Nov 27, 2013 | edocr |
Royal Mail plc Royal Mail plc H1 2013-14 Results 27 November 2013 Royal Mail plc This presentation contains various statements and graphic representations (together, “forward-looking statements”) that reflect management's current views and projections with respect to future events and financial and operational performance. The words “target”, “objective”, "growing", "scope", "platform", "future", “forecasts”, "expected", "estimated", "accelerating", "expanding", "continuing", "potential" and "sustainable" and similar expressions or variations on such expressions identify certain of these forward-looking statements. Others can be identified from the context in which the statements or graphic representations are made. These forward-looking statements, as well as those included in any other material discussed as part of this presentation involve known and unknown risks, uncertainties, assumptions, estimates and other factors, which may be beyond Royal Mail's control and which may cause actual results or performance to differ materially from those expressed or implied from such forward- looking statements. All statements (including forward-looking statements) contained herein are made as of the date of this presentation and Royal Mail disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty therein. Forward-Looking Statements 1 Royal Mail plc Moya Greene Chief Executive Officer Royal Mail plc H1 2013-14 Overview Key Messages 3 Financial performance in line with our expectations – Low single digit revenue growth – Margin expansion – Growth in underlying cash flow Parcels now 51% of Group revenue 1 Adjusted for the impact of foreign currency movements in GLS and the difference in working days in UKPIL Group Financials1 Revenue up 2%, operating costs after transformation costs broadly flat Operating profit margin after transformation costs improved to 5.2% – 190bps improvement Underlying cash flow generation of £103m vs. £14m in H1 2012-13 Royal Mail plc — B2C + C2X growth forecast: 4.5%-5.5% — B2B growth forecast: c.GDP E-retailing fuelling parcel volume growth UK is the largest e-retailing market in Europe with continued expected growth Highly competitive market >1/31 market share in revenue terms >50%1 market share in volume terms Handle over 1bn parcels p.a. >90% parcel volume through core network Strong track record – historical >10% revenue CAGR for UKPIL parcels over last 2 years Powerful brands Significant advantages from common core network Complementary express parcel network – Parcelforce Worldwide High delivery standards 4 Delivering Our Strategy Being a Successful Parcels Business – UK #1 in UK Parcels Market Market Trends Key Strengths 1 Source: Triangle Management Services/Royal Mail Group Fulfilment Market Measure, 2013 2 Based on volume growth for calendar years 2009-2012, sourced from 2012 Triangle UK Fulfilment Market Measure C2X 6% UK Parcels Market (Volume)2 B2C 56% B2B 38% Royal Mail plc 5 Delivering Our Strategy Market Dynamics Amazon eBay Market Developments Retailers /e-retailers Other parcel operators Royal Mail Response Trial with Argos for Click and Collect Purchase of Shutl ‘same hour’ courier to support eBay Now roll out Building own delivery network in key areas Introducing Sunday deliveries in London Using couriers for ‘final mile’ Notification of delivery services developed by many carriers e.g. DPD continue IT-driven changes Additional capacity being built by growing carriers e.g. Hermes increasing capacity Click and Collect used to capture growth in online shopping and drive footfall in stores Pick Up Drop Off networks (ParcelShop, Collect+) used by pure play e-retailers Expanded Small Parcel size to target fastest growing categories Added 2C lowest cost services to eBay portal – lowest price for parcels under 1kg Launch of Local Collect Existing volume based contracts Working closely to provide most economic and high quality service for Amazon parcels Ability to deliver Sunday service during Christmas period New SMS & email delivery notification available for Special Delivery Parcelforce capacity expansion delivered on time Significant seasonal capacity now available in Royal Mail Launch of Local Collect Tracked return service launched – growth in clothing and footwear sectors driving returns Royal Mail plc Pricing — Pricing by size for consumer and SME parcels to optimise delivery through most appropriate network according to size, value and urgency — Contributed to increased volumes in Parcelforce Worldwide of +9% — Some larger uneconomic items exited our networks — Expanded Small Parcel category Customers — Expanded account management to c.5,000 more customers to accelerate growth in smaller & medium customer base 6 Delivering Our Strategy H1 2013-14 Strategy Implementation Getting the Basics Right Expanding and Automating Our Networks Getting the Technology Right Biggest technology transformation in UK parcels market Roll out of handheld scanners complete for Christmas Progress on barcoding all parcels for track and trace Continued expansion of the Parcelforce network — Chorley processing centre open — 10 new/replacement/extended depots Continuing scoping work for parcels automation Building on Royal Mail’s Core Strengths with a Platform for Future Growth Royal Mail plc 7 Delivering Our Strategy Being a Successful Parcels Business – GLS Europe-wide parcels A leading ground-based deferred parcel delivery network in Europe Presence in 37 countries, 18 covered through wholly- owned subsidiaries Handled c.380m parcels in 2012-13 Well positioned — B2B focused – c.73% by volume — Broad customer base – no customer >1% of revenue — Technology focus – common cross-border IT platform c.70% of revenue from three main markets: Germany, France and Italy Sub-contractor driver model provides flexible delivery reach GLS subsidiaries GLS network partners Royal Mail plc 8 Delivering Our Strategy Being a Successful Parcels Business – GLS H1 2013-14 – Update Germany: — Revenue growth driven by domestic volumes — Low unemployment driving higher subcontractor costs — Using larger transport companies to reduce costs and increase stability and flexibility — Healthy margins France: — Early stage in turnaround but progressing in line with expectations — Revenue up marginally, costs stabilised, losses reduced, but more to do Italy: — Gains from competitor disruption — Strong financial performance — Acquisition of franchisee Emerging European markets expansion – Croatia Export volumes growing strongly IT – development and roll out of ‘Flex Delivery’ service Royal Mail plc 9 Delivering Our Strategy Managing the Decline in Letters Less dependent on letters than peers Expertise in forecasting rate of volume decline c.4-6% p.a. estimated decline in addressed letter volume Regulatory framework and growth initiatives to mitigate decline Building Customer Relationships Adding Additional Value to Mail – Mailmark Segmented Approach to Pricing Enhancing Marketing Mail Offer Royal Mail’s Positioning Royal Mail plc 10 Delivering Our Strategy H1 2013-14 Update - Letters H1 2013-14 Volume and Revenue Barcoding Early 2014 – Live trials of Mailmark, new letter barcoding £70m investment progressing to plan Mailmark — Provides new level of mailing data and visibility for business customers — Significantly increases customers ability to track consignments of addressed letters through our network — Ensures we are fairly paid for the mail we deliver Potential to be applied to 90% of machinable letters volume Addressed letter volume decline moderated to 6%, in line with our medium term range Letter revenue declined by 4% Marketing Mail revenue declined by 3% — H1 2012-13 benefited from build up to Olympics and Diamond Jubilee Direct Delivery Competition Monitoring developments in direct delivery competition — Regulator monitoring impact of direct delivery on sustainability of USO TNT direct delivery volumes reaching 1.2m items per week — Delivery services in Manchester started Unique Customer ID (i.e. letter sent by utility) Unique Item ID (i.e. item is a letter, no. 300 of 27k in consignment) Post Code & Delivery Point (i.e. identifies address and letter box) Note: All like-for-like percentage changes are adjusted for the difference in working days in UKPIL Royal Mail plc 11 Delivering Our Strategy Being Customer Focused Customer Satisfaction Quality of Service UK has the highest Universal Service specification of any major European country1 In H1 2013-14, cumulatively we exceeded our targets: Continuing to react to customer needs and market developments — Expanded Small Parcel category — Launched tracked returns service — New SMS & email delivery notification available for Special Delivery 1 Germany, France, Spain and Italy 2 Source: Business Customer CSI surveys (2011, 2012 & 2013) Target Outcome First Class 93.0% 93.2% Second Class 98.5% 98.8% 74 74 Mean Business Satisfaction Score 14 20 Business NPS Score H1 2012-13 H1 2013-14 Mean Business Customer Satisfaction Score2 maintained Achieved our highest Net Promoter Score2 for business customers of 20 in H1 2013-14 Recent Which? survey found that regular post was the consumer’s favourite way to have their online shopping delivered 2 2 Royal Mail plc 12 Delivering Our Strategy Three mail centres closed in the period, one closed since the end of H1, four more closures expected in H2 2013-14 Begun modernising 1,000th Delivery Office out of total of c.1,400 — Transformation activity impacted by current industrial relations environment Completed roll out of c.74,000 handheld scanners in time for Christmas Operations and Modernisation Industrial Relations Making good progress towards an important agreement Protections for our employees backed by protections for the company Common employer / union understanding — Business success is the best job security Optimistic that agreement can be reached with little or no disruption (YoY change) 2011-12 2012-13 H1 2013-14 Gross hours1 (3.1%) (2.2%) (3.3%) Workload1 0.0% (0.6%) (1.7%) Productivity1 3.2% 1.7% 1.7% 1 Represents processing, collections and delivery only Productivity improvement of 1.7% impacted by industrial relations environment and lower parcel volumes Workload down more than expected because of parcels: therefore greater hours reduction required to meet productivity target of 2-3% Royal Mail plc Matthew Lester Chief Finance Officer Royal Mail plc H1 2013-14 Value Drivers 14 H1 2013-14 Actual Revenue Operating costs Transformation costs Profit after transformation costs Cash People costs up 3% Non-people costs down 2% Transformation costs £70m down £50m EBITDA £483m Investment £212m outflow 1 See slide 1 on ‘Forward Looking Statements’. These objectives do not represent any forecast, target or expectation as to future results or performance All percentage changes are like-for-like and adjusted for the impact of foreign currency movements in GLS and the difference in working days in UKPIL Low single digit revenue growth Past peak of transformation expenditure Net operating cost growth below rate of revenue growth Drives margin expansion Drives growth in underlying free cash flow 2% growth Flat Up 190bps £183m Free Cash Flow Objective1 Profit after transformation costs £283m Margin 5.2% UK parcels up 9% UK letters down 4% UKPIL up 1% GLS up 6% Royal Mail plc H1 2013-14 Financial Summary 15 UKPIL delivered revenue growth and lower costs — Q1 revenue up 3% — Q2 impacted by slowdown in summer GLS continued trends seen in Q1 Margin benefitted from £35m VAT credit and £10m lower depreciation and amortisation — Equivalent to 1 percentage point Note: All like-for-like percentage changes are adjusted for the impact of foreign currency movements in GLS and the difference in working days in UKPIL. Like-for-like margin adjusted for the difference in working days in UKPIL £m H1 2013-14 H1 2012-13 Change Revenue UKPIL 3,711 3,636 1% GLS 801 712 6% Other 8 7 Total 4,520 4,355 2% Operating profit after transformation costs UKPIL 224 97 GLS 53 45 Other 6 2 Total 283 144 Operating profit margin after transformation costs UKPIL 4.8% 2.7% +210bps GLS 6.6% 6.3% +30bps Total 5.2% 3.3% +190bps Royal Mail plc H1 Operating Profit ‘One-Offs’ 16 H1 2013-14 impacted by: One-off VAT credit of £35m due to increased VAT recoverable rate for 2012-13 — Regulation change in April 2012 increased scope of products attracting VAT leading to an increased recovery rate Depreciation and amortisation £10m lower year on year due to different mix in depreciable assets — H2 2013-14 depreciation and amortisation charge expected to be flat year on year 283 353 308 70 35 10 0 50 100 150 200 250 300 350 400 H1 2013-14 Profit After Transformation Costs Transformation Costs H1 2013-14 Profit Before Transformation Costs VAT Credit Depreciation & Amortisation H1 2013-14 'Underlying' Profit £m Royal Mail plc UKPIL Results 17 Revenue up 1% Net operating costs after transformation costs down 1% Operating profit margin up 210bps on a like-for-like basis Note: All like-for-like percentage changes are adjusted for the difference in working days in UKPIL £m H1 2013-14 H1 2012-13 Change Revenue 3,711 3,636 1% Net operating costs (3,417) (3,419) 0% Transformation costs (70) (120) (42%) Net operating costs after transformation costs (3,487) (3,539) (1%) Operating profit after transformation costs 224 97 - like-for-like 4.8% 2.7% +210bps - reported 6.0% 2.7% +330bps Operating profit margin after transformation costs Royal Mail plc 46 120 48 140 1 3,636 3,711 3,500 3,550 3,600 3,650 3,700 3,750 H1 2012-13 Reported Letters Price & Mix Letter Volume Parcel Price & Mix Parcel Volume Working Days H1 2013-14 Reported £m UKPIL Revenue 18 +9% (4)% Note: All like-for-like percentage changes are adjusted for the difference in working days in UKPIL +2% (6%) +9% 0% Parcels (£1,481m): As expected, volume growth impacted by temporary slow- down in growth of e-retailing due to good summer weather and impact of size-based pricing Strong growth in account parcel/Parcelforce volumes offsetting lower volumes in consumer channels Letters (£2,230m): Addressed letter volume decline moderated to 6%, in line with our medium term range Excluding impact of London 2012 philatelic sales in H1 2012-13, letter revenue was down 3% Marketing mail revenue of £545m – down 3% but strong comparator period due to Olympics and Diamond Jubilee build-up Royal Mail plc UKPIL Costs 19 Net operating costs flat including a £35m one-off VAT benefit allocated across all cost categories People costs up 3%: — Increased pension charge — Accrual for pay deal and incentives Distribution and conveyance costs up 1%: — Vehicle related costs — Export payments (terminal dues) Infrastructure costs down 2%: — Reduced depreciation and amortisation costs Reduction in other operating costs mainly reflects strong procurement and other demand management Note: All like-for-like percentage changes are adjusted for the difference in working days in UKPIL £m H1 2013-14 H1 2012-13 Change People costs 2,320 2,261 3% Distribution & conveyance costs 387 382 1% Infrastructure costs 452 459 (2%) Other operating costs 258 317 (19%) Net operating costs 3,417 3,419 0% Transformation costs 70 120 (42%) 3,487 3,539 (1%) Net operating costs after transformation costs Royal Mail plc 82 26 49 2,261 2,320 2,000 2,050 2,100 2,150 2,200 2,250 2,300 2,350 H1 2012-13 Reported Hours Reduction Pay Award inc NI/ Social Security Pensions H1 2013-14 Reported £m UKPIL People Costs 20 68% of UK net operating costs Total UKPIL average FTEs down 2% Core processing and delivery hours down 3.3% due to productivity improvement and reduced workload (6% addressed letter volume decline and flat parcel volumes) People costs up 3%. Pensions charge increase equates to 1 percentage point +3% Productivity improvement 1.7% Pay deal & incentives Royal Mail plc FY 2012-13 FY 2013-14E Project & Property Costs Voluntary Redundancy Business Transformation Payments Transformation Costs – P&L 21 £195m £10m H2 £75m c.£160m £63m £47m £7m £54m £9m H1 £120m H1 £70m H1 2012-13 Reflects voluntary redundancy provision for Mail Centre closures H1 2013-14 No further Mail Centre voluntary redundancies provided for Lower Delivery Office voluntary redundancy than expected partly due to industrial relations environment H2 2013-14 Project costs linked to Delivery Office revisions Lower business transformation payments — c.£15m now falls into 2014-15 Voluntary redundancy expected to be higher than H1 2013-14 due to catch up in Delivery Office revision programme H2 c.£90m Royal Mail plc GLS Results 22 Revenue growth well ahead of Eurozone GDP driven by volume increase Revenue growth achieved in all major countries Margin expansion — France operating loss reduced £m H1 2013-14 H1 2012-13 Change Revenue 801 712 Euro (m) 940 886 6% Net operating costs (748) (667) Euro (m) (878) (830) 6% Profit before transformation costs 53 45 Euro (m) 62 56 11% Operating profit margin 6.6% 6.3% +30bps Volume (m) 193 182 6% Average £1 = € 1.17 1.24 (6%) Royal Mail plc GLS Revenue 23 c.70% of GLS revenue generated in Germany, France and Italy Germany remains largest market; single digit revenue growth France revenue up marginally, with lower volumes compensated for by higher average prices, but losses reduced Double digit revenue growth in Italy aided by acquisitions Growth in developed / emerging European markets +6% 43 1 45 712 755 801 650 670 690 710 730 750 770 790 810 H1 2012-13 Reported FX H1 2012-13 Comparator Price & Mix Volume H1 2013-14 Reported £m Royal Mail plc GLS Costs 24 Distribution and conveyance costs increased due to higher volumes and higher sub-contractor costs in Germany Infrastructure costs higher largely due to higher depreciation Other operating costs higher due to IT consultancy costs and turnaround- related costs in France €m H1 2013-14 H1 2012-13 Change People costs 209 203 3% Distribution & conveyance costs 580 544 7% Infrastructure costs 62 60 4% Other operating costs 27 23 19% Net operating costs 878 830 6% Royal Mail plc Group Profit After Tax 25 Interest of £52m payable on old borrowing facilities — Refinanced loans1 and existing finance leases currently forecast to have blended interest rate of c.3.5% over life of facilities IAS19 pension interest credit of c.£50m2 in H2 2013-14 due to increase in surplus after Pensions Reform Current tax: — Reflects tax in GLS — No current tax charge in the UK Deferred tax: — Principally due to effect of Pensions Reform 1 Includes arrangement and commitment fees 2 £100m on an annualised basis £m H1 2013-14 H1 2012-13 H1 2013-14 H1 2012-13 Operating profit after transformation costs 283 144 283 144 Operating specific items & disposals 1,328 (18) 0 0 Net finance costs (50) (28) (50) (50) Finance costs (52) (52) (52) (52) Finance income 2 24 2 2 1,561 98 233 94 Pension interest (non cash) 19 15 0 0 Profit before taxation 1,580 113 233 94 Current taxation (17) (26) (25) (26) Deferred taxation (342) 292 (39) (5) Profit after tax from continuing operations 1,221 379 169 63 Profit before net pension interest & tax Reported Before Specific Items Royal Mail plc Operating Specific Items 26 Pensions Reform: one-time non-cash credit, no economic value Transaction related costs – majority of costs in H1 2013-14 Employee Free Shares Offer charge pro-rated over period of vesting1 — 13 days worth of charge included in H1 2013-14 — H2 2013-14 charge will be c.£80m Historical employment costs due to change in legislation Property – no further material disposals expected this year 1 Calculated based on market capitalisation at Admission on 15 October 2013 of £4,890m at 10%, pro-rated over vesting period £m H1 2013-14 H1 2012-13 Pensions Reform credit 1,350 - Transaction related (32) (4) - Transaction related costs (26) (4) - Employee Free Shares costs (6) - Business related costs (9) (17) - Historical employment costs (15) - - Impairments - (17) - Potential industrial diseases claims 6 - Operating specific items 1,309 (21) Profit on disposal of property 17 3 Profit on disposal of business 2 - Total operating specific items 1,328 (18) Royal Mail plc Group Taxation - Overview 27 UK current tax rate is zero due to tax relief for the Employee Free Shares Offer and utilisation of some brought forward tax reliefs, including capital allowances Deferred tax charge principally on Pensions Reform credit. No economic impact High GLS effective rate reflects German statutory rate and no tax relief available against French losses UK GLS Group UK GLS Group Profit before tax 1,530 50 1,580 179 54 233 Current tax for the period 0 17 17 8 17 25 Deferred tax for the period 339 3 342 36 3 39 Tax charge 339 20 359 44 20 64 Current tax rate 0% 34% 4% 31% Effective tax rate 22% 40% 23% 25% 37% 28% Before Specific items £m Reported Royal Mail plc Group Free Cash Flow 28 1 Total pensions cash cost of £209m, including £5m RMSEPP deficit payment vs. P&L pensions service charge of £245m, including £11m RMDCP 2 Cash tax paid quarterly in arrears therefore different to P&L amount 3 Including transaction related costs H1 2013-14 and H1 2012-13 benefited from one-off working capital inflows: Total investment includes: — Transformation spend: £117m (2012-13 £206m) — Non-transformation spend: £95m (2012-13 £64m) Majority of FY 2013-14 planned property disposals completed H2 2013-14 benefits from unwinding of remaining c.£150m pension related prepayment partially offset by outflow from delayed pay award £m H1 2013-14 H1 2012-13 Pay deal accrual 65 - Buy forward of stamps in April 2012 - 100 Impact of increase in VAT-rated products - 75 Unwind of March 2012 pension prepayment - 40 One-off working capital movements 65 215 £m H1 2013-14 H1 2012-13 EBITDA before transformation costs 483 405 Pensions1 36 9 Working capital movements (170) (94) 349 320 Total investment (212) (270) Taxation2 (13) (13) Net finance costs paid (23) (23) Dividends from associates 2 - Underlying cash inflow 103 14 One-off working capital movements 65 215 Other operating specific items3 (13) (18) Property and business disposals 28 7 Free cash flow 183 218 Royal Mail plc 35% 45% c.30% 26% 10% c.15% 39% 45% c.55% FY 2012-13 H1 2013-14 FY 2013-14E Transformation Opex Transformation Capex Non Transformation Capex Group Investment - Cash 29 H1 2013-14 Non-transformation capex principally GLS, Parcelforce expansion, and Mailmark Past peak of transformation therefore lower transformation investment year-on-year FY 2013-14E Slightly lower than FY 2012-13 Delayed transformation capex due to industrial relations environment FY 2014-15 Onwards c.£100-120m step down vs. 2012-13 peak Majority of investment away from transformation £665m £212m 61% c.45% 55% 1 H1 2013-14 Transformation Opex consists of voluntary redundancy (£30m); business transformation payments (£11m); and project and property costs (£55m) 1 Royal Mail plc Group Net Debt and Liquidity 30 Annualised FFO to net debt at H1 2013-14 of 51%; 38% for FY 2012- 13 Annualised FCF to net debt of 41% at H1 2013-14; 37% for FY 2012-13 Targeting investment grade profile Loans previously provided by HM Government refinanced and replaced — New debt facilities 1 Includes arrangement and commitment fees 183 906 723 500 550 600 650 700 750 800 850 900 950 As at 31 March 2013 Free cash flow As at 29 September 2013 £m Movement in Net Debt LIBOR Spread Facility £m Drawn £m Facility End Date Term Loan A +1.00% 300 50 Sep 2018 Term Loan B +0.90% 300 300 Sep 2016 Revolving loan facility C +0.85% 800 250 Sep 2018 Total 1,400 600 Facility (as at 15 October 2013) Royal Mail plc Illustrative Impact of Operational Gearing in UKPIL 31 High operational gearing: 1% change in UKPIL revenue = c.17% change in Group operating profit 1 52 week adjusted 2 As set out in Royal Mail plc Prospectus (27 September 2013) p.144 3 Cost impact assumed at mid-point of stated range of £5-9m in the immediate term £m FY 2012-131 Group revenue 9,146 Group operating profit 403 ± 1% change in UKPIL revenue2: - Impact on revenue c. ± 75 - Impact on costs3 c. ± 7 Impact of operating profit c. ± 68 Impact on Group operating profit c. ± 17% Royal Mail plc Update on FY 2013-14 32 Note: see slide 1 on ‘Forward-Looking Statements’. These objectives do not represent any forecast, target or expectation as to future results or performance H1 2013-14 performance in line with our expectations P&L FY 2013-14: Adverse revenue impact of customer reaction to industrial relations environment in H2 expected to offset profit benefit of VAT credit and lower depreciation and amortisation in H1 — Expect significant growth in parcel revenue although, depending on strength of seasonal volume growth, parcel volumes may be flat in 9 months to December 2013 Full year transformation costs now expected to be c.£35m lower than 2012-13 at c.£160m Effective tax rate of c.28% on group PBT excluding specific items expected to apply for full year Cash flow FY 2013-14: Group cash investment slightly lower than FY 2012-2013, mix moving away from transformation Working capital benefits from unwind of c.£150m pension prepayment partly offset by delayed pay award of c.£65m Royal Mail plc Moya Greene Chief Executive Officer Royal Mail plc Outlook 34 Key medium term value drivers remain unchanged — Low single digit revenue growth — Targeting 2% - 3% p.a. productivity improvements — Targeting operating profit margin expansion (after transformation costs) in line with peers over next 3-5 years E-retailing continues to grow share of UK retail spending, driving parcel volumes Letters decline within expected range of -4% to -6% p.a. Moving towards resolving industrial relations situation Christmas is key — Royal Mail better prepared than ever to benefit from seasonal up tick Note: see slide 1 on ‘Forward-Looking Statements’. These objectives do not represent any forecast, target or expectation as to future results or performance Royal Mail plc Q&A Royal Mail plc Appendix Royal Mail plc UKPIL Margin Evolution 37 Adjusting for certain one-off and other items, revenue increase of 1.4% is c.80 basis points ahead of increase in costs before transformation costs of 0.6% Costs Revenue +1.4% +0.6% 48 3,659 52 25 3,636 3,711 3,500 3,550 3,600 3,650 3,700 3,750 H1 2012-13 Reported Working Days Olympics H1 2012-13 Comparator Year-on-Year Movement H1 2013-14 Reported £m 26 3,398 19 12 35 3,419 3,417 3,300 3,320 3,340 3,360 3,380 3,400 3,420 3,440 3,460 H1 2012-13 Reported IAS 19 Pension Charge Depreciation & Amortisation VAT Credit H1 2012-13 Comparator Year-on-Year Movement H1 2013-14 Reported £m Royal Mail plc Specific Items – Tax Effects 38 Employee Free Shares Offer only item which impacts current tax Pensions Reform deferred tax charge by far most significant item Brought forward asset was offset by Pensions Reform impact leading to minimal impact from rate change 1 Relates to real estate transfer tax on German property (due to insertion of Royal Mail plc) £m P&L Impact Current Tax Deferred Tax Total Transaction costs (22) - - - Employee Free Shares costs (6) (8) 7 (1) Pensions Reform 1,300 - 299 299 Pension subject to IFRIC 14 50 - - - Potential industrial diseases claims 6 - - - Historical employment costs (15) - (3) (3) Profit on disposal of fixed assets 17 - - - Profit on dispoal of associate undertaking 2 - - - Pension interest 19 - 4 4 UK tax impact 1,351 (8) 307 299 GLS transaction costs1 (4) - - - Group tax impact pre rate change 1,347 (8) 307 299 Statutory rate change - Pensions Reform - - (38) (38) - Other - - 34 34 Group tax impact 1,347 (8) 303 295 Royal Mail plc 9 9 (408) (27) 256 - (179) (450) (350) (250) (150) (50) 50 150 250 350 Asset Liability Asset Liability Asset Liability £m Deferred Tax – Balance Sheet 39 UK – £256m asset represents a deferred tax asset in relation to capital allowances and losses. Liability mainly relates to Pensions Reform GLS – can only net off deferred tax assets and liabilities within a tax jurisdiction Group – UK position netted and added to GLS deficit position. GLS asset remains UK GLS Group £152m net liability Unable to net off deferred tax asset and liability Royal Mail plc 40 Update on Pensions Actuarial Basis £3.3bn DB Assets £3.5bn DB Liabilities Accounting Basis DB Assets £3.3bn £2.4bn £2.5bn £2.4bn DB Liabilities (Net of IFRIC 14 adj) £2.5bn £1.8bn £28.8bn £37.4bn £28.6bn £31.3bn 25 March 2012 1 April 2012 31 March 2012 1 April 2012 EBIT P&L Expense Cash Cost £400m £434m £401m £409m FY 2012 FY 2013 Ongoing P&L / Cash Flow Surplus/(Deficit) (£8.6bn) (£2.7bn) £0.6bn (£0.1bn) (£0.2bn) £0.8bn Surplus/(Deficit) Almost all RMPP pension assets and liabilities transferred to HMG on 1 April 2012 Royal Mail left with £2.4bn (of which £0.3bn for RMSEPP) assets to cover future liabilities, assuming salary growth at RPI+1% Trustee will use RPI salary growth assumptions to evaluate future liabilities from 1 April 2014 IAS 19 accounting surplus of £1.9bn at 29 September 2013 Accounting liabilities decreased by net c. £0.9bn at H1 2013-14 due to changes in assumptions and impact of Pensions Reform1 Pensions Reform was implemented 26 September 2013, effective from 1 April 2014 RMPP closed to new members – March 2008 c.108k active members still accruing benefits at 30 September 2013 RMSEPP closed to future accruals December 2012 c.35k members at 30 September 2013 and average contribution rate of c.4% in UK DB Schemes - RMPP & RMSEPP DC Schemes 31 March 2013 31 March 2013 £3.5bn £2.0bn £3.5bn £1.6bn £245m £204m 29 Sept 2013 £1.5bn £1.9bn 29 Sept 2013 29 Sept 2013 1 Reduction in discount rate from 1.5% at 31 March 2013 to 1.3% results in an increase in liabilities of £0.5bn prior to Pensions Reform. Past service credit of £1.35bn due to Pensions Reform Royal Mail plc Revenue 41 Summary of Key Drivers Volume growth driven by B2C growth B2B volume growth slightly above GDP Pricing broadly in line with RPI Estimate for addressed letter volume decline is c.4-6% p.a. Pricing broadly in line with RPI Operating Costs Increase broadly in line with RPI Productivity improvements of 2-3% p.a. Transformation Opex Objective to remain below revenue growth Tax (P&L) UKPIL effective tax rate expected to normalise going forward Investment Past peak of transformation investment c.£100-120m step down vs. 2012-13 peak c.60%+ non-transformation capex for 2014-15 onwards Pensions Pension costs c.£400m p.a. post Pensions Reform Working Capital Underlying working capital trend broadly flat Unwinding of remaining c.£150m pension related prepayment in H2 2013-14 Tax (Cash) Low cash rate for next 3 years Trend towards normalised tax rate subsequently P&L Drivers Cash Flow Drivers Revenue growth broadly in line with Eurozone GDP growth Profit Margin After Transformation Note: see slide 1 on ‘Forward-Looking Statements’. These objectives do not represent any forecast, target or expectation as to future results or performance UKPIL parcels UKPIL letters GLS Group Low single digit revenue growth objective Past peak of transformation opex spending Objective of profit margin expansion (post transformation costs) over the next 3-5 years to achieve margins in line with peers
H1 2013_14 Results Presentation_0.pdf
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