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Parcels business grows

Royal Mail posts flat profit and lifts cost savings

Flat profits: Photo by Terry Murden

Flat profits: Photo by Terry Murden

Royal Mail is raising its cost savings target after profit for the half year fell slightly and revenue rose on the back of its European parcels business.

The business is now planning to reduce costs by £600 million against an earlier target of £500m.

Pre-tax profits for the 26 weeks to 25 September were broadly flat, down from £116m to £110m.

Moya Greene, chief executive, said: “Our performance was broadly in line with our expectations.

“Group revenue increased by one per cent on an underlying basis, driven by a good performance by our continental European parcels business.

“We delivered UK parcel volume and revenue growth including new contract wins. Addressed letter volume decline was within our forecast range. The recent acquisition of ASM in Spain and GSO in California supports GLS’ strategy of targeted and focused geographic expansion.

“We have increased our cost avoidance target from £500 million to £600 million of annualised costs cumulative over the three financial years ending 2017-18.

“We are targeting to reduce underlying UKPIL operating costs before transformation by up to one per cent in 2016-17, depending on the absorbable rate of change within our organisation.

“We are past the peak of investment. Net cash investment is expected to be no more than £500 million per annum, compared with an average of £615 million over the past three years.

“As always, our performance for the full year will be dependent on the important Christmas period. Extensive planning, which began in the spring, will help us to manage our busiest time. This includes the recruitment of over 19,000 temporary staff and opening nine temporary parcel sort centres.”

Group financial performance:

Revenue was up one per cent on an underlying basis, with good growth in GLS offsetting the decline in UKPIL revenue.

Adjusted operating profit before transformation costs was £320 million.

Adjusted operating profit margin after transformation costs increased by 40 basis points.

In-year trading cash flow increased to £116 million, reflecting more efficient investment spend.

In line with our stated interim dividend policy, the Board has declared a dividend of 7.4 pence per share for the half year ended 25 September 2016.

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