Royal Mail shares dive on profits news

The share price of Royal Mail has fallen heavily this morning (May 22nd) following the release of the company's latest financial results.

Stocks in the firm dived even though it was revealed in the results that it recorded a large rise in its annual profits, which are the first results to be released since the company floated on the stock market towards the end of last year.

Royal Mail revealed that its annual operating profits were up to £671 million, a rise of 12 per cent from £598 million a year ago. There was also a significant rise in its sales, which were shown to have risen two per cent over the year to £9.46 billion.

Chief executive at the company Moya Greene stated that the firm is facing a "couple of headwinds" in the coming months, even though the annual results were broadly in line with the expectations of analysts.

Controversy

The initial public offering Royal Mail went through in the autumn was a controversial one, as the government was accused of selling off shares in the postal service at a low price, allowing hedge funds to profit heavily from the organisation's privatisation.

Opponents such as the Labour Party slammed the move, while studies suggested the share sale could have cost the taxpayer tens of millions of pounds.

Ms Greene said: "The competitive environment on the parcels side is more intense. We are taking steps to remain the leader in this growing market. On the letters side, the headwind is direct delivery and we have strategies in place to counter its adverse financial impact."

Despite the rise in sales and the strong increase in the firm's profits over the last 12 months, investors responded negatively to the announcement and shares in the company fell heavily on the back of the results.

By 08:58 BST, shares in the company were down by 5.71 per cent, although this represented a minor recovery compared to earlier in the day, when stocks had fallen by over seven per cent.

Find up to date information on the FTSE 100 and spread betting strategies at City Index