Royal Mail share price up 5% after parcels deliver strong full-year profits

The British postal service saw its share price climbed higher on Wednesday as investors welcome second daily delivery of parcels, despite the company cutting its dividend to finance turnaround plan.

Royal Mail Source: Bloomberg

Royal Mail saw its share price climb more than 5% on Wednesday morning after it recorded a 2% increase in revenue to £10.4 billion in its full-year results, driven by good growth in parcel delivery service which more than offset letter revenue decline.

However, investors are no doubt disappointed by the postal service announcing that it would cut its dividend by 40% to help finance a new five-year turnaround plan that aims to realign the business to help it compete within a industry dominated by online parcel deliveries.

‘Our ambition is to build a parcels-led, more balanced and more diversified international business, delivering adjusted Group operating profit margin of over 4% in 2021-22, increasing to over 5% in 2023-24,’ Royal Mail Group CEO Rico Back said.

Royal Mail results: key figures

In its full-year results, Royal Mail’s adjusted operating profit before transformation costs came in at £509 million, in line with its expected range of £500-530 million. The total of the postal services transformation costs sits at £133 million.

Royal Mail’s share price is up more than 7% to 226p a share as of 11:40am GMT.

Royal Mail looks to refresh its postal service around parcels

Royal Mail is desperate to impress investors with it facing the possibility of being renationalised if the Labour Party comes to power, with the postal service looking to invest an additional £1.8 billion in a turnaround effort aimed at realigning the business to be parcel-led.

‘At the heart of our refreshed strategy is a UK ‘turnaround and grow’ programme. In 2018-19, after a challenging year, we delivered productivity improvements and cost avoidance in line with our revised expectations,’ Back said.

‘The investment in the UK, and expected lower cash flow in the early years, means we are rebasing the dividend and changing our dividend policy.’

‘This is not a decision we have taken lightly as we know how important the dividend is to our shareholders,’ he added.

The postal service is hoping that it has struck the right balance between sustainable shareholder returns and adequate investment in its future growth both in the UK and internationally.


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