Royal Mail shares slide as profits fall

Royal Mail shares have fallen after the company reported lower profits and increased its target for cost savings.

Its shares slid 7.6% to their lowest level since March, and the company was the biggest faller on the FTSE 100, the UK's main share index.

Operating profit before transformation costs for the six months to 25 September fell 5% to £320m from £342m.

Royal Mail is now seeking cost savings of £600m a year, up from a previous target of £500m.

Royal Mail reported a 1% rise in revenue to £4.6bn for the half year to 25 September, but analysts said this was lower than forecast.

The trend of fewer letters being sent through the post continued, with total letter revenues falling by 3%, although parcel revenues grew by 3%.

"The fall in the volume of letters and an 8% dip in marketing mail after the Brexit vote in June is causing concern about what can be assumed going forward," said David Kerstens, equity analyst at Jefferies.

He added that pension costs were set to rise sharply and that cost savings would be very hard to achieve without sacrificing quality of service.

Moya Greene, Royal Mail's chief executive. said the Christmas period would be crucial for the full-year results.

"Extensive planning, which began in the spring, will help us to manage our busiest time," she said. "This includes the recruitment of over 19,000 temporary staff and opening nine temporary parcel sort centres."

Also on Thursday, Royal Mail competitor UK Mail - which is being bought by Deutsche Post - said half-year revenues had fallen to £230m from £237m a year earlier, although pre-tax profits rose to £5.8m from £2.2m.