International Distributions Services plc

(Incorporated in England and Wales)

Company Number: 8680755

LSE Share Code: IDS

ISIN: GB00BDVZYZ77

LEI: 213800TCZZU84G8Z2M70

26 January 2023

TRADING UPDATE FOR THE NINE MONTHS TO END OF DECEMBER 2022

International Distributions Services plc (IDS.L) is today providing an update on trading for the nine months to the end of December 2022.

Royal Mail:

·    Revenue down 12.8% year on year in the nine-month period. Performance continues to be driven by a return to structural decline in letters, weaker retail trends, the impact of industrial disruption (18 strike days year to date), and lower test kit volumes;

·    Total letter revenue declined 6.1% year on year, with volumes for addressed letters excluding elections down 8%;

o  Compared to pre-pandemic levels (9M 2019-20) addressed letter volumes (excluding elections) were down 25% and total letter revenue down 14.0%, reflecting the fundamental change in volume and revenue mix - parcels now 54% of total revenue vs. 48% pre-pandemic - highlighting the urgent need to deliver change;

·    Total parcel revenue reduced by 17.8% year on year, with volumes down 20% (revenue growth of 8.6% and volume decline of 6% vs. pre-pandemic 9M 2019-20);

·    Year to date adjusted operating loss of £295 million. Net cost of strike action in the nine-month period estimated at c. £200 million;

·    Five-point plan to stabilise the business making good progress and on track;

·    Number of voluntary redundancies required to achieve the 10,000 FTE (Full Time Equivalent) reduction by August 2023 will be significantly lower than the 5,000-6,000 communicated in October as a result of strong performance in reducing variable FTE resource and current levels of attrition. On track for 5,000 FTE reduction by March 2023. No compulsory redundancies.

·    Effective contingency measures: despite seven days of industrial action in December, robust contingency planning meant in excess of 110 million parcels and over 600 million addressed letters delivered. Up to c. 12,500 CWU grade employees returned to work on strike days.

GLS:

·    Volume declined 2% year on year in the nine months; revenue growth of 9.7% in Sterling, 9.6% in Euros (including acquisitions and working day effects)¹, continuing to benefit from better pricing and higher freight revenues;

·    Adjusted operating margin for the nine months 7.5%, 100 bps below prior year;

·    Continued robust performance against challenging macro-economic backdrop. Revenue growth in almost all markets, but continued cost pressures, being partly offset by a combination of specific pricing actions, service quality and targeted efficiency measures.

Outlook:

·    Royal Mail FY 2022-23: Whilst 18 days of strikes is six more than was previously anticipated in our outlook, we expect an adjusted operating loss around the mid-point of the existing £350 million to £450 million range, due to tight control of costs and strike contingency measures. This assumes no further days of strike action in Q4 and the CWU accept a pay settlement in line with the best and final pay offer. The full year outturn will also be subject to potential customer attrition in Q4 and excludes any charges for voluntary redundancy costs. Continue to expect that the £925 million bank syndicate loan facility will remain undrawn during the remainder of the current financial year.

·    Ongoing industrial dispute further increases the risk of impairment of the carrying value of the Royal Mail cash generating unit (CGU)², which was £1,412 million at 25 September 2022. Any impairment charge would be classified as a non-cash specific item, and reflect the losses being incurred within the Royal Mail business. An update on the outcome of the impairment review will be provided as part of our full year results announcement.

·    Royal Mail FY 2023-24: Given the ongoing industrial dispute, we now expect negative in-year trading cashflow, and thus generation of positive free cash flow will require support from the proceeds of asset disposals. Continue to target return to adjusted operating profit in FY 2024-25.

·    GLS: FY 2022-23: maintaining guidance for revenue growth year on year of high single digit % and adjusted operating profit in the range €380 to €400 million (previously €370 to €410 million).

PERFORMANCE FOR NINE MONTHS TO END OF DECEMBER 2022

PERFORMANCE FOR THE THIRD QUARTER (OCTOBER TO DECEMBER 2022)

1.     Revenue growth year on year in Euros was 7.2%, adjusting for the impact of acquisitions and working day effects.

2.     Excluding Parcelforce Worldwide (which is already fully impaired).

3.     Royal Mail and GLS revenue does not equal Group revenue due to the elimination of intragroup trading.

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: [email protected]

Media Relations 

Jenny Hall

Phone: 07776 993 036

Email: [email protected]

Royal Mail press office: [email protected]

Company Secretary

Mark Amsden

Email: [email protected]  

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.