Royal Mail PLC on Thursday reported a drop in annual profit and warned of a ‘downside risk’ to consensus expectations for the year ahead.

Shares in Royal Mail were down 12% at 301.74 pence on Thursday morning in London.

In the financial year that ended March 27, the postal service registered a 8.8% drop in pretax profit, which fell to £662 million from £726 million.

In its UK unit, adjusted operating profit jumped 21% with the margin up 90 basis points, but European and North American parcel operation GLS reported a 4.5% decline in profit on sterling terms with a 80 basis points margin drop.

Revenue rose 0.6% to £12.71 billion from £12.64 billion, with its domestic UK arm registering a 1.6% sales decrease while GLS revenue grew 4.4% in sterling terms.

The company explained that the decline in UK revenue reflected changing consumer behaviour after the lifting of lockdown measures as well as lower international volumes. Royal Mail cited the reopening of non-essential high-street shops, which cut into online shopping.

GLS, on the other hand, benefited from a recovery in business-to-business volumes and freight.

Royal Mail proposed a final dividend of 13.3 pence, taking its full-year payout to 20p. This is double on the 10p paid out the year before.

Looking ahead, Royal Mail said current adjusted operating profit consensus of £303 million sits within a range of potential outcomes but ‘with downside risk’. This would be down sharply on the £758 million posted for the recently ended financial year.

The UK arm’s revenue decline also is anticipated to continue as a results of a reduction in the posting of Covid-19 test kits and of domestic parcels generally. GSL revenue, however, is expected to grow, with high single-digit precent growth forecast.

‘Whilst a difficult environment persisted over the last year, with operational challenges caused by Omicron and tight labour markets, we continued to see financial tailwinds from the pandemic, which are now dissipating. We also have clear headwinds as we enter 2022-23, such as weakening [gross domestic product] and growing inflationary pressures,’ said Royal Mail Chair Keith Williams.

Separately, the company announced that Jourik Hooghe has been appoint as non-executive director from June 1. Hooghe is currently executive vice president and chief financial officer of budget airline Wizz Air Holdings PLC.

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