TIDMIDS
RNS Number : 8773C
International Distributions Svc PLC
14 October 2022
International Distributions Services plc
(Incorporated in England and Wales)
Company Number: 8680755
LSE Share Code: IDS
ISIN: GB00BDVZYZ77
LEI: 213800TCZZU84G8Z2M70
14 October 2022
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR
INTERNATIONAL DISTRIBUTIONS SERVICES plc
Royal Mail trading update and revised outlook
International Distributions Services plc is today publishing a
trading update and full year estimate for the performance of its UK
business, Royal Mail. Trading in GLS has been in line with
expectations.
Key points:
-- Royal Mail H1 2022-23 adjusted operating loss of GBP219
million (2021-22: GBP235 million profit), including around GBP70
million of direct negative impacts from 3 days of industrial
action;
-- Royal Mail trading cash outflow in H1 of GBP274 million(1)
(2021-22: GBP114 million inflow). On a pre-IFRS16 basis it was a
GBP330 million(1) outflow (2021-22: GBP64 million inflow);
-- We will be starting the process of consulting on rightsizing
the business in response to the impact of industrial action, delays
in delivering agreed productivity improvements and lower parcel
volumes:
o Short-term cost efficiencies being achieved through an
estimated reduction of around 5,000 full time equivalent
operational roles (FTEs) by March 2023(2) and c.10,000 by end of
August 2023(2) (on a rolling 12 month basis);
o Based on current estimates, c.5,000-6,000 redundancies may be
required by end of August 2023.
-- Royal Mail full year estimate: expected full year adjusted
operating loss of around GBP350 million, including the direct,
immediate impact of eight days of industrial action which have
taken place or been notified to Royal Mail, but excluding any
charges for voluntary redundancy costs. This may increase to around
a GBP450 million loss if customers move volume away for longer
periods following the initial disruption;
-- Communication Workers Union (CWU) has threatened, but not yet
formally notified Royal Mail, of a further 16 days of strikes in
November and December. If these take place, the loss for the full
year would increase materially and may necessitate further
operational restructuring and headcount reduction;
-- The ongoing uncertainty means that the Board is unable to
give a clear outlook for the full year. Additionally, this
situation may lead to an impairment of the carrying value of the
Royal Mail business when H1 results are published on 17
November;
-- Royal Mail urges CWU to immediately call off planned strike
action and embrace our offer of Acas talks to urgently find a
resolution to the current dispute.
The position of Royal Mail has deteriorated due to a combination
of the impact of the industrial dispute, an inability to deliver
the joint productivity improvements agreed with CWU under the
Pathway to Change agreement, and ongoing macro-economic headwinds.
Although action was taken in H1 to lower labour costs, the business
was unable to reduce costs quickly enough in line with
deteriorating parcel volumes.
Despite the current financial position, to date CWU has already
taken 6 days of industrial action and formally notified Royal Mail
of a further 2 days of damaging industrial action on 20 and 25
October, which are expected to go ahead.
Royal Mail expects to incur a full year adjusted operating loss
of around GBP350 million, including the direct impact of eight days
of industrial action which have taken place or been notified to
Royal Mail, but excluding any charges for voluntary redundancy
costs. This may increase to around a GBP450 million loss if
customers move volume away for longer periods following the initial
disruption.
In response, we will be starting the process of consulting on
rightsizing the business. Short term cost efficiencies are being
achieved through an estimated reduction of around 5,000 FTEs by
March 2023(2) (on a rolling 12 month basis), to better match our
costs to current parcel and letter volumes. Our operational FTE
workforce will need to reduce by an estimated c.10,000 by the end
of August 2023(2) (on a rolling 12 month basis).
The CWU has threatened, but not yet notified Royal Mail, of a
further 16 days of strikes in November and December. Additional
days of industrial action beyond 25 October would increase the loss
for the full year materially and may necessitate further
operational restructuring and headcount reduction.
Wherever possible, we will look to achieve FTE rightsizing
through reductions in overtime, temporary staff and natural
attrition. However, based on current estimates, c.5,000-6,000
redundancies (frontline roles in delivery and processing) may
regrettably be required by the end of August 2023.
We will do all we can to avoid compulsory redundancies,
including offering a voluntary redundancy scheme. The financial
position of the business means that our legacy voluntary redundancy
policy, which offered up to two years' pay, is now unaffordable. We
will consult with CWU on any new voluntary redundancy
arrangements.
There is an increased risk of impairment of the carrying value
of the Royal Mail cash generating unit (CGU)(3) , which was
GBP1,366 million at 27 March 2022. Any impairment charge would be
classified as a non-cash specific item. An update on the outcome of
the impairment review will be provided as part of our H1 results
announcement on 17 November 2022.
These results further highlight the need for significant and
urgent change at Royal Mail with a further rightsizing of the
business and modernisation of working practices. We will continue
to take forward a range of initiatives to improve efficiency over
the medium term to secure the long-term prospects for the company.
We will also continue to push for talks with CWU at Acas, which
need to be time bound as the damage from further strikes will only
necessitate further changes in the business, beyond those already
announced.
Notwithstanding challenging trading conditions across its
markets, the performance of GLS remains on track to meet full year
expectations of an adjusted operating profit between EUR370 -
EUR410 million. The business continues to benefit from its
resilient business model based on high quality services, wide
geographical spread, balanced mix of B2B and B2C revenues and
ability to manage costs and pricing.
The Board has always maintained that there should be no cross
subsidy in the Group and recognises the need to address
improvements in Royal Mail's performance quickly. In the event that
significant change within Royal Mail is not achieved, all options
remain open to protect the value and prospects of the Group,
including separation of the two companies.
A further update on performance will be provided in our half
year results announcement on 17 November 2022.
ROYAL MAIL VOLUME AND REVENUE PERFORMANCE FOR THE FIRST HALF
(APRIL TO SEPTEMBER)
6 months ended September % change(5)
2022 vs. 2022 vs
Volume (m) 2022 2021 2019 2021 2019
--------- --------- --------
Royal Mail
Total Parcels 613 725 613 (15)% 0%
--------- -------- -------- --------- --------
Domestic
Parcels (ex. international)(4) 539 645 486 (16)% 11%
--------- -------- -------- --------- --------
International(6) 74 79 128 (6)% (42)%
--------- -------- -------- --------- --------
Addressed
Letters (ex. elections) 3,598 3,816 4,731 (6)% (24)%
--------- -------- -------- --------- --------
6 months ended September % change(5)
2022 vs.
Revenue (GBPm) 2022 2021 2019 2021 2022 vs 2019
--------- --------- -------------
Royal Mail 3,647 4,074 3,649 (10.5)% (0.1)%
--------- -------- -------- --------- -------------
Total Parcels 1,976 2,308 1,727 (14.4)% 14.4%
--------- -------- -------- --------- -------------
Domestic
Parcels (ex. international)(4) 1,635 1,911 1,334 (14.4)% 22.6%
--------- -------- -------- --------- -------------
International(6) 340 397 393 (14.3)% (13.4)%
--------- -------- -------- --------- -------------
Letters 1,672 1,766 1,922 (5.3)% (13.0)%
--------- -------- -------- --------- -------------
1. In-year trading cash flow has been re-presented to include
deferred revenue movements (including Stamps In The Hands Of the
Public (SITHOP) which were previously presented outside of in-year
trading cashflow within other working capital).
2. FTE comparisons are vs. the same period of prior year. FTE is
operational hours paid per week divided by a standard 37 hour
week.
3. Excluding Parcelforce Worldwide (which is already fully impaired)
4. Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide.
5. % changes based on reported numbers.
6. International includes import and export for Royal Mail and Parcelforce Worldwide.
Enquiries:
Investor Relations
John Crosse
Email: investorrelations@royalmail.com
International Distributions Services investor relations line:
020 7449 8183
Media Relations
Greg Sage
Phone: 07483 421374
Email: greg.sage@royalmail.com
Jenny Hall
Phone: 07776 993 036
Email: jenny.hall@royalmail.com
Royal Mail press office: press.office@royalmail.com
Company Secretary
Mark Amsden
Email: cosec@royalmail.com
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements
concerning the Group's business, financial condition, results of
operations and certain Group's plans, objectives, assumptions,
projections, expectations or beliefs with respect to these items.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'anticipates', 'aims', 'due', 'could', 'may', 'will', 'would',
'should', 'expects', 'believes', 'intends', 'plans', 'potential',
'targets', 'goal', 'forecasts' or 'estimates' or similar
expressions or negatives thereof.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the Group's actual
financial condition, performance and results to differ materially
from the plans, goals, objectives and expectations set out in the
forward-looking statements included in this document.
All written or verbal forward-looking statements, made in this
document or made subsequently, which are attributable to the Group
or any persons acting on its behalf are expressly qualified in
their entirety by the factors referred to above. Accordingly,
readers are cautioned not to place undue reliance on
forward-looking statements. No assurance can be given that the
forward-looking statements in this document will be realised;
actual events or results may differ materially as a result of risks
and uncertainties facing the Group. Subject to compliance with
applicable law and regulation, the Group does not intend to update
the forward-looking statements in this document to reflect events
or circumstances after the date of this document, and does not
undertake any obligation to do so.
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END
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