Deliveries outfit Royal Mail (RMG) gained 4.9% to 457.9p as it gave a positive update on trading and announced plans to get rid of 700 management jobs.
In the third quarter running to 31 December 2021 the company reported performance in line with expectations with parcel revenue up 43.9% on pre-pandemic levels and down 4.9% year-on-year with market share in terms of volumes maintained.
The plan to ‘streamline operational management’ will involve a £70 million charge to be taken in the fourth quarter, with the effect that guidance for £500 million of adjusted operating profit will be reduced to £430 million. This move is expected to deliver a £40 million benefit on an annualised basis.
The wider transformation of the group is anticipated to result in efficiencies of £90 million in the upcoming financial year and between £55 million and £80 million in the current financial year, depending on how rapidly the business recovers from Omicron.
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The company has seen an increase in the number of complaints as it has faced staff absences linked to the rapid spread of Omicron through its workforce.
It appears the regulator Ofgem may give Royal Mail some breathing space to get its house in order but has not ruled out fines and has hinted it will take a tougher line as the impact of the pandemic subsides.
Its overseas parcel courier division GLS continues to perform strongly with Royal Mail guiding for full year revenue growth of 9% in euros, 4% in sterling against a previously flagged low single digit increase.
AJ Bell investment director Russ Mould commented: ‘In streamlining the business, Royal Mail needs to ensure it doesn’t go too far and diminish its operational capability or spark widespread industrial action, the threat of which has hung over the business in the past.
‘Outside of the UK, Royal Mail’s GLS international parcel courier division continues to make solid progress, and perhaps at some point suggestions that this part of the group might be spun off could be revived.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Tom Sieber) and the editor (James Crux) own shares in AJ Bell.
