RMG : Trading update five months to August 2021 : Quality is beneath customer expectations and our costs are higher than our plan.

[POSTMAN]

https://www.royalmailgroup.com/en/press ... gust-2021/

Given the unprecedented impact of the COVID-19 pandemic, for FY2021-22 we committed to providing bi-monthly updates on volume and revenue performance. Performance for the five months to August and the two months of July and August combined is detailed below.

Keith Williams, Chair, commented: “The first five months saw continued revenue growth across the Group, with both Royal Mail and GLS reporting higher revenues than the prior year.”

“In Royal Mail, we are increasingly confident that domestic parcels are re-basing at a significantly higher level than pre-COVID and believe we are maintaining our share of the market. Domestic parcel volumes are up around a third compared to pre-COVID. Domestic parcels performance continues to be more robust against ongoing challenges in international. Whilst we continue to expect further normalisation of parcel performance as we unwind from the pandemic and anticipate some upward pressure on costs, both adjusted operating profit and margin are expected to be higher in H2 compared to H1.”

“GLS continues to deliver good volume and revenue growth, both year on year and against 2019. Whilst we are seeing upward pressure on costs in a number of our markets, we maintain our outlook for the full year of low single digit % revenue growth and c. 8% operating margin."

YEAR TO DATE PERFORMANCE- FIVE MONTHS TO AUGUST 2021

Group

Revenue: Grew by 8.2% year on year and by 17.7% compared to the same period in 2019;

Royal Mail

Revenue: Increased by 7.2% year on year and by 12.1% vs. the same period in 2019;
Domestic parcel revenue: Grew by 4.1% year on year and by 44.5% the same period in 2019;
Domestic parcel volume: Decreased by 5% year on year, but grew 34% vs. the same period in 2019;
Total parcel revenue: Grew by 0.1% year on year and by 33.3% the same period in 2019;
Total parcel volumes: Decreased by 12% year on year but grew by 18% vs. same period in 2019;
Total letter revenue: Increased by 18.3% year on year and declined by 7.3% the same period in 2019.
Addressed letter volumes (excluding elections): Increased by 13% year on year and declined by 19% the same period in 2019;

GLS

Revenue: Increased 9.3% year on year and by 30.5% vs. the same period in 2019.
Volume: Increased by 9% year on year and by 30% vs. the same period in 2019.

YEAR TO DATE PERFORMANCE - FIVE MONTHS TO AUGUST 2021

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Royal Mail

Domestic parcel volumes increased by 34% compared to pre-COVID levels (April to August 2019), broadly similar to the trend seen in Q1. Reflecting the removal of lockdown restrictions during the summer, domestic volumes decreased by 5% compared to the same period last year, which included the first lockdown and closure of non-essential retail.

Total parcel volume declined by 12% year on year in the five months to August, a result of reduced volumes in international which has been impacted by a number of factors previously outlined, including increased customs processing and reduced air freight capacity. Enhanced customs clearance capabilities, which come into effect in the second half of the year, and a focus on driving additional import volumes is targeted to support an improved outlook for international in H2 vs H1.

Domestic parcel revenue grew by 44.5% compared to the five months to August 2019, due to volume growth and positive price/mix. Total parcel revenue grew by a third, reflecting our performance in international, which we believe is in line with market changes. Year on year domestic parcel revenue grew by 4.1%, with total parcel revenue broadly flat.

Addressed letter volumes (excluding elections) were down 19% compared to two years ago, reflecting the ongoing structural decline in letters. Year on year volumes grew by 13%, given the sharp declines seen at the start of the COVID-19 pandemic in 2020. Total letter revenue grew by 18.3% year on year, reflecting volume growth and positive price/mix.

We are working closely with the CWU on deployment of our agreement and with the revisions activity progressing broadly to plan. We anticipate this will be completed by the end of October. From November, our focus will shift to securing the benefits, the significant majority of which are targeted to be delivered in the second half.

GLS

GLS delivered good volume and revenue growth, both year on year and vs. 2019.

Volume growth slowed during the period as a result of lapping strong volumes seen during the first COVID-19 lockdown in 2020 and the easing of restrictions in a number of countries over the summer. We continue to see the share of B2B increasing due to recovering B2B volumes, combined with slowing B2C volume growth compared to last year.

Revenue growth was 9.3% (13.6% growth in €) year on year and 30.5% (34.8% growth in €1) compared to 2019. Reported revenue growth was impacted by the strengthening of Sterling.

PERFORMANCE FOR THE TWO MONTHS OF JULY AND AUGUST COMBINED

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Royal Mail

Due to seasonality July and August are typically lower volume periods of the year. Domestic parcel volumes increased by 32% vs. July and August 2019, but fell by 3% year on year, an improvement on the 7% year on year decline seen in Q1.

Total parcel volumes in the two months of July and August increased by 17% vs. the same months in 2019, but fell by 9% year on year, again an improvement on Q1 this year.

Total parcel revenues grew by 29.0% vs. July and August 2019. Year on year revenues decreased by 4.6%, primarily due to lower volumes and changing product and channel mix, with volumes in higher value export and consumer channels a smaller proportion of total volume.

Addressed letter volumes (excluding elections) in July and August were down 20% compared to two years ago. Year on year volumes increased by 2%, with total letter revenue up 7.7% reflecting positive price/mix.

Royal Mail revenue increased by 0.2% in July and August year on year, and by 10.1% over two years.

GLS

Volume growth in July and August was 7% year on year, or 23% compared to 2019.

Revenue growth was 4.5% (10.6% growth in €) year on year and 21.5% (29.2% growth in €1) compared to July and August 2019. Underlying revenue growth in Euro terms was driven by higher volumes and better pricing. Reported revenue growth was impacted by the strengthening of Sterling.

Outlook

The future evolution of the COVID-19 pandemic, including levels of transmission, consumer behaviour and economic factors such as GDP growth and inflation will influence future performance.

As previously stated, there is still significant short-term uncertainty as we unwind from the impacts of the pandemic and we continue to expect month-on-month fluctuations in parcel volumes during 2021-22.

Group adjusted operating profit for the first half of 2021-22 is expected to be £395 to £400 million, with at least £230 million from Royal Mail.

In Royal Mail, despite some anticipated upward pressure on costs, both adjusted operating profit and margin are expected to be higher in H2 compared to H1, due to the significant majority of the benefits of our CWU agreement targeted to be delivered in H2, along with our non-staff cost reduction programme. This is in line with the more usual phasing of profit towards the second half, as in previous years.

In GLS, whilst we also are seeing upward pressure on costs in a number of our markets due to tighter labour markets and more general inflationary pressures, we expect these can be absorbed within our existing guidance for the full year and maintain our outlook of low single digit % revenue growth and c. 8% operating margin.

Royal Mail Group interim results for the 6 months to the end of September 2021 will be published on 18 November 2021.



Growth vs. July and August 2019 includes the benefit of the Mountain Valley Express acquisition which added c. 2 percentage points to the 2 year growth rate.
Royal Mail and GLS revenue does not equal Group revenue due to the elimination of intragroup trading.
Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide
% changes based on reported numbers.
Note the UK August Bank Holiday fell in period 5 (August) in 19/20 and in P6 (September) in 20/21 and 21/22

KEY POINTS

YEAR TO DATE PERFORMANCE- FIVE MONTHS TO AUGUST 2021



Group

Revenue: Grew by 8.2% year on year and by 17.7% compared to the same period in 2019;
Royal Mail

Revenue: Increased by 7.2% year on year and by 12.1% vs. the same period in 2019;
Domestic parcel revenue: Grew by 4.1% year on year and by 44.5% the same period in 2019;
Domestic parcel volume: Decreased by 5% year on year, but grew 34% vs. the same period in 2019;
Total parcel revenue: Grew by 0.1% year on year and by 33.3% the same period in 2019;
Total parcel volumes: Decreased by 12% year on year but grew by 18% vs. same period in 2019;
Total letter revenue: Increased by 18.3% year on year and declined by 7.3% the same period in 2019.
Addressed letter volumes (excluding elections): Increased by 13% year on year and declined by 19% the same period in 2019;

GLS

Revenue: Increased 9.3% year on year and by 30.5% vs. the same period in 2019.
Volume: Increased by 9% year on year and by 30% vs. the same period in 20

[POSTMAN]

Trading update

This morning we issued a trading update to give our shareholders an update on how we’re doing.

Trading Update five months to August 2021

Royal Mail revenue up by 7.2% year on year

Total parcel volumes down 12% year on year – but up 18% compared with 2019/20

Addressed letter volumes (excluding elections) up 13% year on year – but down 19% compared with 2019/20

The good news:

· We are increasingly confident that domestic parcel volumes are going to be at a significantly higher level than pre-COVID as consumers continue to shop online

· Domestic parcel volumes are up around a [third] compared to pre-COVID in the first five months of the year

· We also believe we are getting our share of the market – that means we have stopped losing market share to the competition – we are holding our own

· And our revenue - that’s the money we make overall, not profit - is up [7.2]% compared to the same five months last year

This is very positive news. Growing our business is what we set out to do.

But - and it’s a very important but - our quality is beneath customer expectations and our costs are higher than our plan.

To grow sustainably and be able to invest in things like hubs and electric vans, we have to grow profitably. And we know that we didn’t take out costs quickly enough earlier this year when the volumes reduced.

· We are growing - well done – this is giving us the oxygen we need to win
· But we need to grow profitably, which means reducing our costs
· And we have to re-double our efforts on delivering great Quality at the same time
Based on your feedback we know there are issues to resolve – we don’t have all of the vacancies filled, and some of the revisions, but not all, have not gone to plan. Please be honest about what you see, and then we can help – and help we will.

Thank you all for the progress we’ve made so far. We are changing, and it is working.