Profits slide at Royal Mail as it promises to deliver on turnaround strategy

Shares fell as Royal Mail promised a “clearer focus” on financial performance and management accountability today after its profits dropped by over a quarter for the opening half of the year.

Chief executive Rico Back said the company will renew its focus on customers just a month after issuing a profit warning that saw shares tumble, vowing to improve transparency over the company's future strategy.

The figures

Royal Mail’s adjusted profit before tax dropped 27 per cent year on year to £183m, even as revenues grew by one per cent to £4.9bn in the six months to the end of September.

The company’s net debt grew 23 per cent to £470m, largely fuelled by its acquisition of Dicom Canada for CA$360m (£214m) in September this year.

Adjusted basic earnings per share fell 32 per cent to 13.6p, while while it has set its interim dividend at 8p per share, a four per cent increase.

Shares dropped by as much as 7.2 per cent to 323p.

Why it’s interesting

Royal Mail warned on profits in October, sending shares into freefall and slashing its profit guidance to between £500m and £550m, blaming Brits for sending fewer letters.

Shares have still not recovered, and at one point even slipped below Royal Mail's much-criticised 330p per share flotation price.

The company has previously said it expected to save around £230m by slashing costs, but last month admitted delays to cost-cutting and poor productivity have forced its savings target down to £100m for the financial year.

Ed Monk, from Fidelity Personal Investing, said that Royal Mail’s results were largely in line with those lowered expectations.

“The one positive is that the results were not worse than predicted in the October warning – those lower targets were reconfirmed today,” he said.

“A lot of the bad news was priced in after the shares suffered a big fall at that point, so the market may not be shocked at today’s insipid results.”

What Royal Mail said

Chief executive Rico Back said: “We have put in place a range of actions to improve our performance. We are re-confirming our commitment to our revised £100m cost avoidance target and adjusted group operating profit before transformation costs of £500m – £550m for the financial year.

“We will update the market next year on our strategy. There will be a greater emphasis on how we connect customers, companies and countries through our domestic and international businesses.

“There will be a clearer focus on financial performance and management accountability. In March, we will host our first capital markets day since IPO in 2013. We will share more detail then about our direction for the next five years.”