Business

UK’s Royal Mail to cut more costs after profit fall

Hopes high for parcels market as fewer letters are mailed in post-Brexit Britain

Royal Mail posted a fall in half-year earnings and said it was keeping an eye on the economy after the Brexit vote hit marketing mail. Photograph: Philip Toscano/PA Wire

Thu Nov 17 2016 - 08:57

Britain's Royal Mail said it needs to cut more costs after the former state-owned monopoly's first-half profits dropped despite a stronger performance in Europe.

Royal Mail shares fell by 2.6 per cent to 486.1 pence after it posted a 5 per cent fall in first-half profit. It now aims to cut annual costs by £600 million (€697 million) annually to March 2018, up from a £500 million target.

As British households and businesses send fewer letters amid an age of electronic communications and economic uncertainty, Royal Mail is cutting costs and modernising its operations to gain a larger share of the parcels market.

It has also been hurt by the loss of some business from Amazon, which has begun its own delivery network, while rivals such as UK Mail, which is being bought by Deutsche Post, have added extra capacity.

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Royal Mail said the costs associated with the transformation of its UK business were now seen at £130 million-£160 million for the year to March 2017, down from a previous forecast of around £160 million.

It said the outcome for the full year will be dependent on its trading over the Christmas period, after operating profits before transformation costs fell to £320 million in the half-year to September 25th.

Letter volumes

Analysts at Jefferies said in a note that Royal Mail's first-half profit was 8 per cent below their expectation of £348 million, driven by a deterioration of 6 per cent in second-quarter letter volumes after Britain's vote to leave the European Union.

This was despite a 1 per cent rise in revenue to £4.58 billion (€5.32 billion), in line with its first-quarter growth, as strong trading conditions for its continental European parcels unit continued to offset declines at home.

“The key drivers for the UK letters and parcels markets remain unchanged,” Jefferies said. “Letter volumes, particularly advertising letter volumes, are linked to movements in GDP and we are monitoring developments in the UK economy closely.”

Separately, rival firm UK Mail posted a 3.2per cent fall in revenue, to £230.2 million, for the six months ended September 30th, due to declines in its parcels and mail business.

However, UK Mail said it remained confident heading into its peak Christmas trading period.

– (Reuters)

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