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Royal Mail share price slides amid cost-cutting plans

Royal Mail share price slides amid cost-cutting plans

The UK's premier postal service posted a broadly weak set of full-year figures this morning, prompting the Royal Mail share price to fall in early trading.

On an adjusted basis, revenue ticked up by 3.8% to £10.84 billion, but operating profit slipped to £325 million, which was at the lower end of the £300-£400 million range announced three months ago. Parcel volumes increased by 2%, but that was below forecasts.

GLS, the courier service, saw operating profit rise by 17.5% to £208 million – and that has traditionally been the bread winner for the group. James Rietkerk, the head of GLS has stepped down, and this is a blow to the division. The UK parcel, international and letters (UKPIL) operation is expected to be materially loss-making in 2020-21.

Restructuring plans to see 2,000 jobs go

The business wasn’t in great shape before the pandemic, so the health crisis has compounded its problems. In an effort to cut costs, the firm will lower the headcount, and the restructuring of the management team will impact roughly 2,000 jobs. The cost savings this is estimated to generate should be £130 million next year. In addition to that, capital expenditure will be reduced by around £300 million over the next two years.

Last month it was announced that Rico Back, the CEO, had stepped down with immediate effect. The group also issued an update in relation to its performance in April. The UKPIL division saw revenue fall by £22 million. In addition to that, costs soared by £40 million as health and safety expenses jumped, and so did overtime overheads. For many companies that continued to operate amid the lockdown, the health emergency has been a double-edged sword, as business might be good, but Covid-19 related costs have jumped at the same time.

Royal Mail share price rise halted on dividend fears

Shareholders should not expect a dividend in the next financial year, but the company hopes to start paying a dividend again in the following year. The Royal Mail share price has been pushing higher for the past three months, but it's lower today as traders are not optimistic about the dividend being reinstated.     

In late March, Royal Mail 's share price took a knock when the group issued a Covid-19 update. On account of the major uncertainty caused by the health crisis, Royal Mail said there would be no final dividend, in addition to that no guidance was issued - which wasn’t a surprise. The company cautioned that the restructuring plans that it has pencilled in, will take even longer to achieve due to the disruption caused by the health emergency. The Royal Mail share price sold off sharply in November, when the group warned it was behind schedule in terms of its restructuring scheme, so that is likely to be an issue that will hang over the company.


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