Royal Mail Group Annual Results 2010-11

[TrueBlueTerrier]

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Moya Greene, Chief Executive, said: "We need to put Royal Mail and our ability to deliver the USO on a sound, stable and sustainable footing. We have a clear plan in place to deal with our difficult business environment. The plan is very challenging but we are determined to achieve it."

Financial Performance
• The Group made a £39 million (2009-10: £180 million) operating profit after modernisation costs. This was primarily due to a decline in revenues, offset by a reduction in operating costs.

• Total revenues declined to £9.2 billion mainly because of a 4% fall in core mail volumes, (2009-10: £9.3 billion). The profit margin, after modernisation costs, fell from 1.9% (2009-10) to 0.4%.

• The UK Letters & Parcels and International business lost £120 million in 2010-11, (2009-10: £20 million profit). Revenue decline was mainly driven by a fall in volumes. This is just over £2 million a week.

• Profits at the Post Office declined from £33 million to £21 million as a result of lower revenues from traditional business. The Post Office is embarking on a plan over the next four years based on the Government’s confirmed funding commitment of £1.34 billion.

• General Logistic Systems (GLS) remains highly profitable and grew operating profits by 5.3%.

• Total operating costs have decreased from £9 billion to £8.9 billion in 2010-11. Tight cost control, including a reduction in head office personnel and a procurement initiative contributed to this performance.

• Negative cashflow reduced from £545 million (2009-10) to £213 million. The reduction is primarily due to "one off" property and business disposals raising £237 million.

• The pension deficit is a disproportionate burden. Cash payments of £771 million were made to the pension fund: individually: £299 million in deficit recovery payments, £442 million in regular pension contributions and £30 million for payments related to redundancy.

Business highlights
• Modernisation is delivering cost savings and efficiency gains but much remains to be done:
- Some £400 million has been invested in modernisation this year
- The closure of 12 mail centres and, after extensive consultations, the prospective closure of a further 16
- 5,500 UK-based people left the Group during the year, around 45,000 people have left since 2002 as part of our ongoing change programme
- 2.4% reduction in hours worked to help offset mail volume decline.

• Continued strong growth for tracked services - greater than 100% growth in volume and revenue for the third year running

• The time is right to review the existing regulatory structure. The Group’s submission to Postcomm’s consultation about a new regulatory framework is available at http://www.royalmailgroup.com" onclick="window.open(this.href);return false;

Chief Executive Commentary
"Royal Mail has been in significant financial difficulty for a number of years, reporting negative cash flow four years in a row. Our challenge is to put the Group and the Universal Service on a sound, secure and sustainable footing.

"We are honoured to collect and deliver the mail on behalf of households and businesses across the UK. But, our industry, along with our European peers, is in decline. At the same time the number of addresses that we must deliver to everyday increased by 300,000. Letters now account for a very modest share of daily social messaging. Inland addressed volumes peaked in 2005-6 at about 80 million items of mail a day. This year, we delivered 62 million items of mail a day, a decline of over 20%. We expect further declines of around 5% a year.

"We are losing money in our UK Letters & Parcels and International business - £120 million last year or over £2 million a week. Our margin, fell from 1.9% in this current year to 0.4%. It is slim compared to other postal operators and not enough to re-invest in our business.

Our modernisation is one of the largest change management programmes ever undertaken in the UK. Our peak period of change is underway - now. The jobs of over 100,000 people are changing. We are working closely with the Communication Workers Union (CWU) under the Business Transformation agreement reached in early 2010.

"We have to develop new products and services to meet the needs of our customers and generate additional revenues to offset the decline in earnings from our letters business. We will also innovate and build new partnerships with respected third parties.

"The next two years will be challenging. We need to reduce our costs faster than the decline in revenues from our core letters business. The pace of change in our mail centres will continue. We expect that around half of the mail centres could close by 2016/17. We are introducing new delivery methods throughout our 1,371 delivery offices and we have completed 117 delivery office changes already. In the next year, we will complete the delivery transformation in more than 700 offices or 50% of them.

"We welcome the Government’s investment in the Post Office of £1.34 billion over the next four years. This commitment reinforces the Post Office’s place in local communities and its vital role as part of the UK’s economic and social infrastructure.

"We also warmly welcome the passing of the Postal Services Act. The Act provides an enabling framework within which key issues for Royal Mail can be addressed, particularly pensions, access to new external capital and the regulatory framework.

"This is a very significant change agenda. We are grateful for the considerable support of our shareholder, the Government: the Secretary of State for Business, Innovation and Skills, Vince Cable, the Parliamentary Under-Secretary of State for Postal Affairs, Edward Davey, and their officials. I would also like to thank all my colleagues for their commitment and pride in Royal Mail Group this year. I know I can count on them as we reshape and rebuild the Group.

"We have a clear plan in place to deal with our difficult business environment. The plan is very challenging but we are determined to achieve it."

Ends

Issued by Royal Mail Group: 020 7250 2468 (24 hours)
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Notes to editors
A change has been made to the focus of Royal Mail Group profit reporting. The key profit metric is now profit after costs associated with modernising the business. This provides a better understanding of the returns being generated in pursuit of our strategic aims.

The Group’s operating segments - UK Letters & Parcels and International (UKLPI), Post Office Limited (POL), General Logistics Systems, (GLS) and our smaller companies, such as Romec Limited - are organised and managed separately according to the nature of the products and services provided.

Click here for Financial review http://www.royalmailgroup.com/link/down ... =139300796" onclick="window.open(this.href);return false;

[Wessex]

The time is right to review the existing regulatory structure. The Group’s submission to Postcomm’s consultation about a new regulatory framework is available at http://www.royalmailgroup.com" onclick="window.open(this.href);return false;

It is a redacted public domain version.I wonder whether their submission will be available as an unedited version.

[El-Bandito]

yeah the decline in mail volumes are making walking postmens lives so much easier. i cannot believe how much the drop in mail volumes has made our working life so so much easier!

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”
Joseph Goebbels

[Wessex]

yeah the decline in mail volumes are making walking postmens lives so much easier. i cannot believe how much the drop in mail volumes has made our working life so so much easier!

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”
Joseph Goebbels

A universal truth or lie that is constantly touted is that mail is falling by 5% a year now and into the future .Where did this oft-quoted statistic come from and where is the evidence to support it.How come it's not 4 % or 6% but only ever 5 %
and always 5%.I have a suspicion it was from the Hooper Report but that was some 3 to 4 years ago wasn't it and if it was where did the magic 5 % come from ? Perhaps an advertising executives imagination ? Or maybe from genius with figures Gordon Gekko Brown or maybe it was properly forecast by a properly qualified financial Cassandra bbased on all the available statisics available at the time with suitable weighting to future possibilities added.

Nah... I think I prefer the Goebbels theory better

[hubbahubba]

"£299 million in deficit recovery payments"

So when the government wipe the slate clean,you could say we would be making a 300 million profit,even after all the f**k ups?

[Lincox]

' I would also like to thank all my colleagues for their commitment and pride in Royal Mail Group this year. I know I can count on them as we reshape and rebuild the Group.'

The only ones giving the commitment and who have no idea what pride means, are those that are tucking away large portions of our colleague share scheme. Those at the coal face are losing their will to commit by the day, and as for pride, who the bloody hell could have pride in this cowboy outfit, and the bandits that are running it.

[Farmer18]

As hubbahubba as quoted "£299 million in deficit recovery payments", plus £400 million invested in modernisation, plus £39 million operating profit = possible real profit of £738 million

[nataddick]

Totally agree with Farmer 18 - real profit from operating activities is far more than stated.

Three other interesting points on the pension front :-

First, the deficit appears to have fallen dramatically from £8 billion to £4.5 billion which means that either the amount required to fund the deficit (over the same period) should fall and mean even more profit OR at the same rate of deficit payment then the time taken to reduce it should shorten. Funny how the deficit has shrunk to concide with the passing of the Postal Service Act ?

Second, Royal Mail has reduced the way the escrow account for the pensions deficit works as per page 32 of the Full Report & Accounts freeing up another £900k for the Govermment

On 23 March 2007 the Group established £1bn of investments
in escrow as security to the Royal Mail Pension Plan in support
of the deficit recovery plan. On 24 March 2011 an agreement
was implemented to substitute £102m pension escrow financial
investments with mortgages against certain property assets.

Third, without CWU approval and without confirmation to pension scheme members RM has switched the payment basis of our pensions from an RPI basis to the less generous CPI basis (again referred to on page 32 of the full set of accounts)

So with a £3.5 billion deficit reduction and a £900k escrow reduction - suddenly the government are £4.4 billion better off in their case for European approval for state aid and it sweetens the Privatisation pill (only slightly) for the UK taxpayer.

Reminds me of an old boss who's approach was simply 'tell me what you want the numbers to be and leave the rest to me'