Royal Mail interim results

Financial performance beginning to improve. But core Universal Service activities remain loss-making

Key financial highlights	Half year to 25 September 2011	Half year to 26 September 2010
	£m	£m
Group revenue	4,606	4,402
Operating profit including modernisation costs *	67	22
Free cash inflow/(outflow)	309	(52)

* - Operating profit after modernisation costs, before other operating exceptional items

·          Our financial performance, including our cash flow, is beginning to improve. We have a great deal to do still to return Royal Mail to sustained financial viability;

·          Revenue grew by 5% and costs before modernisation increased by 1%;

·          The business unit that provides the core Universal Service to the UK’s 29 million addresses remains loss-making. But as a result of tight cost control and price increases introduced last spring, the loss at the half year was £41 million - not as great as the £55 million loss a year ago;

·          Were it not for profits from GLS (£58 million) and Post Office Limited (£55 million), the Group overall would have made a loss;

·          UK letter volumes fell 6% compared to a year ago. UK packet volumes rose 5% in tough market conditions;

·          Modernisation is painful for our people as working practices are changing and there are continuing job losses – over 5,000 people left over the last 12 months, with almost 2,000 of them in Head Office or other managerial roles;

·          EU approval for the Government’s State Aid application remains vital;

·          Our strategy to achieve our goal of a financially sustainable Royal Mail and to attract private capital investment remains the same:

o         Modernise Royal Mail,

o         Respond better to customers’ needs and grow our business,

o         Work with Ofcom to secure a new, appropriate regulatory framework.

Moya Greene, Chief Executive Officer of Royal Mail Group, said: “Our financial performance at the Group level in the first half of our financial year, including our cash flow, shows some improvement on the same period a year ago. The necessary measures we implemented earlier in the year – increasing our prices and tight cost control – are a key part of our strategy to return Royal Mail to sustained financial viability. They are beginning to deliver results. But, we have a great deal to do.

“We are half way through our financial year and are operating within a difficult and challenging business environment. The economic downturn is proving to be prolonged and, like many other predominantly UK and European-based companies, our trading conditions are challenging. Our focus therefore remains on returning to sustained financial viability. We will continue to reduce our costs wherever possible without compromising the six–days-a-week service.

“We look forward to working with Ofcom to secure a new regulatory approach as the need to do so is pressing. Furthermore, it will be essential for Royal Mail that the European Commission approves the Government’s State Aid application to relieve the Company of its historic pension liability and allow restructuring of the Royal Mail balance sheet”.