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Thursday 12 September, 2013

Dept Bus InnovSkills

Royal Mail - Announcement of Intention to Float

RNS Number : 7960N
Dept for Business Innovation&Skills
12 September 2013
 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES OF AMERICA, CANADA, JAPAN OR AUSTRALIA.

This announcement is an advertisement and not a prospectus. Investors should not purchase or subscribe for any transferable securities referred to in this announcement except on the basis of information contained in the prospectus (the "Prospectus") in its final form to be published by Royal Mail Limited (which will convert to a public limited company and be renamed Royal Mail plc prior to publication of the Prospectus) ("Royal Mail," the"Company" or the "Group") in due course in connection with the admission of its ordinary shares (the "Shares") to the Official List of the UK Listing Authority (the "UKLA") and to trading on the London Stock Exchange plc's main market for listed securities (the "London Stock Exchange") (together, "Admission"). Copies of the Prospectus will, following publication, be available from the registered office of the Group and online at www.gov.uk/royalmailshares

 

Royal Mail

Announcement of Intention to Float

 

Her Majesty's Government ("HM Government") today announces its intention to proceed with an initial public offering (the "IPO" or the "Offer") of Royal Mail.

 

Business Secretary Vince Cable announced to Parliament on 10 July 2013 that HM Government's intention was to pursue an IPO of Royal Mail by selling shares to institutional and retail investors during this financial year.

 

The IPO follows the passage of the Postal Services Act 2011 (the "Act") which lifted restrictions on Royal Mail's ownership, allowing HM Government to sell shares in Royal Mail. In addition, the Act established a new regulatory regime for postal services with Ofcom as the new postal market regulator and enabled Royal Mail's historic pension deficit to be transferred to HM Government. Further, Royal Mail and Post Office Limited ("Post Office") were separated in 2012, meaning that the Post Office is not for sale and will remain, subject to the Act, in HM Government ownership. These reforms were recommendations of the independent report into the future of the postal market led by Richard Hooper, published in 2008 and updated in 2010.

 

Offer Highlights

·      Royal Mail to list on the premium segment of the official list and the main market of the London Stock Exchange.

·      IPO expected to take place in the coming weeks.

·      HM Government will retain flexibility around the size of the stake to be sold, as this will be influenced by market conditions at the time of the transaction, investor demand and the objective to ensure that value for money for the taxpayer is achieved.

·      HM Government intends to dispose of a majority of the existing Shares, taking into account shares sold and the 10 per cent. of Royal Mail to be made available for free to around 150,000 eligible UK-based Royal Mail employees at the time of listing under an employee free shares offer (the "Employee Free Shares Offer"), which is separate and in addition to the Employee Priority Offer referred to below.

·      Upon listing, all of Royal Mail's existing HM Government provided loans will be refinanced with external debt facilities to be provided by Royal Mail's new banking syndicate.

·      Offer to comprise an offer to institutional investors in qualifying jurisdictions (in the UK and elsewhere outside the United States under Regulation S and to QIBs in the United States in reliance on Rule 144A) (the "Institutional Offer") and an offer to members of the public located in the UK (the "Retail Offer"), which includes a priority offer to eligible Royal Mail employees located in the UK (the "Employee Priority Offer").

·      Members of the public located in the UK will be able to apply for Royal Mail shares in the Retail Offer:

-     through participating Intermediaries, who will apply for Royal Mail shares on behalf of their clients; or

-      through a direct online or postal application to HM Government.

·      In addition, eligible Royal Mail employees located in the UK will be able to apply to HM Government online or through postal application with priority under the Employee Priority Offer (which is part of the Retail Offer).

·      Minimum application size in the Retail Offer will be £750 for members of the public and £500 for Royal Mail employees eligible under the Employee Priority Offer.

·     Information about Royal Mail, the Retail Offer and how to apply, along with a list of participating Intermediaries, is available today at www.gov.uk/royalmailshares, HM Government's dedicated share offer website, which will also facilitate online applications once the Offer opens. Individuals can register on the website for an e-mail alert to be sent to them at the start of the IPO.

 

Business Secretary Vince Cable said:

"This is an important day for the Royal Mail, its employees and its customers. 

"HM Government is taking action to secure a healthy future for the Company. These measures will help ensure the long term sustainability of the six days a week, one-price-goes-anywhere universal postal service. 

"By announcing today that we intend to move ahead with a sale of shares in Royal Mail, we are completing the third and final part of the reforms agreed by Parliament two years ago. This delivers on the commitment in the Coalition Agreement to give Royal Mail access to private capital, including opportunities for employee ownership."

 

Moya Greene, Chief Executive Officer of Royal Mail, said:

"Our strategy is delivering a revitalised company, with a unique UK, multi-use network through which we are proud to deliver the universal postal service for all UK citizens.  This network and our strong brand, coupled with the high service quality delivered by our people enable us to take full advantage of the growth in UK e-commerce to further enhance our pre-eminent parcels business. Combining this UK presence with our pan-European parcels business GLS, should result in a financial profile that combines revenue growth and margin progression to underpin strong cash flow generation."

 

Royal Mail Highlights

 

·     Royal Mail Group is the leading provider of postal and delivery services in the UK and is the UK's designated universal postal services provider

-      UK Parcels, International and Letters ("UKPIL") comprises the Group's UK and international parcels and letters delivery businesses operating under the "Royal Mail" and "Parcelforce Worldwide" brands.

-      Through the Royal Mail Core Network, the Group delivers a "one price goes anywhere" service on a range of parcels and letters products to more than 29 million addresses in the UK, six days a week (excluding UK public holidays).

-      Parcelforce Worldwide operates a separate UK network which collects and delivers express parcels.

-      Leading market shares in UK parcels and letter delivery, delivering through its UK networks, approximately 99 per cent. of letters and over one billion parcels in FYE 2013 representing around 53 per cent. volume share of the UK parcels market. 

 

·     The Group also has significant operations in continental Europe through its General Logistics Systems ("GLS") business

-      One of Continental Europe's largest ground-based deferred parcels delivery businesses handling 380 million parcels in FYE 2013 with a focus on deliveries within the B2B (business to business) segment, but with an increasing presence in the B2C (business to consumer) segment. 

-      Operates in some 37 countries and nation states through a combination of wholly-owned subsidiaries, franchisees and service partners (including Parcelforce Worldwide in the UK).

 

·     Royal Mail is one of the UK's largest employers and has a skilled workforce which is critical to its operations

-      At 30 June 2013 (end of Q1 FYE 2014), the Group employed approximately 167,000 people including approximately 150,000 within UKPIL.

 

·     Revenue growth and margin expansion underpin strong cash flow generation

-      For FYE 2013, reported Group revenue was £9.3 billion (£9.1 billion on an adjusted 52-week basis), up five per cent. on a like-for-like basis with UKPIL parcel revenue  growing by 13 per cent. on a like-for-like basis.

-      Reported operating profit after transformation costs for FYE 2013 more than doubled to £440 million (£403 million on an adjusted 52-week basis), representing a margin of 4.7 per cent. (4.4 per cent. on a like-for-like basis).

-      In FYE 2013, UKPIL accounted for approximately 83 per cent. of the Group's revenue and 73 per cent. of its operating profit after transformation costs (both on an adjusted 52-week basis).  In the same period, GLS accounted for 16 per cent. of the Group's revenue and approximately 25 per cent. of its operating profit after transformation costs.  In FYE 2013, on an adjusted 52-week basis 48 per cent. of the Group's revenue was generated from parcels.

 

·     Dividend policy

-      Royal Mail will adopt a dividend policy that supports its aim of generating value for shareholders while ensuring that it retains sufficient capital to invest in growing its business.

-      In respect of FYE 2014, in the absence of unforeseen circumstances, Royal Mail intends to propose a final dividend only, to be paid in July 2014, of £133 million.  This amount is approximately two-thirds of the full-year dividend of £200 million that would have been proposed if Royal Mail had been listed throughout FYE 2014.

-      10 per cent. of the £133 million dividend will be paid to eligible Royal Mail employees who are allocated Shares under the Employee Free Shares Offer.

-      In subsequent financial years, Royal Mail intends to pursue a progressive dividend policy having regard to normalised earnings progression of the Group.

 

·     New debt facilities at listing

-      Royal Mail will today enter into new debt facility agreements with its banking syndicate comprising £600m term loan facilities and an £800m revolving credit facility.  These facilities will be conditional on listing and will refinance and replace all existing loans currently provided to Royal Mail by HM Government.

-      These new debt facilities will lead to a significant reduction in the Group's overall cost of debt.

 

Since April 2012, Royal Mail has been separated from the Post Office, which operates the UK's network of more than 11,500 post office branches

·      The Post Office was separated from Royal Mail and is now a distinct company. As such, it is not for sale and will remain, subject to the Act, in HM Government ownership.

·      HM Government is committed to the future of the Post Office and there will be no closure programme. The Post Office must maintain at least 11,500 branches nationwide and HM Government has committed to invest £1.34 billion to modernise the network.

·      Royal Mail and the Post Office have entered into a long-term distribution agreement under which the Post Office sells Royal Mail postage stamps and the Group's retail products to customers on behalf of Royal Mail across its network.

·      Post Office branches also serve as collection points for letters and parcels for Royal Mail customers.

 

Enquiries

 

Department for Business, Innovation & Skills

Aileen Boughen

Phone: 020 7215 5972

Email: aileen.boughen@bis.gsi.gov.uk

 

Josh Coe

Phone: 020 7215 5943

Email:  josh.coe@bis.gsi.gov.uk

 

BIS press office out of hours: 020 7215 3505 / 3234

 

Citigate Dewe Rogerson                                                                                           

Chris Barrie, Andrew Hey, Toby Moore

Phone: 020 7638 9571

Email:    chris.barrie@citigatedr.co.uk

Email:    andrew.hey@citigatedr.co.uk

Email:    toby.moore@citigatedr.co.uk

 

Royal Mail                                                                                                        

Shane O'Riordain

Phone: 020 7449 8105

Email: shane.o'riordain@royalmail.com

 

Beth Longcroft

Phone: 020 7449 8241

Email: beth.longcroft@royalmail.com

 

Mish Tullar

Phone: 020 7449 8239

Email: mish.tullar@royalmail.com

 

Royal Mail press office out of hours: 0203 338 1007

 

Joint Global Co-ordinator and Joint Bookrunner

Goldman Sachs International  020 7774 1000

Mark Sorrell

Richard Cormack

 

Joint Global Co-ordinator and Joint Bookrunner

UBS Limited  0207 567 8000

James Robertson

Christopher Smith

 

Joint Bookrunner and Sponsor

Barclays Bank PLC 020 7623 2323

Mark Warham

Derek Shakespeare

 

Joint Bookrunner

BofA Merrill Lynch  020 7628 1000

Oliver Holbourn

Justin Anstee

 

Financial Adviser to HM Government

Lazard & Co., Limited   020 7187 2000

William Rucker

Charlie Foreman

  

 

 

Notes to Editors

 

1              The Royal Mail Share Offer

 

HM Government currently intends to dispose of a majority of Royal Mail's issued share capital pursuant to the Offer, taking into account Shares sold and including making 10 per cent. available for free to eligible employees at the time of listing.

 

The Offer will comprise an Institutional Offer, to institutional investors in the UK and elsewhere outside the United States under Regulation S and to QIBs in the United States in reliance on Rule 144A, and a Retail Offer to individuals located in the UK, and including the Employee Priority Offer.  All shares in the Offer will be sold at the same price.

 

In connection with the Offer, Goldman Sachs International and UBS Limited are Joint Global Co-ordinators and Joint Bookrunners, Barclays Bank PLC is Joint Bookrunner and Sponsor, BofA Merrill Lynch is Joint Bookrunner and Investec Bank plc, Nomura International plc and RBC Europe Limited are Co-Lead Managers.  Lazard & Co. Limited is Financial Adviser to HM Government.

 

Full details of the Offer will be included in the Offer prospectus which will be published in due course.

 

The Retail Offer

 

Following publication of the Offer prospectus, individuals located in the UK will be able to apply for shares in the Retail Offer:

-      through participating Intermediaries, who will apply for Shares on behalf of new and existing clients;

-      through direct on-line or postal application to HM Government; or

-      if they are eligible employees with priority under the Employee Priority Offer (which is part of the Retail Offer).

 

The minimum application in the Retail Offer will be £750 for members of the Public and £500 for eligible Royal Mail employees under the Employee Priority Offer (which is in addition to any Employee Free Shares Offer entitlement they may have). Applications from eligible Royal Mail employees will receive priority in allocation in the Retail Offer, up to the first £10,000, subject to an overall limit of 10 per cent. of the total number of shares allocated in the Retail Offer. All applications from members of the public for shares in the Retail Offer (except for applications under the Employee Priority Offer) will be allocated in line with one common allocation policy, irrespective of whether applications are received direct or through Intermediaries. Participants in the Retail Offer will pay the same price per share as institutional participants.

 

When the Offer opens, direct applications can be made online using a debit card or by downloading and returning an application form with a cheque or bankers draft by post.  Application packs containing application forms will be available from selected Post Office branches. A list of the firms acting as Intermediaries for the Offer can be found on www.gov.uk/royalmailshares.

 

Information about Royal Mail, the Retail Offer and how to apply is available from today at www.gov.uk/royalmailshares, HM Government's dedicated share offer website, which will also facilitate online application once the Offer opens.  Individuals can register on the website for an e-mail alert to be sent to them at the start of the Offer period.

 

2              Employee Free Shares Offer

 

Through making available free Shares representing 10 per cent. of Royal Mail's issued share capital to eligible employees at the time of listing, the Employee Free Shares Offer will provide Royal Mail Group Limited's existing UK-based employees with a substantial and meaningful stake in the business, helping to align their interests with those of the Group and offering the potential for them to benefit from the growth and performance of the modernised business. More employees will be able to take part in the Employee Free Shares Offer than in any other UK privatisation for almost 30 years. Approximately 150,000 Royal Mail employees, the overwhelming majority of Royal Mail Group Limited's employees in the UK, are eligible for free shares in Royal Mail. This is the largest free allocation of shares of any major privatisation in the UK. Royal Mail is today writing to eligible employees with details of the Employee Free Shares Offer, which is conditional on listing and HMRC approval of the relevant share plan.

 

3              Employee Priority Offer

 

In addition to the Employee Free Shares Offer, eligible employees will be able to apply for shares in the Retail Offer with priority, under the Employee Priority Offer. HM Government considers that Royal Mail employees should share in the Group's success and have a real stake in the Group as part of the sale process - the Employee Priority Offer will give a further opportunity for eligible employees to share in the future of the Group:

·     Eligible employees will pay the same price as other retail investors, but receive priority on up to the first £10,000 worth of shares applied for (and with a minimum application amount of £500), subject to an overall limit of 10 per cent. of the total number of shares allocated in the Retail Offer.

·     Royal Mail is today writing to eligible employees with information on the Employee Priority Offer.

 

4             Reasons and Background for the Offer

 

The IPO follows the passage of the Act which lifted restrictions on Royal Mail's ownership allowing HM Government to sell shares in Royal Mail. The Act also set up a new regulatory regime for postal services with Ofcom as the new postal market regulator and enabled Royal Mail's historic pension deficit to be transferred to HM Government. In addition, Royal Mail and the Post Office were separated in 2012, meaning that the Post Office is not for sale and will remain, subject to the Act, in HM Government ownership. These reforms were recommendations of the independent report into the future of the postal market led by Richard Hooper, published in 2008 and updated in 2010. 

 

The Offer represents the first stage of HM Government's intended divestment of Royal Mail from public ownership to the private sector and is designed to enable Royal Mail to become more flexible and responsive to the dynamics of the competitive markets in which it operates and safeguard the sustainable future of the UK's universal postal service.  In addition, the IPO is intended to provide the Group with the opportunity for future access to private capital which can be raised more quickly once the Group is removed from HM Government control, ending the Group's dependence on competing for public resources within the constraints of public funding and borrowing limits and enabling the Group more readily to take advantage of market opportunities that may present themselves in future.

 

5              Royal Mail Strengths and Strategies

 

1)    Unique networks, powerful brands and strong market positions

 

·     The overall scope and scale of the Royal Mail Core Network is unique and unrivalled in the UK in terms of its size, coverage and geographical reach.  The Group derives significant advantages from the multi-use Royal Mail Core Network which is capable of delivering both letters and smaller parcels to more than 29 million addresses in the UK. 

·     "Royal Mail" and "Parcelforce Worldwide" are powerful brands. In particular, Royal Mail is a household name in the UK and is associated with high quality of service.

  

2)    Clear growth strategy for parcels, leveraging the structural trends in e-commerce

 

·     Over recent years, the increase in e-commerce has driven substantial growth in the number of parcels sent in the UK. The volume of parcels handled by UKPIL grew at a Compound Annual Growth Rate of approximately five per cent. over the last two years. 

·     The Group's strategy to grow further its parcels business in the UK is focused on:

enabling its frontline workforce to deliver more parcels;

investing in IT systems and processes to support the bar-coding of all parcels and tracking system;

continuing to look for opportunities to streamline its parcels product offering; and

evaluating an investment in automating the sorting of small parcels.

·     GLS, the Group's European parcels network, is a valuable asset. Royal Mail believes that it brings a number of strategic benefits to the wider Group, including an important level of geographical earnings diversification, a means of capturing growth in European cross-border parcels traffic and opportunities for sharing operational excellence.

 

3)    Operational transformation in the UK driving margin expansion

 

·     UKPIL's Transformation Programme is one of the largest industrial transformation projects undertaken in the UK in recent history. The programme is about increasing productivity and reducing costs in the Royal Mail Core Network, which handles over 90 per cent. of the parcels and all of the letters delivered.

·     The extensive measures being implemented are aimed at increasing profitability through an increase in productivity and efficiency, and a reduction in costs.  The key elements of the Transformation Programme will be substantially completed by end of FYE 2014 with efficiency improvements including:

the ability to carry more parcels in the Royal Mail Core Network through the introduction of around 50,000 hand-held scanners (as at the end of FYE 2013), high-capacity delivery trolleys and shared vans which avoid the need for delivery staff to return to delivery offices for replenishment;

the introduction of automation in the sorting of letters with almost 95 per cent. of outward letters automatically machine-sorted at the end of FYE 2013; and

rationalisation of mail centres for sortation.

·     Investment of around £2.8 billion from FYE 2007 to FYE 2013 in the Transformation Programme, as a result of which the Group estimates that it now bears approximately £0.5 billion less cost per year than it otherwise would have.

 

4)    Benefits of a regulatory framework focused on securing a sustainable universal postal service allowing a commercial rate of return for Royal Mail in the delivery of the USO and supporting the ability of the Group to manage the decline in letters

 

·     With effect from March 2012 Royal Mail operated under a new regulatory framework that removed a number of historic constraints on UKPIL. 

·     Regulatory price controls have been largely replaced with a more limited approach to pricing regulation.  Under the new regulatory framework direct price regulation impacts only around five per cent. of the Group's revenue compared with approximately 60 per cent. previously. 

·     Royal Mail's regulator, Ofcom, is required to have regard to the need for a financially sustainable universal postal service in the UK, including the need for Royal Mail as the designated universal service provider to earn a reasonable commercial rate of return on any expenditure it incurs in connection with the provision of the universal service. Ofcom has stated that such an indicative benchmark EBIT margin range of five to 10 per cent. on the universal postal services activities would be appropriate and such a range is neither a cap nor a floor.

·     While the Group is less dependent on revenue from letters than most of its international peers, the UK letters market will continue to be a strong source of revenue for the Group.

 

5)    Development and implementation of a collaborative approach with the Group's employees

 

·     Royal Mail is one of the UK's largest employers. The Group's UKPIL workforce is also loyal: around 65 per cent. of Royal Mail's current employees have worked at Royal Mail for 10 years or more. The UKPIL workforce's loyalty towards and pride in the Group drives reduced employee turnover and increased commitment and engagement.

·     In recent years, Royal Mail has successfully developed closer and more productive relationships with its employees and the trade unions which represent them. This approach of active engagement and closer collaboration has resulted in the successful implementation to date of the Group's wide-reaching Transformation Programme.

·     Royal Mail's discussions with the Communication Workers Union ("CWU") continue regarding a new agreement to build on the ground-breaking Business Transformation agreement of 2010. Agreement has already been reached on a number of significant issues, but negotiations are continuing after the CWU rejected Royal Mail's offer of an 8.6 per cent. increase to base pay over a three-year period backdated to 1 April 2013. In this context, you should also read paragraph 7 (entitled "Industrial Relations") in these notes to editors.

 

6)    Strong customer focus is driving business strategy and responsive operations

 

·     The Group has established long-standing relationships with customers (including businesses and consumers) in the UK and Europe. The Group's strategy focuses on its customers, and responding to their needs and requirements.

·     The Group receives strong feedback from internal and external polling showing improving levels of customer satisfaction and loyalty. For example, a poll published by a leading consumer website in January 2013 voted Royal Mail the best UK parcel carrier, while Parcelforce Worldwide was in third position.

 

7)     A focused and committed management team

 

·     The Group has a focused and committed management team which has driven improved profitability and the successful implementation of Royal Mail's Transformation Programme. 



6             Selected Royal Mail Financial Information

 

The table below summarises the development in certain key financial and operating measures for Royal Mail in Q1 FYE 2014, FYE 2013, FYE 2012 and FYE 2011.

 

 


£m (March y/e)

 

 




Q1 FYE 2014*
Un-audited

 

FYE 2013

53
Weeks

Reported

 

  FYE 2013

52
Weeks

Adjusted(1)

 

FYE 2012

52
Weeks

Reported

 

FYE 2011

52
Weeks

Reported

Revenue……………………….



2,304

9,279

9,146

8,764

8,415

UKPIL………………..……...



1,898

7,766

7,633

7,189

6,885

GLS………………….……..



402 

1,498

1,498

1,562

1,485

Other(2)..…………………...…...



4

15

15

13

45

Growth %(3).......................



3%

-

5%

4%

-

Net operating costs……...



(2,109)

(8,644)

(8,548)

(8,383)

(8,205)

Growth %(3).......................



1%

-

3%

2%

-

Transformation costs(4)….



(31)

(195)

(195)

(229)

(192)

Total net operating costs after transformation costs..

 



(2,140)

(8,839)

(8,743)

(8,612)

(8,397)

Growth %(3).......................



1%

-

2%

2%

-

Operating profit / (loss) after transformation costs………




164


440


403


152


18

UKPIL………………….…..



132

331

294

33

(110)

GLS…………………….…..



31

101

101

128

118

Other………………………



1

8

8

(9)

10

Operating profit margin after transformation costs %(5).....



   
5.0%(6)


4.7%


4.4%


1.7%


0.2%

UKPIL……………………..



4.4%

4.3%

3.9%

0.5%

-

GLS………………………..



7.7%

6.7%

6.7%

8.2%

7.9%

EBITDA before exceptional items(7)………




258


915


878


681


493









Free cash flow……………….



110

334

NM

154

(246)

* Preliminary unaudited financial results for the 13 weeks ended 30 June 2013


Notes:

(1)    FYE 2013 was a 53-week financial year. In order to provide a meaningful comparison with FYE 2012 revenue, operating profit after transformation costs and operating margin after transformation costs are also presented on an adjusted 52-week basis, which removes the revenue earned and associated costs incurred in the 53rd week.

(2)    Other revenue includes revenue from the Group's separately managed non-core division which holds its interests in two subsidiaries and an associate which provide facilities management, catering and cleaning services, consulting and project management services to the Group.

(3)    The percentage changes in revenue and costs at the Group level for FYE 2013 are calculated on an adjusted 52-week basis, adjusting for the impact of foreign currency movements in GLS.

The percentage changes in revenue and costs at the Group level for Q1 FYE 2014 are adjusted for the impact of foreign currency movements in GLS and, for revenue only, the difference in working days in UKPIL, reflecting the movement over the comparative quarter in FYE 2013.

(4)    Transformation costs are costs which fall outside the Group's normal trading activity and are disclosed separately to provide greater visibility of the underlying results of the revenues. The costs represent people and non-people related costs associated with the Transformation Programme.

(5)    Operating profit margin after transformation costs is calculated as operating profit after transformation costs to revenue.

(6)    Q1 FYE 2014 operating profit margin after transformation costs is calculated on an adjusted basis. Adjustments are made for the impact of foreign currency movements in GLS and, for revenue only, the difference in working days in UKPIL

(7)    EBITDA before exceptional items is defined as operating profit before exceptional items plus depreciation less share of post-tax profits from associates.

 

Q1 and Outlook

 

·     Trading in Q1 FYE 2014 (13 weeks ended 30 June 2013) was slightly ahead of the Group's expectations. Group revenue was up three per cent. while operating costs after transformation increased by one per cent. (both after adjusting for two additional working days and foreign exchange movements). As a result, operating profit margin after transformation costs improved to five per cent. (after adjusting for two additional working days and foreign exchange movements) (FYE 2013 4.4 per cent.).

·     In UKPIL, in line with Group strategy, parcel revenue increased on an adjusted basis by 11 per cent. and volumes by two per cent.. Addressed letter volumes declined by six per cent. (FYE 2013 eight per cent.) in line with the Group's medium-term forecast and total letter revenue declined by two per cent. (both after adjusting for two additional working days and foreign exchange movements). GLS saw an increase in Euro-denominated revenue of six per cent. and similar volume growth.

·     Royal Mail's financial year typically begins strongly then slows due to the Summer holiday season. Year-on-year parcel volume growth in Q2 FYE 2014 is expected to be further impacted by a temporary slow-down in e-retailing due to the good Summer weather as well as the reaction to size-based pricing. Consequently, with respect to H1 FYE 2014 Royal Mail anticipates UKPIL parcel revenues to be substantially ahead of the same period last year while UKPIL parcel volumes are expected to remain broadly unchanged year over year. Historically, the Group's fiscal third quarter sees stronger parcel growth due to Christmas and Royal Mail is well placed to take advantage of the Christmas up-tick.

 

7              Industrial Relations

 

·     On 2 September 2013, the CWU announced that if current talks with Royal Mail do not lead to an agreement, a ballot for national industrial action would be held from 20 September 2013.  The CWU stated that such a ballot would cover all relevant Royal Mail employees and the results would be announced on 3 October 2013.  If the ballot result is in favour of industrial action, the form and duration of any such industrial action to be taken are unlikely to be known until 3 October 2013 at the earliest. On this announced timetable, the first date on which any industrial action could occur is 10 October 2013.  The elements of the dispute identified by the CWU as giving rise to possible industrial action are: the settlement of the CWU's 2013 pay deal; Royal Mail's pensions reform proposals; the impact of possible privatisation on job security and terms and conditions; and Royal Mail's future strategy.

·     Negotiations between Royal Mail and the CWU are continuing and Royal Mail remains committed to reaching an agreement with the CWU and averting industrial action. However, there can be no guarantee that negotiations will lead to a successful outcome or the aversion of industrial action.

·    Royal Mail currently believes that the relevant members of the CWU will vote for national industrial action and that national industrial action and other forms of industrial action are therefore expected to take place across the whole of UKPIL's activities on or after 10 October 2013. In the event of national industrial action, the Group has contingency plans in place and will also consider its legal options.

 

8             Royal Mail Board of Directors

 

For detailed information on the Royal Mail Board of Directors please visit the below link on the Royal Mail website:

 

http://www.royalmailgroup.com/about-us/management-committees/royal-mail-group-board

 

·      Donald Brydon CBE - Chairman

·      Orna Ni-Chionna - Senior Independent Non-Executive Director

·      Moya Greene - Chief Executive Officer

·      Matthew Lester - Chief Finance Officer

·      Mark Higson - Managing Director, Operations and Modernisation

·      John Allan - Non-executive Director

·      Jan Babiak - Non-executive Director

·      Nick Horler - Non-executive Director

·      Cath Keers - Non-executive Director

·      Paul Murray - Non-executive Director

·      Les Owen - Non-executive Director

 

Disclaimer

 

The contents of this announcement, which have been prepared by, and are the sole responsibility of, the Secretary of State for Business, Innovation and Skills (the "Secretary of State"), have been approved by Barclays Bank PLC solely for the purposes of section 21(2) (b) of the Financial Services and Markets Act 2000 (as amended).

This announcement is an advertisement and not a prospectus. Investors should not purchase or subscribe for any transferable securities referred to in this announcement except on the basis of information contained in the Prospectus in its final form to be published by the Company in due course in connection with Admission. Copies of the Prospectus will, following publication, be available from the registered office of the Company and online at www.gov.uk/royalmailshares.

Neither this announcement, the publication in which it is contained nor any copy of it may be made or transmitted into the United States of America (including its territories or possessions, any state of the United States of America and the District of Columbia) (the "United States"). The securities referred to herein have not been and will not be registered under the applicable securities laws of the United States and, subject to certain exceptions, may not be offered or sold within the United States.

Neither this announcement, the publication in which it is contained nor any copy of it may be taken, transmitted or distributed, directly or indirectly, into Canada, Japan or Australia or to any persons in any of those jurisdictions or any other jurisdictions where to do so would constitute a violation of the relevant laws of such jurisdiction.

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any shares or any other securities nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefor. The Offer and the distribution of this announcement and other information in connection with the listing and Offer in certain jurisdictions may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

In particular, this announcement does not constitute an offer for sale of, or a solicitation to purchase or subscribe for, any securities in the United States. No securities of the Company have been, or will be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), and securities of the Company may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offering of the securities in the United States.

This announcement does not constitute a recommendation concerning the Offer. The price and value of securities and any income from them can go down as well as up. Past performance is not a guide to future performance. Information in this announcement or any of the documents relating to the Offer cannot be relied upon as a guide to future performance. Before purchasing any Shares, persons viewing this announcement should ensure that they fully understand and accept the risks which will be set out in the Prospectus, when published. There is no guarantee that Admission will occur and potential investors should not base their financial or investment decisions on the intentions of the Secretary of State, the Company or any other person in relation to Admission at this stage. Potential investors should consult a professional advisor as to the suitability of the Offer for the person concerned.

Any purchase of Shares in the proposed Offer should be made solely on the basis of the information contained in the final Prospectus to be issued by the Company in connection with the Offer. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its completeness, accuracy or fairness. The information in this announcement is subject to change.

Goldman Sachs International, UBS Limited, Barclays Bank PLC, Merrill Lynch International, Investec Bank plc, Nomura International plc and RBC Europe Limited (together, the "Banks"), each of which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority  and the Prudential Regulation Authority in the United Kingdom, are acting exclusively for the Secretary of State, Royal Mail Holdings plc (the "Selling Shareholder") and the Company and no one else in connection with the Offer and will not regard any other person (whether or not a recipient of this announcement) as its client in relation to the Offer and will not be responsible to anyone other than the Secretary of State, the Selling Shareholder and the Company for providing the protections afforded to their respective clients or for giving advice in relation to the Offer or the contents of this announcement or any transaction, arrangement or other matter referred to herein. Lazard & Co., Limited (the "Adviser"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for the Secretary of State and no one else in connection with the Offer and will not regard any other person (whether or not a recipient of this announcement) as its client in relation to the Offer and will not be responsible to anyone other than the Secretary of State for providing the protections afforded to its clients or for giving advice in relation to the Offer or the contents of this announcement or any transaction, arrangement or other matter referred to herein.

In connection with the Offer, each of the Banks, the Adviser or any of their respective affiliates, acting as investors for their own account(s), may subscribe for or purchase Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for its or their own accounts in such Shares and other securities of the Company or related investments in connection with the Offer or otherwise. Accordingly, references in the Prospectus, once published, to the Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by, the Banks, the Adviser or any of their respective affiliates acting as an investor for its or their own account(s). The Banks, the Adviser or any of them or any of their respective affiliates do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so. In addition, in connection with the Offer, certain of the Banks may enter into financing arrangements with investors, such as share swap arrangements or lending arrangements where Shares are used as collateral that could result in such Banks or any of their respective affiliates from time to time acquiring, holding and/or disposing of shareholdings in the Company.

None of the Banks, the Adviser or any of their respective subsidiary undertakings, affiliates or any of their respective directors, officers, employees, advisers, agents or any other person accepts any responsibility or liability whatsoever for, or makes any representation or warranty, express or implied, the contents of this announcement, including its truth, accuracy, completeness, verification or fairness of the information or opinions in this announcement (or whether any information has been omitted from the announcement) or any other information relating to the Secretary of State, the Selling Shareholder, the Company and each of their respective subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection therewith.

In connection with the Offer, a stabilising manager, or any of its agents, may (but will be under no obligation to), to the extent permitted by applicable law, over-allot Shares or effect other transactions with a view to supporting the market price of the Shares at a higher level than that which might otherwise prevail in the open market. The stabilising manager will not be required to enter into such transactions and such transactions may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the commencement of conditional dealings of the Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. However, there will be no obligation on the stabilising manager or any of its agents to effect stabilising transactions and there is no assurance that stabilising transactions will be undertaken. Such stabilising measures, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Shares above the offer price. Save as required by law or regulation, neither the stabilising manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer.

Certain figures contained in this document, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum or percentage change of the numbers contained in this document may not conform exactly with the total figure given.

 FORWARD LOOKING STATEMENTS

Certain statements contained in this announcement, including any information as to the Group's strategy, plans or future financial or operating performance constitute "forward-looking statements". In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "forecasts", "plans", "projects", "predicts", "prepares", "anticipates", "expects", "intends", "may", "will", "should", "target" or "objective" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout the announcement.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group's control. Forward-looking statements are not guarantees of future performance. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which it will operate, which may prove to be inaccurate. The Group's actual results of operations, financial condition and the development of the business sectors in which the Group operates may differ materially from those suggested by the forward-looking statements contained in the announcement due to certain factors including, but not limited to, UK and EU domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, market developments regarding volumes of letters and parcels handled by the Group or delivered in the UK and the other core markets of the Group, the impact of competition, currency changes, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which the Group and its affiliates operate. In addition, even if the Group's actual results of operations, financial condition and the development of the business sectors in which the Group operates are consistent with the forward-looking statements contained in the announcement, those results or developments may not be indicative of results or developments in subsequent periods.

The forward-looking statements contained in this announcement speak only as of the date of this announcement. The Group disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in its expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing Rules or the Disclosure and Transparency Rules of the Financial Conduct Authority.

 

 


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