Royal Mail – GLS carries business in first half of 2020

Despite the uptick in e-commerce, Royal Mail Group reported a group operating profit of just £37 million in the first half of 2020.

Parcel revenues at the Group grew by 33.2% but didn’t wholly offset the revenue drop of 20.5%. Royal Mail’s international parcels arm GLS saw strong growth of 21.7% in revenues and operating profit up 84.4% to £166 million.

Keith Williams, Interim Executive Chair, commented: “The growth in online shopping and parcels during the pandemic, combined with our increased focus on delivering more of what customers want, has led to revenue growth of nearly 10% for the Group in the first half, with Royal Mail revenue up nearly 5%. For the first time, parcels revenue at Royal Mail is now larger than letters revenue, representing 60% of total revenue, compared with 47% in the prior period. GLS delivered strong revenue growth of 21.7%, with adjusted operating margin up by 300 basis points. B2C accounted for 56% of GLS volume in the first half.

“Across the Group, our people have worked incredibly hard to keep delivering for our customers during these unprecedented times, and I want to thank them for their dedication and commitment. We have been pushing forward with our transformation in Royal Mail and delivering more new innovations, products and services for our customers. Whilst we have done exceptionally well in terms of revenue and have seen real growth for the first time since privatisation, we have recorded a first half adjusted operating loss of £129 million after restructuring charges of £147 million, and a reported operating loss of £176 million. As anticipated the reduction in letter volumes has had a significant impact on the regulated business which lost £180 million in the first half, and demonstrates the need for change in the Universal Service.

“The level of revenue growth in the first half shows we have the right strategy and that Royal Mail can be cash generative and a sustainable, profitable business in the future. But we need to speed up the pace of change in order to create a profitable business in the UK. We are making good progress on the initiatives we set out in June. We are reducing management layers to increase our speed of decision making, directing the business towards those activities which generate quicker payback and focusing our capital expenditure on projects which will improve our customer proposition and increase our efficiency. These initiatives should add to top line growth and generate a saving of around £330 million in operational costs. Talks with our unions are at an important stage. We have been encouraged by our talks with CWU, which have intensified over the past weeks. With the improved revenue performance, we have focused on how we can deliver efficiency and productivity in a growth environment together, which will enable the business to see the benefits of operational leverage.

“We are already working hard to deliver Christmas, recruiting around 33,000 additional flexible workers in Royal Mail over the peak season, and we continue to provide significant support to the Government’s COVID-19 testing programme and the distribution of protective equipment.

“In GLS our strong footprint, local market presence and operational agility have enabled us to successfully manage the challenges of COVID-19. GLS also benefitted from scale effects, along with successful pricing initiatives in certain markets. Our focus countries – Spain, France and the US – have emerged stronger and our task now is to continue the turnaround, lock-in and build on that success. GLS is well positioned to continue to benefit from the shift to B2C, cross-border growth and evolving customer needs towards more convenience and ease in receiving parcels.

“We have updated our scenario for the full year. As parcel volumes at both Royal Mail and GLS have continued to be robust year to date, revenue performance in the scenario has improved. It remains difficult to give precise guidance but parcel growth is expected to remain robust in Q3, with more uncertainty over trends in Q4 due to the development of the COVID-19 pandemic, further recessionary impacts and trends in international volumes.”