Royal Mail – steady growth in first financial half of the year

Royal Mail’s revenues grew 7.1% year on year to £6.072 billion in the first financial half of 2021. Where in the 2020 period the postal operator made sizeable losses, it achieved a £311 million profit in this half.

Domestic parcel volumes grew 33%, while the international segment GLS also saw parcel volumes grow by 30%.

Keith Williams, Non-Executive Chair, commented: “The first half saw continued revenue growth across the Group, with improved profitability in Royal Mail and GLS performing strongly. In Royal Mail, we are progressing our change agenda and remain focused on securing the financial benefits of the Pathway to Change agreement. FY 2021-22 adjusted operating profit is expected to be around £500 million.

GLS continues to deliver good volume and revenue growth, both year on year and against H1 2019-20. Whilst we are seeing upward pressure on costs in all of our markets, we maintain our outlook for the full year of low single digit % revenue growth and c. 8% operating profit margin.
We believe that both Royal Mail and GLS will be able to fund their respective investment pipelines from future cash flows and continue to invest in growth, technology, digital services and the environment. Royal Mail will remain focused on transformation and GLS will continue to look for selective bolt-on acquisitions to extend its current footprint, enhance its portfolio and exploit network synergies.

We now have more visibility on the strategic progress and performance of both businesses, and while there is more to do, the Board has decided that we should re-examine our retained cash balance. We believe it is appropriate now progressively to move towards a net nil cash position pre-IFRS 16. As a first step, we will return £400 million of cash to shareholders, partly through a share buyback and partly from a special dividend.”

Simon Thompson, Chief Executive, Royal Mail said: “Re-invention of Royal Mail is inflight; we are making pleasing progress with our change agenda. We’re seeing the benefits of our programmes to reduce costs, and are developing our plans to address inflationary pressures which will impact next year and beyond. We’re also taking steps to equalise performance across our whole operation to ensure that our customers always get the great levels of service they expect from Royal Mail.

The pandemic has resulted in a structural shift and accelerated the trends we have been seeing. Domestic parcel volumes, excluding international, are up around a third since the pandemic, whilst addressed letter volumes, excluding elections, are down around a fifth. This reaffirms that our strategy to rebalance our offering more towards parcels is the right one, and demonstrates the need to start defining what a sustainable Universal Service is for the future. I want to thank our teams for what we have delivered so far: it is an impressive start but there is still much more to do together.”

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