Royal Mail to address costs with extra £100m annual saving

Royal Mail (LSE: RMG.L - news) says it has raised its "cost avoidance" target by £100m annually to £600m for its core UK business, after it posted a 15% fall in half-year profits.

The country's national postal service reported a 5% fall in group pre-tax profit to £110m for the six months to 25 September.

Operating profit for the core UK Parcels, International and Letters arm (UKPIL) fell to £247m before the effect of transformation costs - almost 15% lower than the same period in 2015.

That was despite a £12m boost from the effects of the weak pound - adding that the build-up to, and aftermath, of the EU referendum led to "a reduction in overall marketing activity."

Revenues from advertising mail fell 8% in the period. It said UKPIL revenue declined by 1% with high parcel volumes offsetting a 4% fall in addressed letter volumes.

But it reported a better performance in its European parcels business, General Logistics Systems (GLS), where operating profits grew 25% to £89m.

Royal Mail, which has been modernising and restructuring its UK operation to make it more efficient, said it planned to ramp up cost savings, with a new target of £600m annually until 2017/18 - up from £500m.

It gave no detail on how it would achieve it, saying: "The outcome of our cost performance will be dependent on the absorbable rate of change within our organisation."

Investors, who usually like news of efficiencies, withdrew from its stock on the FTSE 100 in Thursday trading with shares closing 7% lower.

Chief (Taiwan OTC: 3345.TWO - news) executive Moya Greene said the overall group result was a "resilient performance against a backdrop of low inflation and highly competitive markets."

She (Munich: SOQ.MU - news) added: "As always, our performance for the full year will be dependent on the important Christmas period."

Plans for the festive surge in mailings include hiring another 19,000 temporary staff and opening nine temporary parcel sorting centres.