International Distri - Q3 Trading Update

International Distribution  Services plc (Incorporated in England and Wales)

Company Number: 8680755

LSE Share Code: IDS

ISIN: GB00BDVZYZ77

LEI: 213800TCZZU84G8Z2M70

15 January 2025

INTERNATIONAL DISTRIBUTION SERVICES plc (IDS or IDS plc)

THIRD QUARTER TRADING UPDATE

Successful Christmas period across IDS Group - continuing to build momentum, with further operational and strategic delivery. Royal Mail on track to return to adjusted operating profit¹ for FY 2024-25².

International Distribution Services plc (IDS.L) is today providing an update for the three months to the end of December 2024. Performance was in line with expectations in both GLS and Royal Mail. Both the operational and financial performance of Royal Mail continue to improve, and the business remains on track to return to adjusted operating profit¹, before voluntary redundancy costs, for FY 2024-25² (the "Royal Mail Profit Forecast"), representing a significant milestone in the turnaround of Royal Mail, following two years of losses. This provides a solid foundation for the business to build on in future.

Operational highlights:

Royal Mail

·      Strong operational performance.

·      High level of reliability with over 99% of items posted on or before the last recommended posting dates arriving in time for Christmas.

·      Strong growth in tracked parcels over Christmas³: total Tracked 24^® / 48^® volumes increased 19% year on year to 188 million parcels.

·      Operational improvements enabled us to deliver millions of parcels to customers up to 9pm for the first time, between Black Friday and the end of December, ensuring we met customer needs for next day deliveries over peak.

·      State of the art parcel hubs in Daventry and Warrington processed over 75 million parcels during the Christmas period³, an increase of 23% year on year.

GLS

·      Performance in line with expectations, with good export volume growth.

·      Strong performances in Spain and Poland in particular. Environment in both Italy and Germany remains challenging.

·      New Paris hub successfully opened in September 2024, providing additional capacity.

Financial highlights:

·      Continued parcel revenue growth at Royal Mail despite challenging macroeconomic backdrop.

·      Addressed letter volume decline continued, in line with historic trend, with volume decline offset by price.

·      GLS saw both parcel volume and revenue growth. Revenue growth in Euros, excluding acquisitions and disposals, was 2.5% year on year in the third quarter and 4.9% for the 9 months ended December 2024.

·      US parcel business saw improved profitability following disposal of freight business.

·      Finalised the sale of the Parcelforce depot at Royal College Street in London during the third quarter, part of an ongoing programme of strategic property disposals, which has included Nine Elms and Mount Pleasant.

Martin Seidenberg, Chief Executive Officer at IDS plc, said:

"I am proud of my colleagues across Royal Mail and GLS who went above and beyond for our customers this Christmas. At Royal Mail, we have made more progress to adapt to customer demand. Successful execution of our union agreements is bringing increased operational flexibility, which together with increased automation, and thousands of new vehicles, is leading to improved reliability. Over 99% of items posted on or before the last recommended posting dates arrived in time for Christmas.

"In particular I'm pleased with the strong growth in tracked volumes, and the progress we are making expanding our out of home network, giving customers more convenient options to send and receive parcels. We plan to grow our network to over 21,000 drop off locations by the end of March 2025, including c. 1,500 lockers.

"Our investment and efforts to drive improvements must be backed by urgent reform of the Universal Service. After five years of discussion, we look forward to seeing Ofcom's proposals as part of its forthcoming consultation. After speaking to thousands of customers, we submitted our proposal to Ofcom for a modern and sustainable postal service, and will shortly begin to pilot a new delivery model in a limited number of locations.

"GLS saw good export volume growth and strong performances in Spain and Poland and continued to invest in strategic initiatives, such as the roll out of parcel lockers across Europe, strengthening its out of home network. Whilst the market backdrop remains difficult, we are focused on strategic delivery and mitigation of inflationary pressures."

Keith Williams, Chair of IDS plc, said:

"The performance in Q3 demonstrates the continued progress of the Group over the last five years. Until then Royal Mail had been slow to implement the changes necessary to adapt to customer demand for more parcels and fewer letters, leading to declining profitability. Over the last five years both management and colleagues have faced a letter volume decline of 35% and further growth in parcels, which required significant investment and changes to how we operate. We now have a business which can better navigate further change and is confident about the future.

"There remains more to do and further investment will be required to continue on this path. On behalf of the Board, I would like to pay tribute to colleagues across the business who have made that change happen and adapted to different ways of working to meet new customer demands."

THREE MONTHS ENDED DECEMBER 2024 (THIRD QUARTER)

NINE MONTHS ENDED DECEMBER 2024

FY 2024-25 Outlook

·      Despite the difficult market environment, Royal Mail remains on track to return to adjusted operating profit^1, before voluntary redundancy costs, for FY 2024-25².

·      Offer by EP UK Bidco Limited: as set out in the Offer document published 26 June 2024, expected that Recommended Offer will become or be declared unconditional in Q1 of calendar year 2025, subject to required conditions being satisfied or waived.

1.     Reported results are prepared in accordance with UK adopted International Financial Reporting Standards (IFRS). In addition, the Group's performance is explained through the use of alternative performance measures (APMs) that are not defined under IFRS. A full list of the Group's APMs is set out in the section titled 'Presentation of results and alternative performance measures' in IDS' annual report for the year 2023-2024 on pages 238 to 243 (both inclusive). One of the APMs is 'adjusted operating profit' which is the measure adopted in the Royal Mail Profit Forecast. See page 240 of IDS' annual report for the year 2023-2024 for the definition of 'adjusted operating (loss)/profit'.

2.     The Royal Mail Profit Forecast is a profit forecast for the purposes of Rule 28 of the Takeover Code and the required confirmation of the IDS

                    directors, together with the basis of preparation and assumptions, is set out in Appendix 1 to this announcement.

3.     Nine-week period from 4^th November 2024.

4.     Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide.

5.     International includes import and export for Royal Mail and Parcelforce Worldwide.

6.     Excludes General Election mail.

7.     % changes based on reported numbers.

8.     Includes revenue from General Election mail.

9.     Royal Mail and GLS revenue does not equal Group revenue due to the elimination of intragroup trading.

10.   Growth in Euros, excluding the impact of acquisitions/disposals was 2.5%.

11.   Growth in Euros, excluding the impact of acquisitions/disposals was 4.9%.

Enquiries:

Investor Relations

John Crosse

Email: investorrelations@ids-plc.com

Media Relations

Jenny Hall

Phone: 07776 993 036

Email: jenny.hall@royalmail.com

Greg Sage

Phone: 07483 421 374

Email: greg.sage@royalmail.com

Press office: press.office@royalmail.com

Company Secretary

Matthew Newman

Email: cosec@ids-plc.com

The person responsible for arranging the release of this announcement on behalf of IDS plc is Matthew Newman, Company Secretary

FORWARD-LOOKING STATEMENTS

This announcement contains certain forward-looking statements concerning the Group's business, financial condition, results of operations and certain Group's plans, objectives, assumptions, projections, expectations or beliefs with respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'will', 'would', 'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'targets', 'goal', 'forecasts' or 'estimates' or similar expressions or negatives thereof.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group's actual financial condition, performance and results to differ materially from the plans, goals, objectives and expectations set out in the forward-looking statements included in this announcement.

All written or verbal forward-looking statements, made in this announcement or made subsequently, which are attributable to the Group or any persons acting on its behalf are expressly qualified in their entirety by the factors referred to above. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. No assurance can be given that the forward-looking statements in this announcement will be realised; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Subject to compliance with applicable law and regulation, the Group does not intend to update the forward-looking statements in this announcement to reflect events or circumstances after the date of this announcement, and does not undertake any obligation to do so.

Other than in relation to the Royal Mail Profit Forecast, no statement in this announcement is intended as a profit forecast or estimate for any period.

Appendix 1

Profit forecast for purposes of the Takeover Code

On 18 May 2023, IDS released its unaudited preliminary results for the 52-week period ended 26 March 2023, which included the Royal Mail Profit Forecast, as follows:

"Royal Mail: Targeting to restore profitability in Royal Mail over the two remaining years of the recommended pay deal, with a return to adjusted operating profit (before voluntary redundancy costs) in 2024-25."

The Royal Mail Profit Forecast was repeated in IDS' unaudited results for the half year ended 24 September 2023 released on 16 November 2023, as follows:

"On a 2-year outlook, we are still targeting Royal Mail to return to adjusted operating profit (excluding voluntary redundancy

costs) in FY 2024-25, although the current weaker macroeconomic conditions represent a significant headwind."

The Royal Mail Profit Forecast was first made before EP Group made an approach with regard to a possible offer for IDS and accordingly the requirements of Rule 28.1(c) of the Takeover Code apply to the Royal Mail Profit Forecast. In the Offer document published on 26 June 2024, the Directors of IDS confirmed that the Royal Mail Profit Forecast continued to be valid as at that date, had been properly compiled on the basis of the assumptions stated therein and that the basis of accounting used was consistent with IDS' accounting policies.

The Directors of IDS confirm that the Royal Mail Profit Forecast continues to be valid as at the date of this announcement.

Set out below is the basis of preparation of the Royal Mail Profit Forecast and the assumptions on which it is based.

Basis of preparation

The Royal Mail Profit Forecast has been prepared on a basis consistent with IDS' accounting policies which are consistent with those applied in the preparation of IDS' results for the 53-week financial period ended on 31 March 2024.

The Royal Mail Profit Forecast has been prepared on the basis referred to above and subject to the principal assumptions set out below. The Royal Mail Profit Forecast is inherently uncertain and there can be no guarantee that any of the factors referred to under 'Assumptions' below will not occur and/or, if they do, their effect on IDS' and/or Royal Mail's results of operations, financial condition or financial performance, may be material. The Royal Mail Profit Forecast should therefore be read in this context and construed accordingly.

Assumptions

The Royal Mail Profit Forecast is based on the assumptions listed below:

1.1     Factors outside the influence or control of the Directors of IDS:

(a)     there being no changes to existing prevailing macroeconomic, regulatory or political conditions in the markets and regions in                                                                

           which Royal Mail operates that would materially affect the business, including there being no changes due to any impact of the     

           ongoing Ukraine-Russian and Israel-Palestine crises;

(b)     the inflation, interest, foreign exchange and tax rates in the markets and regions in which Royal Mail operates remaining materially             

           unchanged from the prevailing rates;

(c)     there being no material adverse events that would have a significant impact on Royal Mail's financial performance, including

           litigation, change in political regime, climate change or adverse weather events;

(d)     there being no industrial action involving Royal Mail;

(e)     there being no reform of the Universal Service Obligation of Royal Mail;

(f)      there being no material changes in market conditions over the forecast period to 30 March 2025;

(g)     there being no business disruptions that materially affect Royal Mail or its key customers or any major breach of information

           security or data protection regulation as a result of a cyberattack and/or technological issues;

(h)     there being no material impact on stakeholder relationships on account of any offer for IDS;

(i)      there being no material adverse outcome from any ongoing or future disputes with any customer, competitor, regulator or tax

          authority;

(j)      there being no material adverse impact on the health, safety and wellbeing of Royal Mail's employees, no material change in

           employee attrition rates and no material change in Royal Mail's labour costs, including medical and pension and other post-

           retirement benefits driven by external parties or regulations; and

(k)     there being no material changes in legislation, taxation, regulatory requirements, applicable standards or the position of any

           regulatory bodies impacting on Royal Mail's operations or on the accounting policies of IDS.

1.2    Factors within the influence or control of the Directors of IDS:

(a)     there being no further material change to the present management of IDS;

(b)     there being no material adverse change in IDS' ability to maintain customer and partner relationships and to meet customer needs

           and expectations;

(c)     all long-term customers being retained and continuing to generate revenues in line with their historical trends and past behaviours

           and there being no loss of customer contracts or volumes of activity unless a contract is due to terminate in the period to 30 March

           2025;

(d)     there being no material corporate acquisitions or disposals, developments, partnership or joint venture agreements being entered

           into by Royal Mail, prior to 30 March 2025 (for the avoidance of doubt, other than any offer for IDS);

(e)     there being no material strategic investments over and above those currently planned;

(f)      there being no material changes in the dividend or capital policies of IDS;

(g)     IDS' accounting policies being consistently applied over the forecast period;

(h)     there being no material change in the operational strategy of IDS and/or Royal Mail; and

(i)      there being no inability to secure ongoing access to finance and/or to manage working capital and cash to support the ongoing

           running of, and investment in Royal Mail.

Statement of the Directors of IDS

The Directors of IDS have considered the Royal Mail Profit Forecast and confirm that it remains valid as at the date of this announcement, has been properly compiled on the basis of the assumptions set out above and the basis of accounting used is consistent with IDS' accounting policies.