21st May 2015 06:26
LONDON (Alliance News) - Royal Mail PLC Thursday reported higher profits for its last financial year as a better than expected performance in reducing costs in the UK offset lower-than-expected revenue in its parcels business, and the company said it will step up its transformation plan in the face of a challenging trading environment.
The UK's legacy postal operator, which was privatised in a controversial initial public offering in 2013 but still has an obligation to deliver post to every address in the country, has been going through a transformation and efficiency drive as it positions itself to cope with the burgeoning parcels market and the gradual decline in the letters market.
It reported a pretax profit of GBP569 million for the year ended March 29, up from GBP421 million a year earlier, even though revenue declined to GBP9.42 billion from GBP9.46 billion. Its operating profit after transformation costs rose to GBP595 million from GBP488 million as its operating margin improved by 20 basis points. Excluding the transformation costs, the figure rose to GBP740 million from GBP729 million on a 40 basis point margin increase.
It raised its full-year dividend to 21.0 pence from 20.0 pence.
"We have delivered operating profits in line with our expectations. Our continued focus on efficiency resulted in a better than expected UK cost performance, offsetting lower than anticipated UK parcel revenue," Chief Executive Moya Greene said.
"Our trading environment remains challenging, but we are now poised to step up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs," she added.
The company said trading so far in the new financial year is meeting the company's expectations, and as always, its performance will be weighted to the second half of the year and the key Christmas trading period.
Revenue was flat in the company's UK parcels and letters business, as letter revenue fell 1% while parcel revenue grew by the same amount, although operating profit before transformation costs improved to GBP615 million from GBP608 million as it cut costs. Revenue in its European logistics business grew 7%, more than the company expected, and operating profit improved to GBP115 million from GBP108 million.
Royal Mail said it still expects volume growth in the UK addressable parcels market to fall to about 1% to 2% a year in the short-term, although this will depend on how quickly Amazon Inc rolls out its own delivery network.
It also expects the UK addressed letter market volumes, excluding election pamphlets, to fall by 4% to 6% a year in the medium term, although it noted the recent statement by competitor PostNL about suspending its plans to create its own UK end-to-end delivery network "and await the outcome of its review".
The company said its reorganisation programme delivered cost benefits of GBP42 million, and it now expects to deliver cost savings of about GBP80 million a year from the current financial year. It cut the number of employees in its UK business by over 5,500 in the last year.
Royal Mail cut its net debt to GBP275 million from GBP555 million, thanks to strong free cash inflow of GBP453 million, a figure that was bolstered by GBP100 million of net cash flows from its London property portfolio.
By Steve McGrath; [email protected]; @stevemcgrath1
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