International Distribution Services
plc
(Incorporated in England and
Wales)
Company Number: 8680755
LSE Share Code: IDS
ISIN: GB00BDVZYZ77
LEI: 213800TCZZU84G8Z2M70
18 July 2024
TRADING UPDATE TO END OF JUNE
2024
Trading in line with
expectations - good volume and revenue growth and continued
strategic progress in both Royal Mail and GLS
International Distribution Services
plc (IDS.L) is today providing an update on trading for the three
months to the end of June 2024. Both Royal Mail and GLS have
continued to deliver a good performance against a challenging
macroeconomic backdrop.
THREE MONTHS ENDED JUNE 2024 (FIRST
QUARTER)
|
3 months ended June
|
|
Volume
(m)
|
2024
|
2023
|
% change4
|
Royal
Mail
|
|
|
|
Total Parcels
|
315
|
283
|
11%
|
Domestic Parcels (ex. international)
1
|
268
|
250
|
7%
|
International Parcels2
|
47
|
32
|
47%
|
Addressed Letters3
|
1,642
|
1,703
|
(4)%
|
GLS
|
229
|
219
|
5%
|
|
3 months ended June
|
|
Revenue
(£m)
|
2024
|
2023
|
% change4
|
Group6
|
3,256
|
3,008
|
8.2%
|
Royal
Mail
|
2,000
|
1,808
|
10.6%
|
Total Parcels
|
1,016
|
923
|
10.1%
|
Domestic Parcels (ex. international)
1
|
845
|
767
|
10.2%
|
International Parcels2
|
171
|
156
|
9.6%
|
Letters5
|
985
|
886
|
11.2%
|
GLS
|
1,261
|
1,203
|
4.8%
|
Royal Mail:
· In
the first quarter Royal Mail maintained its recent positive
momentum, with good parcel volume growth supported by improvements
in quality of service, and good revenue growth in both letters and
parcels. The prior year comparator period includes the
impact of customer losses due to industrial action during 2022-23,
providing a tailwind to growth in the quarter, which will unwind
over the remainder of the year:
o Total parcel
volumes increased by 11% and revenues increased 10.1%;
o Addressed
letter volume decline (ex. elections) was 4%, while total letter
revenue increased by 11.2% due to revenue associated with General
Election mail, as well as price increases;
o We continue to
urge Ofcom to take urgent action to reform the Universal Service
and use its upcoming summer update to consult on a new efficient,
financially sustainable model for the Universal Service that
protects what matters most to customers.
·
General Election - more postal votes and candidate
mail delivered than in any previous election:
o Deliveries of postal vote returns increased by 50% compared to
2019 General Election, and 30% more candidate mail delivered than
in 2019;
o Royal Mail delivered 50.8 million poll cards, 7.3 million
completed postal votes and 184 million pieces of candidate
mail.
·
Continuing to expand our out-of-home footprint, with planned
increase in drop off locations of more than 50% to
21,000:
o Royal Mail now
in more than 3,300 Collect+ stores, increasing to 5,000 in the
coming weeks;
o c. 400 lockers
now operational, 1,500 by year end.
·
Continued operational progress:
o Quality of
Service - continuing on a positive trajectory;
year-on-year our First Class quality of service in Q1
improved by over 4.5% and over 93.5% of First Class mail is
arriving within two days, up from 91% at full year;
o Extension of
network window and flight removal - implemented the largest
operational change in over 20 years, changing frontline start times
to enable the removal of 18 domestic flights, improve reliability
and increase network capacity for next day and larger items. This
will save 1.2 million air miles or c.30,000 tonnes of
CO2 equivalent per year;
o Rail - Royal
Mail will continue to use rail services to transport mail; to
improve reliability, cost effectiveness and environmental
performance, switching from our own 30-year-old freight trains to
commercial rail services;
o Sick absence -
remains on an improving trend since the introduction of new
attendance standards and sick absence policy last year, with
frontline absence in June c. 1.5% lower compared to June
2023.
GLS:
·
Trading in line with expectations -
continued good performance against a
challenging macroeconomic backdrop;
·
Volumes grew 5% year on year in the first
quarter driven by B2C (Business to Consumer)
and cross border;
·
Revenue growth of 4.8% in Sterling, 7.0% in Euros
(including working day effects7);
o Revenue growth in almost all markets: double-digit growth in Spain, Poland and most other
Eastern Europe markets;
·
Turnaround of US continuing to make good
progress, with losses reduced;
·
Strategic delivery: continuing to invest to
transform the last mile and expand out of home (OOH) network;
improving digital propositions; upgrading the network to drive
productivity and growth against a backdrop
of macro and competitive pressures; and growing our international
business;
o GLS
OOH network grew by 5% June vs. March 2024, driven by strong growth
in parcel lockers of 23%;
o Network upgrades continuing: new Berlin hub opened in June,
creating operational synergies and benefits from automation, as
well as providing capacity for further growth; new facility opened
in Regina in Western Canada in April 2024, together with the
ramp-up of operations in Vancouver which became operational in
March 2024; new Paris hub remains on track to be operational in
advance of peak this year.
Outlook:
·
Confirming Royal Mail outlook from May 2023 -
continue to expect a return to adjusted operating
profit (before voluntary redundancy costs) in 2024-25 (the "Royal Mail Profit
Forecast")8,9 - which remains valid at the date
of this announcement.
Recommended Cash Offer by EP UK
Bidco Limited (Bidco)
·
Board is unanimously recommending Shareholders
accept the Offer;
·
The Offer reflects the value of GLS' current growth
plans and the progress being made on change at Royal Mail, and
provides Shareholders with the opportunity to realise the value
inherent in the IDS business in cash, against the execution risks
in delivering IDS' current strategy, uncertainty over the nature
and timing of USO reform and the need for significant strategic
investments;
·
To deliver sustainable profitable growth in the
future, Royal Mail requires further significant investment in
automation, network changes and rapid expansion of out-of-home
solutions, especially parcel lockers. GLS also requires investment
into its strategic priorities. EP Group is a long-term
investor in infrastructure with significant knowledge of the
postal, logistics and distribution sectors, that has the expertise
and access to capital to accelerate and de-risk the delivery of
IDS' strategic plans over the long-term, with the goal of developing IDS into one of the leading postal
logistics players in Europe;
· The
Board has negotiated a comprehensive package of legally binding
undertakings and contractual commitments from EP Group and Bidco
for specific periods, which provide customers, employees, unions,
regulators and broader stakeholders with important safeguards,
including:
o The provision
of the Universal Service Obligation and ensuring Royal Mail's
compliance with regulatory conditions imposed by Ofcom (including
the one-price-goes-anywhere service in the UK and First Class
letters still delivered six days a week);
o Restrictions on
distributions or other forms of return of value from Royal Mail
unless certain conditions are satisfied;
o Restrictions on
change of control of both Royal Mail and GLS;
o Use of the
"Royal Mail" trading name and commitment to IDS and Royal Mail
being UK headquartered and tax resident;
o Recognition of
IDS group's existing unions; and
o Maintenance of certain employee compensation and
benefits (including pension benefits).
Martin
Seidenberg, Group Chief Executive of IDS plc,
commented:
"The Group
delivered good revenue growth of 8.2% in the quarter, with the
increase in Royal Mail revenue reflecting the impact of the
customer win back programme since industrial action, the focus on
improving quality of service and the successful delivery of 50%
more postal votes and 30% more candidate mail in the recent general
election, compared to 2019. I am proud and thankful for all the
extra effort our postmen and women put in to play our part in
delivering democracy.
"GLS
delivered a good performance despite market headwinds, with 5%
volume and revenue growth in the quarter, and further strategic
progress in transforming last mile, with 23% growth in our locker
network, driving efficiencies and improvements in the customer
experience, and growing our network and international
business.
"Whilst we
are making good progress on our transformation in Royal Mail, we
can't do it all on our own and we urgently need to see regulatory
reform of the Universal Service. Letter volumes have declined from
20 billion at their peak to just 6.7 billion now, making the
one-price-goes-anywhere Universal Service unsustainable in its
current form. Ofcom is due to provide an update on Universal
Service reform this summer. We urge Ofcom to move quickly to
consult on the changes needed to ensure an efficient, financially
sustainable Universal Service that protects what customers value
the most."
1. Domestic Parcels
excludes import and export for both Royal Mail and Parcelforce
Worldwide.
2. International
includes import and export for Royal Mail and Parcelforce
Worldwide
3. Excludes General
Election mail.
4. % changes based
on reported numbers.
5. Includes revenue
from General Election mail.
6. Royal Mail and
GLS revenue does not equal Group revenue due to the elimination of
intragroup trading.
7. Revenue growth
year on year in Euros was 5.2% after adjusting for the impact of
more working days in Q1 2024 vs. Q1 2023. Working day adjusted
organic growth in Euros was 4.9%
8. Reported results
are prepared in accordance with UK adopted International Financial
Reporting Standards (IFRS). In addition, the Group's performance is
explained through the use of alternative performance measures
(APMs) that are not defined under IFRS. A full list of the Group's
APMs is set out in the section titled 'Presentation of results and
alternative performance measures' in IDS' annual report for the
year 2023-2024 on pages 238 to 243 (both inclusive). One of the
APMs is 'adjusted operating profit' which is the measure adopted in
the Royal Mail Profit Forecast. See page 240 of IDS' annual report
for the year 2023-2024 for the definition of 'adjusted operating
(loss)/profit'.
9. The Royal Mail
Profit Forecast is a profit forecast for the purposes of Rule 28 of
the Takeover Code and the required confirmation of the IDS
directors, together with the basis of preparation and assumptions,
is set out in Appendix 1 to this announcement.
Enquiries:
Investor Relations
John Crosse
Email:
investorrelations@ids-plc.com
Media Relations
Jenny Hall
Phone: 07776 993 036
Email:
jenny.hall@royalmail.com
Greg Sage
Phone: 07483 421 374
Email:
greg.sage@royalmail.com
Royal Mail press office:
press.office@royalmail.com
Company Secretary
Mark Amsden
Email:
cosec@ids-plc.com
The person responsible for arranging
the release of this announcement on behalf of IDS plc is Mark
Amsden, Company Secretary.
FORWARD-LOOKING STATEMENTS
This announcement 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 announcement.
All written or verbal
forward-looking statements, made in this announcement 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
announcement 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
announcement to reflect events or circumstances after the date of
this announcement, and does not undertake any obligation to do
so.
Other than in relation to the Royal
Mail Profit Forecast, no statement in this announcement is intended
as a profit forecast or estimate for any period.
POST-OFFER UNDERTAKINGS OR POST-OFFER INTENTION
STATEMENTS
No statement in this announcement
constitutes a "post-offer undertaking" or a "post-offer intention
statement" for the purposes of Rule 19.5 or Rule 19.6, as
applicable, of the Takeover Code.
Appendix 1
Profit forecast for purposes
of the Takeover Code
On 18 May 2023, IDS released its
unaudited preliminary results for the 52-week period ended 26 March
2023, which included the Royal Mail Profit Forecast, as
follows:
"Royal Mail: Targeting to restore profitability in Royal Mail
over the two remaining years of the recommended pay deal, with a
return to adjusted operating profit (before voluntary redundancy
costs) in 2024-25."
The Royal Mail Profit Forecast was
repeated in IDS' unaudited results for the half year ended 24
September 2023 released on 16 November 2023, as follows:
"On a 2-year outlook, we are still targeting Royal Mail to
return to adjusted operating profit (excluding voluntary redundancy
costs) in FY 2024-25, although the current weaker macroeconomic
conditions represent a significant headwind."
The Royal Mail Profit Forecast was
first made before EP Group made an approach with regard to a
possible offer for IDS and accordingly the requirements of Rule
28.1(c) of the Takeover Code apply to the Royal Mail Profit
Forecast. In the offer document published on 26 June 2024, the
directors of IDS confirmed that the Royal Mail Profit Forecast
continued to be valid as at that date, had been properly compiled
on the basis of the assumptions stated therein and that the basis
of accounting used was consistent with IDS' accounting
policies.
The directors of IDS confirm that
the Royal Mail Profit Forecast continues to be valid as at the date
of this announcement.
Set out below is the basis of
preparation of the Royal Mail Profit Forecast and the assumptions
on which it is based.
Basis of preparation
The Royal Mail Profit Forecast has
been prepared on a basis consistent with IDS' accounting policies
which are consistent with those applied in the preparation of IDS'
results for the 53-week financial period ended on 31 March
2024.
The Royal Mail Profit Forecast has
been prepared on the basis referred to above and subject to the
principal assumptions set out below. The Royal Mail Profit Forecast
is inherently uncertain and there can be no guarantee that any of
the factors referred to under 'Assumptions' below will not occur
and/or, if they do, their effect on IDS' and/or Royal Mail's
results of operations, financial condition or financial
performance, may be material. The Royal Mail Profit Forecast should
therefore be read in this context and construed
accordingly.
Assumptions
The Royal Mail Profit Forecast is
based on the assumptions listed below:
1.1 Factors outside the influence or control of the directors of IDS:
(a) there being no
changes to existing prevailing macroeconomic, regulatory or
political conditions in the markets and regions in which Royal Mail
operates that would materially affect the business, including there
being no changes due to any impact of the ongoing Ukraine-Russian
and Israel-Palestine crises;
(b) the inflation,
interest, foreign exchange and tax rates in the markets and regions
in which Royal Mail operates remaining materially unchanged from
the prevailing rates;
(c) there being no
material adverse events that would have a significant impact on
Royal Mail's financial performance, including litigation, change in
political regime, climate change or adverse weather
events;
(d)
there being no industrial action involving Royal
Mail;
(e)
there being no reform of the Universal Service
Obligation of Royal Mail;
(f)
there being no material changes in market
conditions over the forecast period to 30 March 2025;
(g) there being no
business disruptions that materially affect Royal Mail or its key
customers or any major breach of information security or data
protection regulation as a result of a cyberattack and/or
technological issues;
(h)
there being no material impact on stakeholder
relationships on account of any offer for IDS;
(i) there
being no material adverse outcome from any ongoing or future
disputes with any customer, competitor, regulator or tax
authority;
(j) there
being no material adverse impact on the health, safety and
wellbeing of Royal Mail's employees, no material change in employee
attrition rates and no material change in Royal Mail's labour
costs, including medical and pension and other post-retirement
benefits driven by external parties or regulations; and
(k) there being no
material changes in legislation, taxation, regulatory requirements,
applicable standards or the position of any regulatory bodies
impacting on Royal Mail's operations or on the accounting policies
of IDS.
1.2 Factors within the influence or control of the directors of IDS:
(a)
there being no further material change to the
present management of IDS;
(b) there being no
material adverse change in IDS' ability to maintain customer and
partner relationships and to meet customer needs and
expectations;
(c) all long-term
customers being retained and continuing to generate revenues in
line with their historical trends and past behaviours and there
being no loss of customer contracts or volumes of activity unless a
contract is due to terminate in the period to 30 March
2025;
(d) there being no
material corporate acquisitions or disposals, developments,
partnership or joint venture agreements being entered into by Royal
Mail, prior to 30 March 2025 (for the avoidance of doubt, other
than any offer for IDS);
(e)
there being no material strategic investments over
and above those currently planned;
(f)
there being no material changes in the dividend or
capital policies of IDS;
(g)
IDS' accounting policies being consistently
applied over the forecast period;
(h)
there being no material change in the operational
strategy of IDS and/or Royal Mail; and
(i) there
being no inability to secure ongoing access to finance and/or to
manage working capital and cash to support the ongoing running of,
and investment in Royal Mail.
Statement of the directors of IDS
The directors of IDS have considered
the Royal Mail Profit Forecast and confirm that it remains valid as
at the date of this announcement, has been properly
compiled on the basis of the assumptions set out above and the
basis of accounting used is consistent with IDS' accounting
policies.