Royal Mail expected to reveal cost savings amid job cuts

The City will be looking out for signs that Royal Mail has made significant cost savings following substantial job cuts when it updates the market next week.

Earlier this year, the company announced plans to axe 700 management jobs in a bid to reduce costs by about £40 million a year after experiencing a dip in revenue following the Covid delivery boom.

Analysts expect adjusted operating profits from the full year to May 6 to be £771 million, up from £702 million reported the previous year, when it publishes its full-year financial results on Thursday 19 May.

Shareholders will be hoping the results show evidence of its money-saving efforts in the balance sheets, as well any signs it can offset the impact of inflation driving up operation costs.

It comes amid concerns the rising cost of living could lead to a reduction in consumer spending, so investors will be cautious they could see parcel volumes take a hit.

Analysts warn Royal Mail’s pandemic success may be overshadowed by recent cuts and pressure to keep wages up in line with rising prices.

Laura Hoy, an analyst at Hargreaves Lansdown, said: “Royal Mail’s in a tricky position heading into its results.

“The group’s been delivering on an impressive turnaround that’s seen a shift toward automation and efficiency, which was only helped along by the pandemic.

“Now that those tailwinds have dissipated, much of the transition involves cutting costs, and Royal Mail’s biggest cost is its massive network of employees.”

Ms Hoy added that investors will be looking to see that the group is on track with its planned investment into automation and that spending is not getting out of hand.

“Management forecast well over £400 million of investment costs at the half year. With inflation driving up construction costs, we’re keen to know exactly what that means.

“We’ll also have an eye on parcel volumes, which have come down somewhat from pandemic highs. They appear to be rebasing at a higher level, though, a trend we’d like to see solidified at the full-year results.”