First-half profits before transformation costs dropped by 5% to £320m (2015: £342m) although profits after transformation costs were up from £248m to £262m, while targeted annual cost savings across the group were increased from £500m to £600m until March 2018. Interim dividend for the period was increased from 7p to 7.4p
Within the group’s divisions, revenues at UK Parcels, International & Letters (UKPIL) were negatively impacted by a 3% decline in all letters, including an 8% slide in marketing mail revenues and 2% decrease in letters and other mail, however parcel revenue was up 3%. Total sales for the division were down 1% to £3.64bn, despite a weaker Sterling giving a positive impact of £12m. Operating profit before transformation costs dropped 11% to £3.4bn, with margin dropping 70 basis points to 6.8%.
The group’s European parcels business General Logistics Systems, however, benefitted from strong growth in export volumes and overall volumes up 10%. Revenues for the division rose 9% to €1.15bn (£942m according to Royal Mail’s GBP conversion) and operating profit rose sharply by 25% to €89m (£73m) with margins increasing 90 basis points from 7% to 7.7%. Revenues for GLS Italy and Germany grew by 15% and 5% respectively while GLS France achieved an improved revenue growth rate of 8% and reduced operating losses by €3m (£2.57m) to €5m (£4.28m).
In June the group acquired Spanish express Parcels delivery firm ASM, which operates in the B2C market and makes up 10% of Spain's domestic parcels market. Royal Mail said the move had strengthened, GLS' Spanish operations. Meanwhile, last month GLS acquired US-based parcel service Golden State Overnight.
Announcing the figures, chief executive Moya Greene said intense competition in the UK parcels market and the continual expansion of Amazon Logistics had continued to put pressure on volume growth, while "a period of more generalised economic uncertainty" had impacted general marketing spend. However she said the results were “resilient” in the face of ongoing market challanges and in line with group expectations and that the full year results would be dependent on performance during the Christmas period.
The group has been investing heavily in a restructure of its people and operations as well as technology upgrade for around three years and Greene said this would now ease and begin to bear fruit, although investment would continue with a focus on GLS operations.
"It's been a busy six months and we have acheived a lot. This is the half where the heavy lifting and investment of the past three years is starting to bear fruit for us," she said.
"We are now benefitting from the major technology rebuild we've had to do and the changes to our operation we've had to mount after years of chronic underinvestment. After all that hard work we will now be able to put investment levels down a bit and reprofile them so they are weighted towards growth," she added.
"We've delievered real resilience in the face of real competitive challenge. The intense competitive landscape for UKPIL continues unabated with new service offerings and those looking to add capacity," Greene said. She called Amazon's expanding UK presence "disruptive" but said the company's approach seemed to be shifting towards Europe. Greene also praised recent scrutiny into the low-pay 'gig economy'.
Greene said moving forward the group would remain focused on improving products and services, controlling costs and improving efficiency.
Following the announcement yesterday group shares were down almost 3% in early trading and continued to slide in the afternoon session by nearly 10% to 449.6p (52 week high: 541p, low: 413.3p). Share price improved slightly in morning trading today and was up to 465p at the time of writing.
