Royal Mail - vote of little confidence

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https://www.ft.com/content/02f31afc-e8a ... b8afea6ea3

Opening Quote: Royal Mail — vote of little confidence

MATTHEW VINCENT

Royal Mail half-year results

Does Royal Mail have the contract for sending ballot papers to Conservative Party members? If so, it may be the only company that cannot lose if MPs reject the prime minister’s Brexit deal.

If it all ends up in a general election, the postal service stands to gain more work: last year, it reported “higher than expected revenue associated with the UK political parties' 2017 general election mailings”.

If it goes to a People’s Vote, that’s good for income, too: in 2016, the government spent more than £9m on sending a referendum leaflet to every UK household.

And even if it only results in 48 Tory MPs forcing a leadership contest, there are at least 100,000 party members to whom a list of millionaire Old Etonians must be posted.

Royal Mail could do with the business. Earlier this year, it cut full-year profit expectations to £500m-£550m — down from the £694m it made last year — because letter volumes were falling faster than expected, and hoped-for cost savings could not be delivered. This morning, these trends were apparent in half-year performance.

Letter volumes fell another 7 per cent. So, even though parcel volumes were up 6 per cent, UK letter and parcel revenues were down 1 per cent to £3.6bn and underlying earnings in the division fell to £165m from £233m a year earlier.

Royal Mail’s General Logistics Systems arm also saw underlying earnings fall, down to £77m from £90m a year ago as higher cost pressures offset a 9 per cent jump in revenues.

As a result, the group’s adjusted operating profit before transformation costs was down by a quarter to £242m, reflecting lower revenue in the UK, poor productivity and, consequently, “lower cost avoidance”. It even suffered margin pressure in its fast-growing European business. Pre-tax profits more than halved to £33m from £77 million a year earlier.

Key numbers:

Addressed letter volumes, excluding the impact of political parties' election mailings, down 7 per cent
UK parcel revenue and volumes up 6 per cent
Adjusted operating profit before transformation costs down 25 per cent to £242m

As the City expected? As bad. UBS had forecast first-half revenue of £4.9bn, and a hit to adjusted earnings.

What was said: Chief executive Rico Back said, “We have put in place a range of actions to improve our performance. We are reconfirming our commitment to our revised £100m cost avoidance target and adjusted Group operating profit before transformation costs of £500m — £550m for the financial year.”

OQ verdict: Royal Mail’s inability to improve performance and cut costs became apparent a week ago, when it ousted the head of its UK post and parcels division and appointed a new deputy chairman with a background in worker relations.

Chief executive Rico Back is now taking direct commercial responsibility for this part of the business. He says a new strategy will put a greater emphasis on “how we connect customers, companies and countries through our domestic and international businesses . . . there will be a clearer focus on financial performance and management accountability.” There will have to be.