Thursday preview: Royal Mail reports full year amid struggles at parcels unit

The parcels division has suffered due to competitive pressures from sector peers such as UK Mail, FedEx and UPS. Amazon’s expansion of its UK operations provides another stumbling block for Royal Mail.

Analysts said the main issue has been that rivals have opted to push investment in technology while Royal Mail is lagging behind.

“While other companies like UPS use the concept of 'Access Points' at local retailers, where parcels can be left for safe keeping, and customers can go to pick them up later, Royal Mail still appears tied to the old sorting or delivery office model, which as most people can tell you usually requires getting up early in the hope that you can avoid the lengthy queues to pick up your parcel,” said Michael Hewson, chief market analyst at CMC Markets.

The City expects the company to report a 7.4% increase in pre-tax profit to £430m as it slashes costs to suffer the blow of its loss-making letters division and the ongoing problems at its parcels unit. Revenue, however, is expected to fall 1% to £9.2bn.

Underlying earnings are projected to drop 10% to 38.73p a share, but dividends are forecast to rise to 21.7p per share from 21p a year earlier.

Hewson said the performance of Royal Mail since its initial public offering in 2013 has seen a “fairly decent return” despite scepticism on the outlook for its profit and earnings.

“Now completely free from government interference after the government offloaded its remaining stake, the company is likely to find it a struggle to meet its projected performance targets, over the course of the next few year,” he said.

UBS said it believes the focus will be on the group’s continued restructuring and modernisation, as well as its guidance for the coming year. On the issue of talks with trade unions about staff wages and pensions, UBS expects Royal Mail will strike a cautious tone and will offer very little guidance on the issues.

The bank also expects questions will be raised concerning management after The Times' reported that a succession plan is on the cards.

“Given the good job current management have done, we believe the market would react cautiously to any change," UBS said.

The Times on Monday reported that Rico Back, previously the head of Royal Mail’s European business, is being lined up as the next chief executive of the group. Citing sources, the London newspaper said Back is set to take over from Moya Greene, 62, who is expected to resign as CEO sooner rather than later after six years in the role.

Thursday 19 May

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