Royal Mail PLC to return £400mln to shareholders as interim profits jump

Royal Mail PLC (LSE:RMG) said it will return £400mln to its shareholders via a buyback and a special dividend as it announced a surge in profits for the first half of the year.

Pre-tax profit jumped to £315mln in the six months to 26 September 2021, from £17mln in the same period last year. Rvenue grew 7.1% at £6.07bn.

Operating profit increased to £311mln from a loss of £20mln, driven by a recovery at the Royal Mail unit, which was hit by the Coronavirus (COVID-19) pandemic and restructuring charges in the first half of last year.

“The first half saw continued revenue growth across the group, with improved profitability in Royal Mail and GLS performing strongly,” non-executive chair Keith Williams said.

The Royal Mail business reported adjusted operating profit of £235mln in the first half, compared with a loss of £129mln, while GLS recorded a 1.8% rise in profit to £169mln.

The company forecast a full-year adjusted operating profit of £500mln at Royal Mail and repeated its guidance for GLS of low single-digit percentage revenue growth and an operating profit margin of around 8%.

It is paying an interim dividend of 6.7p a share and £200mln in a special dividend. It also announced a £200mln share buyback which will start immediately.

The group said the pandemic has led to a structural shift in parcel volumes, with domestic volumes at the Royal Mail unit soaring 33% in the first half compared with pre-pandemic H1 2019-20, while GLS volumes jumped 30% in the same period.

Compared with the first half last year, Royal Mail domestic parcel volumes fell 4%, while GLS saw a rise of 8%.

The group said Royal Mail’s strategy to focus on parcel delivery generated £15mln in benefits in the first half. However, the expected full-year benefit has been revised down to £80mln from £100mln previously.

Simon Thompson, chief executive of Royal Mail, said: “Re-invention of Royal Mail is inflight; we are making pleasing progress with our change agenda. We’re seeing the benefits of our programmes to reduce costs, and are developing our plans to address inflationary pressures which will impact next year and beyond.

“The pandemic has resulted in a structural shift and accelerated the trends we have been seeing. Domestic parcel volumes, excluding international, are up around a third since the pandemic, whilst addressed letter volumes, excluding elections, are down around a fifth. This reaffirms that our strategy to rebalance our offering more towards parcels is the right one, and demonstrates the need to start defining what a sustainable Universal Service is for the future.”

The company said cash generation remains strong with in-year trading cash flow improving by 36.1% year-on-year to £298mln.

Shares were up 4.8% at 459.00p in early deals.