We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for real-time alerts, custom portfolio, and market movers
| 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 : 6420W
Royal Mail PLC
16 November 2017
FINANCIAL RESULTS
16 November 2017
ROYAL MAIL PLC
RESULTS FOR THE HALF YEARED 24 SEPTEMBER 2017
Royal Mail plc (RMG.L) today announced its results for the half year ended 24 September 2017.
Moya Greene, Chief Executive Officer, commenting on the results, said:
"We had a good start to the year. Group revenue was up two per cent on an underlying basis. GLS delivered a strong performance with revenue up nine per cent. Outside the EU, GLS is also growing through selective acquisitions to capture higher growth markets.
"UKPIL revenue was broadly unchanged, having declined by two per cent in 2016-17. Our investment in our business is paying off. We have won new parcels business; volumes were up six per cent. There was a resilient letters performance. Our strategic focus on costs drove a one per cent underlying reduction in adjusted UKPIL operating costs (before transformation costs).
"Our performance for the full year, as always, will be dependent on the important Christmas period. We are opening six temporary parcel sort centres and recruiting over 20,000 staff. We are also extending opening hours at many of our Enquiry Offices to help retailers and consumers.
"As previously announced, we are now in external mediation with the CWU. Our priority is to reach agreement with the CWU to help underpin the sustainability of the business."
Group financial summary(1)
Hot Features
Premium
26 weeks 26 weeks
ended ended
24 September 25 September Underlying
Reported results (GBPm) 2017 2016 change(2)
------------------------- ------------- ------------- ----------
Revenue 4,829 4,583 2%
Operating profit before
transformation costs 89 206
Operating profit after
transformation costs 26 148
Profit before tax 77 110
Profit after tax 168 87
Basic earnings per share
(pence) 17.1p 8.6p
In-year trading cash
flow 125 116
Net debt (382) (452)
Interim dividend per
share 7.7p 7.4p 4%
------------------------- ------------- ------------- ----------
Adjusted results (GBPm)
------------------------- ------------- ------------- ----------
Revenue 4,829 4,583 2%
Operating profit before
transformation costs 323 320 7%
Operating profit after
transformation costs 260 262
Margin 5.4% 5.7% 30bps
Profit before tax 250 252
Profit after tax 198 193
Basic earnings per share
(pence) 20.1p 19.2p
------------------------- ------------- ------------- ----------
Business units
Adjusted operating
profit before transformation
Revenue costs
------- ---------------------------------------- -------------------------------
26 weeks 26 weeks 26 weeks 26 weeks
ended ended ended ended
24 September 25 September Underlying 24 September 25 September
(GBPm) 2017 2016 change 2017 2016
------- ------------- ------------- ---------- --------------- --------------
UKPIL 3,624 3,641 Flat 233 247
GLS 1,205 942 9% 90 73
------- ------------- ------------- ---------- --------------- --------------
Group 4,829 4,583 2% 323 320
------- ------------- ------------- ---------- --------------- --------------
Group performance(1,2)
-- Revenue was up two per cent on an underlying
basis. Strong growth in GLS more than offset
broadly unchanged revenue at UKPIL.
-- Adjusted operating profit before transformation
costs was GBP323 million, up seven per cent.
-- Adjusted operating profit margin after transformation
costs increased by 30 basis points on an underlying
basis.
-- Reported operating profit before transformation
costs was GBP89 million.
-- We are targeting net cash investment of around
GBP450 million in 2017-18 compared to GBP492
million in 2016-17 and GBP656 million in 2015-16.
-- In-year trading cash flow increased to GBP125
million.
-- In line with our stated interim dividend policy(3)
, the Board has declared a dividend of 7.7 pence
per ordinary share for the half year ended 24
September 2017, which will be paid on 10 January
2018 to shareholders on the register on 8 December
2017.
Business performance(1,2)
UKPIL
-- UKPIL revenue was flat on an underlying basis,
having declined by two per cent in 2016-17.
-- Good growth in account parcels, including Amazon,
and import parcels contributed to a six per cent
increase in overall UKPIL parcel volumes. Parcel
revenue was up by five per cent.
-- Addressed letter volumes declined by five per
cent (excluding political parties' election mailings).
A better than expected revenue performance, principally
due to election mailings, meant that total letter
revenue declined by three per cent.
-- Our strategic focus on costs drove a one per
cent underlying reduction in adjusted UKPIL operating
costs (before transformation costs).
GLS
-- GLS performed strongly. Revenue was up nine per
cent due to its strategic focus on growth in
existing markets, including another strong performance
in Italy.
-- GLS' three major markets, Germany, Italy and
France, accounted for 60 per cent of total GLS
revenue, down from 66 per cent in the prior period,
reflecting the impact of recent acquisitions.
-- Volumes grew by nine per cent, excluding the
impact of recent acquisitions. Volume growth
is being driven by GLS' comprehensive geographical
footprint and a continued focus primarily on
B2B and selective B2C growth.
Outlook summary
-- We maintain our outlook for addressed letter
volume declines of between four to six per cent
per annum (excluding political parties' election
mailings) over the medium term; we expect to
be at the higher end of the range of decline
for the full year if the current climate of business
uncertainty persists.
-- The UK parcels market remains highly competitive
and we are performing well.
-- Our UKPIL cost avoidance programme is on track
to deliver around GBP190 million costs avoided
this year. We face increased cost pressures in
the second half, including the potential impact
of the industrial relations environment on the
pace of change.
-- In GLS, we expect to continue to perform strongly,
with underlying revenue growth for the full year
anticipated to be broadly in line with the first
half.
-- As in previous years, the outcome for the full
year will be dependent on our performance over
the important Christmas period.
-- In addition, the industrial relations environment
could impact our performance in the second half.
-- Given our strong cash generation and robust balance
sheet, we are committed to our progressive dividend
policy.
(1) Reported results are prepared in accordance with International Financial Reporting Standards (IFRS). Adjusted results exclude the pension charge to cash difference adjustment and specific items, consistent with the way financial performance is measured by Management and reported to the Board.
(2) Movements are presented on an underlying basis.
For further details of reported results, adjusted and underlying Alternative Performance Measures (APMs) used in the Financial Report for the half year ended 24 September 2017, including reconciliations to the closest IFRS measures where appropriate, see section entitled 'Presentation of results and Alternative Performance Measures'.
(3) Our interim dividend is equal to approximately one-third of the prior year's total dividend.
For further information, please contact:
Investor Relations:
Catherine Nash
Phone: 020 7449 8183
Email: investorrelations@royalmail.com
Media Relations:
Peter Tilley
Phone: 020 7449 8247
Email: peter.tilley@royalmail.com
Company Secretary:
Kulbinder Dosanjh
Phone: 020 7449 8133
Email: kulbinder.dosanjh@royalmail.com
Results presentation:
A results presentation for analysts and institutional investors will be held in London at 9:30am on 16 November 2017 and a simultaneous webcast will be available at www.royalmailgroup.com/results.
A trading update covering the nine months ending 24 December 2017 is expected to be issued on 18 January 2018.
Registered Office:
Royal Mail plc
100 Victoria Embankment
London EC4Y 0HQ
Registered in England and Wales
Company number 08680755
LEI 213800TCZZU84G872M70
CHIEF EXECUTIVE OFFICER'S REVIEW
Our performance(1)
We have had a successful first half, despite the headwinds we are facing. We delivered a good performance in the UK. GLS performed strongly.
We continued to invest in growth and innovation and maintained our strategic focus on costs. This helps drive sustainable cash generation and supports our progressive dividend policy.
Group revenue increased by two per cent. Adjusted Group operating profit before transformation costs was GBP323 million. Adjusted Group operating profit margin after transformation costs increased by 30 basis points to 5.4 per cent. In-year trading cash flow increased to GBP125 million.
GLS continues to drive growth. GLS' revenue and volumes were each up nine per cent on an underlying basis. Its revenue was up 19 per cent, including the impact of acquisitions, on a constant currency basis in the period.
At the same time, we are the UK's pre-eminent delivery company for letters and parcels, with a strong reputation for high quality customer service. Parcel volumes were up six per cent, with growth in account parcels being a key factor. Addressed letter volumes declined by five per cent (excluding political parties' election mailings). This is within our medium-term forecast of a four to six per cent decline per annum in addressed letter volumes. UKPIL revenue was flat, having declined by two per cent in 2016-17, with parcel revenue up five per cent and letter revenue down three per cent.
The Board has declared an interim dividend of 7.7 pence per ordinary share, which will be paid on 10 January 2018 to shareholders on the register on 8 December 2017. We are proud to have a large and diverse shareholder base. Approximately 20 per cent of our Company is owned by our employees and small retail investors. Employees(2) that have been with Royal Mail since privatisation have each received dividends - before tax - of GBP714, including this interim dividend.
Winning in parcels
Competitive marketplaces
The UK parcels market is one of the most developed in Europe and is highly competitive. There is significant spare capacity in the market at non-peak times of the year, putting downward pressure on prices. International markets are also intensely competitive.
Our progress
GLS is a force for growth in the Group; it accounts for around 35 per cent of the Group's adjusted operating profit after transformation costs. It has a replicable and scalable business model. GLS has delivered consistent, strong underlying growth due to its focus on B2B parcels, the premium B2C market and the strength of its network. It delivered another very good performance with revenue up nine per cent. Revenue growth was achieved in almost all markets from a broad customer base. Volumes grew by nine per cent, driven by continued international and domestic growth across the majority of markets, as we won more customers and gained more traffic from existing customers. The recent acquisitions by GLS mean that its three major markets - Germany, France and Italy - now account for 60 per cent of total revenue, compared to 66 per cent in the prior period.
In the UK, we deliver more parcels each year than all of our competitors combined. The service and product improvements we have put in place are delivering real benefits. We have won new contracts and more business from existing customers. We aim to be the strategic partner of choice for the UK's e-retailers. Our international parcels business undertook an initiative to attract cross-border traffic mainly from Asia into Europe, resulting in increased volumes and revenue.
(1) Movements are presented on an underlying basis. For further details of reported results, adjusted and underlying Alternative Performance Measures (APMs) used in the Financial Report for the half year ended 24 September 2017, including reconciliations to the closest IFRS measures where appropriate, see section entitled 'Presentation of results and Alternative Performance Measures'.
(2) Eligible full time employees in the Share Incentive Plans.
UKPIL parcel revenue increased by five per cent. Continued growth in Royal Mail domestic account parcels and international import parcels were amongst the key drivers underpinning this good performance. Royal Mail domestic account parcel volumes, excluding Amazon, were up four per cent. Amazon volumes grew strongly due to more letterbox-sized parcels. Our tracked products continue to grow at an impressive rate. Royal Mail Tracked 24(R) /48(R) and Tracked Returns(R) volume growth is outpacing the market. Volumes grew by 38 per cent in the first half. We won a number of new contracts with large customers such as Abercrombie & Fitch, Inditex and New Look. In addition, since April 2017, we have offered delivery confirmation for the majority of our barcoded parcels. Parcelforce Worldwide volumes were up one per cent, driven by new contract wins, including with Laithwaites and Virgin Wines.
Christmas is our most important time of year. We are opening six temporary parcel sort centres for the festive period. We are also recruiting over 20,000 temporary staff to manage increased traffic in Royal Mail and Parcelforce Worldwide. In addition, we will be extending opening hours at our Enquiry Offices, with many offices being open on Christmas Eve. These initiatives are part of our significant investment in additional resources at Christmas to help ensure we provide the best possible postal service to our customers throughout the UK.
Adding value and expanding our networks
GLS is scaling up its existing presence in its core European markets. It is also growing through selective acquisitions to capture higher growth markets outside the EU as part of its targeted international expansion. In Italy, GLS is expanding its network by acquiring selective franchisees. In Spain, GLS acquired ASM(3) in 2016 and it is now the country's second largest domestic parcel network. ASM is performing ahead of expectations. Following its acquisitions of GSO(4) which was announced in October 2016 and Postal Express in April 2017, GLS provides a parcel service with full US West Coast coverage. This allows GLS to offer shorter delivery times than its competitors within the region. This, in turn, is enabling GLS to win more business from customers and benefit from growth in inter-state deliveries. The area in which GSO operates has a Gross Domestic Product (GDP) roughly equivalent to the UK. The region is experiencing faster GDP growth than the UK and continental Europe.
In Europe, GLS recently expanded its FlexDeliveryService. It is now available in a total of nineteen countries. This service makes it easier for online shoppers to take delivery of goods purchased abroad. Anyone who shops beyond national borders in one of the linked countries can choose from a wide range of delivery options to their home country. GLS also launched a new international returns service. GLS now offers its ShopReturnService across borders in seven European countries. These initiatives are designed to harness the growth opportunities in cross-border e-commerce.
Turning to the UK, in September we announced a new Royal Mail service that enables overseas customers of UK-based retailers to track the progress of their parcels. Initially available to customers who have a business account with Royal Mail, the service informs recipients about the location of their parcel. We have also made it easier for customers to access our international services. With Intersoft, we have developed our export solutions and now have the capability to offer tracked cross-border outbound and returns services to our larger customers. In October, Parcelforce Worldwide launched a range of digital tools including an app designed to give customers more control over their deliveries. Customers can use the app to elect for a parcel to be left either with a particular neighbour in the same postcode, a specified Post Office or a 'safe place' of their choosing.
Defending letters
We seek to maximise the value of letters for our customers and our business. We continue to forecast a medium-term four to six per cent decline per annum in addressed letter volumes (excluding political parties' election mailings). GDP is a material driver for letter volumes. We are closely monitoring the economic environment in the UK, which remains challenging.
We delivered a resilient performance despite the continued business uncertainty in the UK. Addressed letter volume decline was five per cent in the first half (excluding political parties' election mailings). We achieved better than expected letter revenue, principally due to mailings associated with the 2017 General Election. Low Average Unit Revenue (AUR) unaddressed letter volumes were up eight per cent due to a range of initiatives. Total letter revenue (including marketing mail) was down three per cent. Marketing mail(5) revenue of GBP534 million was down two per cent. The rate of decline has moderated following last year's sharp slowdown which was driven by business uncertainty.
(3) Agencia Servicios Mensajería S.A.U.
(4) Golden State Overnight Delivery Services Inc.
(5) Marketing mail includes redirections, Address Management Unit and addressed and unaddressed advertising mail.
In the run up to the introduction of the General Data Protection Regulation (GDPR) next year, there is uncertainty among some of our direct mail marketing customers about the detailed requirements due to come into force in May 2018. The impact of the regulation varies by customer and could impact our revenue from some of them. We are working to mitigate this uncertainty. We are also working with our customers and the postal industry to encourage the authorities to provide as much clarity as possible about the new regulation.
We continue to defend letter volumes. We are working with mailing customers and access operators to incentivise customer mailings. We have also rolled out initiatives to help mitigate the impact of e-substitution and business uncertainty on letter volumes and revenue. Through our MarketReach business, we are demonstrating the positive impact marketing mail can have on campaign results.
Strategic focus on costs and investment
Becoming more efficient has a human face and is a painful process for our people. We work closely with our unions to ensure our people exiting the business do so with dignity and respect. UKPIL operating costs before transformation costs were one per cent lower in the first half. We continue to target annual productivity improvements of two to three per cent per annum.
We are pursuing opportunities across our cost base to deliver efficiency improvements. We continue to extend Collection on Delivery, where colleagues collect mail while they are out on delivery. Over 50,000 postboxes are now covered by the programme. We are also reducing costs in central functions, property and technology.
We have invested GBP1.5 billion in our UK operation since privatisation. After several years of higher levels of investment to address historical under investment under state ownership, we now expect total Group net cash investment of around GBP450 million in 2017-18, compared with an average of around GBP590 million per annum in the past three financial years. Our ongoing investment programme remains one of the largest of its kind in the UK.
Technology and innovation
We are leveraging our technology to meet customer expectations of convenience and quality. We are determined to actively meet the needs of our customers, which are evolving as e-commerce continues to develop. In the UK, we have integrated a number of additional e-commerce platforms and online marketplaces into our Click & Drop service. They include Shopify, Magento and Not On The High Street. Click & Drop integrates data from online platforms to make it quicker and easier to buy postage and print delivery labels. We are also using our PDA technology to pilot giving notifications of the estimated time of delivery.
Over the summer, we ordered nine new electric-powered heavy goods vehicles to transport mail between distribution centres in London and the south east. We are pleased to be the first UK fleet operator to trial these new larger vehicles. We also announced that we have purchased 100 electric vans to be used by postmen and women on their rounds. The vans are planned to be deployed from December 2017, supported by a comprehensive roll-out of charging infrastructure.
We are leveraging our existing assets. We have opened our UK-wide network of vehicle workshops to other companies. This follows a successful pilot in around 20 workshops to refine and develop our capabilities. We have one of the largest independently owned vehicle workshop networks, with around 110 UK locations. The workshops offer servicing, maintenance and repairs across a complete range of vehicle types and plant items. British Gas and RAC are among the companies using the service.
Our workforce
It is a difficult time for Royal Mail and its people. We remain committed to resolving the key issues with the CWU in a way that appropriately balances the interests of all our key stakeholders. As one of the largest employers in the UK, we are proud to provide the best pay and terms and conditions in our sector. We remain committed to that high quality employment in a very competitive industry, where labour standards are often poor. In return, however, we need to make some changes to sustain our business now and in the future, particularly given the decline in letter volumes. This is about maintaining as many high quality jobs as possible.
As previously announced, we are negotiating with the CWU under the auspices of an external mediation process that both parties committed to under our Agenda for Growth (AFG) agreement. We are pleased that the AFG allows us the opportunity to seek to achieve a resolution in this way. The mediation process will need until close to Christmas to be completed, and may be longer. The talks cover pensions, pay and other issues. Our priority is to reach agreement with the CWU to help underpin the sustainability of the business. We are determined to use the mediation process to do just that.
We know how important pension benefits are to colleagues. This is a key issue for Royal Mail and its workforce. Since privatisation, Royal Mail has paid GBP1.4 billion into employees' pensions. Following Trustee approval, our Defined Benefit scheme - the Royal Mail Pension Plan (RMPP) - in its current form will close to future accrual after 31 March 2018. We have had extensive talks with our unions, the CWU and Unite/CMA, on a sustainable and affordable solution for retirement benefits for RMPP members. We have moved a long way compared to our original Defined Contribution proposal. Our proposal is to replace the RMPP with another type of Defined Benefit scheme, a Defined Benefit cash balance scheme. It would be by far the best pension scheme in the delivery industry. It benchmarks very well compared to other large companies. Existing RMPP members would also have the option of joining a new enhanced Defined Contribution scheme. We expect that the overall cost of the proposal will be around GBP400 million per annum.
Customer focus
In the first half, our mean business customer satisfaction score was 786, in line with the performance in 2016-17. We continue to improve our Net Promoter Score, which measures the loyalty of our business customers, scoring 39 per cent in the period.
We continued to exceed our Quality of Service regulatory target of 98.5 per cent for Second Class mail. In the first half, 98.8 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 high-quality service very seriously. We are redoubling our efforts to tackle quality issues where they arise.
We were disappointed that we have seen an overall increase in complaints, driven principally by an increase in 'Denial of receipt' claims. We continue to highlight the importance of correct doorstep scanning and ensuring that if an item is left with a neighbour, the appropriate details are written on the 'Something for you' card.
As the UK's Universal Service Provider, we have a unique place in society. We are proud of the role we play in connecting customers, businesses, organisations and communities, including those in remote and rural areas. We make the fifth biggest contribution to the UK economy of any UK company through our high quality employment, our procurement activities and the taxes that we pay. That is why we are delighted to be named global sustainability leader of the Transportation industry group in the Dow Jones Sustainability Indices, ahead of over 100 companies in ground-based transportation, marine and aviation industries.
Outlook
Overall, we had a good start to the year. GLS performed strongly, driving growth for the Group. In UK parcels, our initiatives to make our offering more flexible and convenient for customers and our focus on quality are paying off. We have won more volumes from existing customers and attracted new ones. There was a resilient letters performance. In particular, the trends in marketing mail have moderated over last year. Given continued business uncertainty in the UK, we are monitoring the letters market closely.
We maintain our outlook for addressed letter volumes declines of between four to six per cent per annum (excluding political parties' election mailings) over the medium term; we would expect to be at the higher end of the range of decline for the full year if the current climate of business uncertainty persists. The UK parcels market remains highly competitive and we are performing well. Our UKPIL cost avoidance programme is on track to deliver around GBP190 million costs avoided this year. We face increased cost pressures in the second half, including the potential impact of the industrial relations environment on the pace of change. In GLS, we expect to continue to perform strongly, with underlying revenue growth for the full year anticipated to be broadly in line with the first half.
(6) Royal Mail Business Customer Satisfaction survey, conducted by Ipsos MORI.
As in previous years, the outcome for the full year will be dependent on our performance over the important Christmas period. In addition, the industrial relations environment could impact our performance in the second half. We are currently in a mediation process and our priority remains to reach agreement with the CWU.
Given our strong cash generation and robust balance sheet, we are committed to our progressive dividend policy.
Thank you
Our brand is built on a long history of making a difference. That is down to the hard work and commitment of our people. I know that this has been a very difficult time for our people and I thank them for their continued dedication.
We are committed to reaching agreement with the CWU. We are determined to continue to provide the best pay and terms and conditions in our industry. We believe that good labour standards lead to good service standards for consumers. This is the way we will secure a sustainable future and protect the long-cherished position that our postmen and women hold in society.
Moya Greene
Chief Executive Officer
15 November 2017
PRINCIPAL RISKS
The Board considers that the principal risks faced by the Group for the remaining 26 weeks of the year are substantially unchanged from those described on pages 37-41 of the Royal Mail plc Annual Report and Financial Statements 2016-17.
In summary, our principal risks are:
Risk of industrial action arising from proposed new arrangements
-- As Royal Mail Group continues to pursue the necessary efficiency programmes in order to remain competitive in the letters and parcels markets and implements the new pension arrangements, there is a greater risk of industrial action.
-- Material disagreements or disputes between the Group and its trade unions could result in widespread localised or national industrial action.
-- We may be unable to continue to provide sustainable and affordable pension arrangements acceptable to our people and unions, leading to industrial action.
-- We may not achieve the effective control of costs and efficiency benefits required to deliver our strategy.
Changes in market conditions and customer behaviour
-- Our product offerings and customer experience may not adequately meet evolving customer expectations.
-- Flat or adverse economic conditions, the impact of the outcome of the negotiations of Britain's exit from the EU and customer uncertainty over detailed data regulation requirements (relating to the General Data Protection Regulations) could impact our ability to maintain and grow revenue.
-- We may be unable to identify new profitable and sustainable areas of business, implement appropriate investments and have in place suitable structures to support continued transformation of the business.
Regulatory and legislative environment
-- The absence of a sustainability framework may impact on Royal Mail's ability to support the USO. The sustainability framework is about a series of proactive actions by the regulator to enable the USO to be funded through the market.
-- Depending on the outcome of the Ofcom Competition Act investigation and any appeal, Royal Mail may be fined.
-- Changes to laws and regulations relating to employment, or their interpretation, could adversely affect Royal Mail Group's labour costs.
Other
-- A major breach of information security (for example as the result of a cyber-attack) or data protection regulation could have a negative financial and reputational impact on the business.
-- We may fail to attract and retain senior management and key personnel with appropriate expertise.
FINANCIAL REVIEW
Reported results and Alternative Performance Measures (APMs)
Reported results are prepared in accordance with IFRS. Reported results are set out in the sections entitled 'Presentation of results and Alternative Performance Measures' and 'Condensed consolidated financial statements'.
In addition to reported results, the Group's performance in this Financial Review is also explained through the use of APMs that are not defined under IFRS. Management is of the view that these measures provide a more meaningful basis on which to analyse business performance. They are consistent with the way that financial performance is measured by Management and reported to the Board.
The APMs we use are explained in the paragraphs entitled 'Alternative Performance Measures' and reconciliations to the closest measure prescribed under IFRS are provided where appropriate. The analysis of underlying movements in adjusted results is set out in the paragraph entitled 'Underlying change.'
UK PARCELS, INTERNATIONAL & LETTERS (UKPIL)
Adjusted Adjusted
26 weeks ended 26 weeks ended
24 September 25 September Underlying
Summary trading results (GBPm) 2017 2016 change
======================================= =============== =============== ==========
Letters & other revenue 1,494 1,562 (4%)
Marketing mail 534 547 (2%)
=============== ===============
Total letters 2,028 2,109 (3%)
Parcels 1,596 1,532 5%
=============== ===============
Revenue(1) 3,624 3,641 Flat
Operating costs before transformation
costs (3,391) (3,394) (1%)
=============== ===============
Operating profit before transformation
costs 233 247 7%
Transformation costs (63) (58) 9%
=============== ===============
Operating profit after transformation
costs 170 189 6%
Margin 4.7% 5.2% 30bps
Volumes (m)
======================================= =============== =============== ==========
Letters
Addressed letters 5,610 5,937 (5%)
Unaddressed letters 1,510 1,404 8%
Parcels
Core network 516 487 7%
Parcelforce Worldwide 47 46 1%
=============== ===============
Total 563 533 6%
--------------------------------------- --------------- --------------- ----------
Reported results
Revenue decreased to GBP3,624 million (H1 2016-17: GBP3,641 million). Operating costs before transformation costs increased to GBP3,625 million (H1 2016-17: GBP3,508 million). Operating loss before transformation costs was GBP1 million (H1 2016-17: GBP133 million profit). Operating loss after transformation costs was GBP64 million (H1 2016-17: GBP75 million profit).
Adjusted results
UKPIL delivered a good performance in the period. Revenue was flat with parcel revenue up five per cent, offsetting total letter revenue, which was down three per cent. Weaker Sterling in the period had a positive impact of GBP5 million on UKPIL revenue. This has been excluded from underlying movements.
Total parcel volumes increased by six per cent. Growth was largely driven by Royal Mail domestic account parcels where we won new customers and gained more traffic from existing customers. Royal Mail domestic account parcel volumes, excluding Amazon, were up four per cent. Royal Mail Tracked 24(R) /48(R) and Tracked Returns(R) services saw continued strong volume growth of 38 per cent. Amazon parcel traffic grew strongly due to higher volumes of letterbox-sized parcels.
(1) 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.
Our international parcels business benefited from our new initiative to attract cross-border traffic mainly from Asia into Europe. This accounted for around two percentage points of the parcel volume growth and around one percentage point of the parcel revenue growth in the period. We saw improved import (outside of our cross-border initiative) and contract export volumes compared with the prior period. Parcelforce Worldwide volumes increased by one per cent driven by new contract wins in a highly competitive express parcels market. Total parcel revenue was up five per cent, reflecting the mix in domestic and international traffic channels.
Addressed letter volumes (excluding political parties' election mailings) declined by five per cent. We continue to monitor the impact of overall business uncertainty in the UK on letter volumes. Total letter revenue (including marketing mail) decreased by three per cent, benefiting from higher than expected revenue from mailings associated with the 2017 General Election.
Marketing mail revenue, which includes redirections and our Address Management Unit, decreased by only two per cent as the rate of decline has moderated following last year's sharp slowdown driven by business uncertainty. Low AUR unaddressed letter volumes were up eight per cent.
Operating costs before transformation costs
Adjusted
Adjusted 26 weeks
26 weeks ended ended
24 September 25 September Underlying
(GBPm) 2017 2016 change
============================== =============== ============= ==========
People costs (2,362) (2,351) Flat
Non-people costs (1,029) (1,043) (2%)
============================== =============== ============= ==========
Distribution and conveyance
costs (361) (370) (4%)
Infrastructure costs (365) (360) 1%
Other operating costs (303) (313) (3%)
============================== =============== ============= ==========
Total (3,391) (3,394) (1%)
------------------------------ --------------- ------------- ----------
Total adjusted operating costs before transformation costs declined by one per cent. We delivered benefits across a number of cost avoidance initiatives, including improvements in core network productivity, management headcount reduction, supplier contract renegotiation, better vehicle utilisation, transformation of our IT infrastructure and lower property costs. Our cost avoidance programme is on track to deliver around GBP190 million of avoided operating costs in 2017-18. However due to the timing of projects, the impact will be skewed towards the first half. We face increased cost pressures in the second half, including the potential impact of the industrial relations environment on the pace of change.
People costs were flat, largely driven by improvements in core network productivity. We continue to target annual productivity improvements of two to three per cent per annum. This helps to offset the assumptions we have made in these results in relation to the 2017-18 pay award, which is still under negotiation. These assumptions may be revised once an agreement is finalised. We are unable to disclose further information until the negotiations have been completed. Any difference between our current assumptions and the final pay agreement will be included in the second half.
The impact of the Apprenticeship Levy in the first half was GBP10 million. We have excluded the first year impact of this levy from underlying movements. As previously disclosed, wage legislation such as the Working Time Directive may impact people costs in the future.
Non-people costs decreased by two per cent. Distribution and conveyance costs decreased by four per cent driven by lower fuel costs and improved vehicle hire controls. Total diesel and jet fuel costs of GBP67 million were GBP7 million lower compared with the prior period due to lower pricing and improved fleet management. We expect diesel and fuel costs to be around GBP140 million in 2017-18. Terminal dues were impacted by a GBP5 million foreign exchange movement due to weaker Sterling, which has been excluded from underlying movements.
Infrastructure costs were one per cent higher, largely driven by a GBP20 million increase in depreciation and amortisation. This included a GBP5 million one-off accelerated depreciation charge following a review of IT and other assets. As a result, the depreciation and amortisation charge is expected to be around GBP35 million higher in 2017-18. Within infrastructure costs, the cost avoidance programme has delivered benefits in property through the integration of the Romec business, IT transformation and lower discretionary spend across the estate.
Other operating costs decreased by three per cent due to the cost avoidance programme, including savings on certain supplier contracts and lower marketing and discretionary spend.
Transformation costs
Adjusted Adjusted
26 weeks 26 weeks
ended ended
24 September 25 September
(GBPm) 2017 2016
===================== ============= =============
Voluntary redundancy (31) (26)
Project costs (32) (32)
===================== ============= =============
Total (63) (58)
--------------------- ------------- -------------
Transformation costs increased by GBP5 million, reflecting the level of management headcount reductions. There was a net decrease of around 1,100 employees in the first half. There was a reduction of around 1,500 full-time equivalent employees (FTE)(2) to around 146,700 FTE in the first half. This reflected a change in the mix of full-time and part-time employees and a reduction in variable hours. Project costs of GBP32 million were flat compared with the prior period and largely comprised initiatives supporting the cost avoidance programme.
We expect transformation costs to be in the range GBP130 to GBP150 million per annum going forward.
Operating profit after transformation costs
Adjusted operating profit after transformation costs was GBP170 million, giving a margin of 4.7 per cent, up 30 basis points on an underlying basis over the prior period.
(2) Full time equivalent (FTE) numbers relate to the total number of paid hours (including part-time, full-time and agency hours) divided by the standard full-time working hours in the same period.
GENERAL LOGISTICS SYSTEMS (GLS)
Reported results
GLS reported results are presented in Sterling and Euros. Underlying change excludes the impact of acquisitions and foreign exchange movements.
26 weeks 26 weeks
ended ended
24 September 25 September Underlying
Summary trading results (GBPm) 2017 2016 change
=============================== ============= ============= ==========
Revenue 1,205 942 9%
Operating costs (1,115) (869) 9%
============= =============
Operating profit 90 73 8%
Margin 7.5% 7.7% (10bps)
(EURm)
=============================== ============= ============= ==========
Revenue 1,371 1,155
Operating costs (1,269) (1,066)
============= =============
Operating profit 102 89
Volumes (m) 276 233 9%
------------------------------- ------------- ------------- ----------
Revenue and volumes
GLS continues to perform strongly. Performance in the period was impacted by the timing of Easter and other public holidays across Europe. Excluding this impact, underlying volumes and revenue movements would have been around three percentage points higher. This is expected to be around two percentage points for the full year.
Volumes were up nine per cent with growth in domestic and international volumes in most markets. Revenue increased in line with volumes by nine per cent. Average pricing remained flat and was impacted by changes in product mix and lower average parcel weights. Revenue in Sterling benefited from a GBP73 million impact from exchange rate movements, which is excluded from underlying movements. Including the impact of acquisitions, revenue was up 19 per cent on a constant currency basis.
Revenue growth was achieved in almost all markets and from a broad customer base, with the largest customer accounting for around three per cent of total GLS revenue. The three major markets, Germany, Italy and France, accounted for 60 per cent of total GLS revenue, down from 66 per cent in the prior period, reflecting the impact of recent acquisitions.
26 weeks 26 weeks
ended ended
24 September 25 September Underlying
Operating costs (GBPm) 2017 2016 change
============================== ============= ============= ==========
People costs (293) (209) 10%
Non-people costs (822) (660) 9%
============================== ============= ============= ==========
Distribution and conveyance
costs (725) (575) 11%
Infrastructure costs (71) (57) 6%
Other operating costs (26) (28) (24%)
============================== ============= ============= ==========
Total (1,115) (869) 9%
------------------------------ ------------- ------------- ----------
Total operating costs were up nine per cent in line with volumes.
People costs increased by 10 per cent as a result of higher semi-variable costs linked to volumes, higher rates of pay due to labour market conditions and high wage inflation, especially across Central and Eastern European markets.
Distribution and conveyance costs were up 11 per cent, driven by higher volumes and increased network costs due to higher sub-contractor costs. This was impacted by the higher minimum wage in Germany, which increased by four per cent from 1 January 2017. This has increased costs in the period by EUR2.5 million with an estimated full year impact of EUR5 million.
Infrastructure costs increased by six per cent principally due to the one-off provision release for IT related costs in the prior period. Other operating costs decreased by 24 per cent due to a one-off provision release in the current period and higher acquisition costs in the prior period.
Operating profit
Operating profit was GBP90 million, giving a reported margin of 7.5 per cent, 10 basis points lower than the prior period largely due to increased people and distribution and conveyance costs. Reported profit in Sterling benefited from a GBP7 million impact from exchange rate movements, which is excluded from underlying movements.
Germany
Germany remains the largest market for GLS by revenue. Revenue grew by five per cent, driven by international volumes, improved domestic pricing and growth in new customers. Operating margins have slightly reduced due to labour market conditions and the increase in the minimum wage.
Italy
GLS Italy continues to perform strongly. Revenue growth of 18 per cent reflects strong B2C volumes growth driven by Amazon and other customers. Given the strong performance over the last two years, it will be challenging to maintain this rate of growth in the future.
France
GLS France revenue growth slowed to one per cent and operating losses increased by EUR1 million to EUR6 million due mainly to the impact of working days, lower export volumes and an increasing proportion of B2C volumes.
France remains a challenging market and while actions are underway which target a break-even result, higher cost of sales, including those associated with a changing mix of parcel size, means that it is unlikely we will achieve this in the short term.
Other developed European markets (including Austria, Belgium, Denmark, Ireland, Netherlands, Portugal and Spain)
Revenue growth was achieved in the majority of other developed European markets. We saw continued strong volume and revenue growth in Denmark due to increased e-commerce and parcel shop activity.
The integration of ASM into GLS Spain is continuing to progress well, with a number of operational activities being streamlined. We currently utilise 25 of our own hubs and depots in Spain, as well as a network of 355 agencies. We are exceeding performance expectations since acquisition due to strong volume growth and higher savings arising from operational synergies.
Other developing/emerging European markets (including Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia)
We saw revenue growth in all developing/emerging European markets, with double-digit growth in Croatia, Czech Republic, Hungary, Poland, Romania and Slovenia. This was largely driven by the growing parcel markets in these countries.
USA
We announced the acquisition of Postal Express, a regional overnight parcel carrier operating in the states of Washington, Oregon and Idaho, on 6 April 2017. Postal Express offers overnight parcel delivery mainly to B2B customers across a number of industries.
We are pleased with the revenue development in GSO, in particular the growth in interstate traffic, although we are currently facing certain local cost pressures. In Postal Express, we are improving the quality of the business through yield management and cost rationalisation.
GSO and Postal Express are being integrated to create an overnight parcel delivery service with full US West Coast coverage. We are continuing to integrate the two businesses to realise operational synergies and commercial benefits.
GROUP RESULTS
Reported results
Group revenue increased to GBP4,829 million (H1 2016-17: GBP4,583 million). Operating costs before transformation costs increased to GBP4,740 million (H1 2016-17: GBP4,377 million). Group operating profit before transformation costs decreased to GBP89 million (H1 2016-17: GBP206 million). Operating profit after transformation costs reduced to GBP26 million (H1 2016-17: GBP148 million).
The Group reported an operating loss of GBP3 million (H1 2016-17: GBP58 million profit) mainly due to an increase in the ongoing UK defined benefit pension service costs of GBP114 million. Profit before tax decreased to GBP77 million (H1 2016-17: GBP110 million), of which UKPIL accounted for a loss before tax of GBP4 million (H1 2016-17: profit before tax of GBP38 million) and GLS accounted for a profit of GBP81 million (H1 2016-17: GBP72 million).
Profit after tax increased to GBP168 million (H1 2016-17: GBP87 million) due to the tax credit of GBP91 million (H1 2016-17: GBP23 million charge) arising from the one-off deferred tax credit related to the decision to close the RMPP to future accrual. As a result, basic earnings per share increased from 8.6 pence to 17.1 pence.
A full reconciliation of reported to adjusted results is set out in the section entitled 'Presentation of results and Alternative Performance Measures'.
Adjusted results
Group revenue
26 weeks ended 26 weeks ended
24 September 25 September Underlying
(GBPm) 2017 2016 change
======= ============== ============== ==========
UKPIL 3,624 3,641 Flat
GLS 1,205 942 9%
Total 4,829 4,583 2%
------- -------------- -------------- ----------
Parcel revenue accounted for 58 per cent of Group revenue (H1 2016-17: 54 per cent). The main factors impacting revenue in the period are described in the sections entitled 'UK Parcels, International & Letters (UKPIL)' and 'General Logistics Systems (GLS)'.
Group operating costs
26 weeks ended 26 weeks ended
24 September 25 September Underlying
(GBPm) 2017 2016 change
============================== ============== ============== ==========
People costs (2,655) (2,560) 1%
Non-people costs (1,851) (1,703) 3%
============================== ============== ============== ==========
Distribution and conveyance
costs (1,086) (945) 6%
Infrastructure costs (436) (417) 2%
Other operating costs (329) (341) (5%)
============================== ============== ============== ==========
Total (4,506) (4,263) 2%
------------------------------ -------------- -------------- ----------
Group operating costs increased by two per cent mainly due to increases at GLS. The main factors impacting operating costs in the period are described in the sections entitled 'UK Parcels, International & Letters (UKPIL)' and 'General Logistics Systems (GLS)'.
Group operating profit before transformation costs
26 weeks 26 weeks
ended ended
24 September 25 September Underlying
(GBPm) 2017 2016 change
======= ============= ============= ==========
UKPIL 233 247 7%
GLS 90 73 8%
------------- -------------
Total 323 320 7%
Margin 6.7% 7.0% 30bps
------- ------------- ------------- ----------
Group operating profit after transformation costs
26 weeks ended 26 weeks ended
24 September 25 September Underlying
(GBPm) 2017 2016 change
======= ============== ============== ==========
UKPIL 170 189 6%
GLS 90 73 7%
-------------- --------------
Total 260 262 7%
Margin 5.4% 5.7% 30bps
------- -------------- -------------- ----------
Group operating profit margin after transformation costs was 5.4 per cent, up 30 basis points compared with the prior period, driven by the level of profitability in UKPIL.
Specific items and pension charge to cash difference adjustment
26 weeks 26 weeks
ended ended
24 September 25 September
(GBPm) 2017 2016
==================================== ============= =============
Pension charge to cash difference
adjustment (within People costs) (234) (114)
Operating specific items
Employee Free Shares charge (18) (79)
Amortisation of acquired intangible
assets (8) -
Legacy/other costs (3) (11)
===================================== ============= =============
Potential industrial diseases
claim credit/(costs) 1 (9)
Other (4) (2)
===================================== ============= =============
Total operating specific items
and pensions adjustment (263) (204)
===================================== ============= =============
Non-operating specific items
Profit on disposal of property,
plant and equipment 44 4
Loss on disposal of business - (2)
Net pension interest 46 60
Total non-operating specific
items 90 62
===================================== ============= =============
Total specific items and pensions
adjustment before tax (173) (142)
===================================== ============= =============
Total tax credit on specific
items and pensions adjustment 143 36
------------------------------------- ------------- -------------
The pension charge to cash difference adjustment was GBP234 million (H1 2016-17: GBP114 million). The difference between the pension charge and cash cost largely comprises the difference between the relevant International Accounting Standard (IAS 19) income statement pension charge rate of 41.1 per cent (H1 2016-17: 28.8 per cent) and the actual cash payments agreed with the RMPP Trustee of 17.1 per cent of pensionable pay (H1 2016-17: 17.1 per cent). The pension charge to cash difference adjustment is expected to be around GBP450 million for the full year.
The net pension interest credit of GBP46 million (H1 2016-17: GBP60 million) is lower than the prior period due to the decrease in the discount rate for 2017-18 compared with the rate for 2016-17. The pension interest credit for the full year is expected to be GBP91 million.
Non-operating specific items comprise the profit on disposal of property, plant and equipment of GBP44 million (H1 2016-17: GBP4 million). This arose largely from the GBP24 million overage payment in relation to the sale of Rathbone Place in 2011 and the GBP22 million from the completion of the sale of the Phoenix Place plot at Mount Pleasant net of smaller losses on disposals of other assets. The loss on disposal of business in the prior period relates to the sale of NDC 2000 Limited (NDC) and reflects the transfer of cash and other assets to the purchasers.
Operating specific items in the period relate mainly to the Employee Free Shares charge of GBP18 million (H1 2016-17: GBP79 million). This decreased as a result of the Share Incentive Plan (SIP) 2013 maturing in October 2016, partially offset by a new charge in relation to the Free Shares awarded in October 2016 (SIP 2016). The Employee Free Shares charge is expected to be around GBP40 million for the full year.
Amortisation of acquired intangible assets of GBP8 million mainly relates to the ASM and GSO acquisitions in GLS.
Legacy costs in the prior period were driven by the reduction in the discount rate used to calculate the industrial diseases provision. Other specific items relate to the integration of Romec into the Group.
Net finance costs
Reported net finance costs were GBP10 million (H1 2016-17: GBP10 million). Interest on the EUR500 million bond was GBP6 million (H1 2016-17: GBP5.5 million).
Facility Drawn Facility
Facility Rate (GBPm) (GBPm) end date
========================== =========== ======== ======= =========
EUR500 million bond 2.5% 439 439 2024
Loans in GLS (Spain) 2.0% 1 1 2018
Revolving credit facility LIBOR+0.55% 1,050 - 2020-22
======== =======
Total 1,490 440
-------------------------- ----------- -------- ------- ---------
The blended interest rate on gross debt, including finance leases for 2017-18, is expected to be approximately three per cent. The retranslation impact of the EUR500 million bond is accounted for within equity.
Taxation
26 weeks ended 26 weeks ended
24 September 25 September
2017 2016
================== ==================
(GBPm) UK GLS Group UK GLS Group
========================= ===== ==== ===== ===== ==== =====
Reported
(Loss)/profit before tax (4) 81 77 38 72 110
Tax credit/(charge) 113 (22) 91 (2) (21) (23)
Effective tax rate n/a 27% n/a 5% 29% 21%
========================= ===== ==== ===== ===== ==== =======
Adjusted
Profit before tax 162 88 250 180 72 252
Tax charge (28) (24) (52) (38) (21) (59)
Effective tax rate 17% 27% 21% 21% 29% 23%
------------------------- ----- ---- ----- ----- ---- -------
The Group effective tax rate on adjusted profit before tax was 21 per cent.
The UK adjusted effective tax rate of 17 per cent (H1 2016-17: 21 per cent) was lower than the prior period due largely to the availability of tax reliefs and the reduction in the UK statutory rate from 20 per cent to 19 per cent. The effective tax rate is expected to be broadly in line with the UK statutory rate for the full year.
The GLS adjusted effective tax rate of 27 per cent (H1 2016-17: 29 per cent) reduced due to the change in profit mix to lower tax territories together with a reduction in the Italian rate.
The Group reported tax was a credit of GBP91 million on a reported profit of GBP77 million. This gives an unusual effective tax rate on reported profits and arises mainly due to the one-off deferred tax credit of GBP106 million related to the decision to close the RMPP to future accrual after 31 March 2018.
This deferred tax adjustment arises from a change to the previous assumption that the surplus would be recoverable from a reduction in contributions at some point in the future which would have been taxed at the corporate tax rate. It is now assumed that the majority of the surplus will be available through a refund, net of withholding tax. This withholding tax arises from application of the International Financial Reporting Interpretations Committee guidance (IFRIC 14), is a charge on the pension scheme and is recognised in the statement of comprehensive income.
Excluding this one-off deferred tax credit, the total tax in the income statement would change from a credit of GBP91 million to a charge of GBP15 million. The Group effective tax rate would then be 19 per cent.
Earnings per share (EPS)
Adjusted basic EPS from continuing operations was 20.1 pence (H1 2016-17: 19.2 pence), reflecting the slightly lower tax charge in the period.
In-year trading cash flow
Adjusted Adjusted
26 weeks ended 26 weeks
24 September ended
2017 25 September
(GBPm) 2016
====================================== =============== =============
Reported EBITDA before transformation
costs 255 352
Pension charge to cash difference
adjustment 234 114
=============== =============
Adjusted EBITDA before transformation
costs 489 466
Trading working capital movements (130) (127)
Share-based awards (SAYE, LTIP
and DSBP) charge adjustment 1 6
Total investment (198) (201)
Income tax paid (24) (16)
Net finance costs paid (13) (12)
====================================== =============== =============
Total 125 116
-------------------------------------- --------------- -------------
In-year trading cash flow of GBP125 million was GBP9 million higher than the prior period, mainly due to higher adjusted EBITDA before transformation costs. Income tax paid was GBP24 million, GBP8 million higher than the prior year due to GLS tax payments.
Trading working capital includes an assumption of the cost of the 2017-18 pay award which, when the pay award has been agreed and associated payments made, will result in a working capital outflow. Trading working capital in the first half also includes a working capital outflow related to the terminal dues associated with the growth in export volumes seen in the second half of 2016-17.
Net cash investment
Reported Reported
26 weeks ended 26 weeks
24 September ended
2017 25 September
(GBPm) 2016
======================================== =============== =============
Growth capital expenditure (86) (80)
Replacement capital expenditure (53) (61)
Transformation operating expenditure (59) (60)
---------------------------------------- --------------- -------------
Voluntary redundancy (27) (28)
Project costs (32) (32)
---------------------------------------- --------------- -------------
Total investment (198) (201)
Proceeds from disposal of property
(excluding London property portfolio),
plant and equipment 29 7
======================================== =============== =============
Net cash investment (169) (194)
---------------------------------------- --------------- -------------
Total net cash investment decreased by GBP25 million. Growth capital expenditure increased by GBP6 million as a result of continued investment in strategic projects in UKPIL and GLS such as operations modernisation, parcel IT systems and parcel innovation projects. Replacement capital expenditure reduced by GBP8 million driven by completion of the IT transformation programme and lower property spend offset by timing of general replacement capital expenditure and investment in vehicles.
The proceeds from disposal of property (excluding London property portfolio), plant and equipment relate mainly to the GBP24 million overage payment in respect of Rathbone Place.
We are targeting net cash investment of around GBP450 million in 2017-18 and less than GBP500 million per annum going forward.
Net debt
Net debt was GBP382 million at 24 September 2017, GBP70 million lower than at 25 September 2016 and GBP44 million higher than at 26 March 2017.
A reconciliation of net debt is set out below.
Reported
Reported 26 weeks
26 weeks ended ended
24 September 25 September
(GBPm) 2017 2016
------------------------------------------ --------------- -------------
Net debt brought forward at 26
March 2017 and 27 March 2016 (338) (224)
Free cash flow 115 (18)
In-year trading cash flow 125 116
Other working capital movements (19) (16)
Cash cost of operating specific
items (8) (47)
Proceeds from disposal of property
(excluding London property portfolio),
plant and equipment 29 7
Cash impact of disposal of discontinued
operations and subsidiary - (3)
Acquisition of business interests (8) (58)
Cash flows relating to London
property portfolio (4) (17)
------------------------------------------- --------------- ------------- Acquisition of non-controlling interests - (13) Debt transferred on acquisitions - (7) Purchase of own shares - (6) Foreign currency exchange impact (5) (27) Dividends paid to equity holders of the parent Company (154) (149) Dividends paid to non-controlling interests - (8) =========================================== =============== ============= Net debt carried forward (382) (452) ------------------------------------------- --------------- -------------
Other working capital movements outflow of GBP19 million consisted of stamps used but purchased in previous periods, GLS client cash and other deferred revenue.
Cash cost of operating specific items was an outflow of GBP8 million due to employer National Insurance contributions on the SIP 2013 and 2014 employee share sales, industrial disease settlements and Romec business integration costs. The cash costs of operating specific items in the prior year largely comprised the French Competition Authority fine of EUR55 million paid in April 2016.
Proceeds from property disposals (excluding London property portfolio) of GBP29 million is explained in the paragraph entitled 'Net cash investment'.
Acquisition spend in the period largely related to the acquisition of Postal Express by GLS. The acquisition of business interests in the prior year related to the acquisitions of ASM by GLS and eCourier by UKPIL. The acquisition of non-controlling interests is in respect of the Romec business.
Cash outflow relating to the London property portfolio was GBP4 million. Infrastructure and enabling works costs of GBP14 million on the Nine Elms and Mount Pleasant sites were offset by the GBP9.5 million deposit received in relation to the exchange of contracts for the two Mount Pleasant plots.
The impact of foreign currency exchange rate movements has reduced compared with the prior period. The exchange rates against Sterling in the prior period were affected by the reaction to the outcome of the EU referendum and have subsequently remained relatively consistent.
Pensions
Royal Mail Pension Plan (RMPP or the 'Plan')
Following Trustee approval, the Company announced that the Plan, in its current form, will close to future accrual after 31 March 2018. The legal right to benefit from any surplus in the Plan has not changed as a result of this decision. However, after 31 March 2018, any surplus will no longer be assumed to be recoverable as a reduction to future employer contributions and will only be assumed to be available as a refund at some point in the future. At 24 September 2017 therefore, only six months of economic benefit is recoverable as a reduction to future employer contributions, with the remaining surplus assumed to be available as a refund. This has resulted in a change to the tax treatment of the economic benefit of the surplus. As a result of this change, following guidance from IFRIC 14, the accounting surplus has been adjusted downwards by GBP1,111 million (2016-17: GBPnil) which represents the taxation that would be withheld on the surplus amount.
At 24 September 2017 the pre IFRIC 14 accounting surplus of the RMPP was GBP3,398 million, comprising assets of GBP9,380 million and liabilities of GBP5,982 million. The reduction in the pre IFRIC 14 accounting surplus of GBP410 million, compared with the position at 26 March 2017 is mainly the result of the additional benefits accrued over the period being greater than the reduction in liabilities that occurred as a result of the increase in the discount rate. After the IFRIC 14 adjustment, the accounting surplus of the RMPP was GBP2,287 million at 24 September 2017.
Based on the rolled forward assumptions used for the March 2015 valuation, the RMPP actuarial surplus at 30 September 2017 was estimated to be GBP770 million (31 March 2017: GBP1,074 million), comprising assets of GBP9,303 million and liabilities of GBP8,533 million. It is on this basis that the Pension Trustee and the Company assess the ongoing funding needs of the scheme. In May 2017 it was agreed between the Company and the Trustee that the Company would continue to contribute 17.1 per cent of pensionable pay until 31 March 2018.
The actuarial funding position at 31 March 2018 will not be known until the actuarial valuation has been completed, with the results being very sensitive to the assumptions adopted at that date. However, based on the rolled forward assumptions used for the March 2015 valuation, the projection is for there to be a small surplus at 31 March 2018. As a result, it has been agreed with the Trustee that the remaining contractual employer contributions payable up to 31 March 2018 will be held in pension escrow investments for the benefit of members.
Royal Mail Senior Executives Pension Plan (RMSEPP)
Based on the rolled forward assumptions used for the March 2015 valuation, the RMSEPP actuarial surplus at 30 September 2017 was estimated to be GBP28 million, comprising assets of GBP469 million and liabilities of GBP441 million.
The RMSEPP closed in December 2012 to future accrual and the Company makes no regular future service contributions.
Dividends
The final dividend of 15.6 pence per share in respect of the 2016-17 financial year was paid on 28 July 2017, following shareholder approval.
As previously stated, given the seasonality of the Group's business, the Board would expect to pay an interim dividend each year equal to approximately one-third of the prior year's total dividend and to set the final dividend for each year in light of the full year performance of the Group.
The Board has declared an interim dividend of 7.7 pence per ordinary share, payable on 10 January 2018 to shareholders on the register at the close of business on 8 December 2017.
Property
Mount Pleasant
Contracts were exchanged on 30 August 2017 for the sale of 6.25 acres of Royal Mail's Mount Pleasant site (comprising the Phoenix Place and Calthorpe Street plots) to Taylor Wimpey UK Ltd (part of the Taylor Wimpey plc group of companies) for a total gross consideration of GBP193.5 million. The consideration is made up of GBP190 million in cash and the fair value of parking facilities provided for Royal Mail of GBP3.5 million. The sale of the Phoenix Place plot to Taylor Wimpey UK Ltd was subsequently completed in the first half.
As previously disclosed, significant further investment by Royal Mail is required for the works to separate the retained operational site from the development plots. These works are expected to cost around GBP100 million and are planned to be completed by 2021.
A deposit of GBP9.5 million was paid to Royal Mail following the exchange of contracts. The remaining cash proceeds of GBP180.5 million will be paid as follows. There are contractually agreed staged payments over the 2017-18 to 2020-21 financial years which, in aggregate, are expected to cover Royal Mail's outgoings on the separation and enabling works over this period. Lump sum payments are then due in 2024 for the balance of the consideration.
A profit on disposal of the Phoenix Place plot of GBP22 million, based on an apportionment of the total consideration less the book value of the plot (including an apportionment of the total cost of the separation and enabling works), was recognised in the period, following completion of the sale.
Nine Elms
It was announced on 2 June 2017 that Royal Mail had exchanged contracts for the sale of two of the seven plots at its Nine Elms site to Greystar Real Estate Partners, LLC for GBP101 million. A deposit of GBP3 million has been paid into escrow following exchange of contracts. The remaining GBP98 million payable is conditional on Greystar Real Estate Partners, LLC receiving planning consent from the London Borough of Wandsworth Local Authority.
Discussions with the London Borough of Wandsworth Local Authority have progressed well and a detailed planning application is anticipated to be submitted in the second half of the year. Subject to the planning process and timescales, consent is expected to be granted in 2018-19. As a result, the GBP98 million is not expected to be received in 2017-18. Around GBP30 million has been committed to be re-invested in the Nine Elms site for infrastructure works.
Rathbone Place
Overage agreements were made with Great Portland Estates plc on the sale of Rathbone Place in 2011. The resulting overage payment received under these agreements was GBP24 million, which has been recorded as a profit on disposal of property in the period.
PRESENTATION OF RESULTS AND ALTERNATIVE PERFORMANCE MEASURES
The Group uses certain Alternative Performance Measures (APMs) in its financial reporting that are not defined under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group produces its statutory financial information. These APMs are not a substitute, or superior to, any IFRS measures of performance. They are used as Management considers them to be an important means of comparing performance year-on-year and are key measures used within the business for assessing performance.
The Group makes adjustments to results reported under IFRS to exclude specific items and the IAS 19 pension charge to cash difference adjustment (see definitions below). Management believes this is a more meaningful basis upon which to analyse the business performance (in particular given the volatile nature of the IAS 19 charge) and is consistent with the way financial performance is reported to the Board.
IFRS can have the impact of causing high levels of volatility in reported earnings which do not relate to changes in the operations of the Company. Management has reviewed the long-term differences between reported and adjusted profit after tax. Cumulative reported profit after taxation for the five years ended March 2017 was GBP2,632 million. Cumulative adjusted profit after tax was GBP1,820 million. Annual reported profit after tax showed a range of GBP222 million to GBP1,280 million. The principal cause of the difference and volatility is due to pension-related accounting.
APMs should not be considered in isolation from, or as a substitute to, financial information presented in compliance with GAAP. Where appropriate, reconciliations to the nearest GAAP measure have been provided. The APMs used may not be directly comparable with similarly titled APMs used by other companies.
Presentation of results
Consolidated reported and adjusted results
The following table reconciles the consolidated reported results, prepared in accordance with IFRS, to the consolidated adjusted results.
26 weeks ended 26 weeks ended
24 September 2017 25 September 2016
================================ ================================
Specific Specific
items items
and pension and pension
(GBPm) Reported adjustment Adjusted Reported adjustment Adjusted
=========================== ======== ============ ======== ======== ============ ========
Revenue 4,829 - 4,829 4,583 - 4,583
Operating costs (4,740) (234) (4,506) (4,377) (114) (4,263)
People costs (2,889) (234) (2,655) (2,674) (114) (2,560)
Non-people costs (1,851) - (1,851) (1,703) - (1,703)
=========================== ======== ============ ======== ======== ============ ========
Distribution and
conveyance costs (1,086) - (1,086) (945) - (945)
Infrastructure costs (436) - (436) (417) - (417)
Other operating costs (329) - (329) (341) - (341)
=========================== ======== ============ ======== ======== ============ ========
Operating profit
before transformation
costs 89 (234) 323 206 (114) 320
Transformation costs (63) - (63) (58) - (58)
=========================== ======== ============ ======== ======== ============ ========
Operating profit
after transformation
costs 26 (234) 260 148 (114) 262
Operating specific
items:
Employee Free Shares
charge (18) (18) - (79) (79) -
Legacy/other costs (3) (3) - (11) (11) -
Amortisation of intangible
assets in acquisitions (8) (8) - - - -
=========================== ======== ============ ======== ======== ============ ========
Operating (loss)/profit (3) (263) 260 58 (204) 262
Non-operating specific
items:
Profit on disposal
of property, plant
and equipment 44 44 - 4 4 -
Loss on disposal
of business - - - (2) (2) -
=========================== ======== ============ ======== ======== ============ ========
Earnings before interest
and tax 41 (219) 260 60 (202) 262
Finance costs (11) - (11) (11) - (11)
Finance income 1 - 1 1 - 1
Net pension interest
(non-operating specific
item) 46 46 - 60 60 -
=========================== ======== ============ ======== ======== ============ ========
Profit before tax 77 (173) 250 110 (142) 252
Tax credit/(charge) 91 143 (52) (23) 36 (59)
=========================== ======== ============ ======== ======== ============ ========
Profit for the period 168 (30) 198 87 (106) 193
=========================== ======== ============ ======== ======== ============ ========
Profit for the period
attributable to:
Equity holders of
the parent Company 169 (30) 199 86 (106) 192
Non-controlling interests (1) - (1) 1 - 1
=========================== ======== ============ ======== ======== ============ ========
Earnings per share
Basic 17.1p (3.0p) 20.1p 8.6p (10.6p) 19.2p
Diluted 17.0p (3.0p) 20.0p 8.6p (10.5p) 19.1p
--------------------------- -------- ------------ -------- -------- ------------ --------
Segmental reported results
The following table presents the segmental reported results, prepared in accordance with IFRS.
26 weeks ended 26 weeks ended
24 September 25 September
2017 2016
-------------------------- --------------------------------------------
UKPIL GLS UKPIL GLS
(UK (Non-UK (UK (Non-UK
(GBPm) operations) operations) Group operations) operations) Group
------------------------------------ ------------ ------------ ------- ------------ ------------ -------
Revenue 3,624 1,205 4,829 3,641 942 4,583
People costs (2,596) (293) (2,889) (2,465) (209) (2,674)
Non-people costs (1,029) (822) (1,851) (1,043) (660) (1,703)
------------ ------------ ------- ------------ ------------ -------
Operating (loss)/profit
before transformation costs (1) 90 89 133 73 206
Transformation costs (63) - (63) (58) - (58)
------------------------------------ ------------ ------------ ------- ------------ ------------ -------
Operating (loss)/profit
after transformation costs (64) 90 26 75 73 148
Operating specific items (22) (7) (29) (90) - (90)
Operating (loss)/profit (86) 83 (3) (15) 73 58
Non-operating specific items 44 - 44 2 - 2
Earnings before interest
and tax (42) 83 41 (13) 73 60
Net finance costs (8) (2) (10) (9) (1) (10)
Net pension interest (non-operating
specific item) 46 - 46 60 - 60
------------------------------------ ------------ ------------ ------- ------------ ------------ -------
(Loss)/profit before tax (4) 81 77 38 72 110
------------------------------------ ------------ ------------ ------- ------------ ------------ -------
Tax credit/(charge) 113 (22) 91 (2) (21) (23)
------------------------------------ ------------ ------------ ------- ------------ ------------ -------
Profit for the period 109 59 168 36 51 87
------------------------------------ ------------ ------------ ------- ------------ ------------ -------
Alternative Performance Measures
Reported operating profit before and after transformation costs
These measures are in accordance with IFRS and are a means by which Management can understand the financial performance of the Group, taking into account business as usual (BAU) costs e.g. people, distribution and conveyance, infrastructure and other operating costs. They are presented before and after transformation costs, to provide Management with a view of the ongoing impact of the costs of transforming the business.
Reported operating profit
This measure is in accordance with IFRS. It is a means by which Management can understand the financial performance of the Group, taking into account BAU operating costs e.g. people, distribution and conveyance, infrastructure costs, transformation costs and costs relating to operating specific items.
Adjusted operating profit before and after transformation costs
These measures are based on reported operating profit before and after transformation costs (see above) further adjusted to exclude the volatility of the pension charge to cash difference adjustment, which Management considers to be a key adjustment in understanding the underlying profit of the Group at this level.
Adjusted operating profit
This measure is based on reported operating profit (see above) excluding the pension charge to cash difference adjustment and operating specific items, which Management considers to be key adjustments in understanding the underlying profit of the Group at this level.
These adjusted measures are reconciled to the reported results in the above table. Definitions of operating costs, the pension charge to cash difference adjustment, transformation costs and operating specific items are provided below.
Adjusted operating profit margin after transformation costs
This is a fundamental measure of performance that Management uses to understand the efficiency of the business in generating profit. It calculates 'adjusted operating profit after transformation costs' as a proportion of revenue in percentage terms.
Earnings before interest, tax, depreciation and amortisation (EBITDA) before transformation costs
Reported EBITDA before transformation costs is reported operating profit before transformation costs with depreciation and amortisation and share of associate company profits added back.
Adjusted EBITDA before transformation costs is reported EBITDA before transformation costs with the pension charge to cash difference adjustment added back.
EBITDA is considered to be a useful measure of operating performance because it approximates the underlying operating cash flow by eliminating depreciation, amortisation and the performance of associate companies.
The following table reconciles adjusted EBITDA before transformation costs to reported operating profit before transformation costs.
26 weeks ended 26 weeks ended
24 September 25 September
(GBPm) 2017 2016
========================================= ============== ==============
Reported operating profit before
transformation costs 89 206
Depreciation and amortisation 166 145
Share of post-tax profit from associates - 1
========================================= ============== ==============
Reported EBITDA before transformation
costs 255 352
Pension charge to cash difference
adjustment 234 114
Adjusted EBITDA before transformation
costs 489 466
========================================= ============== ==============
Adjusted earnings per share
Adjusted earnings per share is reported basic earnings per share, excluding operating and non-operating specific items and the pension charge to cash difference adjustment. A reconciliation of this number to reported basic earnings per share is included in the adjusted results table in the section entitled 'Presentation of results'.
People costs
These are costs incurred in respect of the Group's employees and comprise wages and salaries, pensions and social security costs.
Distribution and conveyance costs
These costs relate to non-people costs incurred in transporting and delivering mail by rail, road, sea and air, together with costs incurred by international mail carriers and Parcelforce Worldwide delivery operators and GLS.
Infrastructure costs
These are costs primarily relating to the day-to-day operation of the delivery network and include depreciation and amortisation, IT and property facilities management costs.
Other operating costs
These are any operating costs which do not fall into the categories of people costs, distribution and conveyance costs or infrastructure costs including for example, Post Office Limited agency costs, consumables and training.
Transformation costs
These costs relate to the ongoing transformation of the business, and include voluntary redundancy, project costs and other transformation-related payments.
Pension charge to cash difference adjustment
This adjustment represents the difference between the IFRS income statement pension charge rate of 41.1 per cent and the actual cash payments into the RMPP at 17.1 per cent. Management believes this adjustment is appropriate in order to eliminate the volatility of the IAS 19 accounting charge and to include only the true cash cost of the pension plans in the adjusted operating profit of the Group.
Operating specific items
These 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. Management does not consider them to be reflective of year-on-year operating performance. These include items that have resulted from events that are non-recurring in nature, even though related income/expense can be recognised in subsequent periods.
Employee Free Shares charge
These relate to accounting charges arising from the granting of free shares to employees upon the Government's sales of its stake in the business (SIP 2013, 2014, 2015 and 2016) with no direct cash impact on the Group.
Amortisation of intangible assets in acquisitions
These notional charges, which arise as a direct consequence of IFRS business combination accounting requirements, are separately identified as Management does not consider these costs to be directly related to the trading performance of the Group.
Legacy/other costs
These costs relate either to unavoidable ongoing costs arising from historic events (industrial diseases provision) or restructuring costs (Romec integration).
Non-operating specific items
These are recurring or non-recurring items of income or 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.
Profit/loss on disposal of property, plant and equipment (PP&E)
Management separately identifies recurring profit/loss on disposal of PP&E as these disposals are not part of the Group's trading activity and are driven primarily by business strategy.
Profit/loss on disposal of business
These non-recurring events are excluded on the basis that by their nature they are individually unique and therefore distort comparison of year-on-year business performance.
Free cash flow
Free cash flow (FCF) is calculated as statutory (reported) net cash flow before financing activities, adjusted to include finance costs paid and exclude net cash from the purchase/sale of financial asset investments. FCF represents the cash that the Group generates after spending the money required to maintain or expand its asset base.
In-year trading cash flow
In-year trading cash flow reflects the cash generated from the trading activities of the Group. It is based on reported net cash inflow from operating activities, adjusted to exclude other working capital movements and the cash cost of operating specific items and to include the cash cost of property, plant and equipment and intangible asset acquisitions and net finance payments. Other working capital movements include movements in GLS client cash held and in deferred revenue from stamps purchased in prior periods. In-year trading cash flow is used primarily by Management to show cash being generated by operations less cash investment.
The following table reconciles in-year trading cash flow to the nearest IFRS measure 'net cash inflow from operating activities'.
Reported Reported
26 weeks 26 weeks
ended ended
24 September 25 September
(GBPm) 2017 2016
========================================= ============= =============
Net cash inflow from operating
activities 250 206
Adjustment for:
Other working capital movements 19 16
Cash cost of operating specific
items 8 47
Purchase of property, plant and
equipment (69) (62)
Purchase of intangible assets (software) (70) (79)
Net finance costs paid (13) (12)
========================================= ============= =============
In-year trading cash inflow 125 116
----------------------------------------- ------------- -------------
Net cash investment
Net cash investment is a measure of the cash utilised by the Group in the period on investment activities netted off against cash received on the disposal of property, plant and equipment. It is a measure used by Management to monitor investment within the Group. The items making up this balance in the statutory cash flow are indicated in the section 'Condensed consolidated statement of cash flows'.
Net debt
Net debt is calculated by netting the value of financial liabilities (excluding derivatives) against cash and other liquid assets.
Net debt is a measure of the Group's net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess the combined impact of the Group's indebtedness and its cash position. The use of the term net debt does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure.
A reconciliation of net debt to reported balance sheet line items is shown below.
At 24 September At 25 September
(GBPm) 2017 2016
========================== ================ ===============
Loans/bonds (440) (538)
Finance leases (191) (182)
Cash and cash equivalents 229 248
Pension escrow (RMSEPP) 20 20
========================== ================ ===============
Net debt (382) (452)
-------------------------- ---------------- ---------------
Net debt excludes GBP23 million (2016-17: GBPnil) related to the RMPP pension scheme of the total GBP43 million (2016-17: GBP20 million) pension escrow investments on the balance sheet which is not considered to fall within the definition of net debt.
Adjusted effective tax rate
The adjusted effective tax rate is the adjusted tax charge or credit for the period expressed as a proportion of adjusted profit before tax. Adjusted effective tax rate is considered to be a useful measure of tax impact for the period. It approximates the tax rate on the underlying trading business through the exclusion of specific items and the pension charge to cash difference adjustment.
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 2017-18: 152.0 days; H1 2016-17: 152.8 days) and movements in foreign exchange (H1 2017-18: GBP/EUR 1.14; H1 2016-17: GBP/EUR 1.23). In addition, adjustments are made for non-recurring distorting items, which by their nature may be unpredictable, such as the results of acquisitions and changes in wage legislation such as the Apprenticeship Levy. For volumes, underlying movements are adjusted for working days in UKPIL, acquisitions and exclude political parties' election mailings in letters volumes. For 2017-18, the estimated full year revenue and profit impact of working days in UKPIL is a reduction of around GBP15 million (2017-18: 305.0 days; 2016-17: 305.6).
Adjusted
26 weeks Adjusted Underlying
ended 26 weeks 26 weeks
24 ended ended
September 25 September Working Wage Foreign 25 September Underlying
(GBPm) 2017 2016 days legislation exchange Acquisitions 2016 change
================= =========== ============ ======= ============ ========= ============ ============ ==========
Revenue
================= =========== ============ ======= ============ ========= ============ ============ ==========
UKPIL 3,624 3,641 (19) - 5 - 3,627 Flat
GLS 1,205 942) - - 73 89 1,104 9%
----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Group 4,829 4,583 (19) - 78 89 4,731 2%
Costs
================= =========== ============ ======= ============ ========= ============ ============ ==========
UKPIL
People (2,362) (2,351) - (10) - - (2,361) Flat
Non-people
costs (1,029) (1,043) - - (5) - (1,048) (2%)
----------------- ----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Distribution
and conveyance
costs (361) (370) - - (5) - (375) (4%)
Infrastructure
costs (365) (360) - - - - (360) 1%
Other operating
costs (303) (313) - - - - (313) (3%)
----------------- ----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Operating costs
before
transformation
costs (3,391) (3,394) - (10) (5) - (3,409) (1%)
GLS
Operating costs (1,115) (869) - - (66) (86) (1,021) 9%
Group
People (2,655) (2,560) - (10) (16) (42) (2,628) 1%
Non-people
costs (1,851) (1,703) - - (55) (44) (1,802) 3%
----------------- ----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Distribution
and conveyance
costs (1,086) (945) - - (49) (34) (1,028) 6%
Infrastructure
costs (436) (417) - - (4) (6) (427) 2%
Other operating
costs (329) (341) - - (2) (4) (347) (5%)
----------------- ----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Operating costs
before
transformation
costs (4,506) (4,263) - (10) (71) (86) (4,430) 2%
Profit, margin
and EPS
----------------- ----------- ------------ ------- ------------ --------- ------------ ------------ ----------
UKPIL
Operating profit
before
transformation
costs 233 247 (19) (10) - - 218 7%
Transformation
costs (63) (58) - - - - (58) 9%
----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Operating profit
after
transformation
costs 170 189 (19) (10) - - 160 6%
Margin 4.7% 5.2% 4.4% 30bps
GLS
Operating profit 90 73 - - 7 3 83 8%
Margin 7.5% 7.7% 7.6% (10bps)
Group
Operating profit
before
transformation
costs 323 320 (19) (10) 7 3 301 7%
Transformation
costs (63) (58) - - - - (58) 9%
----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Operating profit
after
transformation
costs 260 262 (19) (10) 7 3 243 7%
Margin 5.4% 5.7% 5.1% 30bps
Profit before
tax 250 252 (19) (10) 7 3 233 7%
----------- ------------ ------- ------------ --------- ------------ ------------ ----------
Tax (52) (59) (59)
Profit for
the period 198 193 193
Profit
attributable
to equity
holders
of the parent
Company 199 192 192
Basic earnings
per share
(pence) 20.1p 19.2p 19.2p
----------------- ----------- ------------ ------- ------------ --------- ------------ ------------ ----------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed consolidated income statement
Reported Reported
26 weeks 26 weeks
ended ended
24 September 25 September
2017 2016
Notes GBPm GBPm
Continuing operations
Revenue 2 4,829 4,583
Operating costs(1) (4,740) (4,377)
------------------------------------------------------ ----- ------------- -------------
People costs (2,889) (2,674)
Distribution and conveyance costs (1,086) (945)
Infrastructure costs (436) (417)
Other operating costs (329) (341)
------------------------------------------------------ ----- ------------- -------------
Operating profit before transformation costs 89 206
Transformation costs (63) (58)
------------------------------------------------------ ----- ------------- -------------
Operating profit after transformation costs 26 148
Operating specific items:
Employee Free Shares charge (18) (79)
Legacy/other costs (3) (11)
Amortisation of intangible assets in acquisitions (8) -
Operating (loss)/profit (3) 58
Profit on disposal of property, plant and equipment
(non-operating specific item) 44 4
Loss on disposal of business (non-operating specific
item) - (2)
Earnings before interest and tax 41 60
Finance costs (11) (11)
Finance income 1 1
Net pension interest (non-operating specific
item) 5 46 60
------------------------------------------------------ ----- ------------- -------------
Profit before tax 77 110
Tax credit/(charge) 3 91 (23)
Profit for the period 168 87
------------------------------------------------------ ----- ------------- -------------
Profit for the period attributable to:
Equity holders of the parent Company 169 86
Non-controlling interests (1) 1
------------------------------------------------------ ----- ------------- -------------
Earnings per share 4
Basic 17.1p 8.6p
Diluted 17.0p 8.6p
------------------------------------------------------ ----- ------------- -------------
(1) Operating costs are stated before transformation costs, Employee Free Shares charge, Legacy/other costs and amortisation of intangible assets in acquisitions.
Condensed consolidated statement of comprehensive income
Reported Reported
26 weeks 26 weeks
ended ended
24 September 25 September
2017 2016
Notes GBPm GBPm
------------------------------------------- ----- ------------- -------------
Profit for the period 168 87
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 (822) 727
------------------------------------------- ----- ------------- -------------
IFRIC 14 adjustment relating to
defined benefit surplus 5 (1,119) 120
Remeasurement (losses)/gains of
the defined benefit surplus 5 (178) 787
Deferred tax 3 475 (180)
------------------------------------------- ----- ------------- -------------
Items that may be subsequently
reclassified to profit or loss:
Foreign exchange translation differences (1) 17
------------------------------------------- ----- ------------- -------------
Exchange differences on translation
of foreign operations (GLS) 9 58
Net loss on hedge of a net investment
(EUR500 million bond) (9) (39)
Net loss on hedge of a net investment
(Euro-denominated finance lease
payables) (1) (3)
Tax on above items - 1
------------------------------------------- ----- ------------- -------------
Designated cash flow hedges (2) 23
------------------------------------------- ----- ------------- -------------
(Losses)/gains on cash flow hedges
deferred into equity (2) 17
Losses on cash flow hedges released
from equity to income - 11
Tax on above items - (5)
------------------------------------------- ----- ------------- -------------
Total other comprehensive (expense)/income
for the period (825) 767
------------------------------------------- ----- ------------- -------------
Total comprehensive (expense)/income
for the period (657) 854
------------------------------------------- ----- ------------- -------------
Total comprehensive (expense)/income
for the period attributable to:
Equity holders of the parent Company (656) 853
Non-controlling interests (1) 1
------------------------------------------- ----- ------------- -------------
Condensed consolidated balance sheet
Reported
Reported At 26
At 24 September March
2017 2017
Notes GBPm GBPm
------------------------------------------ ----- ---------------- --------
Non-current assets
Property, plant and equipment 2,006 2,062
Goodwill 321 316
Intangible assets 588 567
Investments in associates and joint
venture 7 7
Financial assets
Pension escrow investments 43 20
Derivatives 2 4
Retirement benefit surplus 5 2,331 3,839
Other receivables 15 13
Deferred tax assets 50 15
------------------------------------------ ----- ---------------- --------
5,363 6,843
Assets held for sale 44 37
------------------------------------------ ----- ---------------- --------
Current assets
Inventories 27 23
Trade and other receivables 1,182 1,117
Income tax receivable 4 7
Financial assets
Derivatives 9 8
Cash and cash equivalents 229 299
------------------------------------------ ----- ---------------- --------
1,451 1,454
------------------------------------------ ----- ---------------- --------
Total assets 6,858 8,334
------------------------------------------ ----- ---------------- --------
Current liabilities
Trade and other payables (1,726) (1,810)
Financial liabilities
Interest-bearing loans and borrowings - (33)
Obligations under finance leases (73) (64)
Derivatives (2) (9)
Income tax payable (16) (12)
Provisions (80) (88)
------------------------------------------ ----- ---------------- --------
(1,897) (2,016)
Non-current liabilities
Financial liabilities
Interest-bearing loans and borrowings (440) (430)
Obligations under finance leases (118) (130)
Derivatives (4) (2)
Provisions (107) (108)
Other payables (48) (47)
Deferred tax liabilities 3 (42) (603)
------------------------------------------ ----- ---------------- --------
(759) (1,320)
Total liabilities (2,656) (3,336)
------------------------------------------ ----- ---------------- --------
Net assets 4,202 4,998
------------------------------------------ ----- ---------------- --------
Equity
Share capital 10 10
Retained earnings 4,148 4,940
Other reserves 44 47
------------------------------------------ ----- ---------------- --------
Equity attributable to parent Company 4,202 4,997
Non-controlling interests - 1
------------------------------------------ ----- ---------------- --------
Total equity 4,202 4,998
------------------------------------------ ----- ---------------- --------
Condensed consolidated statement of changes in equity
Equity
Foreign holders
currency of Non-
Share Retained translation Hedging the controlling Total
capital earnings reserve reserve parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Reported at 27 March
2016 10 4,451 22 (25) 4,458 9 4,467
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Profit for the period - 86 - - 86 1 87
Other comprehensive
income for the period - 727 17 23 767 - 767
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Total comprehensive
income for the period - 813 17 23 853 1 854
Transactions with owners
of the Company, recognised
directly in equity
Dividend paid to equity
holders of the parent
Company - (149) - - (149) - (149)
Dividend paid to non-controlling
interests - - - - - (8) (8)
Acquisition of non-controlling
interests - (13) - - (13) - (13)
Recognition of put options
for non-controlling
interests - (14) - - (14) - (14)
Disposal of subsidiary - - - - - (1) (1)
Acquisition of subsidiary - - - - - 6 6
Share-based payments
Employee Free Shares
issue(1) - 76 - - 76 - 76
Save As You Earn (SAYE)
scheme - 1 - - 1 - 1
Long Term Incentive
Plan (LTIP)(2) - 5 - - 5 - 5
Purchase of own shares(3) - (10) - - (10) - (10)
Reported at 25 September
2016 10 5,160 39 (2) 5,207 7 5,214
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Profit for the period - 186 - - 186 - 186
Other comprehensive
(expense)/income for
the period - (322) 1 9 (312) - (312)
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Total comprehensive
(expense)/income for
the period - (136) 1 9 (126) - (126)
Transactions with owners
of the Company, recognised
directly in equity
Release of Post Office
Limited separation provision - 1 - - 1 - 1
Dividend paid to equity
holders of the parent
Company - (73) - - (73) - (73)
Acquisition of non-controlling
interests - (2) - - (2) (6) (8)
De-recognition of put
options for non-controlling
interests - 8 - - 8 - 8
Share-based payments
Employee Free Shares
issue(1) - 24 - - 24 - 24
Save As You Earn (SAYE)
scheme - 1 - - 1 - 1
Long Term Incentive
Plan (LTIP)(2) - 4 - - 4 - 4
Purchase of own shares(3) - (43) - - (43) - (43)
Settlement of LTIP 2013 - (4) - - (4) - (4)
Reported at 26 March
2017 10 4,940 40 7 4,997 1 4,998
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Profit for the period - 169 - - 169 (1) 168
Other comprehensive
expense for the period - (822) (1) (2) (825) - (825)
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Total comprehensive
expense for the period - (653) (1) (2) (656) (1) (657)
Transactions with owners
of the Company, recognised
directly in equity
Dividend paid to equity
holders of the parent
Company - (154) - - (154) - (154)
Share-based payments
Employee Free Shares
issue(1) - 17 - - 17 - 17
Save As You Earn (SAYE)
scheme - 1 - - 1 - 1
Long Term Incentive
Plan (LTIP)(2) - (2) - - (2) - (2)
Deferred Share Bonus
Plan (DSBP) - 2 - - 2 - 2
Settlement of LTIP 2014 - (3) - - (3) - (3)
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
Reported at 24 September
2017 10 4,148 39 5 4,202 - 4,202
----------------------------------- -------- --------- ------------ --------- -------- ------------ -------
(1) Excludes GBP1 million (at 25 September 2016: GBP3 million, at 26 March 2017: GBP5 million) National Insurance, charged to the income statement, included in provisions on the balance sheet.
(2) Excludes GBPnil (at 25 September 2016: GBP1 million, at 26 March 2017: GBP1 million) National Insurance, charged to the income statement, included in provisions on the balance sheet.
(3) Purchases in respect of employee share schemes.
Condensed consolidated statement of cash flows
Reported Reported
26 weeks 26 weeks
ended ended
24 September 25 September
2017 2016
Notes GBPm GBPm
-------------------------------------------- ----- ------------- -------------
Cash flow from operating activities
Profit before tax 77 110
Adjustment for:
Net pension interest (46) (60)
Net finance costs 10 10
Profit on disposal of property,
plant and equipment (44) (4)
Loss on disposal of business - 2
Legacy/other costs 11 11
Employee Free Shares charge 18 79
Transformation costs 63 58
-------------------------------------------- ----- ------------- -------------
Operating profit before transformation
costs 89 206
Adjustment for:
Depreciation and amortisation 166 145
Share of post-tax loss from associates
and joint venture - 1
-------------------------------------------- ----- ------------- -------------
EBITDA before transformation costs 255 352
Working capital movements (149) (143)
-------------------------------------------- ----- ------------- -------------
Increase in inventories (4) (3)
(Increase)/decrease in receivables(1) (25) 106
Decrease in payables(1) (103) (231)
Net (increase)/decrease in derivative
assets (6) 2
Decrease in provisions (non-specific
items) (11) (17)
-------------------------------------------- ----- ------------- -------------
Pension charge to cash difference
adjustment 234 114
Share-based awards (SAYE, LTIP and
DSBP) charge 1 6
Cash cost of transformation operating
expenditure(2) (59) (60)
Cash cost of operating specific
items (8) (47)
-------------------------------------------- ----- ------------- -------------
Cash inflow from operations 274 222
Income tax paid (27) (16)
Tax relating to research & development
activity 3 -
-------------------------------------------- ----- ------------- -------------
Net cash inflow from operating activities 250 206
-------------------------------------------- ----- ------------- -------------
Cash flow from investing activities
Finance income received 1 2
Proceeds from disposal of property
(excluding London property portfolio),
plant and equipment (non-operating
specific item) 29 7
London property portfolio net costs
(non-operating specific item) (4) (17)
Disposal of business (non-operating
specific item) - (3)
Purchase of property, plant and
equipment(2) (69) (62)
Acquisition of business interests,
net of cash acquired (7) (55)
Purchase of intangible assets (software)(2) (70) (79)
Payment of deferred consideration
in respect of prior years' acquisitions (1) (3)
Net cash outflow from investing
activities (121) (210)
-------------------------------------------- ----- ------------- -------------
Net cash inflow/(outflow) before
financing activities 129 (4)
-------------------------------------------- ----- ------------- -------------
Cash flow from financing activities
Finance costs paid (14) (14)
Acquisition of non-controlling interests - (13)
Purchase of own shares - (6)
Payment of capital element of obligations
under finance lease contracts (21) (46)
Cash received on sale and leasebacks 17 5
Drawdown of loan facility - 100
Repayment of loans and borrowings (31) -
Dividends paid to equity holders
of the parent Company 6 (154) (149)
Dividend paid to non-controlling
interests - (8)
-------------------------------------------- ----- ------------- -------------
Net cash outflow from financing
activities (203) (131)
-------------------------------------------- ----- ------------- -------------
Net decrease in cash and cash equivalents (74) (135)
Effect of foreign currency exchange
rates on cash and cash equivalents 4 15
Cash and cash equivalents at the
beginning of the period 299 368
-------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the
end of the period 229 248
-------------------------------------------- ----- ------------- -------------
(1) 2017 amounts include GBP138 million reclassification between international payables and receivables relating to settlements with overseas postal administrations. The equivalent 2016 amounts were GBP87 million. This reclassification is expected to reverse in the second half of the year.
(2) Items comprising total investment within in-year trading cash flow measure (see Financial Review).
Notes to the condensed consolidated financial statements
1. Basis of preparation
The comparative figures for the year ended 26 March 2017 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).
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. As required by the Disclosure Guidance 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 Group's published consolidated financial statements for the year ended 26 March 2017, except for any changes detailed below.
Presentation of results and accounting policies
The condensed consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and as issued by the International Accounting Standards Board (IASB) (i.e. on a 'reported' basis).
In some instances, Alternative Performance Measures (APMs) are used by the Group. This is because Management is of the view that these APMs provide a more meaningful basis on which to analyse business performance, and are consistent with the way that financial performance is measured by Management and reported to the Board. Details of the Group's APMs are explained in the Financial Review.
Accounting standards adopted in 2017-18
IFRS 9 'Financial Instruments' (early adoption)
IAS 7 (Amended) 'Disclosure Initiative'
IAS 12 (Amended) 'Recognition of Deferred Tax Assets for Unrealised Losses'
Annual Improvements 2014-2016
The adoption of these standards does not have a material impact on the financial performance or position of the Group.
The Directors do not expect that the adoption of any other new or amended standards issued during the reporting period that are not yet effective will have a material impact on the financial performance or position of the Group in future periods.
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 2016-17, with the exception of an additional judgement in relation to the cash proceeds allocation for the disposal of the Mount Pleasant development plots (see Financial Review). The proceeds have been allocated on a different basis to the schedule of cash receipts agreed with the purchaser, using guidance in IFRIC 15 'Agreements for the Construction of Real Estate' in order to reflect the commercial substance of the transaction.
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 financial statements for the 26 weeks ended 24 September 2017.
2. Segment information
The Group's operating segments are based on geographic business units whose primary services and products relate to the delivery of parcels and letters. These segments are evaluated regularly by the Chief Executive's Committee and the Royal Mail plc Board - the Chief Operating Decision Maker (CODM) as defined by IFRS 8 'Operating Segments' - in deciding how to allocate resources and assess performance.
The key measure of segment performance is operating profit before transformation costs (used internally for the Corporate Balanced Scorecard). This measure of performance is disclosed on an 'adjusted' basis i.e. excluding specific items and the pension charge to cash difference adjustment (see 'Alternative Performance Measures' paragraphs of the Financial Review), which is consistent with how financial performance is measured internally and reported to the CODM.
Segment revenues have been attributed to the respective countries based on the primary location of the service performed. Trading between UKPIL and GLS is not material.
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.
Specific
items
and
pension
26 weeks ended 24 September 2017 Adjusted adjustment(1) Reported
------------------------------------------ ----------------------------------- -------------- --------
UKPIL GLS
(UK (Non-UK
operations) operations) Group Group
Continuing operations GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------------ ------------ ------- -------------- --------
Revenue 3,624 1,205 4,829 - 4,829
People costs (2,362) (293) (2,655) (234) (2,889)
Non-people costs (1,029) (822) (1,851) - (1,851)
------------ ------------ ------- -------------- --------
Operating profit before transformation
costs 233 90 323 (234) 89
Transformation costs (63) - (63) - (63)
------------------------------------------ ------------ ------------ ------- -------------- --------
Operating profit after transformation
costs 170 90 260 (234) 26
Operating specific items
Employee Free Shares charge - - - (18) (18)
Legacy/other costs - - - (3) (3)
Amortisation of intangible assets in
acquisitions - - - (8) (8)
------------------------------------------ ------------ ------------ ------- -------------- --------
Operating profit/(loss) 170 90 260 (263) (3)
Non-operating specific items
Profit on disposal of property, plant
and equipment - - - 44 44
Earnings before interest and tax 170 90 260 (219) 41
Net finance costs (8) (2) (10) - (10)
Net pension interest (non-operating
specific item) - - - 46 46
------------------------------------------ ------------ ------------ ------- -------------- --------
Profit before tax 162 88 250 (173) 77
------------------------------------------ ------------ ------------ ------- -------------- --------
(1) A GBP68 million credit for specific items and a GBP234 million charge for the pension charge to cash difference adjustment relate to UKPIL. A GBP7 million charge for specific items relates to GLS.
Specific
items
and
26 weeks ended 25 September pension
2016 Adjusted adjustment(2) Reported
--------------------------------- ----------------------------------- -------------- ----------
UKPIL GLS
(UK (Non-UK
operations) operations) Group Group
Continuing operations GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------ ------------ ------- -------------- ----------
Revenue 3,641 942 4,583 - 4,583
People costs (2,351) (209) (2,560) (114) (2,674)
Non-people costs (1,043) (660) (1,703) - (1,703)
------------ ------------ ------- -------------- ----------
Operating profit before
transformation costs 247 73 320 (114) 206
Transformation costs (58) - (58) - (58)
--------------------------------- ------------ ------------ ------- -------------- ----------
Operating profit after
transformation
costs 189 73 262 (114) 148
Operating specific items
Employee Free Shares charge - - - (79) (79)
Legacy/other costs - - - (11) (11)
--------------------------------- ------------ ------------ ------- -------------- ----------
Operating profit 189 73 262 (204) 58
Non-operating specific items
Profit on disposal of
property,
plant and equipment - - - 4 4
Loss on disposal of business - - - (2) (2)
------------ ------------ ------- -------------- ----------
Earnings before interest
and tax 189 73 262 (202) 60
Net finance costs (9) (1) (10) - (10)
Net pension interest
(non-operating
specific item) - - - 60 60
--------------------------------- ------------ ------------ ------- -------------- ----------
Profit before tax 180 72 252 (142) 110
--------------------------------- ------------ ------------ ------- -------------- ----------
(2) All specific items and a GBP114m charge for the pension charge to cash difference adjustment relate to UKPIL.
3. Taxation
The Group reported tax was a credit of GBP91 million on a reported profit of GBP77 million. This gives an unusual effective tax rate on reported profits and arises mainly due to a one-off deferred tax credit of GBP106 million related to the decision to close the RMPP to future accrual after 31 March 2018. A further deferred tax credit of GBP475 million was recognised in the statement of comprehensive income in respect of this decision.
These deferred tax adjustments arise from a change to the previous assumption that the RMPP pension surplus would be recoverable as a reduction in contributions at some point in the future which would have been taxed at the corporate tax rate. It is now assumed that the majority of the surplus would be available through a refund, net of withholding tax. This withholding tax arises from application of the International Financial Reporting Interpretations Committee guidance (IFRIC 14), is a charge on the pension scheme and is reported in the statement of comprehensive income (see Note 5).
Excluding the one-off deferred tax credit, the total tax in the income statement would change from a credit of GBP91 million to a charge of GBP15 million. The Group effective tax rate, excluding this one-off deferred tax credit, would then be 19 per cent.
4. Earnings per share
26 weeks ended 26 weeks ended
24 September 2017 25 September
2016
-----------------------------
Specific Specific
Reported items(1) Adjusted Reported items(1) Adjusted
-------------------------- -------- --------- -------- -------- --------- --------
Attributable to equity
holders of the parent
Company
Profit from continuing
operations (GBP million) 169 (30) 199 86 (106) 192
Weighted average
number of shares
issued (million) 991 n/a 991 1,000 n/a 1,000
Basic earnings per
share (pence) 17.1 n/a 20.1 8.6 n/a 19.2
Diluted earnings
per share (pence) 17.0 n/a 20.0 8.6 n/a 19.1
-------------------------- -------- --------- -------- -------- --------- --------
(1) Further details of the specific items total can be found in the Financial Review.
The diluted earnings per share for the 26 weeks ended 24 September 2017 is based on a weighted average number of shares of 993,020,938 (H1 2016-17: 1,005,528,552) to take account of the issue of potential ordinary shares resulting from the Long Term Incentive Plan (LTIP) and Deferred Share Bonus Plan (DSBP) for certain senior management and the Save As You Earn (SAYE) scheme.
The 8,580,681 shares held in an Employee Benefit Trust for the settlement of options and awards to current and former employees are treated as treasury shares for accounting purposes. The Company, however, does not hold any shares in treasury.
5. Retirement benefit plans
Summary pension information
26 weeks 26 weeks
ended ended
24 September 25 September
2017 2016
GBPm GBPm
================================================== ============= =============
Ongoing UK pension service costs
UK defined benefit plan (including
administration costs)(1) (405) (291)
UK defined contribution plan (28) (24)
UK defined benefit and defined contribution
plans' Pension Salary Exchange (PSE)
employer contributions (77) (76)
================================================== ============= =============
Total UK ongoing pension service costs (510) (391)
GLS defined contribution type plan
costs (3) (3)
================================================== ============= =============
Total Group ongoing pension service
costs (513) (394)
================================================== ============= =============
Cash flows relating to ongoing pension
service costs
UK defined benefit plan employer contributions(2) (164) (172)
Defined contribution plans' employer
contributions (31) (27)
UK defined benefit and defined contribution
plans' PSE employer contributions (77) (76)
================================================== ============= =============
Total Group cash flows relating to
ongoing pension service costs (272) (275)
================================================== ============= =============
RMSEPP deficit correction payments (5) (5)
Pension related accruals (timing difference) (2) -
================================================== ============= =============
Pension charge to cash difference
adjustment (234) (114)
-------------------------------------------------- ------------- -------------
(1) These pension service costs are charged to the income statement. They represent the cost (as a percentage of pensionable payroll - 41.1 per cent (2016-17: 28.8 per cent)) of the increase in the defined benefit obligation due to members earning one more half year's 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 reporting year. Pensions administration costs for the Royal Mail Pension Plan (RMPP) of GBP3 million (H1 2016-17: GBP3 million) continue to be included within the Group's ongoing UK pension service costs.
(2) 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 in respect of the RMPP. This includes payments into pension escrow investments. 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.
2018 Pensions Review
Following the Company's decision to close the RMPP to future accrual after 31 March 2018, discussions are ongoing regarding a replacement scheme.
Accounting and actuarial surplus position (RMPP and RMSEPP)
The combined plans' assets and liabilities are shown below.
Accounting Actuarial/cash
(IAS 19) funding
==================================== ===================== =====================
At 24 At At 30 At
September 26 March September 31 March
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
==================================== ========== ========= ========== =========
Fair value of plans' assets(3) 9,796 9,847 9,772 10,066
Present value of plans' liabilities (6,330) (5,992) (8,974) (8,984)
==================================== ========== ========= ========== =========
Surplus in plans (pre IFRIC
14 adjustment) 3,466 3,855 798 1,082
IFRIC 14 adjustment (1,135) (16) n/a n/a
==================================== ========== ========= ========== =========
Surplus in plans 2,331 3,839 798 1,082
------------------------------------ ---------- --------- ---------- ---------
(3) 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.
The Directors do not believe that the current excess of plans' assets over the liabilities on an accounting basis will result in an excess of pension assets over liabilities on an actuarial/cash funding basis. However, the Directors are required to account for the plans based on their legal right to benefit from a surplus, using long-term actuarial assumptions current at the reporting date, as required by IFRS. As the Group has a legal right to benefit from a surplus, under IAS 19 and IFRIC 14 it must recognise the economic benefit assumed to arise from either a reduction to its future contributions or a refund of the surplus.
The legal right to benefit from a surplus has not changed as a result of the Company's decision to close the RMPP to future accrual after 31 March 2018. However, after that date, any surplus will no longer be assumed to be recoverable as a reduction to future employer contributions. Therefore, at 24 September 2017 only six months of economic benefit is recoverable as a reduction to future employer contributions, with the remaining surplus assumed to be available as a refund at some point in the future. This has resulted in an IFRIC 14 adjustment of GBP1,111 million (2016-17: GBPnil) which represents taxation that would be withheld on the surplus amount.
Included in the IAS 19 figures in the table above is an RMSEPP surplus at 24 September 2017 of GBP68 million (pre IFRIC 14) (2016-17: GBP47 million surplus).
As RMSEPP is closed to future accrual, the surplus is assumed to be available as a refund under IFRIC 14 and, as such, is shown net of GBP24 million (2016-17: GBP16 million) taxation withheld on the surplus amount.
The following disclosures relate to the major assumptions, sensitivities, assets and liabilities in the RMPP and RMSEPP.
Major long-term assumptions used for accounting (IAS 19) purposes - RMPP and RMSEPP
The major assumptions used to calculate the accounting position of the pension plans are as follows:
At 24 At 26 March
September 2017
2017
============================== ========== ===========
Retail Price Index (RPI) 3.2% 3.2%
Consumer Price Index (CPI) 2.2% 2.2%
Discount rate
- nominal 2.6% 2.5%
- real (nominal less RPI)(4) (0.6)% (0.7)%
------------------------------ ---------- -----------
(4) The real discount rate used reflects the long average duration of the RMPP of around 30 years.
Sensitivity analysis for RMPP liabilities
The RMPP liabilities are sensitive to changes in key assumptions. The potential impact of the largest sensitivities on the RMPP liabilities is as follows:
Potential
increase
in
liabilities
Key assumption change GBPm
========================================= ============
Additional one year of life expectancy 220
Increase in inflation rate (both RPI and
CPI simultaneously) of 0.1% p.a. 160
Decrease in discount rate of 0.1% p.a. 160
Increase in CPI assumption (assuming RPI
remains constant) of 0.1% p.a. 30
----------------------------------------- ------------
This sensitivity analysis has been determined based on a method that assesses the impact on the defined benefit obligation, resulting from reasonable changes in key assumptions occurring at the end of the reporting period. Changes inverse to those in the table (e.g. an increase in discount rate) would have the opposite effect on liabilities.
The average duration of the RMPP obligation is 30 years (2016-17: 30 years).
Movement in RMPP and RMSEPP assets, liabilities and net position
Changes in the value of the defined benefit pension liabilities, fair value of the plans' assets and the net defined benefit surplus are analysed as follows:
Defined Defined Net defined
benefit benefit benefit
asset liability surplus
====================================== ===================== ===================== =====================
At 24 At At 24 At At 24 At
September 26 March September 26 March September 26 March
2017 2017 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
====================================== ========== ========= ========== ========= ========== =========
Retirement benefit surplus
(pre IFRIC 14 adjustment)
at 27 March 2017 and 28
March 2016 9,847 7,374 (5,992) (3,815) 3,855 3,559
====================================== ========== ========= ========== ========= ========== =========
Amounts included in the
income statement
Ongoing UK defined benefit
pension plan and administration
costs (included in People
costs) (3) (5) (462) (683) (465) (688)
Pension interest income/(cost)(5) 126 265 (80) (145) 46 120
====================================== ========== ========= ========== ========= ========== =========
Total included in profit
before tax 123 260 (542) (828) (419) (568)
====================================== ========== ========= ========== ========= ========== =========
Amounts included in other
comprehensive income - remeasurement
gains/(losses)
Actuarial gain/(loss) arising
from:
Financial assumptions - - 172 (1,711) 172 (1,711)
Demographic assumptions - - - 243 - 243
Experience assumptions - - 2 76 2 76
Return on plans' assets
(excluding interest income) (352) 1,791 - - (352) 1,791
====================================== ========== ========= ========== ========= ========== =========
Total remeasurement gains/(losses)
of the defined benefit surplus (352) 1,791 174 (1,392) (178) 399
====================================== ========== ========= ========== ========= ========== =========
Other
Employer contributions 208 476 - - 208 476
Employee contributions 3 6 (3) (6) - -
Benefits paid (32) (55) 32 55 - -
Curtailment costs - - (1) (5) (1) (5)
Movement in pension-related
accruals (1) (5) 2 (1) 1 (6)
====================================== ========== ========= ========== ========= ========== =========
Total other movements 178 422 30 43 208 465
====================================== ========== ========= ========== ========= ========== =========
Retirement benefit surplus
(pre IFRIC 14 adjustment)
at 24 September 2017 and
26 March 2017 9,796 9,847 (6,330) (5,992) 3,466 3,855
====================================== ========== ========= ========== ========= ========== =========
IFRIC 14 adjustment n/a n/a n/a n/a (1,135) (16)
====================================== ========== ========= ========== ========= ========== =========
Retirement benefit surplus
(net of IFRIC 14 adjustment)
at 24 September 2017 and
26 March 2017 n/a n/a n/a n/a 2,331 3,839
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
(5) Pension interest income results from applying the plans' discount rate at 26 March 2017 to the plans' assets at that date. Similarly, the pension interest cost results from applying the plans' discount rate as at 26 March 2017 to the plans' liabilities at that date.
6. Dividends
26 weeks 26 weeks 26 weeks 26 weeks
ended ended ended ended
24 September 25 September 24 September 25 September
2017 2016 2017 2016
------------- ------------- ------------- -------------
Pence per Pence per
Dividends on Ordinary Shares share share GBPm GBPm
----------------------------- ------------- ------------- ------------- -------------
Final dividends paid 15.6 15.1 154 149
----------------------------- ------------- ------------- ------------- -------------
Total dividends paid 15.6 15.1 154 149
----------------------------- ------------- ------------- ------------- -------------
The final dividend of 15.6p per share was paid on 28 July 2017 to shareholders whose names appeared on the register of members on 30 June 2017.
7. Contingent liabilities
On 28 July 2015, the Group received a Statement of Objections setting out Ofcom's provisional, preliminary findings of anti-competitive conduct in relation to certain Contract Change Notices issued by the Group in January 2014. Ofcom's investigation was launched in February 2014 following a complaint brought by TNT Post UK (now Whistl). The Group has robustly defended its conduct in written and oral representations made to Ofcom and will continue to defend itself.
The Group is still not in a position to accurately predict when it will receive Ofcom's final decision. The Group continues to maintain that it has not infringed competition law and its representations to Ofcom have been made on that basis.
8. Events after the reporting period
Interim dividend
The Board has declared an interim dividend of 7.7 pence per ordinary share (H1 2016-17: 7.4 pence per share). The dividend amounts to GBP77 million (H1 2016-17: GBP74 million) and will be paid on 10 January 2018 to shareholders on the register at the close of business on 8 December 2017. The ex-dividend date is 7 December 2017.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF YEAR FINANCIAL REPORT
The Directors confirm that to the best of their knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board and as adopted by the EU and gives a true and fair view of the assets, liabilities, financial position and profit or loss of Royal Mail plc as required by DTR 4.2.4R; and
-- the interim Financial Report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first 26 weeks 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 26 weeks of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first 26 weeks 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.
The Directors of Royal Mail plc are as listed in the Royal Mail plc Annual Report and Financial Statements 2016-17 with the exception of Matthew Lester who resigned from the Board on 20 July 2017 and Stuart Simpson who was appointed to the Board on the same date. In addition, Simon Thompson was appointed to the Board on 1 November 2017. A list of current Directors is maintained on our corporate website www.royalmailgroup.com.
By order of the Board
Moya Greene Stuart Simpson Chief Executive Chief Finance Officer Officer 15 November 2017 15 November 2017
INDEPENDENT REVIEW REPORT TO ROYAL MAIL PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 24 September 2017 which comprises the Condensed consolidated income statement, the Condensed consolidated statement of comprehensive income, the Condensed consolidated balance sheet, the Condensed consolidated statement of changes in equity, the Condensed consolidated statement of cash flows and the related explanatory notes.
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 26 weeks ended 24 September 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
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. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) 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.
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 International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 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.
The purpose of our review work and to whom we owe our responsibilities
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 DTR of 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.
Richard Pinckard
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
15 November 2017
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', 'would', 'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'targets', 'goal', 'forecasts' or 'estimates' or similar expressions or negatives thereof.
Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group's actual financial condition, performance and results to differ materially from the plans, goals, objectives and expectations set out in the forward-looking statements included in this document.
All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to the Group or any persons acting on its behalf are expressly qualified in their entirety by the factors referred to above. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. No assurance can be given that the forward-looking statements in this document will be realised; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Subject to compliance with applicable law and regulation, the Group does not intend to update the forward-looking statements in this document to reflect events or circumstances after the date of this document, and does not undertake any obligation to do so.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BABPTMBMBBRR
(END) Dow Jones Newswires
November 16, 2017 02:00 ET (07:00 GMT)
1 Year Royal Mail Chart |
1 Month Royal Mail Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
