Royal Mail looks to parcels as cuts dividend and lifts investment

Royal Mail Plc slashed its dividend by 40% on Wednesday to fund a new five-year turnaround drive that seeks to better position the group for a future dominated by online parcel deliveries and help to expand further overseas.

Facing the threat of renationalisation from the opposition Labour Party, the former British monopoly promised to invest a further 1.8 billion pounds in its UK postal service in the hope of turning it around.

The company will introduce about 1,400 parcel postboxes across the UK, in what it said was the single biggest repurposing of the postbox network for over 160 years.

Chief Executive Rico Back told Reuters it would seek to earn 40% of revenue from its operations outside Britain and 70% from parcel deliveries by the end of the five-year period.

To fund that drive, the company said it would cut its dividend for 2019-20 to 15 pence per share from 25 pence in 2018-19.

"This is not a decision we have taken lightly as we know how important the dividend is to our shareholders," said Back, who has been in the top job for around a year.

"We have sought to find an appropriate balance between sustainable shareholder returns, and investing in the future. Our ambition is to build a parcels-led, more balanced and more diversified international business."

The initial market reaction was positive, with shares up more than 3 percent to 218.4 pence by 0730 GMT. That is below the 330 pence flotation price in 2013.

Struggling with a market changed by Amazon and online shopping as well as the move away from sending letters, Royal Mail has been reviewing operations and testing new delivery methods.

It appointed its third chairman in a year in March and has been facing a shareholder revolt over management pay packages, while its shares, down two thirds in the past 12 months, dropped out of London's blue-chip index at the end of last year.

Back added in the statement that scaling up its General Logistics Systems business was a key priority.

The company's annual results showed that revenue at GLS, its ground-based parcel network, rose 8%, but adjusted operating profit slipped 9%.
It also forecast adjusted operating profit after certain costs of 300 million pounds to 340 million pounds for 2019-20, down from the 411 million pounds it reported for the year to March 31.