Royal Mail Group PLC (LON:RMG) has been cutting costs as its letter delivery business continues to struggle and the parcels division contends with tough competition.
The company is expected to report on Thursday a 15% decrease in operating profit to £270mln for the first half, according to Jefferies.
Jefferies said first half profits have been hit by deteriorating revenue trends and increased cost pressures in UK Parcels, International and Letters (UKPIL) arm, partly offset by a continued strong performance in European parcels unit, General Logistics Systems (GLS).
It sees a 26% drop in UKIL operating profit to £183mln on the back of a letter volume decline of 6%. GLS, on the other hand, is expected to deliver a 21% increase in operating profit to £88mln.
In an effort to rein in costs, the postal service operator plans to close its current pension scheme on 31 March 2018 after finding that annual contributions could triple to £1.3bn if no changes were made. The firm’s workers had planned to strike in October in protest over pensions, wages and jobs but Royal Mail won an injunction in London's High Court preventing it from going ahead.
“The FY17/18E outlook is dependent on the outcome of labour negotiations about pay and pensions, which have entered into an external mediation process,” Jefferies said.
“We believe risks remain to the downside and stick to our ‘underperform’ rating.”
Thursday’s significant announcements
Interim results - Young & Co's Brewery PLC (LON:YNGN), Royal Mail PLC (LON:RMG), TBC Bank Group Plc (LON:TBCG), Mediclinic International Plc (LON:MDC), 3i Group PLC (LON:III), Dart Group PLC (LON:DTG), Assura Group Ltd (LON:AGR), British Land Co PLC (LON:BLND), Investec PLC (LON:INVP), Medica Group Plc (LON:MGP), QinetiQ Group PLC (LON:QQ.), Norcros PLC (LON:NXR)
Final results - Nanoco Group PLC (LON:NANO)
AGM / EGM - Nextenergy Solar Fund Ltd (LON:NESF), Record PLC (LON:REC)