Letters down, parcels up as Royal Mail raises the dividend 5% to cheer shareholders

19th May 2016


Royal Mail has announced a 5% rise in its full year dividend to 22.1 pence per share. Revenue increased by 1% to £9,251 million and underlying operating profit came in at £742 million, up 5%.

Profit before tax actually fell from £400m to £267m, on the back of costs related to the ongoing restructuring of the business. However stripping out those costs shows the 5% year-on-year to £742m.

In the 12 months to 27 March, the firm posted a 1% year-on-year decrease in revenue to £9.25bn, on the back of currency volatility and a decline in volume in the group’s letter business.

Total UK revenue for the year fell 1% from the corresponding period a year earlier, as a 2% decline in letters revenue was offset a 1% gain in parcels revenue. Meanwhile, volumes for its European logistics network GLS rose 10% year-on-year.

Charles Huggins, investment analyst, Hargreaves Lansdown says: “The Royal Mail business shows how far-reaching the effects of technological changes can be. Electronic communication has ravaged UK letter volumes over the years, but the rise of online shopping has led to more and more parcels whizzing around the country. Technology supports changes in supply too, with Royal Mail installing its first parcel sortation machine in Swindon, and further roll outs planned in the next two years.

“Against a challenging backdrop, Royal Mail’s performance has been solid, if uninspiring. UK parcels was supposed to be the growth engine for Royal Mail, with the UK letters business in decline, but conditions look set to remain challenging. The demise of rival City Link in December 2014 has been followed by a host of announcements from other parcel operators warning of pricing pressures. Meanwhile Amazon has become a competitor as well as a customer, with the launch of its own delivery service, Amazon Logistics.”

“Shareholders will welcome a healthy 5% rise in the dividend, which is underpinned by the group’s prodigious cash flows and a substantial London property portfolio, but revenue growth will probably be hard to come by until market conditions improve.’

Group chief executive Moya Greene said: “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.”

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