Royal Mail cuts shareholder payout to fund transformation

Royal Mail has warned that it will pay a smaller dividend from next year to support transformation plans, as the postal service reported a dip in underlying profits.

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

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

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 postmen and women who have received free shares.

“We very much understand the importance of the dividend to all our shareholders. Our decision to rebase 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.”

It comes as the group posted an adjusted profit before tax of £398 million for the year to March 31, down from £565 million last year.

Revenue meanwhile inched up to £10.58 billion, partly due to higher income from delivering parcels.

Royal Mail also announced a clutch of new services targeting the growing trend for online shopping.

These include a second daily delivery of parcels, collection of returns and more options for customers who will not be home when their orders arrive.

The group said the changes would target the fast-growing areas of 24-hour delivery and online returns, and would result in a £1.8 billion investment in the postal service over five years.

Meanwhile it will continue to cut costs, with savings of £150 million to £200 million expected in the year to March 2020.

Ed Monk, associate director at Fidelity Personal Investing’s share dealing service, said the cut to the dividend was “painful”, especially given the decline in the group’s share price by almost two-thirds over the last 12 months.

“Royal Mail clearly still has some reassuring to do before investors can be confident about its future, and politicians will no doubt want to know that the universal service is secure,” he said.

“Higher parcel revenues, which are being delivered, are essential help but the business needs to take more costs out.”