TRADING UPDATE/DIRECTORATE CHANGE
Royal Mail plc
15 May 2020
This announcement contains inside information for the purpose of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
COVID-19 UPDATE AND DIRECTORATE CHANGE
Royal Mail (RMG.L) today provides a business performance and COVID-19 update and announces:
i) senior management changes; and ii) its approach to remuneration for 2019-20.
The Board and Rico Back have agreed he will step down as Group CEO, and from the Group Board, with immediate effect. Keith Williams becomes interim Executive Chair of Royal Mail Group and Stuart Simpson becomes interim CEO of Royal Mail (UKPIL).
No bonuses will be paid to Executive Directors for 2019-20. Around £25 million has been set aside for cash awards for frontline staff, in recognition of their role during COVID-19.
Performance, current trading (Monday 30 March 2020 to Sunday 3 May 2020) and financial position:
· Year on year UKPIL revenue down £22 million in April.
· Substantial switch from letters to parcels in the UK. UK parcels volume up 31 per cent and revenue up 20 per cent.
· 308 million fewer addressed letters (down 33 per cent). Letter revenue down 23 per cent, offset, in part, by 36 million more parcels.
· UKPIL costs up £40 million, driven by overtime and agency resource costs due to high levels of absence, the introduction of social distancing measures and PPE.
· GLS situation still evolving. Shift from B2B to B2C parcels across all markets in the UK and overseas.
Significant volatility in parcel volumes as COVID-19 pandemic has developed across key markets.
· Liquidity position remains strong. Total liquidity (including undrawn facilities) around £1.8 billion. The Group has the ability to access the Covid Corporate Financing Facility (CCFF), if required.
· Following engagement with key stakeholders on a package of potential measures for the UK business, we will provide a further update on 25 June 2020, along with Full Year Results 2019-20, to cover possible outcomes for 2020-21, together with actions to: i) mitigate the impact of COVID-19; ii) minimise losses in UKPIL; and iii) ensure a sustainable long-term business.
· Royal Mail is continuing to deliver to 30 million households across the UK, fulfilling a vital role with respect to the collection and delivery of parcels, home testing kits and Government information.
· UK absence has fallen from a peak of over 20 per cent to 11 per cent currently. Just under £40 million has been committed to spend on PPE. Fewer than 200 people are on the Government furlough scheme.
· In response to employee feedback, and the pronounced shift from letters to parcels, we have implemented a temporary relaxation of the Universal Service, with five-day letter delivery. Saturday deliveries are scheduled to resume on 13 June 2020.
· The Board and Rico Back have agreed he will step down as Group CEO and from the Group Board with immediate effect, and leave Royal Mail on 15 August 2020.
· Rico Back started his career in Royal Mail's parcels operation, General Logistics Systems (GLS) in 1989, which he developed into a leading European-wide parcels company with subsidiaries in the US and Canada. In 2016 he became responsible for the entirety of Royal Mail Group's parcels and international business and was appointed to Royal Mail's Chief Executive Committee. He was appointed Group CEO in June 2018.
· Keith Williams will assume the role, with immediate effect, of interim Executive Chair to lead discussions with stakeholders about an accelerated pace of change across the business. He is expected to remain in this executive role until a permanent CEO of Royal Mail (UKPIL) is appointed.
· Keith Williams joined the Board in January 2018. He took over as Audit Chair in July 2018 and became Chairman in May 2019. He is experienced in business transformation and industrial relations. He was previously Chairman and CEO of British Airways Plc. He was Deputy Chair of employee owned retailer John Lewis until April 2020. He is currently Chairman of UK retailer Halfords Plc.
· Stuart Simpson has been appointed interim CEO of Royal Mail (UKPIL). This is a Board appointment. Mick Jeavons will be interim Group CFO.
· We will conduct a comprehensive internal and external search for a permanent CEO of Royal Mail (UKPIL). In order to ensure greater focus, this permanent CEO of Royal Mail (UKPIL) will report directly to the Board once Keith Williams returns to his Chair's role.
· In recognition of the role played by frontline staff, around £25 million has been set aside to be paid as a cash bonus. Frontline colleagues who, since March, have been at work throughout the crisis will receive a cash recognition award of up to £200 in June.
· The Board has determined that no bonuses will be paid for 2019-20 to Executive Directors.
Keith Williams, Chair, Royal Mail plc, said: "Rico Back has made a significant contribution to the evolution of our business over his 20 years with us, particularly in building our international parcels business and developing our Group strategy, which recognised the urgent need for change to create a sustainable business for the future. On behalf of the Board, I would like to extend my thanks to Rico and wish him well in the future."
Rico Back, Group CEO, Royal Mail plc, commented: "It has been a privilege to lead a Company that is so much a part of UK life at this crucial time in its history. I am proud of what I, together with our dedicated and loyal team, helped to build in Royal Mail and GLS. I look forward to seeing Royal Mail transform into a parcels-led, international delivery company, that continues to touch the lives of millions across the world."
There is no information required to be disclosed in accordance with Listing Rule 9.6.13.
Notes to editors:
i) Rico Back
Remuneration: Rico Back will be on garden leave until 15 August 2020. During this period, he will receive his salary and benefits. Following this Rico Back will receive 9 equal monthly payments, totaling £480,000, which represents 9 months' pay in lieu of notice. These payments will be reduced by any alternative paid employment that Rico Back receives. There will be no cash bonuses or share awards in respect of 2019-20 or 2020-21. Rico Back has one unvested Deferred Share Bonus Plan award awarded in 2018 (52,243 shares), relating to performance year 2017-18, and due to vest in June 2021. This award will vest in line with the scheduled timescales and subject to the plan rules. Rico Back's unvested Royal Mail Long-Term Incentive Plan (LTIP) awards will lapse. Rico Back has one unvested award under the GLS LTIP 2017, which was awarded prior to his appointment as Group CEO. Tranche 1 of this GLS LTIP met its performance conditions in 2017-18 and will vest in July 2020 in line with the terms of the plan (€70,812 and 10,668 shares). Tranche 2 relating to performance year 2018-19 was waived by Rico Back in 2019. Tranche 3, relating to performance year 2019-20 is due to vest in July 2020, subject to performance conditions and the plan rules. There are no further awards outstanding under the GLS LTIP. The Remuneration Committee considers that the above treatment of Rico Back's incentive payments and awards to be appropriate and in line with the Directors' Remuneration Policy. Rico Back will receive a capped contribution of £50,000 (excluding VAT) towards legal fees incurred in connection with his departure; and a capped contribution of £25,000 (excluding VAT) towards outplacement support. Rico Back is not eligible for any further payments for loss of office. All Rico Back's Royal Mail earnings (including bonus payments) are subject to UK tax law. More information will be set out in the 2019-20 Directors' Remuneration Report.
ii) Keith Williams
Remuneration: As Non-Executive Chairman of Royal Mail Group, Keith Williams currently receives a fee of £300,000 per annum. This fee will remain unchanged during the period that he is Executive Chairman. Keith Williams will not participate in the Annual Bonus (cash or Deferred Share Bonus Plan), LTIP, benefit programme or any Group pension scheme.
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Figures presented in this trading update are not audited. This trading update contains certain statements that constitute "forward-looking statements". 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. Persons receiving this release should not place undue reliance on any forward-looking statements. The Group disclaims any obligation or undertaking to update or revise any forward-looking statements contained in this document 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 Guidance and Transparency Rules of the Financial Conduct Authority.