Earnings Transcript for ROYMF - Q4 Fiscal Year 2019

Catherine Nash: Ladies and gentlemen, and welcome to Royal Mail's 2018-19 results and strategy presentation. I'm Catherine Nash, IR Director here. We've got a lot to get through today, and it's my job to try and keep us all on time. Some housekeeping before we get started, though. Please ensure all your mobiles are on silent. There are no fire alarm test plan for today. So in the event of alarm sounding, please leave the auditorium by the exits indicated. In the breaks, refreshments will be available just outside the auditorium, and lunch will be served in the Watergate lounge next door. Please allow plenty of time to get back to your seats. There are a lot of people here today, and we like to try and start the sessions promptly. Please note this presentation is being webcast live and will be recorded. Before we start, I need to draw your attention to the disclaimer on forward-looking statements. This slide sets out examples of factors that can cause actual results to differ from any forward-looking statements we may make. The principal risks and uncertainties which could affect the group are summarized in the results announcement. All of these principal risks and uncertainties have the potential to impact the group's business, results of operations, financial condition and prospects adversely. So here's the agenda for today. You see that we have sessions covering key topic areas. You will also see that there are plenty of opportunities for Q&A. Please wait for a mic to reach you and introduce yourself before asking your questions. And if possible, keep -- please keep your questions succinct rather than in groups of 3 as we want to get around as many people as possible, and we're also taking questions from the webcast as well. I would now like to introduce you to our incoming Chair, Keith Williams, who will say a few words before we start with the presentation with a video on our history.

Keith Williams: Good morning, everybody. Yes. I can add my welcome as well to Catherine's to those of you in the room and those of you listening on the webcast. I see a number of familiar faces, but I also see a number of new ones. And I hope that I'm going to get to know you over the next months and years. Today is about results, and it's about our plans for the future. Rico and Stuart are going to talk you through that. From my side, given it's sort of my first day as Chairman, I thought I might say a few words about me, just so you get to know me a little bit as I hope to meet you much more in the next months. But also, I'd like to talk to you a little bit about some of the changes at the Board that we are making today. So a little bit about me is I joined Royal Mail just over 12 months ago. My recent background was primarily at British Airways, and I see some similarities between BA and Royal Mail. Both very known British icons, both with tremendous opportunity in Royal Mail's case and in BA's case here in the U.K. and overseas. What I also see is we're on a journey to transformation. BA was privatized in 1985, so it's way ahead of Royal Mail in terms of transformation. But what Rico and Stuart are going to talk to you today is about the future transformation of Royal Mail in the U.K. They'll also talk to you about the group overseas, which is sometimes neglected, I think. And James and Rico will talk to you about [Audio Gap] it is clear that Royal Mail needs transformation, and Rico and Stuart are the right people to take us along and the Board that is equipped to help as well. So today, we're announcing 2 new additions to the Board. One is Michael Findlay. Michael is experienced both investment banking, and he has experience in letters businesses. He's been involved in letters businesses in the past. He will [Audio Gap] primarily from capital allocation, links with investors and generally add advice to the Board. The other person who we're adding today is Maria da Cunha. [Audio Gap] Cunha has a history in industrial relations. She has a history in people and [Audio Gap] culture. And I [Audio Gap] along the people journey in the U.K. So those are 2 additions to the Board today. You should expect some more additions into the future. But finally, and most importantly, it's Les Owen. It's his last day as Chairman of the -- of Royal Mail. Les has been on the Board for 9 years, and Les stepped into the role as Chair when Peter Long left last year. I think Les' knowledge, his integrity and his experience is something that we will truly miss. He has done, I think, a fantastic job of stepping into a difficult role at a difficult time. And I think we're all on the Board sad to see him go. So I just [Audio Gap] huge thank you to Les. Thank you all for coming today. Thank you. [Audio/Video Presentation]

Rico Back: Welcome to the Royal Mail Group Capital Market Day and Results Presentation. I hope you enjoyed the video as I did. I've seen that a couple of times. But every time I see it, I feel, wow, what a heritage, what a tradition. And what is constant is the change in Royal Mail. Let's start. As you know, I took over as CEO in June last year. It has been a challenging year. I was disappointed to have to do a trading update on October. It was not what I expected or what I wanted. At that time, I set out our action plan for the second half of the year, which we have delivered. We have implemented targeted price increases across our businesses. We have improved productivity to 1.9% in the second half of the year from minus 0.2% in the first half. We have reduced our head office management by 13%. We have completed a number of reviews, including a complete review of the U.K. network, and an assessment of the CWU agreement. We have delivered operating profit before transformation of £509 million, in line with our revised guidance. And we are proposing a final dividend payment of 17p per share, taking the full year dividend to 25p per share. The reviews have informed our strategy and our direction for the next 5 years, which is what we're going to share with you today, alongside with our '18-'19 results. As a business, our focus is to connect customers, companies and countries. We have started our journey to 2024. Our ambition is to become a business that is growing, efficient and diversified, growing with 2% to 3% revenue increase per year over the next 5 years; efficient, a relentless focus on efficiency will be delivered, and we will deliver operating margins of above 5%.; diversified, in terms of products, over 70% of our revenue will be generated from parcels. In terms of geography, 40% of our revenue will be delivered outside of the U.K. To achieve this, Royal Mail needs to change from a letter business that delivers parcels to a parcel business that delivers letters. This will be delivered by focusing on 3 strategic priorities

Stuart Simpson: Thank you, Rico, and good morning, everybody. Thank you for coming. I know we need to go through the outlook in some detail, but I think it's important we start with the results. There's some things in the results that give me confidence in the plan that Rico and I are putting forward today. So starting with the '18-'19 financial summary. We are in line with the guidance that we gave. I think that's important to note. What we said we'd do, we have done over these past few months. Highlights being group revenue is up 2%; transformation costs, slightly less than we anticipate, and I'll expand on that; profit where we said it would be; margin down to 3.6%. I'll talk about the end year trading cash flow differences later on. Some of those timing differences you are already familiar with. So as Rico said, we're pleased to announce a final dividend of 17p per share. Now turning to the individual business units, starting with UKPIL. This was an important year for the U.K. and a difficult year. The letters decline of 8% is the worst it's been for 5 or 6 years. But actually despite that, the parcels' revenue offset it, and we were flat. A really important point to note was we look at the outlook we're putting forward. The operating costs were up 2%. And then just touching on transformation. The turnaround has started. In second half of the year, Rico and I undertook a very detailed review of our portfolio of spending. We canceled 39 projects, we resized 41 and rebalanced and refocused the spend on the future. That's why the transformation cost came in slightly less than we anticipated. Note that also in that number is around £24 million of management restructuring. As Rico said, we exited around 13% of the management population. So again, the transformation has started. Moving to parcels' revenue. It's a 7% increase for the year and 8% volume increase. The best it's ever been. Just 3 years ago, that was close to 0%. We now have the right product, the right quality and the right brand. The brand has always been there. But in the past, we didn't have the right products for the market. The price pressures remain. It is a very competitive market. But we've proved we can make a difference. From essentially flat a few years ago, now growing at 7%. Moving to letters revenue. A challenging year. We did say at the start of the year, we'd be outside our 4% to 6% guidance. We anticipated around 7%. Actually, combination of GDP being softer than anticipated and GDPR having a bigger impact took us to 8%, in line with what we said in January. Guidance for next year is 5% to 7%, thereafter returning to 4% to 6%. Just to draw your attention to at the right-hand side, positive price and mix. So a bit more ambition and targeted price rises than we've seen in the past, and you can see that dropping through. Steven will talk about that later. Moving to people costs. These were up 1% year-on-year. Headwinds were the pay and the shorter working week. If you look at the bottom right of the chart, you can see the productivity. First half, we went backwards. We spent more to do less. Second half, we recovered, back close to 2%. So again, the turnaround just started. We're back on track on a key metric. Looking at non-people costs. Historically, this had been a real area of opportunity for us. But you can only take out the flight to Edinburgh once. So this is getting tougher. But there are still opportunities. We had a tough year last year when we did the portfolio review, some things we had to impair, put through some accelerated depreciation. But again, it's a sign we've started this turnaround. Moving to GLS. Again, strong revenue. 8% up. Unfortunately, costs up 9%. The margin came down and the profit went back. But again, things are changing. In the first half, the margin was 5.7%. Second half, 6.5%. So again, things are starting to come back for us. Full year margin of 6.1%. So another good year from GLS, a good second half of the year as we turn things around. If you dig into the GLS revenue, the key countries continue to be strong. Germany, up 9%. Italy, that's had fantastic growth for many years, slowed a bit as Amazon opened their network and took traffic away from us. But you'll recall, we always said we knew that would happen, and we didn't allocate capital behind that. And a great performance to be growing at 5% in a market where Amazon are taking the traffic off you. Spain, strong growth. France, strong growth, particular high points being Denmark and Eastern Europe. So the revenue of GLS continues to look good. Turning to the GLS margin. Costs were up primarily due to the tight labor market. You'll have seen that in many businesses, particularly in this industry. Important things to note, though, there are real opportunities to drive the margin forward. The losses in France can be turned around, the U.S. and Spain. Again, they give us confidence we will get this back on track. So moving back to group, adjusted profit after tax. The key thing to note, finance costs remained low in line with our conservative balance sheet. Tax charge, the percentage a bit higher because the mix of earnings between the U.K. and GLS was higher this year. And an earnings per share basic, 30.5p. Moving to specific items. If you look at the right-hand side, profit before tax. The delta between the £241 million and the £398 million, that's the £157 million that you can see at the bottom of the column on the right-hand side. A couple of things to draw out, there's an accounting impact of the RMSEPP buy-in, so we derisked that. It's a noncash adjustment. And note at the bottom, the pension charge to cash difference of £70 million, in line with what we said. Moving to in-year trading cash flow. The EBITDA before transformation cost, £935 million. Key things to note on this, the trading working capital movement. We thought we highlighted these several times in the past. Just to remind you, there was £100 million timing of pay for the front line, £47 million relating to having a 53-week year, and a 13 monthly payment for managers. The same for VAT with £17 million. The balance of that is related to timing differences on international sales and also on a change in the bonus accrual. If you come down to the bottom of that page, you can see the adjusted in-year trading cash flow, £282 million. Looking at investment. As I said, the turnaround just started. So we conducted a portfolio review. That meant we came in tighter than the guidance that we said. That includes the voluntary redundancy we paid to exit the managers. Moving on to uses of cash. We started the year in a net cash position, €14 million. During the course of the year, we've had our in-year trading cash flow, as previously mentioned, the acquisition was Dicom primarily, the acquisition in Canada and then the dividends paid, giving us a net debt at the end of the year of £300 million. Now moving to the financial outlook. I'll provide some highlights then go into the details of this. At a high level, we are projecting the U.K. revenue to grow. Something that's not happened for 5 years. But we're confident that, that will take place. We've seen it this year with those parcels moving forward. The UKPIL people cost at the end of the plan will be flat with where we are in this year, '19-'20 as productivity kicks in through the plan. The total U.K. cost will drift off little bit. We've got some headwinds, you deliver more parcels, you have more van runs, et cetera. But the delta between those 2 is positive, so we'll have margin expansion in the U.K. GLS will continue to grow. When you pull it all together, as Rico said, the group will grow to 3% to £12 billion from £10.5 billion. The margin will be greater than 4% in '21-'22, greater than 5% in '23-'24. I'll then touch on the capital prioritization through this period. So going through this in a bit more detail, starting with the UKPIL. Revenue. As I said, this hasn't grown for 5 years. So it's quite a bold statement to say that we are going to grow it. But we're confident. The parcels' dynamic has changed in this business. 3 or 4 years ago, the operations were not open to take acceptance from parcels after 5

Catherine Nash: Thanks for listening. We're ready to take Q&A.

Rico Back: Before we start, just one thing. We have some more presentations to come, as you know. So we have letters here, we have parcels here, we have GLS here, we got international here. So I think it's very important, even though we're happy to answer all the questions that we just maybe save some for our friends, so they have a chance to hear for the first time. We are a team here, so that's very important that everybody has the chance to answer the questions. So we're happy to answer it, but maybe the more depth the answer will be after we have the letters, the parcels, the GLS and the international presentations. And our people presentation, let's not forget. The discussions we're having with our people. So just as a start.

Q - Mark McVicar: Mark McVicar from Barclays. Perhaps before we get into detail 2, kind of, slightly high-level questions. First one is, what level of discussions have you had about this plan with the regulator? Depends on how we model your plan, but you're either not quite getting to or just getting to a 5% margin in UKPIL by the end of the period. That is right at the bottom of the range, and I think we're also conscious that quite small movements in some of your performance criteria could save you quite a lot of cost. So has that been part of the debate? And then the second question, reshape forward. Where do you see the key points of execution risk in this plan? Is it unions? Is it people? Is it keeping the business going as you shift to a radically different network, which is I think what you're outlining here? Where are the bits that would keep you awake at night?

Rico Back: Well, first of all, I sleep very well at night, so that's important. I had a talk with Sharon Wyatt last evening -- or late, it was late. About 8

David Kerstens: It's David Kerstens from Jefferies. Well, first of all, you mentioned that you had reviewed the agreement with CWU and that you have also informed CWU of your new turnaround plan in the U.K. I think you have agreement in principle to reduce the working week to 35 hours, so first 2 hours and then another 2 hours. Has there been any change to these agreements with CWU that will positively impact your expected people cost inflation in coming years? My first question. Then maybe secondly, give them all at once. On the parcel volume dynamic in the fourth quarter, I think you reported 6% at a 9 months stage and 8% for the full year. What was the strong improvement in the seasonally more slower quarter than in the first 9 months? And finally, on the letter volume decline. I think most of your peers in Europe, they are highlighting increasing letter volume pressure because of an increased digitization push. Why would you expect letter volume to return to the 4% to 6% medium-term guidance range? Why do you not expect a similar push to happen in the U.K.?

Rico Back: Let me start with the CWU. We had several meetings with them and have informed them what is the plan. Yesterday evening, we had a meeting before I talked to the regulator, I had the privilege of talking to our unions. And I think important is that the unions see the necessity of change. So Terry Pullinger in CWU, they want to grow. Royal Mail wants to grow. We will just have to make the work how. And at sometimes, when you talk about change, which is very constant in our life, everybody thinks change is good as long as you do not have to change by yourself. So there might be -- there will be discussions how we do that best. But I am confident if I look back to the history that this change has taken place from '10 to '15. If I look at the -- the post you see is that you have less letters and more parcels. They see that it is not only us, there is a market outside. We got 51% market share in the U.K. but the others are not sleeping. If we're not developing, we will lose out, so therefore they have seen the changes in the parcel program. They have seen that we are winning in parcel. They have seen that the IT tools, which have been developing, the new app which we're doing. I don't want to talk a lot about this stuff. I'm coming into your segment, Nick, I'm sorry. I'm just -- got a little bit carried away. But they see these changes. So I think that we have a good chance, we have informed them. They're ready to talk to us. They need -- they understand the need and they want to grow. We are going to find a way how to get there. So I am confident that this is clear. On the parcel volumes and the letter volume decline, I think parcel volume is partly seasonal, so you're right. But it's important to understand that we have a significant quality improvement now, so we had done great quality investments. We did, looks like especially in the second half of the year. So we have delivered an excellent performance over the peak period where we employed more than 20,000 people extra just to deliver letters and parcels, which was very important. And you look how the letter volume has been calculated. We work there with the Cambridge analytics together, so there's people where we really go on the long-term trends. You got the e-substitution part, which is sort of a constant. It's about 8.5%. You have the big part, which is what happens to our GDP. And when we talk about the 5% to 7% guidance for the next year, it's a big part as what will the GDP in the U.K. do. It's very difficult to predict. So that's a part which has a big influence. And then we have this General Data Protection Regulation law, which took away parts of our revenue, but it's coming back. And the analytics have shown that the people leave that the uncertainty will be solved. And that over the planned period, if you would just go down to 4 to 6, which mean at the end of the plan, it's even less. So right now, it's 5% to 7%. At the end, it'll be like the previously studies that's down to about 3% to 5%. So therefore over the planned period, if you level that out, it's 4% to 6%. And when you look to our prognosis, which we have done in the past, it's quite important. The difference was the last 2 years because the business uncertainty we have at the new rules we're having, which are heavily influencing it. They can be offset by other activities, which are not standard.

Arthur Truslove: Arthur Truslove for Credit Suisse. 3 questions for me, please. So firstly, you mentioned that historically, you have needed 2% parcel growth to offset a 1% decline letter revenue from a margin perspective, but do you expect this to change to one-for-one or slightly better going forward? Just out of interest, when do you actually expect that to change? And if you can just talk us through how that evolves, that will be very helpful. Second question on letter pricing mix, you mentioned there that there was a positive £75 million resulting from the price mix effects from letters. Can you just tell us how that was delivered by quarter? Obviously, you put prices up in January. And secondly, you mentioned that you want to get your EBIT -- or thirdly, you want to get your EBIT margin above 5% in 2023, 2024. Are you able to just summarize your assumptions for letter revenue and parcel revenue growth within that, please?

Rico Back: I think that's for Stuart today.

Stuart Simpson: Oh blimey. That's a lot of questions. In terms of the ratio, I'm not going to say when that's going to happen but the key driver is really the hubs. Because what you're doing then is taking a lot of the parcels, pushing through an automated environment, so you get the benefit of, first of all, automating them while we have people sourcing manually. But second, you're actually assessing up the networks. You've taken out a couple of network nodes within it. The third thing is, we've talked about putting a van network in. That van network will deal with heavier and the larger items that, the minute if they're out on a normal postal route, are actually quite disturbance with the posting because they have to park the van or carry a heavy item or distract off the route, go somewhere and do it. So it's 3 different levels of benefit that we'll underpin this change in ratio. But we're not going to commit to when it is because it depends on how and when as Rico said, if this is all about execution. So we're on the way. We know that'll happen. We're confident with the analytics behind that. But we're not going to commit to anyone. Sorry, your second one was in terms of letters and parcels mix?

Arthur Truslove: No. At the price mix effect of -- worth £75 million over the course of the year. Just really how much of that was in the fourth quarter since the start of January [indiscernible] price of?

Stuart Simpson: So we're going to break it out by quarter, but as you know, we put in prices in Q4. We're very forensic. We're very targeted. We break the market down into all the key segments. And I think in the past, we've been a little bit maybe shy, little bit under I'll be on those. This year, I think we've felt, it was the right thing to do, to make sure we're getting really rewarded and paid properly for what we do. So we targeted them at the sectors where we believed it would stay. And so far, we're really, really pleased with the results. I think it's a -- we won't be able to do things that bold there for you, but it's a sign of what we want to do.

Edward Stanford: Edward Stanford from HSBC. 2 questions, please. Conscious that I might be straying into presentation later. But you've talked about turning around GLS in France. If my memory serves that's been a bit of a problem area for some time. What's different this time? And could you just refresh my memory as to when you need -- when you're due to negotiate with the unions on a future pay deal?

Rico Back: The France situation, it's true. It's a situation which we have lingered. And what we're talking about is, we want to improve the U.S., we want to improve Spain and we want to improve France. The French plan, which has been put together, I think James will talk about this later on and partly in more details. It's showing a gradual improvement, and we have good signs in our other markets, which are, let's say, a little bit disturbed by one-off events which will not recur. So that we have a good trust that, especially in the U.S. and in Spain, will be quite successful and shorter. France might take a little bit longer. It took longer, and it's will take longer. But just to make it clear, the GLS organization is a network. And if you'll look of the margins being made by exports into France and add that to the results, it boils down that it is value accretive for the GLS organization. Without that network part, we would not be able to be a European network. So therefore, we're not thinking about exiting France. First, we are confirming that we believe that the network philosophy is a big philosophy of GLS as driver for growth. And the profits for exports from all the other countries enter France are more than offsetting the losses we're having there. Just to make it also clear.

Catherine Nash: We have Daniel then and Joel at the back, and then [indiscernible]

Unidentified Analyst: Just on the staff wage deal?

Stuart Simpson: The pay deals, we don't run through until next April. So we'll start getting into negotiations on the next round, probably January time, maybe a bit before Christmas.

Daniel Roeska: Daniel from Bernstein. Two questions, if I may. Number one on the U.K. staff. I mean, could you share any recent insights or survey kind of how is your staff in the U.K. feeling right now and the employment engagement studies you've been doing? And then maybe comment going forward on your framework, kind of, how you're planning to track and monitor the ability and the appetite of the U.K. staff to actually deliver that transformative change? And then secondly, maybe on -- maybe broader comment. It seems as though the parcel growth will need to be underpinned by B2C parcels rather than B2B parcels. Could you comment more broadly on the European sector, maybe saying where you think profitability in B2C is headed? Because we really haven't seen that much success in noncombined dedicated B2C parcels. And of course, how are you going to make it work?

Rico Back: So about our people, very, very important sector. And I'm looking forward for Sally Ashford's presentation. Should we talk about there, about our engagement score? And I think it'll -- it's just a very good outcome of what we are expecting. So let's maybe park that one to her. Like I said in my presentation, I must say, I was really impressed by our people. We had, with our Board together, a closer relationship to have the views of our workforce incorporated into the decisions the Board is making. So we are gaining views from people, we have meetings outside. And it's interesting when you see them, and I've been in a couple of them. What they really are driving is to say, how can we grow and offset our letter decline? What do we have to do better? What is our market? What's our competition? I have seen many, many engaged people. And it's also interesting when you looked on the local level, how good they work together with our unions. So our managers and the union representative, they're working together. And that is in line with what I've discussed with Terry last night saying, if you're not growing, you won't have fun. So we need to be a good company, and then we can maintain our good employee state. And I think that's very clear. So engagement score goes from -- goes to Sally. Our view to our people are very, very important so for tomorrow, for example, you're going to see all our managers and explain them what we're going to do. On the B2C subject and GLS that was your question. GLS has successfully focused on the premium to C segment. And it is part of James' presentation how different the group is, so we have countries. For example, if you looked to Denmark, where we operate our own on parcel shops, we have a strong growth in B2C, we have this -- the C problem is always a delivery issue if you not have enough scale. So the private parcel operators have some issues sometimes. And they deliver for example to parcel shops. We will pick it up, it's just a search for us for delivering at home. It's the way how you produce B2C and that is pure country different. GLS has delivered a premium to C approach, no buying in of big volumes, no dependency, not one client has more than 1% of our revenue now, which is a very, very important. And you look at Amazon is below 1%, by the way. So it's very important. And that B2C system is working in a gradual approach. So we have increased our B2C share, but carefully, and maintained our year-end management in margin. More details will come in the presentation from James.

Stuart Simpson: If I can just add on the people side of things that one of the things my other hat on, want to talk over running the operation again. I felt it was a bit of a gap that happened between the management and the people again. So one of the things we've done with the structure is, put more people back and fill to be able to engage and lead the people. But also, working with Shane, our Director of communications. We've got a very intense plan over the next few weeks for all of us to be formally out there talking to managers in the frontline, to make sure they understand where we're going as a business. This isn't something we sat, Rico and I drew it up in our desk, right? I passionately believe, if you communicate with people, they are very engaged, and Sally will talk about scores. But we will be out there with them, and they will want to come with us.

Joel Spungin: It's Joel Spungin from Berenberg. I have got 3 as well, I'm afraid. So first of all, just maybe continuing with the point that Ed made earlier about the unions. I assumed you've made some assumption in your plan around labor cost inflation and a potential new deal. What reassurances can you give us that you have been sort of suitably conservative in the view you've taken on that? Because it feels that a lot of people are going to identify the CWU as potentially being a big risk to the plan. My second question is, do you have any plans for any separately disclosed items or restructuring costs as part of the transformation you haven't highlighted anything, I don't know if it's something related to that, that you can say? And then third, a bit more prosaically, just in terms of the what's going on with the London portfolio and the cash that you're expecting from that. If you could just give us an update. I actually thought you would have more in by the year-end, I don't know whether some of it's being pushed back into the new financial year but that will be helpful.

Rico Back: The discussion we had with our people, the union like I said before is that nobody is questioning the necessity to transform our business. So we have to make the Royal Mail ready for the growth in parcel and the absorption of letter decline. And going in total back to growth, it's a different approach. The unions are informed, and they have the same plan. There's is no reason for the unions not to have that plan. They have to protect the interests of their members and the interest of their members is good Royal Mail. So therefore, we have the same interest in that one. So I have assumed that we'll find a good solution with the unions, like we have done at the first transition from '10 to '15 and like we had done from let's say, '10 onwards. So our assumption is that we find a good solution with the union repo time enough in it to negotiate. They need to be convinced, they need to be a part of it. Terry Pullinger is somebody who looks very, very careful, and is focused on delivering growth. But he has to look for the interest of the member. But the discussion I had with him was very clear, we don't have a disagreement in our interest that is a clear-cut. So the productivity improvement, which has been delivered in the last 6 months, which is about the 1.9%, we only could do that with the support of our union. The change of our network. I mean, we are picking up now in the Midlands up to 130 letter acceptance we had. We couldn't have done that if few union wouldn't support us. So many of the changes has been supported by the union. Our assumption that this support will go on that we will have successful negotiations with them. On the London portfolio, I mean that's good for you.

Stuart Simpson: So there's 3 plants down at Nine Elms. The cash will come in over the course of the next few months, '19, '20. You're right, one of them we originally thought might come in probably 18 months ago. We said it might come in towards the end of last fiscal year. Things are actually proceeding pretty well, so it got through planning, et cetera. That stage took a little bit longer than we anticipated, but it's now coming in on time. In terms of Mount Pleasant, we sold just over 6 acres for just under a couple of hundred million a few years ago. We've had around 64 million of stage payments. And so far, we continue to do the really important enabling work. So what I mean by that is, you may recall, we're still going to operate that our that side. So we've had to dig a basement and put a very large, strong concrete roof on it, on which they'll build resi flats. So that's going really well. Actually, we're really pleased with that and the cash from that plays in a little bit later. We got 4 blocks down at Nine Elms that we'll probably start marketing over the next few months.

Joel Spungin: Any exceptions?

Stuart Simpson: As it stands today, no. Rico has been very clear in terms of open communication with the union, with the regulator. So this is what we think we'll achieve.

Catherine Nash: Go to Andy here. And then stand behind.

Andy Chu: I'm Andy Chu from Deutsche Bank. Just one question for me. In terms of your guidance for this year, in order to sort of hit the top end of that range, can you get there with the lesser volumes at the bearish end of your 5% to 7% decline. Do you think that's possible?

Stuart Simpson: Sorry, could you just repeat the question? I was actually doing something.

Andy Chu: Sure.

Rico Back: Let me just take that. We just got something from the union, so therefore we will see it in the afternoon.

Andy Chu: Just in terms of your guidance for this year. So it's hit the upper end of the range at £340 million of profit after transformation cost. Do you think you can get there at the bearish end minus 7% letter volume declines or will there be price...

Stuart Simpson: We can certainly go into that £300 million to £340 million range at the more bearish end.

Andy Chu: Any other assumptions that are sort of bottom end? What are the things should we think about, is it a range in that? Because you've got some flex within transformation cost, or is it mainly around the letter volumes that caused the range to...

Stuart Simpson: We are, as you know, we're a very skinny margin business, right? Trying to shoot between 2 enormous numbers in the U.K., so I think that's a reasonable range. And in terms of the modeling, it's a good place for you to step off and let the Investor Relations team to model going forward. That's really why I wanted to do it. To be clear, listen, there are some changes in how we report. I think this gives a very good and clear commitment from Rico and I in the management team what we're going to deliver, but also a good point for modeling.

Catherine Nash: Give it Sam behind you, and then Damian.

SamBland: It's Sam Bland from JPMorgan. 2 for me, please. First one is on that letter volume point in FY '20. I think you're now going to 5% to 7% volume decline. That's obviously down from an exit rate from last year I guess 8%. And I think if I remember it, January trading up that you said 7% or 8% through FY '20. Is there anything specific that has changed that's caused you to slightly reduce that letter volume decline expectation? And the second question is on the 1.9% productivity improvement in H2. Was that generated from some short-run projects in reaction to the problems you had in the first half? Or are we seeing the start of the proceeds from some of the long-term projects you put in place that will generate the cost savings over the next 4 or 5 years?

Rico Back: Go for it.

Stuart Simpson: So in terms to the letter's volume and the reason we've come down to 7% from the 8%. As you run through last year's numbers, you'll see there was a pretty tough hit on the GDPR in H1. GDPR regulations kicked in at the end of May, so as we come out from lapping that period, we expect to be in good shape. So that's one of the things that gives you a little positive uplift from the 8% to the 7%. We're not bullish about GDP, which is another key component, right? We know that'll be tough, again, this year, the economic environment. In terms of the 1.9% productivity, it's really just getting back on top of the day today. They -- there is nothing we've done in terms of changing the method of parcels. So we don't have a hub that's open. We're not automating through the hubs or anything. What we have done, though that I think, does underpin the second half. During the course of the year, we've been landing the small parcels automation machines through the mail center footprint. We had 10% as of yesterday. We'll have 11% as of next week. We automated about 12% through the course of the year. The average, the exit rate was 18%. So that gave us a little bit of a lift on that. But it's really just about getting back on top of the day today. Thank you.

Damian Brewer: Damian Brewer, RBC. Two-parts question, coming back to the bigger picture of capital allocation. First of all, in your own slides, you've got the £479 million you've spent on M&A in the last 5 years. You've got the U.S. losing money. Spain's behind plan. French losses have ballooned and that's about the same amount of money you're cutting the dividend by, cumulatively in the next 5 years, to reinvest in the U.K. So first question really is, do you think you have the right metrics to measure return on investment given that historical performance? And if you don't or haven't had, what's changed? And then secondly, in terms of capital allocation. Your shares last night traded at 3.6x EV/EBITDA. And there seems to be at least a buy-side consensus, you could sell GLS for 10 to 12. How big are the cross synergy benefits you expect between Royal Mail and GLS that will prevent you realizing that significant multiple uplift from GLS, instead of continuing to trade with it?

Rico Back: The GLS organization has been built through acquisitions over a period of a long time. And there was a strong track record of buying companies, integrating them, changing them. One thing, which is also in common, if you buy a company, it's just not always going according to the plan, which you have written as you bought the company. There might be some time delays. There might be some others. And I can remember, in the beginning, we even had to -- there was even a write-down on the GLS investments about 2 years after because not fast enough. If you look to GLS now, you mention that it has a bigger value. So with the nudge of hindsight, maybe that write-down could have been avoided. So that's the same for us. If I look at it, I -- we believe that the GLS organization in Europe is growing strongly organically. And we have just not too many acquisition opportunities because Europe is sort of settled. Maybe there are 1 or 2 opportunities, small ones in Italy but not many. The question about the expansion in the U.S. that is a big market. I believe and I said it after the 6 months that, would you still have bought the company what you know now? If you would know now, would you have done that? Yes. I said, yes, I would. I just would have made a different plan. I would just make it a little bit later. So you have a disappointment when you're not achieving that in the time, but the history has shown that when you get it right and you have to have some patience and a long breath, you're generating value. And I am confident that the American activities will generate value. There are big changes in America. I mean you suddenly have -- you only had 2 competitors, now you got a third one. I mean Amazon has really invested strongly to be logistic's player there. Markets are always changing. You have to adopt. That might sometimes delay plans. But it does not change the real economical on the transactions, which we have done. If you look to our Dicom transaction, it's better than plan. If I look to the first activities we do in the U.S. it's a promising signs. So from that point of view, I believe the value will come and would be a strong part of the -- our GLS group and activities.

Stuart Simpson: In terms of the right metrics, I think we worked very closely with GLS over many years. I think we've got the right metrics. As Rico said, sometimes not everything goes to plan. I think your other question was the cross synergies between GLS and the U.K. And we are developing those. We've got actually GLS team members now managing parts of the U.K. There is a lot of cross-border and international traffic, and you'll hear from Saadi this afternoon. He will talk about how closely integrated they are and how they really work with each. And GLS can help the U.K. growth, and the U.K. can help GLS's growth. So they're very much key part of our business working together.

Damian Brewer: Can I just ask one follow up? At any point, did the Board ever consider selling GLS? Or was it being purely focused on an organic strategy?

Rico Back: I think that every company has the responsibility to always consider if something pops up. And I think that our Board is a very focused board, which takes these responsibility very seriously.

Matija Gergolet: Matija Gergolet from Goldman Sachs. Two questions for me. The first one is on the dividend. So you mentioned 15p underpinned. And then you look at the cash flows of the year. How should we think about the real estate disposals? Are those going to be no exceptional cash flows in the year that might be distributed out as dividends or not? And the second question, back to parcels. So for the U.K., you're talking about even it's not going to be at 4% to 5% volume growth but revenues ahead of 5%. So there should be a positive yield management. What is the driver behind that? I mean in the last few years, we typically had a bit of a negative price mix in parcels. Maybe it was a Chinese volumes. But if you could just a little bit elaborate on how are you thinking about the yield management for parcels in the U.K.?

Stuart Simpson: In terms of the 15p dividend underpinned, we're confident to underpin that based on our plan. We're looking at it not a in-year trading cash flow, but cumulative cash flow over the period. Second thing is in terms of real estate, we will look at what the cash flows are in-year trading, then whatever we're getting through the portfolio. We'll look at everything in the round. So we're not making any commitment on that today.

Rico Back: What we have said is that we have -- if we have excess cash flow, which means significant access, then we will just consider. So I think we have to see where we are in that in that. Every year -- that's what we've done every year the basis. For us very important is to have a sustainable and strong balance sheet to maintain it. Because we have a high-operation gearing. It's not good, also, to have high-financial gearing. So therefore, that is a strong focus for us to have and maintain that strong balance sheet, which we're having. On the volume growth, I think that is a big part of Nick's presentation. I can start talking about this, and I know I'd love to. But I'll take most of this stuff away, which I don't want to. So therefore, can we park the parcel in-depth journey when we just see our parcel presentation that would be very appreciated.

Catherine Nash: We probably got time for one more question, if there is one before the break. No? Oh, one at the back, sorry. Thank you.

Gerald Khoo: Gerald Khoo from Liberum. Two for me. Perhaps, slightly directly, what is the head count implications of parcels automation? I'd love to suspect that there maybe for later discussion, but I'm going to ask the question, nonetheless. And also, following up of what you said about financial leverage. Have you got specific parameters in mind, in terms of what you deemed to be low leverage? And how is that potentially impacted by IFRS 16, please?

Rico Back: So I do the headcount, you do the leverage update. Great. Good stuff. What we have planned is the 15% to 18% productivity improvement, which is our core target. So what we measure is the hours which we need to produce our products. These hour has to be more efficient. When you look to our portfolio, let's say, people, it's a big part of what Sally will talk to you later about it. The system which we have in place right now is been designed through our commitment with our union agreements. So you have natural attrition, which is significant. You have a lot of overtimes in there. You got agency workers, which we have. So what we assume is that the productivity improvements will be have -- will be done without any compulsory redundancy, will be done with voluntary redundancy, which is in line with our commitments, which we had with our unions, and Royal Mail stands with that commitment very strongly.

Stuart Simpson: In terms of financial leverage, we don't set specific metrics. Rico has already said this, we have very high operational gearing. And we are not going to mix that with very high financial gearing. It just doesn't work. Particularly, as we've said, we're going into a change period. So as we stand back and look at it, we really want to make sure we maintain conservative balance sheet. We target investment-grade metrics, but we don't set out specifically to hit any level of leverage.

Catherine Nash: Thank you very much, ladies and gentlemen. That brings to a close this session. There's now a break outside the auditorium. Please be in your seats by 11