Royal Mail battling on pensions

Other privatised utilities have been stigmatised by the failure of government and regulators to construct an effective market mechanism. Royal Mail, on the other hand, is charter-bound to provide services to unprofitable corners of the UK within a pre-determined pricing structure, while its competition is free to do as it chooses.

It's difficult enough operating in the logistics industry due to the expansion of digital communications, but tougher still when you're not on a level playing field. So investors can take heart from a creditable operating performance in the year through to March 2017. Underlying revenues were up marginally, with a 2 per cent decrease in the UK parcels and letters business, UKPIL, offset by a 9 per cent increase in its Europe-wide parcels arm, General Logistics Systems (GLS). The latter entity, particularly in the business-to-consumer (B2C) space, remains central to Royal Mail's growth plans.

The group has kept a lid on costs, or at least those within its influence. Operating costs were broadly flat and management is on track to "avoid around £600m of annualised costs in UKPIL by 2017/18". The group has passed the peak investment phase, with net cash investments of £492m down from £656m in 2015-16. The annual bill for the transformation programme came in at the lower end of guidance at £137m, against £191m a year earlier. Nevertheless, the challenges faced by management are reflected in the 6 per cent decline in adjusted operating profits (pre-transformation costs) to £712m, as UKPIL weakened.

Prior to these figures, JPMorgan Cazenove gave adjusted profits of £531m for the March 2018 year-end, with EPS of 38.5p, against £547m and 39.8p in FY2017.