Key points
Revenue growth of two per cent was driven by strong growth in parcel revenue in UKPIL and GLS, which offset letter revenue decline. Parcel revenue now accounts for 51 per cent of Group revenue.
Operating costs after transformation costs were flat, due to tight cost control and lower transformation costs. Transformation costs were lower than expected, in part due to delays in transformation expenditure related to the industrial relations situation. Transformation costs are now expected to be approximately £160 million for the full year.
Operating profit after transformation costs of £283 million benefitted from a one-off VAT credit of £35 million, lower depreciation and amortisation of £10 million, as well as £50 million lower transformation costs.
While the improved Group operating profit margin after transformation costs reflects continued tight cost control, the VAT credit and lower depreciation and amortisation benefitted margins by approximately one percentage point.
Profit before taxation of £233 million and notional earnings per share of 16.8 pence (both excluding specific items) reflect the operating performance of the Group. Pension accounting standards require us to include a one-time, non-cash benefit of £1,350 million4 as a result of the Pensions Reform in reported profit before taxation and reported notional earnings per share.
EBITDA before transformation costs increased to £483 million.
Net debt of £723 million was £183 million lower than at 31 March 2013. On 15 October 2013, Royal Mail refinanced and replaced all loans previously provided by HM Government. These loans5 and existing finance leases are currently forecast to have a blended interest rate of approximately 3.5 per cent per annum over the life of the facilities.
Outlook
We remain focused on delivering our value drivers to achieve revenue growth, margin expansion and underlying free cash flow growth for the full year. It should be noted that the first half costs benefitted from certain one-off and other items of £45 million, which will not be repeated in the second half.
We are about to enter our busiest period of the year. Since September, as expected, there has been some customer reaction to the industrial relations situation. To date this has been limited to a slowdown in the rate of business customer acquisition in parcels and switching of some volume to competitors in anticipation of strike action. Depending on the strength of the seasonal parcels volume growth in late November and December, this may result in Royal Mail reporting broadly unchanged parcel volumes but significant revenue growth for the nine months to December 2013.
