Revenue and volume
We delivered revenue growth of two per cent, in line with our expectations.
UKPIL revenue was flat at £3,703 million. Letter revenue of £2,242 million was up one per cent, primarily due to election mailings. Addressed letter volumes decreased by three per cent3. This was better than our expected range of a 4-6 per cent decline per annum3, mainly due to the improvement in UK economic conditions.
At £1,461 million, UKPIL parcel revenue was down one per cent. This was primarily due to the impact of a change in the mix of the parcels we carry and the highly competitive environment in the UK parcels market. We estimate Amazon's own delivery network will reduce the annual rate of growth in the UK addressable market4 to 1-2 per cent5 for approximately two years. UKPIL parcel volume grew by two per cent.
GLS delivered a good performance, ahead of our expectations. Revenue was up seven per cent, in line with volumes.
Profits and margins
Reported Group operating profit before transformation costs was £279 million (H1 2013-14 £353 million). This represents an increase of £13 million on an underlying basis.
Tight cost control meant that UKPIL operating costs before transformation costs, which included the pay increase for frontline employees, were flat.
Group operating profit margin before transformation costs increased by 20 basis points to 6.2 per cent.
Group operating profit margin after transformation costs increased by 70 basis points to 5.1 per cent.
Cash flow and balance sheet
In-year trading cash inflow was £69 million (H1 2013-14 £118 million), including the cost of the management reorganisation programme of £39 million.
In July 2014, we issued a €500 million ten-year Eurobond with a coupon of 2.375%. £350 million of the proceeds were used to pay down short-term debt.
Net debt increased to £570 million from £555 million at 30 March 2014.
In October 2014, we announced that contracts have been exchanged for the sale of our former Paddington Mail Centre site for £111 million in cash.
Dividend
In line with our previously disclosed dividend policy, the Board announces that it has declared and approved an interim dividend of 6.7 pence per share for the half year to 28 September 2014.
Transformation
The management reorganisation programme is expected to deliver cost savings of around £70 million per annum from 2015-16 - more than originally anticipated - with at least £25 million of cost benefits expected in the second half of this year.
Productivity improved by 2.1 per cent, within our target range of 2-3 per cent per annum.
Regulation
In October 2014, we welcomed the High Court's decision that HM Revenue & Customs (HMRC) is right to exempt Royal Mail's mandated access services from VAT. This decision may, however, be subject to a further appeals process.
In October 2014, Royal Mail announced that it had entered into a settlement agreement with the French competition authority in respect of alleged breaches of antitrust laws by GLS France, during the period before the end of 2010. A provision of £18 million has been made.
Summary outlook for 2014-15
Our performance remains in line with our expectations for the full year.
Tight cost control expected to deliver flat underlying costs before transformation costs in UKPIL.
Full year outcome dependent on our performance over the Christmas period.
