Meanwhile, Royal Mail said that the one-off £106m tax credit that is “related to the decision to close the [Royal Mail Pension Plan] RMPP to future accrual after 31 March 2018.”
The said adjustments are a result of changing an earlier assumption that the pension scheme of the firm, while currently in surplus, is expected to fall into deficit and cost the firm over £1bn annually to keep open.
Today, the FTSE 250 firm announced that net debt has dropped from £452m to £382m. With its earnings doubling from 8.6p to 17.1p per share, Royal Mail increased its dividend by four percent to 7.7p per share.
Neil Wilson, the ETX Capital senior market analyst, stated: “More of the same from Royal Mail with good growth in parcels and GLS while letters are in freefall decline: yet more evidence of the structural problems it faces as it heads into the key Christmas trading period. Whilst letters weigh, parcels look solid, GLS is strong and the dividend yield certainly looks attractive.
“As ever, it all hinges on Christmas but with like the rest of the letters market, Christmas cards are ex-growth. The rapid decline may have slowed as consumers realise Christmas emails are not all they’re cracked up to be and increasingly go upmarket, but broadly speaking this is about managing the decline in volumes.
GLS remains the star performer as Royal Mail continues to lean heavily on its overseas operations for revenues.
Meanwhile, labour negotiations hang over the stock. The update notes dryly that ‘the industrial relations environment could impact our performance in the second half. It’s so far avoided a Christmas strike (which would be disastrous) but concessions mean higher labour costs eating into profits.
Reported after tax profits of £168m – double the £87m last year – mean it’s still highly cash generative and can afford a progressive dividend.”