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Royal Mail’s profits fall as it warns of ‘challenging’ market conditions

19th May 2016 Print

As Royal Mail reports its full year results, Graham Spooner, investment research analyst at The Share Centre explains what they mean for investors.

“Royal Mail’s share price was down 4% on opening this morning as it reported a 33% fall in full year pre-tax profits. The company cited ongoing restructuring costs as reasons for the fall.

“Although the figures may seem daunting, investors should appreciate that the company is going through a huge transformation. Its Chief Executive Moya Greene indicated that while market conditions remain challenging, Royal Mail is confident about delivering full-year performance in line with current market expectations.

“Some good news was that the dividend for the year was raised by 5% to 22.1p as net debt reduced. There was also a solid performance from its European operations, although revenue growth is expected to slow in the year ahead.

“Interested investors should appreciate that the share price has outperformed this year however, the group will be continuing its' restructuring, as a result of the decline in the letters part of the business and the boom in parcels, on the back of internet shopping.

“There remains a divergence of opinion amongst analysts regarding the prospects for the group. Income seekers may be attracted however, at present we recommend Royal Mail as a ‘hold’. For the time being the market appears to be focussed on the growing threat of competition and falling letter volumes, so we would suggest potential investors watch the situation closely.”