Portfolio

Royal Mail cuts dividend as profit falls

By Sean Farrell

Date: Wednesday 22 May 2019

Royal Mail cuts dividend as profit falls

(Sharecast News) - Royal Mail announced a dividend cut to fund an investment plan as the delivery company reported a sharp decline in annual profit.
Adjusted operating profit before transformation costs for the 52 weeks to the end of March fell 26% to £509m from a year earlier, towards the bottom of guidance of £500m to £530m. Revenue rose 2% to £10.4m. Reported pre-tax profit for the 52 weeks to the end of March rose to £241m from £212m.

Royal Mail announced a final dividend of 17p a share giving an annual dividend of 25p a share, up 4% from a year earlier. But the company said shareholders should now expect a 15p annual dividend "underpin" with extra payouts only in years with large excess cashflow.

The company said the dividend cut was needed to fund £1.8bn of investment over the next five years to increase productivity and efficiency. Automation of parcel sorting will increase to 80% from 12% under the plan announced by Rico Back, who took over as chief executive in June 2018.

The formerly state-owned company is one of the most widely held shares in the UK with a large group of retail shareholders, including employees, following its flotation in 2013. The dividend cut may anger shareholders who voted against Back's bumper pay deal at the 2018 annual meeting.

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. We have sought to find an appropriate balance between sustainable shareholder returns, and investing in the future."

Michael Hewson, chief market analyst at CMC Markets, said many investors had abandoned Royal Mail shares after a series of profit warnings and fearing a dividend cut. The company has limited flexibility in cutting costs because of its agreements with trade unions, he added.

"With respect to the dividend these fears appear to have been confirmed," Hewson said. "Given the furore over its own CEO's pay package, management are not in a good position to start asking staff to make sacrifices, which helps to explain the cut to the dividend. Better to get shareholders to absorb some of the pain along with the staff."

The company's shares, which have more than halved over the past year, rose 5% to 222.5p at 08:36 BST.



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