Royal Mail's profits drop on pension charge : revenues rise on growth in parcels : GDPR (New European Union rules) to impact letter volumes

[POSTMAN]

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Royal Mail PLC (LON:RMG) posted a 36% decline in full year profits after taking a hit from a pension charge in the UK.

The postal operator said profit before tax fell to £212mln in the year to March 25, 2018, from £335mln a year ago.

The results included the impact of an International Accounting Standards 19 pension charge.

In morning trading, shares fell 4.8% to 568p.

In February Royal Mail and the Communication Workers Union (CMU) reached an agreement in principle to end a long-running dispute over plans to replace the company’s defined benefit pension scheme.

Revenue up as growth in parcels offsets decline in letters

Revenues rose 2% to £10.1bn in the year, up from £9.7bn in 2017.

The European parcels delivery business Global Logistics Systems (GLS) was the star performer with revenue up 10% to £2.6bn from £2.2bn as volumes grew 9%.

The UK business delivered broadly flat revenue of £7.6bn as a 4% increase in parcels offset a 4% decline in letters.

Total parcel volumes rose 5% while addressed letter volumes fell 5%, as expected.

Royal Mail said delivery productivity in the UK rose by 1%, missing its target range of 2-3%.

GDPR to impact letter volumes

The group warned that it expects letter volumes in the 2018/19 fiscal year to reach the top end of its expected range for a decline of between 4-6% due to the potential impact of the introduction of General Data Protection Regulation (GDPR) in May.

Royal Mail said GDPR, new EU rules that put tighter controls on the gathering and storage of personal information, could lead to a drop in marketing mail volumes.

Overall UK parcel and letter volumes and revenues in the next financial year are forecast to be "at least the same as 2017/18".

Royal Mail is targeting £230mln in cost savings in the UK business but restructuring costs are predicted to be at upper end of the forecast range of £130-150mln.

Productivity improvements are expected to be towards the upper end of the group's targeted 2-3% range.

Fierce competition in UK parcels

Royal Mail also acknowledged the tough competition it faces in UK parcels with 15 rivals.

However, the company said consumers are spending more online per head in the UK than any other major market, including the US and China, driven by online retail orders.

The dividend for the year was raised 4% to 24p each as the company swung to net cash of £14mln from net debt of £338mln.

"It has been another successful year, despite the challenging environment,” said outgoing chief executive Moya Greene.

She added: “We continue to focus on cost avoidance and parcel revenue growth in the UK and through GLS.

"The good cash generation characteristics of our business will support our progressive dividend policy."

Greene is set to stand down later this year after eight years at the helm. She will be replaced by Rico Bank, who currently runs GLS, in June but will stay on until September to ensure a smooth transition.

'Mixed outlook'

Liberum left its rating on the stock at 'sell' with a target price of 450p, saying "a mixed outlook has uncertain implications for consensus estimates".

"Management expects parcels volume and revenue growth to at least match the previous year, but there is clear caution on letters, where the volume decline is seen at the worse end of the long-term range on GDPR concerns, with downside risk if business uncertainty persists," the broker said.

"Management is aiming at the upper end of its productivity improvement range, having missed last year, but we believe more is needed."

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New European Union rules on data protection have led Royal Mail to predict that the decline in letters sent by Britons will be at the higher end of its previous estimates, as the postal group delivered a more than one-third drop in annual profit.

Although revenues topped the £10bn mark at the FTSE 100 group, thanks to growth at its overseas parcels division, statutory pre-tax profit fell 36.7 per cent to £212m in the year ended 25 March. 

As paper correspondence shrinks due to electronic communications, Royal Mail is pinning its future on parcel delivery, which is booming due to the rise of e-commerce. Package volume growth at its core UK business was the highest in four years. 

But the company said it expected the fall in addressed letters to be near the high end of its previously forecast 4 to 6 per cent range this year, citing the introduction of the General Data Protection Regulation, which is aimed at protecting European Union citizens from misuse of their data. 

“Due to the potential impact of GDPR and, or, if business uncertainty persists, we expect to be at the higher end of the range of decline for 2018-19 and may fall outside the range in a period. In addition, we are not expecting any benefit from political parties' election mailings in 2018-19. 

Despite pensions weighing on reported earnings, there was a 1 per cent increase in the company’s preferred measure of profit, which strips out one-off items and expenses related to its modernisation programme. Adjusted operating profit before transformation hit £694m. 

Royal Mail closed its defined benefit retirement scheme this year following a long industrial dispute with trade unions. As a result, it said that the pension charge next year would reduce “significantly” from £458m to around £90m. 

The company’s proposed full year dividend was 24p, against 23p the year before. 

Shares in Royal Mail have gained more than 30 per cent so far this year and recently touched the highest point since the company’s 2013 flotation, giving a market capitalisation of £6bn.

[Deadly]

"We are constantly looking at ways to deliver efficiency improvements across our cost base. For example, we are extending our
Collection on Delivery programme. This is where colleagues collect mail while they are out on delivery. Over 50,000 post boxes
are now covered by this programme."

Hmmm.

[oypostie]

As a result, it said that the pension charge next year would reduce “significantly” from £458m to around £90m.

But hold on. I thought the expenditure was going to stay the same. Hmmmm

[Celgar]

"We are constantly looking at ways to deliver efficiency improvements across our cost base. For example, we are extending our
Collection on Delivery programme. This is where colleagues collect mail while they are out on delivery. Over 50,000 post boxes
are now covered by this programme."

Hmmm.

At one time we used to empty all the postboxes every day on delivery. This was stopped because it supposedly saved money to do so. At a later date emptying postboxes on delivery has been partially reintroduced.

[Celgar]

The figures in this report don't seem to make much sense.
Profits fall by a third but the dividend rises by 4%. RM taking a page out of Carillion's accounting procedures.
What is the pension charge? I know RM claimed a massive tax credit after shutting down our pension scheme.
We cannot cope with any further increase in parcel traffic. If RM wish to pursue more parcels business they need to cancel their downsizing , doom & gloom, and talking down of our businesses future. They need to look to reversing the decline in letters which is widely acknowledged as the best way for retail business to get their message out and increase trade. They need to stop lapsing and absorption and increase our capacity. The high street is dying so we need to prepare otherwise the competition will take the lions share of any new business.

[Mr Rush]

At one time we used to empty all the postboxes every day on delivery. This was stopped because it supposedly saved money to do so. At a later date emptying postboxes on delivery has been partially reintroduced.

If you've been in this job long enough you eventually see things cycle back. When I started, unsafe bag drops were being eliminated by installing more pouch boxes. Now there are walks dropping bags in shops again because the boxes were ripped up after P&L came in.