Royal Mail chases new cost target

Logistics is a business where every penny can make a difference. For proof, look no further than Royal Mail's pre-tax profit margin, which stands at just 2.4 per cent of revenues. With that in mind, investors might see the 40 basis point improvement in the headline operating profit margin as a reason for optimism. But that figure heavily adjusts for pension charges, which were some £20m lower than last year's comparable period.

Transformation costs also narrowed from £94m to £58m, as chief executive Moya Greene declared the company is "past the peak of investment". At the same time, the carrier has increased its cumulative "cost avoidance target" by £100m to £600m for the three-year period to March 2018. This initiative - which involves lower discretionary spend across the property estate and the integration of a further 49 per cent stake in facilities management group Romec - has already taken £87m out of ongoing costs. However, investors were somewhat unconvincingly and inelegantly warned that the project's success is "dependent on the absorbable rate of change within [the] organisation".

Geographic expansion is another source of continual hope for those fine margins, and on this front Royal Mail is delivering. General Logistics Systems (GLS), the company's international parcels business, posted a 25 per cent hike in underlying operating profits and saw volumes increase by a tenth. Doubling down on its strengths to spot market opportunities abroad, GLS recently acquired Spanish express parcels company ASM for €71m (£61m), and Californian parcel delivery group Golden State Overnight in a post-period deal valued at $90m (£72m).

Prior to these numbers, JPMorgan was forecasting pre-tax profits of £538m and adjusted EPS of 42.1p in the year to March 2017, against £538m and 41.1p in 2016.