Royal Mail is set to dish out £400million to shareholders following a bumper period for the company as online deliveries soared during the Covid-19 crisis.
Bosses said £200million will be spent on a buyback of shares and £200million will be given to investors as a special dividend.
Shares in Royal Mail jumped sharply in early morning trading, and are currently up 5.01 per cent or 21.96 points to 459.12p. A year ago the group’s share price was 286p.
Payouts: Royal Mail is set to dish out £400m to shareholders following a bumper period for the company
The company made the shareholder payouts decision as it hailed a structural shift across its parcel division.
It said: ‘We believe the Covid-19 pandemic resulted in a structural shift, with a permanent step up in the level of parcel volumes compared to pre-pandemic levels, driven by increased online e-commerce activity.’
The group’s half-year revenue jumped from £5.7billion to £6.1billion and pre-tax profits swelled from £17million to £315million, compared with the same period a year ago.
Royal Mail said it expects to be debt-free over the next two years, with net debt being slashed from £1billion to £540million in the past year.
Domestic parcel volumes increased by 33 per cent compared to pre-Covid levels, but increased customs processing and reduced air freight capacity saw international parcel volumes drop 37 per cent.
Big changes: Royal Mail said it expects to be debt-free over the next two years
Royal Mail managed to increase profit margins, meaning that while the number of packages it shipped fell, the amount of revenue raked in for parcels grew by 33.6 per cent.
Letter sending started to recover since the pandemic lows and increased by 11 per cent on a year ago, but remained down 19 per cent on a two-year basis.
In terms of strategy, Royal Mail said it was working hard to provide customers with the services they need and want.
It said: ‘We are changing faster, and delivering more of what our customers need and want – such as Sunday deliveries, home collections of parcels through Parcel Collect, and trialling new services such as same day prescriptions, or as we call it “instant pain relief”.’
Martin Hewson, chief market analyst at CMC Markets UK, said: ‘The Royal Mail share price has struggled since its first quarter update back in July saw group revenue rise by 12.5 per cent compared to last year, and by 20.5 per cent compared to 2019.’
He added: ‘With the improvement seen over the past 12 months, Royal Mail has said it will be returning £400million to shareholders, £200million in the form of a share buyback, and £200million in the form of a special dividend.
‘This is exactly the sort of special delivery that shareholders tend to welcome. This would be alongside the interim dividend of 6.7p per share, payable on 12 January 2022.’
Richard Hunter, head of markets at Interactive Investor, said: ‘Royal Mail has been another beneficiary of enforced strategic acceleration resulting from the pandemic.
‘It is currently skilfully spinning a number of plates as it continues to transform, and the share price has reflected this progress, having risen by 55 per cent over the last year as compared to a gain of 14 per cent for the wider FTSE 100.
‘It would therefore be with some irony that, at current levels, the company is on the cusp of relegation at next month’s FTSE 100 reshuffle as a result of recent share price weakness which has seen a dip of 16 per cent over the last six months.
‘However, bulls of the Royal Mail story are not to be deterred, with the market consensus of the shares as a buy remaining defiantly intact.’