Royal Mail’s share price fall on profits slump as turnaround continues
Royal Mail's profits have fallen more than a third as the business ploughs money into the 500-year-old business' "transformation".
The figures
Adjusted revenues slipped one per cent to £9.25bn for the year to 27 March, while adjusted operating profits before transformation costs climbed five per cent to £742m. Royal Mail's margin fell 0.1 per cent to six per cent. On an adjusted basis, the group reported profit before tax of £538m, down 5.4 per cent.
But on a reported basis the figures looked more bleak: operating profit before costs was down 20 per cent to £485m, while operating profit after costs slid 36 per cent to £294m, giving it a pre-tax profit of £267m – down 33.3 per cent on last year.
Net debt reduced from £275m to £224m, and Royal Mail has upped its dividend by five per cent to 22.1p.
Investors were clearly unimpressed however: Royal Mail's share price fell 5.2 per cent in mid-morning trading.
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Why it's interesting
The group, which is celebrating its half-millennium this year, is part-way through a major shake up in a bid to modernise it in the face of changing consumer demands and new competition.
As such, some of the declines are to be expected – its addressed letter volumes, for example, fell three per cent, which was better than forecast.
For investors the story is still much of the same: the outlook for the UK's letter and parcel market remains unchanged, Royal Mail said.
"We continue to seek opportunities to drive efficiency, with transformation costs currently expected to be around £160m in 2016-17," it added. Total net investment spend will be £550m-£600m per annum in the medium term.
What Royal Mail said
Chief executive Moya Greene said: "We have delivered a resilient performance in challenging markets. Group revenue was up one per cent and our strategic focus on costs resulted in a one per cent decline in our UK underlying costs. We continue to invest in our transformation and initiatives to support growth.
"We are introducing new and improved products and services and responding quickly to changing customer needs. These measures, alongside our emphasis on customer focus and delivering a value for money service, have helped us to maintain our pre-eminent position in UK letters and parcels and driven growth in GLS."
In short
Royal Mail is part-way through a radical turnaround – but it's not coming cheap.