracts include John Lewis, Waterstones, House of Fraser, The Book People, The Hut Group and ASOS. This follows the development and launch of a number of initiatives to support retailers. For example, in the fast growing clothing and footwear sector, our online returns portal gives e-retailers full visibility of returned items. The new portal is important in the world of e-retail, where returns growth is outpacing the rest of the market(6) . We have extended our strategic partnership with Alibaba, linking Chinese exporters with UK online shoppers, and allowing them to supply goods for UK delivery much more quickly.
Adding value by improving our products and services
We know that consumers expect faster and more flexible delivery. We are responding by introducing new and improved products and services at pace.
We are extending our Local Collect network to our Enquiry Offices. This will create a network of over 11,700 Post Office branches and Enquiry Offices offering Local Collect, more collection points than the next two competitor networks combined.
We have also extended acceptance times for our Royal Mail Tracked 48(R) parcel delivery service. We have increased the number of products we collect from SMEs and business customers at weekends.
Royal Mail is making prudent investments in service development. This includes taking action to increase our e-commerce capability at pace. We have secured a stake in Market Engine, an online marketplace specialist that integrates the world's largest e-commerce sites. This investment follows our investment in Mallzee, the 'personal shopping' app, and our acquisition of Storefeeder in February 2015.
We are starting to leverage the benefits of our IT investment as we seek to track more parcels. We are working with our customers to put 2D barcodes on as many parcels as possible. We have introduced 3,000 finger scanners across all our Mail Centres and Regional Distribution Centres. In time, we will increase the number of items we scan both in Mail Centres and on the doorstep. We will be able to provide customers with improved quality and service data for an increasing number of parcel deliveries.
Expanding and automating our networks
Parcel automation is one of the next stages on our transformation journey. The first parcel sortation machine is expected to be installed in Swindon in December. Over the next two years, we plan to install further machines in our busiest Mail Centres.
We have made a number of investments to expand our offering to e-retailers, and support the growth of SMEs. In October 2015, we launched a trial of doorstep collections in North-West England, which offers marketplace sellers and SMEs next day parcel collection service from their home addresses.
GLS recently expanded its partnership with DB Schenker Logistics, a European integrated logistics services provider, for the Europe-wide distribution of freight and parcel traffic. GLS will deliver parcels on behalf of their customers and DB Schenker will handle pallets for GLS customers.
Managing the decline in letters
The addressed letter volume decline(1) was at the better end of our forecast range. While total letter revenue declined, marketing mail revenue increased by three per cent in the first half. New research(7) shows that direct mail marketing spend grew, whereas spend on all other printed forms is in decline.
Securing the value of mail in an environment of structural decline
Through a series of product and service innovations, we are demonstrating the value of mail to our customers. Over 1.5 billion letters have now been sent using Royal Mail Mailmark(R), which provides customers with new insights on their mail. MarketReach has launched the second phase of its 'MAILMEN' campaign, which aims to demonstrate the vital role mail continues to play in today's digital world.
The Keep Me Posted campaign support base has broadened to 85 charities, trade unions, businesses and consumer groups. This means that businesses representing more than 11 million consumers are now realising the value and opportunities of retaining mail as a customer communications channel.
Regulation
In June 2015, Ofcom announced a fundamental review of the regulation of Royal Mail. We submitted our response in September 2015 and agree there is a need to consider the effectiveness of the existing regulatory framework.
Ofcom have said the review is expected to be completed and a revised regulatory framework in place during 2016. To sustain the Universal Service the regulatory environment must allow us to be innovative and competitive.
Being customer focused
(MORE TO FOLLOW) Dow Jones Newswires
November 19, 2015 02:01 ET (07:01 GMT)
For the second year in a row, Royal Mail has been named as the global leader in its sector for the prestigious Dow Jones Sustainability Indices. The Company achieved the top ranking in both the Sustainability World Index and Sustainability Europe Index for the Transportation and Transportation Infrastructure Industry. Royal Mail was also named as a national brand of the year at the 2015 World Branding Awards, an annual event that recognises some of the world's greatest brands.
We have continued to exceed our regulatory Quality of Service target of 98.5 per cent for Second Class mail. 98.9 per cent of Second Class mail was delivered within three working days. We narrowly missed the 93.0 per cent First Class mail target with 92.9 per cent of this mail delivered the next working day. We take our commitment to the USO very seriously. We are redoubling our efforts to tackle quality issues where they arise.
Our business customer satisfaction score(8) was 76, in line with the full year 2014-15. Overall, we have seen a slight increase in customer complaints; however we have reduced three out of the four main complaint types.
Our performance over the Christmas period is critical. We are recruiting around 19,000 temporary staff, and opening ten parcel sort centres to manage increased traffic over this crucial period. We will also be extending opening hours in Enquiry Offices. We monitor retailing trends closely, including the increasing importance of Black Friday, in the run up to Christmas.
Our people
In October 2015, all eligible full-time employees received 103 SIP 2015 Free Shares. In total, each eligible full-time employee has received 832 shares in our Company, for free. This means that employees with 832 Free Shares will receive an interim dividend payment of over GBP58 on 13 January 2016.
Outlook
Our outlook for UK letter and parcel trends over the medium and short term, respectively, remains unchanged. We now expect underlying operating costs before transformation costs in UKPIL to be down by at least one per cent in 2015-16. This reflects an acceleration in our cost savings and efficiency programme. As a result of higher voluntary redundancy costs in the first half associated with the accelerated efficiency programme, as well as higher project costs in relation to transformation in the second half, we now expect transformation costs to be at least GBP180 million this year. This would lead to a total net cash investment in 2015-16 of around GBP620 million, similar to last year.
Given our performance in the first half, we now expect GLS operating profit margin decline to be at the better end of the 50-100 basis points range in 2015-16.
As in previous years, our performance in the second half and will be dependent on our important Christmas period.
Thank you
I would like to thank our people past and present for being such fantastic ambassadors of our cherished brand. We have said goodbye to a number of employees in the past six months, including our former Chairman Donald Brydon. I wish him all the very best in his future endeavours. I would also like to welcome our newly-appointed Chairman Peter Long, who assumed this role on 1 September 2015. His proven track record in transforming large and complex companies will be of considerable assistance to us as we continue the transformation of Royal Mail.
(1) Excluding election mail.
(2) Cumulative over financial years 2012-13, 2013-14 and 2014-15.
(3) Cumulative over financial years 2015-16, 2016-17 and 2017-18.
(4) Defined as individually addressed parcels and packets weighing up to 30kg, that do not require special handling and comprise goods that have been ordered based on Triangle Management Services/RMG Fulfilment Market Measure, excluding identifiable international volumes.
(5) Internal estimate based on Triangle Management Services/RMG Fulfilment Market Measure (December 2014), Verdict E-Retail in the UK (2014) and RMG market insight.
(6) Verdict, E-Retail in the UK (2015).
(7) WARC UK expenditure report (January - June 2015).
(8) Royal Mail Business Customer Satisfaction survey, conducted by Ipsos MORI.
OPERATING REVIEW
UK Parcels, International & Letters (UKPIL)
Half year ended
-----------
Adjusted(1) trading results 27 September 28 September Underlying
(GBPm) 2015 2014 change(2)
----------------------------- ------------- ------------- -----------
Letters & other mail 1,581 1,671 (5%)
Marketing mail 591 571 3%
------------- -------------
Total letters 2,172 2,242 (3%)
Parcels 1,479 1,461 1%
------------- -------------
Revenue(3) 3,651 3,703 (1%)
Operating costs before
transformation costs (3,367) (3,415) (1%)
------------- -------------
Operating profit before
transformation costs 284 288
Margin 7.8% 7.8% Flat
Transformation costs (94) (47)
------------- -------------
Operating profit after
transformation costs 190 241
(130
Margin 5.2% 6.5% bps)
Volumes (m)
----------------------------- ------------- ------------- -----------
Letters
Addressed letters 6,195 6,466 (4%)
Unaddressed letters 1,347 1,560 (14%)
Parcels
Core network 473 459 3%
Parcelforce Worldwide 45 39 17%
------------- -------------
Total 518 498 4%
Revenue and volumes
UKPIL revenue was down one per cent, as the one per cent increase in parcel revenue only partially offset the three per cent decline in total letter revenue.
Parcel volumes were up four per cent. New customer wins and the impact of initiatives in account parcels, and continued growth in lower AUR import parcels more than offset the decline in higher AUR consumer/SME volumes and export parcels. Parcelforce Worldwide saw strong volume growth of 17 per cent, due to new customer wins and increased business from existing customers. However, parcel revenue grew by only one per cent, largely as a result of the change in mix and continued pricing pressure due to the highly competitive environment. Our performance in the second half of the year will be dependent on the important Christmas period, and will reflect the relatively tougher comparative period for parcels.
Addressed letter volumes declined by four per cent (excluding the impact of election mailings), at the better end of our forecast range, with the return of direct delivery volumes having a positive impact of around one percentage point. Total letter revenue (including marketing mail) decreased by three per cent, with declines in higher AUR consumer/SME and export letters, as well as lower unaddressed volumes, largely offsetting the impact of price increases in January 2015 for business mail and in March 2015 for USO products.
Marketing mail revenue increased by three per cent, reflecting the continued use of this marketing medium and an increase in our data activities. However, unaddressed letter volumes were impacted by a reduction in door-to-door marketing spend in certain sectors in the period.
Half year ended
-----------
Adjusted operating costs 27 September 28 September Underlying
(GBPm) 2015 2014 change(2)
---------------------------- ------------- ------------- -----------
People costs (2,301) (2,331) (1%)
Non-people costs (1,066) (1,084) (2%)
Distribution & conveyance
costs (361) (367) (2%)
Infrastructure costs (413) (440) (6%)
Other operating costs (292) (277) 6%
------------- -------------
Operating costs before
transformation costs (3,367) (3,415) (1%)
Operating costs before transformation costs declined by one per cent, reflecting the strategic approach we are now taking in relation to cost savings and efficiency.
People costs decreased by one per cent. A 2.9 per cent improvement in collections, processing and delivery productivity in the core network broadly offset the 2.8 per cent frontline pay award. The improvement in productivity was achieved through a reduction in frontline hours whilst workload remained broadly flat. The management reorganisation programme delivered savings of GBP32 million, accounting for a one percentage point reduction in people costs and achieving total annualised savings of around GBP80 million. As a result of the new single-tier state pension scheme to be introduced in April 2016, the Group expects to see an increase in its employer National Insurance contributions for employees participating in the Royal Mail Pension Plan (RMPP) of around GBP70 million, which will impact the 2016-17 financial year.
(MORE TO FOLLOW) Dow Jones Newswires
November 19, 2015 02:01 ET (07:01 GMT)
Non-people costs declined by two per cent. Distribution and conveyance costs reduced by two per cent due partly to improved fleet management, a reduction in terminal dues as a result of lower export volumes, and a reduction in higher cost air routes for delivery in the UK. Infrastructure costs were six per cent lower due to a reclassification of internal costs between Infrastructure and Other operating costs. Excluding this, Infrastructure costs were down two per cent, mainly due to savings on property, in particular reduced spend on facilities management, and Other operating costs were down one per cent.
Half year ended
27 September 28 September
Transformation costs (GBPm) 2015 2014
---------------------------------- ------------- -------------
Voluntary redundancy (63) (19)
Project costs (30) (21)
Business transformation payments (1) (7)
------------- -------------
Total (94) (47)
Transformation costs increased by GBP47 million, mainly due to higher voluntary redundancy costs in the first half associated with better people cost savings. There was a net reduction of nearly 3,000 employees in UKPIL in the period, largely driven by voluntary redundancies.
General Logistics Systems (GLS)
Half year ended
27 September 28 September
Trading results (EURm) 2015 2014(4) Change
-------------------------- ------------- ------------- -------
Revenue 1,029 949 8%
Operating costs (957) (880) 9%
------------- -------------
Operating profit 72 69
(30
Margin 7.0% 7.3% bps)
Trading results (GBPm)
------------- ------------- -------
Revenue 741 766
Operating costs (689) (710)
------------- -------------
Operating profit 52 56
Volumes (m) 204 186 9%
Revenue and volumes
GLS continued to perform well. Volumes were up nine per cent, with strong growth in international volumes, driving an eight per cent growth in revenue as pricing remains competitive. Revenue growth was achieved in all markets, with the exception of Portugal.
Half year ended
27 September 28 September
Operating costs (EURm) 2015 2014(4) Change
---------------------------------- ------------- ------------- -------
People costs (233) (216) 8%
Non-people costs (724) (664) 9%
Distribution & conveyance
costs (628) (577) 9%
Infrastructure costs (69) (62) 11%
Other operating costs (27) (25) 7%
------------- -------------
Total operating costs (957) (880) 9%
Total operating costs were up nine per cent, in line with volume growth.
People costs increased by eight per cent as a result of increased semi-variable costs linked to volume, pay increases and the impact of acquisitions. Non-people costs grew by nine per cent largely driven by distribution and conveyance costs which were up nine per cent, reflecting higher volumes and the impact of German minimum wage legislation on subcontractor costs. Infrastructure costs increased by 11 per cent largely due to higher depreciation and amortisation charges following increased investment in IT.
As anticipated, the impact of German minimum wage legislation lead to a reduction in operating profit margin of 30 basis points to 7.0 per cent.
Germany
Germany is the largest market for GLS by revenue and saw revenue growth of five per cent. Profitability in GLS Germany has been impacted by the German minimum wage legislation but this has been partly mitigated by planning and operational initiatives and better than expected volumes from new and existing customers. On 31 March 2015, GLS Germany sold its entire holding in its subsidiary DPD Systemlogistik GmbH & Co. KG (DPD SL) resulting in profit of GBP31 million.
Italy
GLS Italy continues to deliver strong growth. A 15 per cent increase in revenue benefitted from the stable franchise system in place and from competitor disruptions, which are likely to have driven market share gains.
France
The turnaround programme in GLS France has continued and operating losses reduced to EUR8 million (H1 2014-15 EUR9 million loss). Revenue growth of six per cent was achieved. The next phase of the turnaround programme will be more challenging.
Other developed and developing/emerging European markets
We saw revenue growth in all other developed markets, with the exception of Portugal, and all developing/emerging European markets.
(1) Adjusted results are a non-IFRS measure and exclude specific items. The commentary in this review, unless specified otherwise, focuses on the operating results on an adjusted basis. This is consistent with the way that financial performance is measured by Management and reported to the Board and assists in providing a meaningful analysis of the results of the Group.
(2) All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for movements in foreign exchange in GLS, working days in UKPIL and other one-off items that distort the Group's underlying performance. For volumes, underlying movements are adjusted for working days in UKPIL and exclude elections in letter volumes. See reconciliation for underlying movements at the end of this section.
(3) Stamped, metered and other prepaid revenue channels are subject to statistical sampling surveys to derive the revenue relating to parcels, marketing mail and letters. These surveys are subject to continuous refinement, which may over time reallocate revenue between the products above, and which may occasionally lead to a consequent change to this estimate.
(4) Results for H1 2014-15 have been adjusted to reflect the sale of DPD SL on 31 March 2015. Revenue EUR59 million; operating costs before transformation costs EUR58 million; volumes 22 million.
FINANCIAL REVIEW
Group results for the half year ended 27 September 2015
Reported results
Group revenue reduced to GBP4,395 million (H1 2014-15 GBP4,478 million). Operating costs before transformation costs of GBP4,187 million (H1 2014-15 GBP4,199 million) were broadly flat. Group operating profit before transformation costs reduced to GBP208 million (H1 2014-15 GBP279 million) and operating profit after transformation costs decreased to GBP114 million (H1 2014-15 GBP232 million). Group operating profit reduced to GBP40 million (H1 2014-15 GBP116 million) and profit before tax reduced to GBP116 million (H1 2014-15 GBP167 million). Earnings per share for continuing operations reduced from 12.5 pence to 8.8 pence, and was 11.4 pence for the total Group, including discontinued operations.
Presentation of results
The remaining commentary in this financial review, unless otherwise indicated, focuses on the adjusted results (continuing operations) and on movements in revenue, costs, profits and margins on an underlying basis. This is consistent with the way that financial performance is measured by Management and reported to the Board and assists in providing a meaningful analysis of the trading results of the Group.
The main drivers of revenue and costs are described in the UKPIL and GLS sections above.
Operating profit and margins
Operating profit before transformation costs was GBP342 million (H1 2014-15 GBP348 million). Operating profit margin before transformation costs was flat on an underlying basis at 7.8 per cent.
Operating profit after transformation costs of GBP248 million (H1 2014-15 GBP301 million) was impacted by the higher transformation costs. Operating profit margin after transformation costs decreased by 110 basis points on an underlying basis to 5.6 per cent.
Specific items
Operating specific items in the period related mainly to the 'pension charge to cash difference' of GBP134 million (H1 2014-15 GBP69 million) and the Employee Free Shares charge of GBP76 million (H1 2014-15 GBP91 million). The difference between the pension charge and cash cost represents the difference between the income statement pension charge and the actual cash payments into the schemes. Period on period the increase has been driven by a decrease in AA corporate bond yields (the rate being set at the beginning of the financial year), which increases the income statement charge but not the cash payment. For the full year the difference is expected to be around GBP255 million. The charge for the Employee Free Shares in the period decreased due to the timing and reduction in accelerated charges for good leavers. The total charge in relation to the Employee Free Shares offer for 2015-16 is now expected to be around GBP160 million, due to the additional one per cent of shares allocated to employees by HM Government in October 2015.
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Non-operating specific items include a profit on disposal of property, plant and equipment of GBP27 million (H1 2014-15 GBP27 million) mainly arising from the sale of the Croydon Delivery Office. The net pension interest credit was GBP57 million (H1 2014-15 GBP38 million). This is higher than the prior period due to the increase in the accounting surplus at 29 March 2015 and the impact of the change in pension accounting policy (see Note 1 to the financial statements). As a result of the change in accounting policy the credit for the full year is now expected to be GBP113 million, slightly higher than previously anticipated. Profit on disposal of discontinued operations of GBP31 million (H1 2014-15 GBPnil) relates to the sale of DPD SL, a subsidiary of GLS Germany.
Net finance costs
Net finance costs were GBP8 million compared with GBP14 million in the prior period. The reduction was due to improved terms on our borrowing facilities and leases, lower outstanding balances of gross debt and the write off of arrangement fees following the term loan repayment in the prior period.
The blended interest rate on gross debt for 2015-16 is expected to be approximately three per cent.
Half year ended
27 September 28 September
Adjusted tax (GBPm) 2015 2014
------------------------- ------------- -------------
UK income tax charge (41) (51)
Foreign tax charge (16) (19)
------------- -------------
Total income tax charge (57) (70)
Effective tax rate 24% 24%
The UK adjusted tax charge of 22 per cent is broadly in line with the UK tax rate. GLS adjusted tax charge of 32 per cent has reduced marginally due to lower French losses, for which no deferred tax asset is recognised, and a change in tax rules in certain territories.
Earnings per share (EPS)
Basic adjusted EPS for continuing operations was 18.1 pence compared with 21.7 pence in the prior period, reflecting the increase in transformation costs.
Cash flow
Free cash flow for the period was an inflow of GBP49 million (H1 2014-15 GBP117 million) reflecting increased investment but also benefitting from the proceeds from the sale of DPD SL of GBP41 million.
Reported EBITDA before transformation costs was GBP343 million (H1 2014-15 GBP416 million) reflecting the increase in the non-cash IAS 19 pension service charge described above. Adjusted EBITDA was broadly flat at GBP477 million (H1 2014-15 GBP485 million).
Trading working capital movements were an outflow of GBP159 million (H1 2014-15 GBP153 million), broadly in line with the prior period.
Half year ended
27 September 28 September
Investment (GBPm) 2015 2014
----------------------------------------- ------------- -------------
Growth capital expenditure (74) (66)
Replacement capital expenditure (89) (72)
Transformation operating expenditure (136) (99)
Business transformation payments (1) (7)
Voluntary redundancy - ongoing (105) (29)
Voluntary redundancy - management
reorganisation programme - (39)
Project costs (30) (24)
------------- -------------
Total investment (299) (237)
Proceeds from disposal of property,
plant and equipment 34 34
Net investment 265 203
Total investment increased from GBP237 million to GBP299 million due to an increase in both capital and operating expenditure. Growth capital expenditure increased by GBP8 million with the principal investments being in relation to parcel systems and parcels automation. Replacement capital expenditure increased by GBP17 million with the main investments in the period relating to IT and operational property projects. Transformation spend increased by GBP37 million to GBP136 million, mainly as a result of increased spend in relation to ongoing voluntary redundancies. Proceeds from the disposal of property, plant and equipment were GBP34 million, giving a total net investment of GBP265 million.
Tax payments of GBP9 million mostly relate to amounts paid in Europe. The timing of tax payments in Europe means that the majority of the tax due will be paid in the second half of the year. In the UK we continue to be able to offset capital allowances and brought forward losses against profits. This is now expected to normalise in 2018-19, mainly due to relief available from additional Employee Free Shares allocations.
Due to the increased investment in voluntary redundancies and phasing of capital expenditure the in-year trading cash flow reduced to an inflow of GBP1 million compared with GBP80 million in the prior period.
Net debt
Net debt was GBP369 million at 27 September 2015, GBP94 million higher than at 29 March 2015, driven by the 2014-15 final dividend of GBP143 million offsetting the free cash inflow in the period.
Pensions
The IAS 19 pension position at 27 September 2015 was a surplus of GBP3,049 million compared with a surplus of GBP3,367 million (restated - see Note 1 to the financial statements) at 29 March 2015. The IAS 19 accounting position and key assumptions for the valuation are provided in Note 6.
The process for the triennial valuation of RMPP and RMSEPP at 31 March 2015 has commenced and the outcome will be announced in due course. If the assumptions used for the 2012 triennial valuation of RMPP and RMSEPP are rolled forward to 30 September 2015, the combined actuarial surplus would be GBP1,525 million, compared with GBP1,793 million at 31 March 2015. It is this basis that the Pension Trustees and the Company use to assess the ongoing funding needs of these schemes.
To support the Company's commitment that, subject to certain conditions, the RMPP will remain open to defined benefit accrual until at least March 2018, the Trustee has hedged a large proportion of the interest and inflation exposure on this expected future service benefit accrual. On an actuarial basis the amount of the surplus relating to the liabilities hedged in advance of those accrued as at September 2015, was approximately GBP500 million. This element will continue to unwind over time and we continue to expect that the RMPP actuarial surplus will reduce to neither a material surplus nor deficit by March 2018.
Dividends
The final dividend of 14.3 pence per share in respect of the 2014-15 financial year was paid on 31 July 2015, following shareholder approval.
The Board has declared an interim dividend of 7.0 pence per share, in accordance with our stated policy of paying an interim dividend of approximately one third of the prior year's total dividend. The dividend will be paid on 13 January 2016 to shareholders on the register at the close of business on 4 December 2015.
Property
We are adopting a flexible approach in relation to our large London development sites at Nine Elms and Mount Pleasant and continue to explore options to realise value from them. These larger sites will require further investment in order to optimise value, which will be mainly met by the proceeds from the sale of the Paddington site.
Auditor
Following the audit tender process explained on page 50 of the Annual Report and Financial Statements 2014-15, the proposal to appoint KPMG LLP as external auditor was approved by shareholders at the 2015 AGM.
Underlying change
Movements in revenue, costs, profits and margins are shown on an underlying basis. Underlying movements take into account differences in working days in UKPIL (H1 2015-16 152; H1 2014-15 152) and movements in foreign exchange in GLS (H1 2015-16 GBP/EUR 1.39; H1 2014-15 GBP/EUR 1.24). In addition, adjustments are made for non-recurring or distorting items, which by their nature may be unpredictable. For the half year, there have been no such adjustments. For volumes, underlying movements are adjusted for working days in UKPIL, and exclude elections in letters volumes.
Adjusted
Half year Underlying
ended Foreign comparator Year-on-year
28 September exchange 28 September underlying
(GBPm) 2014 (GLS) 2014 change
--------------------------------------- -------------- ---------- -------------- -------------
Revenue
UKPIL 3,703 - 3,703 (1%)
GLS 766 (82) 684 8%
Other 9 - 9 n/m
-------------- ---------- --------------
Group 4,478 (82) 4,396 Flat
Costs
Group - People (2,550) 19 (2,531) (1%)
Group - Non-people (1,580) 57 (1,523) 1%
Distribution & conveyance
costs (832) 50 (782) 4%
Infrastructure costs (489) 5 (484) (4%)
Other operating costs (259) 2 (257) 5%
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Group operating costs before
transformation costs (4,130) 76 (4,054) Flat
UKPIL - People (2,331) - (2,331) (1%)
UKPIL - Non-people (1,084) - (1,084) (2%)
Distribution & conveyance
costs (367) - (367) (2%)
Infrastructure costs (440) - (440) (6%)
Other operating costs (277) - (277) 6%
UKPIL operating costs before
transformation costs (3,415) - (3,415) (1%)
GLS operating costs (710) 76 (634) 9%
Profit, margins and EPS
Group
Operating profit before
transformation costs 348 (6) 342 Flat
Margin 7.8% 7.8% Flat
Transformation costs (47) - (47)
-------------- ---------- --------------
Operating profit after transformation
costs 301 (6) 295 (16%)
Margin 6.7% 6.7% (110 bps)
Profit before tax 287 (6) 281
Tax (70) (69)
-------------- ---------- --------------
Profit for the period 217 212
Profit attributable to the
Group 217 212
Earnings per share (continuing
operations) 21.7p 21.2p
UKPIL
Operating profit before
transformation costs 288 - 288 (1%)
Margin 7.8% 7.8% Flat
Transformation costs (47) - (47)
-------------- ---------- --------------
Operating profit after transformation
costs 241 - 241 (21%)
Margin 6.5% 6.5% (130 bps)
GLS
Operating profit 56 (6) 50 4%
Margin 7.3% 7.3% (30 bps)
PRINCIPAL RISKS AND UNCERTAINTIES
The Board considers that the principal risks and uncertainties faced by the Group for the remaining six months of the year are substantially unchanged from those set out in the Royal Mail plc Annual Report and Financial Statements 2014-15, except that the risk relating to regulations that Royal Mail is subject to has changed, as described under 'Regulatory and legislative environment' below. In summary our principal risks and uncertainties are:
Changes in market conditions and customer behaviour
-- We may not adequately meet evolving customer needs or market changes in the highly competitive communications
and parcel delivery markets in which we operate.
-- Flat or adverse economic conditions could adversely impact letter and parcels revenues.
Business transformation
-- We may not be able to deliver cost control and efficiency benefits. -- We may not successfully transform our IT estate. -- We may fail to attract and retain senior management and key personnel.
Regulatory and legislative environment
-- We may be adversely impacted by Ofcom's fundamental
review of postal services regulation.
In June 2015, Ofcom announced that it would
launch a fundamental review of the regulation
of Royal Mail. This review incorporates previously
announced reviews into efficiency, the parcels
market and access pricing. It also examines
what changes to the overall postal regulatory
framework might be appropriate to secure the
universal postal service, Royal Mail's wholesale
and retail pricing, and whether the current
level of commercial flexibility allowed to
Royal Mail remains appropriate, and, if not,
whether additional wholesale or retail price
controls should be introduced. Re-introduction
of stricter regulation and/or price controls
may impact our revenues, our ability to compete
in the highly competitive communications and
parcel delivery markets, and ultimately our
ability to deliver the universal service on
a sustainable basis. We have made a submission
to Ofcom, as part of the public consultation
on Ofcom's discussion paper, putting forward
evidence that supports our case for a future-facing
regulatory framework. Ofcom has stated that
it expects to complete the process and have
a regulatory framework in place during 2016.
In July 2015, Ofcom issued a statement of
objections in its Competition Act investigation
into certain access pricing proposals (which
were suspended, never implemented and have
now been withdrawn). Royal Mail disputes the
allegations and is robustly defending the
investigation.
-- VAT exemptions on USO and access services
could be lost.
-- Changes to laws and regulations relating to
employment (including the interpretation and
enforcement of those laws and regulations)
could adversely affect the Group's labour
costs.
Two potential changes are currently emerging
that could impact us: the Government's proposed
apprenticeship levy, which might impact us
disproportionately as a large employer; and
HMRC proposals relating to tax and National
Insurance on redundancy pay. Proposals are
being developed by UK Government and HMRC
respectively, with an indicative timescale
of 2017 in each case.
Pensions
-- Our on-going ability to maintain the Royal Mail Pension Plan in its current form is subject to financial
market conditions, or other factors. Current economic conditions would suggest that keeping the defined
benefits scheme open to accrual beyond 2018 will not be affordable.
Industrial relations
-- Material disagreements or disputes could lead
to widespread industrial action.
With the exception of the Ofcom review, a fuller description of these risks, their potential effect and mitigation is provided at pages 31-35 of the Royal Mail plc Annual Report and Financial Statements 2014-15.
CONDENSED CONSOLIDATED INCOME STATEMENT
Half year ended Half year ended
27 September 28 September
2015 2014
------------------------------------- -------------------------------------
Specific Specific
Reported(1) items Adjusted(2) Reported(1) items Adjusted(2)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------------ --------- ------------ --------- ------------
Continuing operations
Revenue 2/10 4,395 - 4,395 4,478 - 4,478
Operating costs(3) 2/10 (4,187) (134) (4,053) (4,199) (69) (4,130)
------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------
People costs 3 (2,642) (134) (2,508) (2,619) (69) (2,550)
Distribution and
conveyance costs (813) - (813) (832) - (832)
Infrastructure costs (463) - (463) (489) - (489)
Other operating
costs (269) - (269) (259) - (259)
------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------
Operating profit
before transformation
costs 208 (134) 342 279 (69) 348
Transformation costs (94) - (94) (47) - (47)
------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------
Operating profit
after transformation
costs 114 (134) 248 232 (69) 301
Operating specific
items 3
Employee Free Shares
charge (76) (76) - (91) (91) -
Legacy costs 2 2 - (25) (25) -
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------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Operating profit 40 (208) 248 116 (185) 301 Profit on disposal of property, plant and equipment (non-operating specific item) 3 27 27 - 27 27 - ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Earnings before interest and tax 67 (181) 248 143 (158) 301 Finance costs (9) - (9) (16) - (16) Finance income 1 - 1 2 - 2 Net pension interest (non-operating specific item) 3/6 57 57 - 38 38 - ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Profit before tax 116 (124) 240 167 (120) 287 Tax (charge)/credit 3 (26) 31 (57) (42) 28 (70) ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Profit for the period from continuing operations 90 (93) 183 125 (92) 217 ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Discontinued operations Profit from discontinued operations (non-operating specific item) 3/10 31 31 - - - - Tax on profit from disposal of discontinued operations 3 (5) (5) - - - - ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Profit for the period 116 (67) 183 125 (92) 217 ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Profit for the period attributable to: Equity holders of the parent Company 114 (67) 181 125 (92) 217 Non-controlling interests 2 - 2 - - - ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------ Earnings per share 8 Basic - continuing operations 8.8p (9.3)p 18.1p 12.5p (9.2)p 21.7p Diluted - continuing operations 8.7p (9.3)p 18.0p 12.5p (9.2)p 21.7p Basic - total Group 11.4p (6.7)p 18.1p 12.5p (9.2)p 21.7p Diluted - total Group 11.3p (6.7)p 18.0p 12.5p (9.2)p 21.7p ------------------------------ ------ ------------ --------- ------------ ------------ --------- ------------
(1) Reported - prepared in accordance with International Financial Reporting Standards (IFRS).
(2) Adjusted - a non-IFRS measure, being Reported results excluding specific items.
(3) Operating costs are stated before transformation costs, Employee Free Shares charge and legacy costs.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Half year
Half year ended
ended 28 September
27 September 2014
2015 restated(1)
GBPm GBPm
------------------------------------------- ------------- -------------
Profit for the period 116 125
Other comprehensive (expense)/income
for the period from continuing
operations:
Items that will not be subsequently
reclassified to profit or loss
Amounts relating to pensions accounting (164) 306
-------------------------------------------- ------------- -------------
IFRIC 14 adjustment relating to
defined benefit surplus (85) (2)
Remeasurements of the defined benefit
surplus (1) (157) 385
Tax on above items(1) 78 (77)
-------------------------------------------- ------------- -------------
Items that may be subsequently
reclassified to profit or loss
Foreign currency exchange translation
differences (1) (38)
-------------------------------------------- ------------- -------------
Differences relating to translation
of results of foreign operations (4) (42)
Net gain on hedge of a net investment
(EUR500 million bond - 2.375% Senior
Fixed Rate Notes due July 2024) 3 4
-------------------------------------------- ------------- -------------
Designated cash flow hedges (3) (2)
-------------------------------------------- ------------- -------------
Losses on cash flow hedges deferred
into equity (18) (8)
Losses on cash flow hedges released
from equity to income 15 6
Tax on above items - -
------------------------------------------- ------------- -------------
Total other comprehensive (expense)/income
for the period from continuing
operations (168) 266
-------------------------------------------- ------------- -------------
Total other comprehensive income
for the period from discontinued
operations - -
------------------------------------------- ------------- -------------
Total comprehensive (expense)/income
for the period (52) 391
-------------------------------------------- ------------- -------------
Total comprehensive (expense)/income
for the period attributable to:
Equity holders of the parent Company (54) 391
Non-controlling interests 2 -
-------------------------------------------- ------------- -------------
(1) Restated for the half year ended 28 September 2014 for change in accounting policy relating to pensions administration costs (see Note 1).
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Half year Half year
ended ended
27 September 28 September
2015 2014
GBPm GBPm
----------------------------------------- ------------- -------------
Cash flow from operating activities
Profit before tax 116 167
Adjustment for:
Net pension interest (57) (38)
Net finance costs 8 14
Profit on disposal of property,
plant and equipment (27) (27)
Legacy costs (2) 25
Employee Free Shares charge 76 91
Transformation costs 94 47
------------------------------------------ ------------- -------------
Operating profit before transformation
costs 208 279
Adjustment for:
Depreciation and amortisation 135 138
Share of post-tax profit from
associates - (1)
------------------------------------------ ------------- -------------
EBITDA before transformation costs 343 416
Working capital movements (169) (136)
------------------------------------------ ------------- -------------
Decrease/(increase) in inventories 1 (1)
Decrease in receivables 73 40
Decrease in payables (259) (164)
Net increase in derivative assets - (9)
Increase/(decrease) in provisions
(non-specific items) 16 (2)
------------------------------------------ ------------- -------------
Pension charge to cash difference
(operating specific item) 134 69
Share-based awards (SAYE and LTIP)
charge to cash difference 2 -
Cash cost of transformation operating
expenditure(1) (136) (99)
Cash cost of operating specific
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items (2) (2) ------------------------------------------ ------------- ------------- Cash inflow from operations 172 248 Income tax paid (9) (6) ------------------------------------------ ------------- ------------- Net cash inflow from operating activities 163 242 ------------------------------------------ ------------- ------------- Cash flow from investing activities Finance income received 2 2 Proceeds from disposal of property (excluding London property portfolio), plant and equipment (non-operating specific item) 34 34 London property portfolio costs (non-operating specific item) (8) (8) Proceeds from disposal of discontinued operations (non-operating specific item) 41 - Net cash inflow from discontinued operations - - Purchase of property plant and equipment(1) (79) (92) Acquisition of business interests (4) (3) Purchase of intangible assets (software)(1) (84) (46) Payment of deferred consideration in respect of prior years' acquisitions (3) (1) Net sale of financial asset investments (current) 56 - ------------------------------------------ ------------- ------------- Net cash outflow from investing activities (45) (114) ------------------------------------------ ------------- ------------- Net cash inflow before financing activities 118 128 ------------------------------------------ ------------- ------------- Cash flow from financing activities Finance costs paid (13) (11) Payment of capital element of obligations under finance lease contracts (56) (38) Cash received on sale and leasebacks 9 - New loans - 393 Repayment of loans and borrowings - (350) Dividend paid to equity holders of the parent Company (143) (133) Dividend paid to non-controlling interests (2) - ------------------------------------------ ------------- ------------- Net cash outflow from financing activities (205) (139) ------------------------------------------ ------------- ------------- Net decrease in cash and cash equivalents (87) (11) Effect of foreign currency exchange rates on cash and cash equivalents (1) (3) Cash and cash equivalents at the beginning of the period 287 366 ------------------------------------------ ------------- ------------- Cash and cash equivalents at the end of the period 199 352 ------------------------------------------ ------------- -------------
(1) Items included in total investment (see Note 4).
CONDENSED CONSOLIDATED BALANCE SHEET
At
At 29 March
27 September 2015
2015 restated(1)
Notes GBPm GBPm
------------------------------------- ----- ------------- ------------
Non-current assets
Property, plant and equipment 1,917 1,933
Leasehold land payment 2 2
Goodwill (mainly investment
in GLS) 182 182
Intangible assets (mainly software) 359 300
Investment in associates and
joint venture 9 5
Financial assets
Pension escrow investment 20 20
Derivatives 1 2
Retirement benefit surplus
- net of IFRIC 14 adjustment(1) 6 3,049 3,367
Other receivables 12 11
Deferred tax assets 8 8
------------------------------------- ----- ------------- ------------
5,559 5,830
Assets held for sale 10 25 32
------------------------------------- ----- ------------- ------------
Current assets
Inventories 19 20
Trade and other receivables 870 949
Financial assets
Derivatives 2 5
Short-term deposits - 56
Cash and cash equivalents 199 287
------------------------------------- ----- ------------- ------------
1,090 1,317
------------------------------------- ----- ------------- ------------
Total assets 6,674 7,179
------------------------------------- ----- ------------- ------------
Current liabilities
Trade and other payables (1,436) (1,668)
Financial liabilities
Obligations under finance leases (80) (93)
Derivatives (35) (34)
Income tax payable (22) (14)
Provisions (122) (149)
------------------------------------- ----- ------------- ------------
(1,695) (1,958)
Non-current liabilities
Financial liabilities
Interest-bearing loans and
borrowings (364) (366)
Obligations under finance leases (144) (179)
Derivatives (12) (14)
Provisions (104) (104)
Other payables (39) (40)
Deferred tax liabilities(1) (442) (512)
------------------------------------- ----- ------------- ------------
(1,105) (1,215)
Liabilities associated with
assets held for sale 10 - (10)
------------------------------------- ----- ------------- ------------
Total liabilities (2,800) (3,183)
------------------------------------- ----- ------------- ------------
Net assets 3,874 3,996
------------------------------------- ----- ------------- ------------
Equity
Share capital 10 10
Retained earnings 3,875 3,993
Other reserves (20) (16)
------------------------------------- ----- ------------- ------------
Equity attributable to parent
Company 3,865 3,987
Non-controlling interests 9 9
------------------------------------- ----- ------------- ------------
Total equity 3,874 3,996
------------------------------------- ----- ------------- ------------
(1) Restated at 29 March 2015 for change in accounting policy relating to pensions administration costs (see Note 1).
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity
Foreign holder
currency of Non-
Share Retained translation Hedging the controlling Total
capital earnings reserve reserve parent interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- ---------- ------------- ---------- -------- ------------- --------
Reported at 30 March
2014 10 2,332 61 (9) 2,394 7 2,401
Pensions accounting
policy change - 133 - - 133 - 133
---------------------------- --------- ---------- ------------- ---------- -------- ------------- --------
At 30 March 2014
restated(1) 10 2,465 61 (9) 2,527 7 2,534
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---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- Profit for the period - 125 - - 125 - 125 Other comprehensive income/(expense) for the period - 306 (38) (2) 266 - 266 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- Total comprehensive income/(expense) for the period - 431 (38) (2) 391 - 391 Dividend paid to equity holders of the parent Company - (133) - - (133) - (133) Share-based payments Employee Free Shares issue(2) - 88 - - 88 - 88 Long-Term Incentive Plan (LTIP)(3) - 2 - - 2 - 2 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- At 28 September 2014 restated(1) 10 2,853 23 (11) 2,875 7 2,882 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- Profit for the period - 200 - - 200 3 203 Other comprehensive income/(expense) for the period - 922 (9) (19) 894 - 894 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- Total comprehensive income/(expense) for the period - 1,122 (9) (19) 1,094 3 1,097 Release of Post Office Limited separation provision - 7 - - 7 - 7 Dividend paid to equity holders of the parent Company - (67) - - (67) - (67) Dividend paid to non-controlling interests - - - - - (1) (1) Share-based payments Employee Free Shares issue(2) - 75 - - 75 - 75 Save As You Earn (SAYE) scheme - 1 - - 1 - 1 Long-Term Incentive Plan (LTIP)(3) - 2 - - 2 - 2 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- At 29 March 2015 restated(1) 10 3,993 14 (30) 3,987 9 3,996 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- Profit for the period - 114 - - 114 2 116 Other comprehensive expense for the period - (164) (1) (3) (168) - (168) ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- Total comprehensive (expense)/income for the period - (50) (1) (3) (54) 2 (52) Dividend paid to equity holders of the parent Company - (143) - - (143) - (143) Dividend paid to non-controlling interests - - - - - (2) (2) Share-based payments Employee Free Shares issue(2) - 73 - - 73 - 73 Save As You Earn (SAYE) scheme - 1 - - 1 - 1 Long-Term Incentive Plan (LTIP)(3) - 1 - - 1 - 1 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- -------- At 27 September 2015 10 3,875 13 (33) 3,865 9 3,874 ---------------------------- --------- ---------- ------------- ---------- -------- ------------- --------
(1) Restated for change in accounting policy relating to pensions administration costs (see Note 1).
(2) Excludes GBP3 million (at 28 September 2014, GBP3 million; at 29 March 2015 GBP6 million) National Insurance, charged to the income statement, included in provisions on the balance sheet.
(3) Excludes GBPnil million (at 28 September 2014, GBPnil million; at 29 March 2015 GBP1 million) National Insurance, charged to the income statement, included in provisions on the balance sheet.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The comparative figures for the year ended 29 March 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
This condensed set of unaudited financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union (EU). All figures in these condensed consolidated financial statements are on a 'reported' basis, i.e. prepared in accordance with International Financial Reporting Standards (IFRS), unless otherwise stated.
The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, this condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 29 March 2015, except for the changes detailed below.
Significant accounting policies
Pensions administration costs
During the first half of the 2015-16 financial year, a decision was taken to adopt a new policy in relation to pensions administration costs. Previously the administration costs for the relevant reporting period were included as part of the ongoing defined benefit pension service costs and an estimate of future administration costs included as part of the defined benefit liability. Under this new policy, administration costs will now be recognised only as they are incurred in each reporting period as part of the ongoing defined benefit pension service costs in the income statement. This has had the impact of reducing the defined benefit liability at 29 March 2015 by GBP188 million, being the discounted value of future administration costs, and therefore increasing the net surplus by the same amount as at that date. This policy has been adopted to better reflect the reality of the scheme and the intentions of IAS 19 'Employee Benefits'.
In line with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors', this change in policy has been applied retrospectively in the Group financial statements, the impact of which is shown below.
At At At
29 March 28 September 30 March
2015 2014 2014
Consolidated balance sheet GBPm GBPm GBPm
---------------------------------- ---------- -------------- ----------
Total equity previously reported 3,846 2,742 2,401
Impact of accounting policy
change on 'Retained earnings'
Retirement benefit surplus
- net of IFRIC 14 adjustment 188 175 166
Deferred tax liabilities (38) (35) (33)
---------------------------------- ---------- -------------- ----------
Total equity restated 3,996 2,882 2,534
---------------------------------- ---------- -------------- ----------
The impact of this restatement on the retirement benefit surplus - net of the IFRIC 14 adjustment - is as follows:
At At At
29 March 28 September 30 March
2015 2014 2014
Consolidated balance sheet GBPm GBPm GBPm
---------------------------------------- ---------- -------------- ----------
Reported surplus in schemes
(pre IFRIC 14 adjustment) 3,194 2,083 1,736
Pensions administration costs
impact on defined benefit liabilities 188 175 166
---------------------------------------- ---------- -------------- ----------
Restated surplus in schemes
(pre IFRIC 14 adjustment) (see
Note 6) 3,382 2,258 1,902
IFRIC 14 adjustment (15) (15) (13)
---------------------------------------- ---------- -------------- ----------
Restated surplus net of IFRIC
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14 (see Note 6) 3,367 2,243 1,889
---------------------------------------- ---------- -------------- ----------
Half
year
ended
28 September
Consolidated statement of comprehensive 2014
income GBPm
------------------------------------------------ --------------
Total comprehensive income for the period
previously reported 384
Impact of accounting policy change on 'Amounts
relating to pensions accounting'
Remeasurements of the defined benefit
surplus 9
Tax on above item (2)
------------------------------------------------ --------------
Total comprehensive income for the period
restated 391
------------------------------------------------ --------------
There is no material impact on the comparative periods' income statement and no impact on the statement of cash flows as a result of this policy change.
Accounting standards adopted in 2015-16
Annual improvements 2010 - 2012; Annual improvements 2011-2013
The adoption of these standards will not have a material impact on the financial performance or position of the Group. The Directors do not expect that the adoption of any issued standards that are not yet effective in the current year will have a material impact on the financial performance or position of the Group in future periods.
Non-GAAP measures of performance
In the reporting of financial information, the Group uses certain measures that are not defined under IFRS, the Generally Accepted Accounting Principles (GAAP), under which the Group reports. The Directors believe that these non-GAAP measures assist with the understanding of the performance of the business.
These non-GAAP measures are not a substitute, or superior to, any IFRS measures of performance but they have been included as Management considers them to be an important means of comparing performance year-on-year and they include key measures used within the business for assessing performance.
Operating specific items
Operating specific items are recurring or non-recurring items of income or expense of a particular size and/or nature relating to the operations of the business that in Management's opinion require separate identification.
These items include: the recurring 'pension charge to cash difference' (resulting from the increasing difference between the Group's income statement pension charge and the actual cash cost of pensions, including deficit payments) where the Directors consider the cash amount to be the true cost to the business; and other items that have resulted from events that are non-recurring in nature, even though related income/expense can be recognised in subsequent periods. These items currently include the charge for Employee Free Shares and legacy costs (for example, movements in the industrial diseases provision).
Non-operating specific items
Non-operating specific items are recurring or non-recurring items of income/expense of a particular size and/or nature which do not form part of the Group's trading activity and in Management's opinion require separate identification. These items include profit on disposal of property, plant and equipment and businesses, and the IAS 19 non-cash pension interest credit/charge.
Transformation costs
These costs relate to the ongoing transformation of the business, and include voluntary redundancy, project costs and other transformation-related payments.
Reported operating profit before transformation costs
This is the operating profit including the 'pension charge to cash difference' operating specific item (see above for definition) and before transformation costs. This is a key performance indicator in the Corporate Balanced Scorecard which is used to determine employee incentives.
Reported operating profit after transformation costs
This is the operating profit including the 'pension charge to cash difference' operating specific item and after transformation costs.
Adjusted operating profit before transformation costs
This is operating profit excluding the 'pension charge to cash difference' operating specific item and before transformation costs.
Adjusted operating profit after transformation costs
This is operating profit excluding the 'pension charge to cash difference' operating specific item and after transformation costs.
Significant accounting judgements, estimates and assumptions
The preparation of the condensed consolidated financial statements requires management to make various judgements, estimates and assumptions when determining the carrying value of certain assets and liabilities. The significant judgements and estimates applied by the Group in these condensed consolidated financial statements are consistent with those applied in the Annual Report and Financial Statements 2014-15.
Going concern
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months. Accordingly, they continue to adopt the going concern basis in preparing the half year financial statements.
2. Segment information
The Group is structured on a geographic business unit basis and these business units report into the Chief Executive's Committee and the Royal Mail plc Board - the Chief Operating Decision Maker as defined by IFRS 8 'Operating Segments'. Each of these units has discrete revenue, costs, profit, cash flows, assets and people. This financial information is prepared and reviewed on a regular basis and compared with both historical and budget/forecast information as part of a rigorous performance management process.
The key measure of segment performance is operating profit before transformation costs (used internally for the Corporate Balanced Scorecard). From the beginning of the current financial year 2015-16, this measure of performance is disclosed on an 'adjusted' basis i.e. excluding specific items, which is consistent with how financial performance is now measured by Management and reported to the Board. A reconciliation of the Group's 'adjusted' to 'reported' earnings before interest and tax by segment is provided below.
The majority of inter-segment revenue relates to the provision of facilities management and catering services to UKPIL. Trading between UKPIL and GLS is not material.
Transfer prices between the segments are set on a basis of charges reached through commercial negotiation with the respective business units that form each of the segments.
Seasonality
Mail volumes are subject to seasonal variation. The Group's busiest period is from September to December, when there is an increase in marketing mail volumes as businesses seek to maximise sales in the period leading up to Christmas, an increase in parcel volumes as a result of online Christmas shopping and an increase in addressed letter volumes as a result of the delivery of Christmas cards. During this period the Group would expect to record higher revenue as greater volumes of letters and parcels are delivered through its networks. It also incurs higher costs as the Group, particularly in UKPIL, hires large numbers of temporary workers to assist in handling the increased workload. Other seasonal factors that can affect the Group's results of operations include the Easter period, the number of bank holidays in a reporting period and weather conditions. Within the year, mail volumes typically decline in the summer months due to the holiday period, and then increase during autumn through the peak period at Christmas.
Other
Half year ended 27 European
September 2015 UK operations operations Group
------------------------------- --------------- ------- -------- --------
Specific
Reported items Adjusted
------------------------------ -------- -----
UKPIL Other Eliminations(1) Total GLS Total Total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -----
External revenue 3,651 3 - 3,654 741 4,395 - 4,395
Inter-segment revenue - 68 (68) - - - - -
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Total segment revenue 3,651 71 (68) 3,654 741 4,395 - 4,395
Operating costs (3,501) (65) 68 (3,498) (689) (4,187) (134) (4,053)
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Operating profit
before transformation
costs 150 6 - 156 52 208 (134) 342
Transformation costs (94) - - (94) - (94) - (94)
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Operating profit
after transformation
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costs 56 6 - 62 52 114 (134) 248
Operating specific
items
Employee Free Shares
charge (76) - - (76) - (76) (76) -
Legacy costs 4 - - 4 (2) 2 2 -
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Operating (loss)/profit (16) 6 - (10) 50 40 (208) 248
Profit on disposal
of property, plant
and equipment (non-operating
specific item) 27 - - 27 - 27 27 -
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Earnings before interest
and tax 11 6 - 17 50 67 (181) 248
not reported
at this
Net finance costs level - (8) - (8) - (8)
Net pension interest
(non-operating specific
item) - 57 - 57 57 -
------------------------------ --------------- -------- ----- ------- -------- --------
Profit before tax - 66 50 116 (124) 240
Tax
Specific items - 31 - 31 31 -
Other - (41) (16) (57) - (57)
------------------------------ -------------- --------------- -------- ----- ------- -------- --------
Profit for the period
from continuing operations - 56 34 90 (93) 183
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Other
Half year ended 28 European
September 2014 UK operations operations Group
------------------------------- --------------- -------
Specific
Reported items Adjusted
------------------------------ -------- ----- -------
UKPIL Other Eliminations(1) Total Total
GLS Total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -----
External revenue 3,703 9 - 3,712 766 4,478 - 4,478
Inter-segment revenue - 82 (82) - - - - -
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Total segment revenue 3,703 91 (82) 3,712 766 4,478 - 4,478
Operating costs (3,484) (87) 82 (3,489) (710) (4,199) (69) (4,130)
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Operating profit
before transformation
costs 219 4 - 223 56 279 (69) 348
Transformation costs (47) - - (47) - (47) - (47)
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Operating profit
after transformation
costs 172 4 - 176 56 232 (69) 301
Operating specific
items
Employee Free Shares
charge (91) - - (91) - (91) (91) -
Legacy costs (7) - - (7) (18) (25) (25) -
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Operating profit 74 4 - 78 38 116 (185) 301
Profit on disposal
of property, plant
and equipment (non-operating
specific item) 27 - - 27 - 27 27 -
------------------------------ ------- ----- --------------- -------- ----- ------- -------- --------
Earnings before interest
and tax 101 4 - 105 38 143 (158) 301
Net finance costs - (15) 1 (14) - (14)
Net pension interest
(non-operating specific
item) - 38 - 38 38 -
------------------------------ --------------- -------- ----- ------- -------- --------
Profit before tax - 128 39 167 (120) 287
not reported
at this
Tax level
Specific items - 28 - 28 28 -
Other - (51) (19) (70) - (70)
------------------------------ ------- --------------- -------- ----- ------- -------- --------
Profit for the period
from continuing operations - 105 20 125 (92) 217
------------------------------ -------------- --------------- -------- ----- ------- -------- --------
(1) Elimination of inter-segment revenue charged to UKPIL.
3. Specific items
Specific items are both recurring and non-recurring income/expense items that in Management's judgement need to be disclosed separately to provide a meaningful analysis of the performance of the business. Further details are provided in Note 1.
Half year Half year
ended ended
27 September 28 September
2015 2014
GBPm GBPm
--------------------------------------------- -------------- --------------
Operating specific items
Pension charge to cash difference
(within people costs) (134) (69)
Employee Free Shares charge (76) (91)
Legacy costs 2 (25)
--------------------------------------------- -------------- --------------
Potential industrial diseases claims 3 (7)
French Competition Authority investigation
costs (2) (18)
Other 1 -
--------------------------------------------- -------------- --------------
Total operating specific items (208) (185)
--------------------------------------------- -------------- --------------
Non-operating specific items
Profit on disposal of property, plant
and equipment 27 27
Net pension interest 57 38
Profit on disposal of discontinued
operations (see Note 10) 31 -
Total non-operating specific items 115 65
--------------------------------------------- -------------- --------------
Total specific items before tax (93) (120)
--------------------------------------------- -------------- --------------
Half year Half year
ended ended
27 September 28 September
2015 2014
Tax on specific items GBPm GBPm
--------------------------------- ------------- -------------
Tax effect of above items(1)
Continuing operations 31 27
Discontinued operations (5) -
Tax specific items - adjustments
in respect of prior periods - 1
--------------------------------- ------------- -------------
Total tax on specific items 26 28
--------------------------------- ------------- -------------
(1) No tax charge has been recognised on property disposals included in specific items, as no tax liability would be expected to crystallise on the grounds that, were the assets (into which the gains have been rolled) to be sold at their residual values, no capital gain would arise.
4. Free cash flow
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Free cash flow is not a measure defined under IFRS but is a key indicator used by Management to monitor performance. This measure eliminates inflows/(outflows) between net debt items (see Note 5) and includes finance cash costs paid.
Half
Half year year
ended ended
27 September 28 September
2015 2014
GBPm GBPm
------------------------------------------------ -------------- --------------
EBITDA before transformation costs 343 416
Pension charge to cash difference
(operating specific item) 134 69
------------------------------------------------ -------------- --------------
Adjusted EBITDA 477 485
Trading working capital movements (159) (153)
Share-based awards (SAYE and LTIP)
charge to cash difference 2 -
Total investment(1) (299) (237)
------------------------------------------------ -------------- --------------
Growth capital expenditure (74) (66)
Replacement capital expenditure (89) (72)
Transformation operating expenditure (136) (99)
------------------------------------------------ -------------- --------------
Income tax paid (9) (6)
Net finance costs paid (11) (9)
------------------------------------------------ -------------- --------------
In-year trading cash inflow 1 80
Other working capital movements (10) 17
Cash cost of operating specific items (2) (2)
Proceeds from disposal of property
(excluding London property portfolio),
plant and equipment (non-operating
specific items) 34 34
Proceeds from disposal of discontinued
operations (non-operating specific
item) 41 -
Acquisition of business interests
(including deferred consideration) (7) (4)
London property portfolio costs (non-operating
specific item) (8) (8)
------------------------------------------------ -------------- --------------
Free cash inflow 49 117
------------------------------------------------ -------------- --------------
(1) Total investment is represented by several different line items in the condensed consolidated statement of cash flows.
Working capital movements
Half
Half year year
ended ended
27 September 28 September
2015 2014
GBPm GBPm
---------------------------------------- -------------- --------------
Other working capital movements
September 2014 payroll paid after
28 September 2014 - 45
Stamps used but purchased in previous
periods/deferred revenue (6) (29)
Client payables (4) 1
---------------------------------------- -------------- --------------
(10) 17
Trading working capital movements (159) (153)
---------------------------------------- -------------- --------------
Total working capital movements (169) (136)
---------------------------------------- -------------- --------------
The following analysis provides a reconciliation of 'net cash inflow before financing activities' in the consolidated statement of cash flows and free cash inflow.
Half
Half year year
ended ended
27 September 28 September
2015 2014
GBPm GBPm
----------------------------------------- -------------- --------------
Net cash inflow before financing
activities 118 128
Net sale of financial asset investments
(current) (56) -
Finance costs paid (13) (11)
----------------------------------------- -------------- --------------
Free cash inflow 49 117
----------------------------------------- -------------- --------------
5. Net debt
Net debt is not a measure defined under IFRS but is a key indicator used by Management to assess operational performance.
At At
27 September 29 March
Balance 2015 2015
sheet category GBPm GBPm
--------------------------------- ----------------- -------------- ----------
Obligations under finance Current
leases liabilities (80) (93)
Interest-bearing loans and Non-current
borrowings liabilities (364) (366)
Obligations under finance Non-current
leases liabilities (144) (179)
--------------------------------- ----------------- -------------- ----------
(588) (638)
Cash and cash equivalents 199 287
---------------------------------------------------- -------------- ----------
Current
Cash at bank and in hand assets 163 127
Current
Client cash(1) assets 16 20
Current
Cash equivalent investments(2) assets 20 140
--------------------------------- ----------------- -------------- ----------
Financial assets - short-term
deposits (bank and local
authority deposits) - 56
Pension escrow investments Non-current
(RMSEPP) assets 220 20
--------------------------------- ----------------- -------------- ----------
Total net debt (369) (275)
---------------------------------------------------- -------------- ----------
(1) Client cash is cash collected from certain consignees by GLS, amounting to the cost of the item delivered, on behalf of its customers.
(2) Cash equivalent investments include short-term bank and local authority deposits, money market fund investments and other financial assets.
A reconciliation of net debt is shown below.
At At
27 September 29 March
2015 2015
GBPm GBPm
----------------------------------- -------------- ----------
Net debt brought forward
at 30 March 2015 and 31
March 2014 (275) (555)
Free cash flow 49 453
Dividends paid to equity
holders of the parent Company (143) (200)
Dividends paid to non-controlling
interests (2) (1)
Decrease in new finance
lease obligations (non-cash) - 8
Foreign currency exchange
impact on cash and cash
equivalents (1) (7)
Foreign currency exchange
impact on EUR500 million
bond 3 27
----------------------------------- -------------- ----------
Net debt carried forward (369) (275)
----------------------------------- -------------- ----------
6. Employee benefits -- pensions
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Summary pension information
Half
Half year year
ended ended
27 September 28 September
2015 2014
GBPm GBPm
--------------------------------------------------- ------------- -------------
Ongoing pension costs
UK defined benefit scheme (including
administration costs)(1) (320) (265)
UK defined contribution scheme (22) (17)
UK defined benefit and defined contribution
Pension Salary Exchange (PSE)(2) (23) -
--------------------------------------------------- ------------- -------------
Total UK ongoing pension costs (365) (282)
GLS defined contribution type scheme
costs (2) (3)
--------------------------------------------------- ------------- -------------
Total Group ongoing pension costs (367) (285)
--------------------------------------------------- ------------- -------------
Total Group cash flows relating to
ongoing pension costs
UK defined benefit scheme employer
contributions(3) (181) (192)
Defined contribution scheme employer
contributions (24) (19)
UK defined benefit and UK defined contribution
scheme employer PSE contributions (23) -
--------------------------------------------------- ------------- -------------
Total Group pension cash flows relating
to ongoing pension costs (228) (211)
--------------------------------------------------- ------------- -------------
RMSEPP deficit correction payments (5) (5)
--------------------------------------------------- ------------- -------------
Pension charge to cash difference (operating
specific item) (134) (69)
--------------------------------------------------- ------------- -------------
(1) Ongoing pension service costs are charged to the income statement. They represent the cost, as a percentage of pensionable payroll (H1 2015-16 29.8 per cent; H1 2014-15 23.6 per cent), of the increase in the defined benefit obligation due to active members earning one more years' worth of pension benefits. They are calculated in accordance with IAS 19 and are based on market yields (high quality corporate bonds and inflation) at the beginning of the Company's financial year. Pensions administration costs for the RMPP of GBP3 million (H1 2014-15 GBP3 million) continue to be included within the Group's ongoing UK pension service costs.
(2) At the beginning of August 2015, PSE was introduced under which eligible employees who are enrolled into PSE opt out of making employee contributions to their pension and the Group makes additional contributions in return for a reduction in basic pay. As a result, there is a decrease in wages and salaries and a corresponding increase in pension costs of GBP23 million (H1 2014-15 GBPnil) in the first half year.
(3) The employer contribution cash flow rate (17.1 per cent in both the current and prior period) forms part of the payroll expense and is paid into the Royal Mail Pension Plan (RMPP) (RM section). The contribution rate is set following each actuarial funding valuation, usually every three years. These actuarial valuations are required to be carried out on assumptions determined by the Trustee and agreed by Royal Mail.
Long-term assumptions
The major assumptions used to calculate the accounting position of the pension schemes are shown below.
At At
27 September 29 March
2015 2015
------------------------------------------ ------------- ---------
Retail Price Index (RPI) 3.1% 3.1%
Consumer Price Index (CPI) 2.1% 2.1%
Discount rate (based on AA-rated sterling
denominated corporate bond yields)
Nominal 3.8% 3.5%
Real (nominal less RPI) 0.7% 0.4%
------------------------------------------ ------------- ---------
Schemes' assets and liabilities
The combined schemes' assets and liabilities are shown below.
Accounting (IAS
19) Actuarial/cash funding
---------------- -----------------------------------------
At
At 29 March At At
27 September 2015 30 September 31 March
2015 restated(5) 2015 2015
GBPm GBPm GBPm GBPm
------------------------------- ---------------- ------------- -------------- ----------
Fair value of schemes'
assets(4) 6,515 6,619 6,631 6,462
Present value of schemes'
liabilities(5) (3,366) (3,237) (5,106) (4,669)
------------------------------- ---------------- ------------- -------------- ----------
Surplus in schemes
(pre IFRIC 14 adjustment)(5) 3,149 3,382 1,525 1,793
IFRIC 14 adjustment (100) (15) n/a n/a
------------------------------- ---------------- ------------- -------------- ----------
Surplus in schemes(5) 3,049 3,367 1,525 1,793
------------------------------- ---------------- ------------- -------------- ----------
(4) Difference between accounting and actuarial/cash funding asset fair values arises from the different period end dates used for the valuation of the assets under both methods.
(5) Restated at 29 March 2015 for change in accounting policy relating to pensions administration costs (see Note 1).
There is no element of the present value of the schemes' liabilities that arises from schemes that are wholly unfunded.
In the current period an element of the surplus in RMPP (RM section) is no longer assumed to be recoverable as a reduction to future employer contributions but is assumed to be available as a refund as per IFRIC 14 and, as such, is shown net of taxation withheld.
The surplus in RMSEPP is assumed to be available as a refund as per IFRIC 14 and, as such, is shown net of taxation withheld in both periods.
The Directors do not believe that the current excess of pension scheme assets over the liabilities on an accounting basis will result in an excess of pension assets on a funding basis. However, the Directors are required to account for the pension scheme based on their legal right to benefit from a surplus, using long-term actuarial assumptions current at the reporting date, as required by IFRS.
Changes in the value of the defined benefit pension liabilities, fair value of the schemes' assets and the net defined benefit surplus are analysed as follows:
Defined benefit Defined benefit Net defined
asset liability benefit surplus
------------------------------------- ---------------------------- -----------------------------
At At At
At 29 March At 29 March At 29 March
27 September 2015 27 September 2015 27 September 2015
2015 restated(5) 2015 restated(5) 2015 restated(5)
GBPm GBPm GBPm GBPm GBPm GBPm
Retirement
benefit
surplus (pre
IFRIC 14
adjustment)
at 30 March 2015
and 31 March
2014(5) 6,619 3,833 (3,237) (1,931) 3,382 1,902
------------------ ---------------------- ------------- ------------- ------------- ------------- --------------
Amounts included
in the income
statement
Ongoing UK
defined
benefit pension
scheme and
administration
costs (included
in people
costs)(5,
6) (3) (6) (336) (502) (339) (508)
Pension interest
income/(cost)(7) 120 183 (63) (108) 57 75
------------------ ---------------------- ------------- ------------- ------------- ------------- --------------
Total included
in profit before
tax 117 177 (399) (610) (282) (433)
------------------ ---------------------- ------------- ------------- ------------- ------------- --------------
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Amounts included in other comprehensive income - remeasurement gains/(losses) Actuarial gain/(loss) arising from: Financial assumptions(5) - - 305 (574) 305 (574) Experience adjustment - - 16 5 16 5 Return on schemes' assets (excluding interest income)(5, 6) (478) 2,103 - - (478) 2,103 ------------------ ---------------------- ------------- ------------- ------------- ------------- -------------- Total actuarial (losses)/gains on defined benefit schemes (478) 2,103 321 (569) (157) 1,534 ------------------ ---------------------- ------------- ------------- ------------- ------------- -------------- Other Employer contributions 241 409 - - 241 409 Employee contributions 45 129 (45) (129) - - Benefits paid (28) (33) 28 33 - - Curtailment costs - - (35) (31) (35) (31) Movement in pension-related accruals (1) 1 1 - - 1 ------------------ ---------------------- ------------- ------------- ------------- ------------- -------------- Total other movements 257 506 (51) (127) 206 379 ------------------ ---------------------- ------------- ------------- ------------- ------------- -------------- Retirement benefit surplus (pre IFRIC 14 adjustment) at 27 September 2015 and 29 March 2015(5) 6,515 6,619 (3,366) (3,237) 3,149 3,382 ------------------ ---------------------- ------------- ------------- ------------- ------------- --------------
(6) Previously an allowance was made for pensions administration costs in the UK defined benefit scheme service costs (income statement rate) and costs incurred offset against the return on schemes' assets. These costs are now recognised as pensions administration costs when they are incurred and are no longer offset against the return on schemes' assets. Further details of this accounting policy change are provided in Note 1.
(7) Pension interest income results from applying the schemes' discount rate at 29 March 2015 (prior year at 30 March 2014) to the schemes' assets at that date. Similarly, the pension interest cost results from applying the schemes' discount rate at 29 March 2015 (prior year 30 March 2014) to the schemes' liabilities at that date.
7. Financial instruments measured at fair value
Derivative assets and liabilities
Derivative assets and liabilities on the Group balance sheet are measured at fair value and are categorised as level 2 within the fair value hierarchy described in the Annual Report and Financial Statements 2014-15.
Derivative assets of GBP2 million current, GBP1 million non-current (at 29 March 2015 GBP5 million current, GBP2 million non-current) and derivative liabilities of GBP35 million current, GBP12 million non-current (at 29 March 2015 GBP34 million current, GBP14 million non-current) are valued at fair value. Effective changes in the fair value of derivatives, which are part of a designated cash flow hedge under IAS 39, are deferred into equity. All other changes in fair value are taken straight to the income statement.
8. Earnings per share
The adjusted earnings per share (a non-IFRS measure) below is a key indicator used by Management to assess earnings performance.
Half year ended Half year ended
27 September 27 September
2015 2014
-------------------- --------------------
Reported Adjusted Reported Adjusted
------------------------------
Attributable to equity
holders of the parent
Company
Profit from continuing
operations (GBP million) 88 181 125 217
Weighted average number
of shares issued (million) 1,000 1,000 1,000 1,000
Basic earnings per
share (pence) 8.8 18.1 12.5 21.7
Diluted earnings per
share (pence) 8.7 18.0 12.5 21.7
------------------------------ --------- --------- --------- ---------
The diluted earnings per share for the half year ended 27 September 2015 is based on a weighted average number of shares of 1,004,627,886 (H1 2014-15 1,000,986,276) to take account of the issue of potential ordinary shares resulting from the Long-Term Incentive Plan (LTIP) for certain senior management and the Save As You Earn (SAYE) scheme.
9. Dividends
Half year Half year Half year Half year
ended ended ended ended
27 September 28 September 27 September 28 September
2015 2014 2015 2014
-------------- -------------- -------------- --------------
Dividends on Ordinary Pence Pence
Shares per share per share GBPm GBPm
----------------------- -------------- -------------- -------------- --------------
Paid final dividend 14.3 13.3 143 133
Total dividend 14.3 13.3 143 133
----------------------- -------------- -------------- -------------- --------------
The above dividend was paid on 31 July 2015 to shareholders whose names appeared on the register of members on
3 July 2015.
10. Assets and liabilities held for sale
Discontinued operations - DPD Systemlogistik GmbH & Co. KG (DPD SL)
The Group's assets and liabilities held for sale have reduced by GBP17 million assets and GBP10 million liabilities from the 29 March 2015 year end date, as a result of the sale of DPD SL on 31 March 2015. From the year end date of 29 March 2015 to the date of its sale on 31 March 2015, there were no material revenues, costs or cash flow in respect of DPD SL (H1 2014-15 GBP47 million revenue, GBP47 million costs, GBPnil million cash flow).
A pre-tax profit on disposal of DPD SL of GBP31 million, including a GBP2 million loss released from equity in relation to foreign currency exchange translation differences, has been recognised as a specific item in the income statement. Basic and diluted earnings per share from discontinued operations were 2.6 pence per share in the current reporting period (H1 2014-15 nil pence per share) reflecting the after tax profit on disposal.
The property used for administrative purposes by DPD SL employees is now surplus to operational requirements and has met the Group's criteria to enable its transfer during the reporting period from 'property, plant and equipment' to 'non-current assets held for sale' on the Group balance sheet.
11. Contingent liabilities
On 28 July 2015, Royal Mail received a Statement of Objections setting out Ofcom's provisional, preliminary findings in relation to its investigation into the terms on which Royal Mail proposed to offer access to letter delivery services, alleging a potential distortion of competition. The investigation was launched in February 2014 following a complaint brought by TNT Post UK (now Whistl) about certain proposed changes to Royal Mail's Access contracts.
We have publically stated that we are considering Ofcom's provisional findings, and that we will robustly defend Royal Mail against Ofcom's allegations.
We are not in a position to accurately predict when we will receive Ofcom's final decision nor have we received any detail as yet from Ofcom as to the quantum of any potential penalty (which we will only receive if Ofcom intends to make an infringement finding).
We continue to maintain that we have not infringed competition law and our representations to Ofcom will be on that basis.
12. Events after the reporting period
Interim dividend
The Board has declared and approved an interim dividend of 7.0 pence per share (H1 2014-15 6.7 pence per share). The dividend amounts to GBP70 million (H1 2014-15 GBP67 million) and will be paid on 13 January 2016 to shareholders on the register on 4 December 2015. The ex-dividend date is 3 December 2015.
Changes to UK corporation tax rate
Reductions in the UK corporation tax rate from 20 per cent to 19 per cent (effective 1 April 2017) and to 18 per cent (effective 1 April 2020) were substantively enacted on 26 October 2015. In future, this will reduce the Group's current tax charge accordingly and reduce the net UK deferred tax liability, calculated based on the rate of 20 per cent at 27 September 2015, by GBP42 million.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE RESULTS FOR THE HALF YEAR
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We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the EU; and
-- the Results for the half year include a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that
have occurred during the first six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken
place in the first six months of the current financial year and that have materially affected the
financial position or performance of the Company during that period; and any changes in the related
party transactions described in the last annual report that could do so.
By order of the Board
Moya Greene Matthew Lester
Chief Executive Officer Chief Finance
Officer
19 November 2015 19 November
2015
INDEPENDENT REVIEW REPORT TO ROYAL MAIL PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 27 September 2015 which comprises the Condensed consolidated income statement, the Condensed consolidated statement of comprehensive income, the Condensed consolidated statement of cash flows, the Condensed consolidated balance sheet, the Condensed consolidated statement of changes in equity, and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 27 September 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.
Richard Pinckard
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
19 November 2015
SHAREHOLDER INFORMATION
Registered Office
Royal Mail plc
100 Victoria Embankment
London EC4Y 0HQ
Registered in England and Wales
Company number 08680755
Registrars
Equiniti
Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
www.shareview.co.uk
Tel: 0371 384 2656 (from outside the UK: +44 (0)121 415 7086)
Call costs may vary. Please check with your service provider. Lines are open 8.30am to 5.30pm UK time, Monday to Friday.
Shareholder information online
The Company's registrars, Equiniti, are able to notify shareholders by email of the availability of an electronic version of shareholder information.
Whenever new shareholder information becomes available, Equiniti will notify you by email and you will be able to access, read and print documents at your own convenience.
To take advantage of this service for future communications, please go to www.shareview.co.uk and select 'Shareholder Services', where full details of the shareholder portfolio service are provided. When registering for this service, you will need to have your 11-digit shareholder reference number to hand.
Should you change your mind at a later date, you may amend your request to receive electronic communication by entering your shareview portfolio online and amending your preferred method of communication from 'email' to 'post'.
Corporate website
Additional corporate and other information can be accessed on www.royalmailgroup.com. Information made available on the website is not intended to be, and should not be regarded as being, part of these Results for the half year ended 27 September 2015.
The maintenance and integrity of the Group's website is the responsibility of the Directors; the work carried out by the auditor does not involve consideration of these matters and accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Royal Mail, the Cruciform and the Parcelforce Worldwide logo are registered trademarks of Royal Mail Group Limited. The GLS arrow logo is a registered trade mark of General Logistics Systems Germany GmbH & Co. OHG. Results for the half year ended 27 September 2015 (c) Royal Mail Group Limited 2015. All rights reserved.
Financial Calendar
2015
3 December Interim dividend: ex-dividend
date
4 December Interim dividend: record
date
2016
13 January Interim dividend: payment
date
21 January Trading update
27 March Financial year end
May Full year results
May/June Annual Report and Financial
Statements 2015-16
July Annual General Meeting
Dividend Re-Investment Plan
The Royal Mail Dividend Re-Investment Plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. For those shareholders electing to participate in the DRIP the last date for receipt of applications is 18 December 2015. Further information is available on the Company's website:
http://www.royalmailgroup.com/investors/shareholder-communications/dividend-re-investment-plan
Results presentation
A results presentation for analysts and institutional investors will be held in London at 9.30am on 19 November 2015 and a simultaneous webcast will be available at www.royalmailgroup.com/results
Contact information
Investor Relations:
Catherine Nash
Phone: 020 7449 8183
Email: investorrelations@royalmail.com
Media Relations:
Beth Longcroft
Phone: 07435 768549
Email: beth.longcroft@royalmail.com
Mish Tullar
Phone: 07423 524154
Email: mish.tullar@royalmail.com
Royal Mail press office out of hours: 020 3338 1007
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements concerning the Group's business, financial condition, results of operations and certain of the 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', 'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'targets', 'goal' or 'estimates'.
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. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements.
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November 19, 2015 02:01 ET (07:01 GMT)
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