A Royal Mail postal van. Picture: REUTERS/LUKE MACGREGOR
A Royal Mail postal van. Picture: REUTERS/LUKE MACGREGOR

Bengaluru — Britain’s Royal Mail 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 re-nationalisation from the opposition Labour Party, the former British monopoly has promised to invest a further £1.8bn in its UK postal service in the hope of turning it around.

The company will introduce about 1,400 parcel post boxes across the UK, in what it said was the single biggest repurposing of the post box network in more than 160 years.

CEO 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 2019/2020 to 15p a share from 25p in 2018/2019.

“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 about 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% to 218.4p by 7.30am GMT. That is below the 330p 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 chair 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(GLS)  business is 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 £300m to £340m for 2019/2020, down from the £411m it reported for the year to March 31.