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Royal Mail sees six-month profits plummet, CEO promises turnaround

The postal service recorded a dismal half year results, with profits halved, with the company’s board promising to action to turn the business around.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
Royal Mail worker
Source: Bloomberg

Royal Mail (LON:RMG) posted a disappointing set of half year results on Thursday, with share in the postal service falling by around 5% after announcing that its profits fell by more than 50%.

The company’s profit before tax slid to £33 million from £77 million and its profit after tax fell to just £5 million, down from £168 million the same period last year.

Royal Mail turnaround plans

The disappointing set of results has prompted its management team to act, with the postal service failing to hit productivity and cost-cutting targets.

‘We have put in place a range of actions to improve our performance,’ Royal Mail Group CEO Rico Back said. ‘We are reconfirming our commitment to our revised £100 million cost avoidance target and adjusted Group operating profit before transformation costs of £500 million - £550 million for the financial year.’

‘We will update the market next year on our strategy,’ Back said. ‘There will be a greater emphasis on how we connect customers, companies and countries through our domestic and international businesses. There will be a clearer focus on financial performance and management accountability.’

‘In March, we will host our first Capital Markets day since IPO in 2013,’ he added. ‘We will share more detail then about our direction for the next five years.’

Share price falls to IPO levels

Royal Mail’s poor performance has led to its share price taking a tumble, with the postal service seeing its stock fall by around 5% - taking it to a level close to its original IPO price.

The company has seen its new debt grow substantially to around £470 million, up 23% from last year. The increase is due to the company completing a leveraged buyout of Dicom Canada in a deal valued at around £214 million. The transaction was completed in September.

Shareholders will be upset that Royal Mail’s adjusted basic earnings per share have fallen to 13.6p, representing a decline of 32%, with the company adjusting its interim dividend ever so slightly to 8p a share, up 4%.

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