Royal Mail Group Financial Results 2015/16
Royal Mail today published its annual accounts for the year to 31st March 2015. The results show another solid performance over the past 12 months with increases in group revenue profits and productivity despite tough trading conditions, a declining letters market and regulatory pressures.
In particular the results reflect the hard work and increased efforts of postal workers who have delivered (like last year) another 2.5% increase in productivity.
However we also need to recognise the underlying trends and the wider regulatory issues we face in the postal market which continue to pose serious challenges for the future of Royal Mail. While the rate of decline in letters has slowed to 3% this year, the business are particularly encouraged by the 3% growth in parcel volumes in the highly competitive parcels market driven by the continued growth in import parcels, new contract wins and a strong performance in Parcelforce Worldwide.
Ofcom are due to publish their report into the regulation of Royal Mail in the very near future and the union will continue to press our case for fair competition and a regulatory framework that stops unfair cherry picking by competitors and allows Royal Mail to drive forward investment in growth and innovation.
Attached to this LTB is a press release issued by the CWU earlier today together with a more detailed report prepared by CWU Research which sets out the key headlines from the financial results.
Any queries in relation to the content of this LTB should be addressed to the DGSP Department.
Acting Deputy General Secretary (P)
ROYAL MAIL FULL YEAR RESULTS 2015/16
Royal Mail released its full year financial results on 19 May 2016. The company said it had delivered a resilient performance in challenging markets. Group revenue was up 1% and operating profit before transformation costs was up 5% on an underlying basis. Group operating profit after transformation costs declined by 2% as a result of higher transformation costs, mainly due to higher voluntary redundancy costs. There was a net reduction of around 3,500 employees in UKPIL, largely driven by voluntary redundancies.
UK parcel revenue grew by 1% and UK parcel volumes grew by 3%, driven by growth in import parcels, Royal Mail account, and Parcelforce Worldwide, where volumes increased by 12%. The company’s improved product offering in account parcels resulted in seven contract wins, including with John Lewis Partnership and M&S, which have more than offset lost Amazon volumes. Parcel volumes at GLS, the company’s European parcel business, grew by 10% whilst revenues were up 9%. This growth continues to be fuelled by increasing cross border trade, driven by e-retail.
Addressed letter volumes declined by 3%, which was better than the forecast 4-6% decline, due to the return of direct delivery volumes. UKPIL has achieved productivity improvements of 2.4%, within its 2.0-3.0% target range. This builds on a productivity improvement of 2.5% in 2014-15 and 1.7% in 2013-14.
Royal Mail Group
The adjusted results for Royal Mail Group for 2015/16 compared to the previous year are:
• Revenue up 1% to £9,251m, with growth in GLS offsetting the decline in UKPIL revenue;
• Operating profit before transformation costs up 5% to £742m;
• Operating profit after transformation costs down 2% to £551m;
• Operating profit margin after transformation costs was down to 6.0% from 6.4%;
• Profit before taxation was down to £538m from £569m.
• Net debt was £224 million in March 2016, £51 million lower than the previous year, driven by trading cash flow and proceeds from the disposal of assets.
UK Parcels, International and Letters (UKPIL)
The adjusted financial results for UKPIL for 2015/16 compared to the previous year are:
• UKPIL revenue was down 1% to £7,666m with a 1% increase in parcel revenue offset by a 2% decline in total letter revenue;
• UKPIL operating profit before transformation costs was up 3% to £608m;
• Total parcel volumes were up 3%, with parcel volumes in the Royal Mail core network up 2% and Parcelforce volumes up 12%;
• Addressed letter volume declines were 3% – better than the forecast range of 4-6% decline per annum – due to the return of direct delivery volumes; and
• Marketing mail revenue was flat, which follows a 3% growth in the first six months and reflects a slowing in UK economic activity.
Underlying operating costs in UKPIL declined by 1%, in line with expectations and reflecting the strategic focus on cost avoidance and efficiency. UKPIL avoided £182m of costs in the year, split broadly evenly between people (£89m) and non-people (£93m) costs. People costs declined by 1%, driven by a 2.4% improvement in productivity and £40m savings in relation to the management reorganisation programme implemented in 2014-15. These savings offset pay increases, largely the 2.8% frontline pay award, and an increase in volume driven costs in Parcelforce Worldwide. Non-people costs, which includes infrastructure and vehicle costs, reduced by 3%. Royal Mail is looking to continue to seek opportunities to drive efficiency across the organisation in 2016/17.
General Logistics Systems (GLS)
Royal Mail’s European parcel business, GLS, continued to perform strongly. Volumes were up 10% to 431m and revenues were up 9% to €2,158, whilst operating profits were also up 9% to €160m. Revenue growth was achieved in almost all markets and from a broad customer base.
The “Other” part of Royal Mail Group, which includes stakes in Romec and Quadrant, was down to £5m in revenue from £14m the previous year, due to the expiration of a contract to provide facilities management services to Post Office Limited. However, operating profit increased from £10m to £17m largely due to the improved trading performance in Romec.
The Board is recommending a final dividend of 15.1p per share. Combined with the interim dividend per share of 7p, this represents a total dividend of 22.1p per share for 2015/16. This is up 5% on the previous full year dividend of 21p per share in 2014/15.
This means eligible full-time employees with a maximum allocation of 832 Free Shares will have received dividend payments of over £430 by 29 July 2016 since privatisation, subject to shareholder approval at the 2016 AGM. Royal Mail says it remains committed to growing dividends.
CWU DELIVERS SOLID RESULTS IN ROYAL MAIL
Responding to Royal Mail’s annual results, released today (Thursday), the CWU said the solid set of results were testament to the increased efforts of postal workers who have helped deliver increases in Group profits, revenues and productivity.
Dave Ward, CWU General Secretary said: “Royal Mail Group’s strong financial performance, in the face of tough market and regulatory pressures, show the company is well placed to deliver future growth and innovation in the business, working closely with the CWU. The continued fall in letter volumes and the significant level of competition Royal Mail already faces should serve as a reminder to Ofcom that protecting daily deliveries should be the number one priority of its review.”
Commenting on the latest results, Ray Ellis, Acting Deputy General Secretary said: “The hard work of postal workers , the significant and continued increases in productivity and close cooperation with the CWU have been critical in delivering another solid financial performance, particularly in the highly competitive parcels market.
While we remain concerned about the long term decline in letters and Royal Mail’s failure to meet the highest quality of service standards, we believe the company has the financial platform to work with the CWU to secure long term growth and success”.