A Report On Royal Mail Management

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From 2008, Royal Mail has been undergoing a major transformation programme focused on enabling the company to deliver parcel and letters more efficiently and has a gross investment of £2.8bn into the programme. This programme should be a powerful driver of earnings growth and cash going forward. There was a significant increase in operating revenue with a markedly improvement in cash flow travelling from negative free cash flow of £493m in FY09 to a £334m inflow in FY13 (see Figure 4). Royal Mail management has estimated that the recurring benefit derived from the programme is £0.5bn per year. Due to the greater use of electronic ways of communication, the letter volume has structurally declined during recent years and is expected to…show more content…
As the large amount of inflow in FY13 was primarily due to the increased advance customer payments with the exception of a one-off projected 150m pension related payment in FY14, the working capital trend should be broadly flat. In addition, Royal Mail has raised £842m through the sale of asset disposals. As the property disposals are closed to completion, the remaining cash inflow should be reflected in the forecast and is assumed to be realized by FYE2016. Moreover, the analysis expects management anticipate a low cash tax rate for the near future with a trend thereafter incrementally building towards a normalised rate. From the evaluation above, the forecast free cash flow figures provide a reliable estimation supported by thoughtful calculations and evidence, outlining a clear trend of underlying improvement in the key financial metrics. However, the forecast has its limitations due to lack of considerations of the downside of business and market conditions. For example, if the decline rate of letter volume is faster than forecast or the growth of parcel business fail to meet the expectation, the Royal Mail’s prospects of revenue growth will be materially adversely affected. Thus, it is more reliable to apply a higher growth rate in the next two flowing years and a slightly lower rate in the future due to the sensitivity of the analysis to the uncertainties. In
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