November 19, 2015 / 7:18 AM / 4 years ago

Royal Mail shares rise after increased cost cuts forecast

LONDON (Reuters) - Britain’s Royal Mail (RMG.L) has projected an increased level of cost cuts as it battles to boost the profitability of its domestic letters and parcels business, helping send its shares up more than 6 percent to a three-month high.

A Royal Mail postal van is parked outside homes in Maybury near Woking in southern England March 25, 2014. REUTERS/Luke MacGregor

Prospects of Royal Mail, privatised in 2013, hinge on its ability to cut costs and modernise its operations in order to help win more of a parcels market buoyed by a boom in online shopping.

Announcing first-half results, the company said it expected costs in UK letters and parcels to be at least 1 percent lower for the full year, having previously said it expected a 1 percent reduction.

Chief Executive Moya Greene told Reuters the group had kept a tight grip on costs and had put in extensive preparations for the Christmas period, important for its full-year outcome.

“Everything that can be operationally, we have done ... At Christmas, we know it’s our time to shine,” she said.

Royal Mail said it had managed to reduce operating costs through measures like job cuts, managing its vehicles better and boosting its processing and delivery productivity.

“We know that change in the operation is necessary and all the things that we did over the past two years now have given us the platform that has allowed us to accelerate that,” Greene said.

Royal Mail, which also reported a better than expected performance from its European parcels arm GLS, said UK parcel volume grew 4 percent in the first half, driven by new customer wins and initiatives.

The shares hit their highest since mid August and were 6.1 percent higher at 482 pence by 0904 GMT, making it one of the biggest gainers on the FTSE 100 .FTSE index.

“With limited revenue growth potential in the near term, it’s down to ongoing cost control to improve earnings,” said Panmure analyst Gert Zonneveld, who has a “hold” rating on the stock.

The company posted revenue little changed at 4.4 billion pounds for the six months ended Sept. 27, in line with analyst expectations. Adjusted pretax profit fell 16 percent to 240 million pounds, though excluding so-called transformation costs including pension expenses the group said operating profit was flat.

The company will pay a first-half dividend of 7 pence per share, up from 6.7p.

Editing by Paul Sandle and David Holmes

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