November 15, 2018 / 7:51 AM / 25 days ago

UPDATE 2-Royal Mail sharpens costs focus to halt profit slide

* Reviewing structure, management and spending

* Reiterates full-year profit and costs targets

* Productivity to improve in second half, says CEO (Adds CEO comments, further detail on cost savings)

By Arathy S Nair and Tanishaa Nadkar

Nov 15 (Reuters) - Britain’s Royal Mail is conducting a broad review of operations in its struggle to cut costs, it said on Thursday after posting a 25 percent drop in half-year profit.

The post and parcels company, the CEO of which has come under increasing pressure since being handed the top job in June, said it was examining its organisational structure, management roles, investment spending and central costs.

Royal Mail stuck to the downgraded 2018 profit and cost-savings guidance announced in a trading update last month and said it was testing new modes to deliver letters and ways of automating some deliveries in the UK to increase efficiency and cut costs.

It also said it was changing prices in UK business mail and many international markets, adding that it was looking to make more of potential synergies between Royal Mail and its GLS parcels business.

“If you have a trading update and have to revise your forecast downwards, you are going to pull down all your cost levers,” Chief Executive Rico Back told Reuters.

The company’s attempts to reduce costs have failed to progress at the rate initially expected, which Back said was partly attributable to the lingering effects of an industrial dispute and the complexity of implementing an agreement with unions.

Royal Mail had signed an agreement with the CWU trade union in February on new working conditions, pay increases, pensions, a shorter working week, technology and digitisation.

PRODUCTIVITY DIP

Productivity slipped by 0.2 percent in Royal Mail’s first half to Sept. 23.

Back said that productivity would improve in the second half but declined to say if it would meet the original target of hitting the upper end of its 2-3 percent range for 2018-19.

Royal Mail shares rose more than 2 percent in early trading on Thursday but were down more than 5 percent at 329.9 pence by 1100 GMT.

Shares of the former British postal monopoly have lost nearly a quarter of their value this year.

Shareholder dissatisfaction has also been stoked by executive pay levels, with investors overwhelmingly rejecting senior management pay packages in July.

Royal Mail has been struggling to stem falling letter volumes and more recently warned that the new European data privacy law could reduce traditional marketing mail.

“An organisational restructure looks like it’s on the cards as the group tries to get back on track - and that kind of thing is expensive and risky,” said Hargreaves Lansdown analyst Nicholas Hyett.

Adjusted operating profit before transformation costs fell to 242 million pounds, broadly in line with analysts’ estimates, in the six months to Sept. 24, against 323 million pounds in the same period last year.

Rival Deutsche Post DHL Group is also restructuring its post and parcel division after it reported a smaller than expected decline in third-quarter operating profit. ($1 = 0.7685 pounds)

Reporting by Tanishaa Nadkar and Arathy S Nair in Bengaluru Editing by David Goodman

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