Royal Mail Hands £400 Million to Investors on Parcel Windfall

(Bloomberg) --

Royal Mail Plc will return 400 million pounds ($540 million) to shareholders, saying it’s increasingly confident that the online shopping boom spurring parcel deliveries will persist.

The stock had its biggest gain in close to six months on Thursday after the U.K. postal service launched a 200 million-pound share buyback and said it would pay a special dividend of equal size. 

“During the pandemic we conserved cash, built a buffer and canceled our dividend, but we’re 18 months on now and much more confident,” Chief Financial Officer Mick Jeavons aid in an interview.

Royal Mail has been one of the biggest corporate beneficiaries of the coronavirus pandemic as lockdowns boosted web-based purchases and home deliveries, accelerating an emerging trend. The London-based company said the shift appears structural, with its package volumes up by a third in the U.K. in the first half through September compared with the same period in 2019.

The shares rose as much as 7.5%, the biggest gain since May 25, and traded 5.2% higher at 460.80 pence as of 9:14 a.m. in London. Royal Mail’s market value is up more than one-third this year after jumping almost 50% in 2021.

Operating profit surged in the half, rebounding from a loss a year earlier, when high levels of absenteeism tied to the virus outweighed strong demand. The company predicted an adjusted figure of 500 million pounds for the full year.

The special dividend will be paid at the same time as an interim dividend of 6.7 pence per share. 

Simon Thompson, chief executive officer of the U.K. business, said he doesn’t anticipate any issue with hiring extra staff for the annual surge in deliveries over Christmas, despite a tightening of labor markets.

A deal that ended years of conflict with unions has allowed routes to be revised, making better use of Royal Mail’s 85,000 delivery workers, he said. That means the company will need 20,000 more people over the holidays, down from 33,000 in 2020, when absenteeism also swelled the number.

“Based on what known today we believe we will be able to deliver this Christmas,” Thompson said.

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