Shareholders face dividend setback as Royal Mail delivers weaker profits

● CEO says decision to change divi policy is ‘not one that we have taken lightly’

Royal Mail said it would pay a slimmed down dividend from next year to support its transformation plans after posting a fall in underlying profits.

The p ostal deliver y group will change its policy to pay out at least 15p p er share in 2020, in a move aimed at freeing up funds to invest in overhauling the UK business.

Although the shareholder payout could be topped up by any excess cash flow, it marks a sharp reduction compared with the 25p dividend paid out this year.

The group posted an adjusted profit b efore tax of £398 million for the year to the end of March, down from £565m a year earlier. Revenue inched up to just under £10.6 billion, par tly due to higher income from delivering parcels.

Chief executive Rico Back said: “Royal Mail is one of the most widely held stocks in the FTSE. The board appreciates the support of our shareholders, including our post men and women who have received free shares.

“We very much understand the importance of the dividend to all our shareholders. Our decision to re base the dividend and change the policy is not one that we have taken lightly. In doing so, we have sought to find the appropriate balance between investing in the future sustainability of our business, and shareholder returns.”

John Moore, senior investment manager at Brewin Dolphin, said: “Profits continue to slide at Royal Mail – that will be a real worry for investors, who have already had to contend with two recent profit warnings.

“But there is a relatively clear indication of where the business goes from here from management and that will be welcome, even if the shares continue to fall in the short term.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, noted :“Royal Mail wasn’ t under any immediate pressure to slash the dividend, with the balance sheet still relatively unburdened with debt even if cash flow has deteriorated dramatically.

“Given the importance of the dividend to many of Royal Mail’ s shareholders, the decision to cut can be taken as an indicator of the severity and long-term nature of the challenges the UK’S postman faces.”

Royal Mail unveiled new services targeting the growing trend for online shopping. These include a second daily deliver y of parcels, collection of returns and more options for people who will not be home when their orders arrive. Group cost savings of £150 mto£200m are expected in the year to March 2020.

sreid@scotsman.com