Royal Mail is slashing its dividend by 40% next year, the latest blow to its army of small shareholders and staff who own 10% of the company.
But that will help pay for an £1.8 billion investment over the next five years to protect the UK’s postal service and boost its parcels delivery arm.
It is aiming to have a second daily parcels delivery service in place by 2023 as smartphone “night-owl” shopping booms. The demand for next-day parcels delivery is exploding, says Royal Mail.
Chief executive Rico Back, who saw 70% of investors vote against his pay last year, is fighting a decline in the letters business.
Royal Mail had to issue a profit warning in October due to a slump in letters.
It had a better second half as political strife across Europe saw more leafleting from political parties.
A second Brexit referendum would be a boon to Royal Mail. “Elections are always good for postal businesses,” said Back.
Royal Mail will honour its 25p dividend this year but slash it to 15p from next year, a blow to the 400,000 small investors who hold the stock.
“This is not a decision we have taken lightly as we know how important the dividend is to our shareholders,” said Back.
But profit for the year rose £29 million to £241 million thanks to growth in parcels and business overseas. The shares, which hit fresh lows yesterday, rallied 6% today to 224p. They floated at 330p.
Today is the first major strategy update since privatisation in 2014. Back’s five-year plan will see Royal Mail start collecting returns from customers at their home. It announced this week that it will introduce 1400 parcel postboxes in the UK.
former BA veteran Keith Williams was confirmed today as new chairman.
Back was a controversial choice as chief executive since he is based overseas and was given a £5.8 million payout of his contract at Global Logistics Systems, owned by the Royal Mail.
He said: “We have turned around in the UK. We now have a plan of where we want to be in five years’ time.” He says the company will have turnover of £12 billion by then.