(Alliance News) - Royal Mail PLC on Thursday posted a hefty first half profit hike as its recovery from Covid-19 continues, with the postal service provider also announcing plans to return GBP400 million to shareholders.
Royal Mail shares were 5.2% higher at 460.80 pence each in London on Thursday morning, the best large cap performer.
The promising half-year performance did come with a hint of caution, however, with the FTSE 100 stock warning on inflationary pressures which "will impact next year and beyond".
Revenue in the first half ended September 26 climbed 7.1% year-on-year to GBP6.07 billion from GBP5.67 billion. Royal Mail's pretax profit jumped markedly to GBP315 million from GBP17 million a year earlier.
The profit hike was helped by its resurgence after the "negative impact of Covid-19". An absence of chunky restructuring charges also boosted its bottom line. Restructuring charges a year prior amounted to GBP140 million.
Adjusted operating profit came in at GBP404 million, surging from GBP37 million a year earlier.
For the full-year, it expects adjusted operating profit of around GBP500 million for its UK unit, potentially a 45% rise from GBP344 million a year earlier, and an even chunkier rise from GBP117 million in the year ended March 2020.
Royal Mail domestic parcel volumes jumped 33% compared to pre-virus levels in the first half, while the GLS international parcel business saw volumes rise 30%.
Since the pandemic, parcel volumes have seen a boost from e-commerce. Royal Mail's letters division has been somewhat left behind - but there were signs of improvement in the half.
"We have seen a partial recovery in letter volumes compared to the significant decline we experienced during the Covid-19 pandemic. Year-on-year addressed letter volumes (excluding elections) grew by 11%, but were still down 19% compared to two years ago," Royal Mail explained.
The company declared an interim dividend of 6.7 pence, having paid none last year.
It also will pay a special dividend worth GBP200 million in total and also will start a GBP200 million share buyback immediately. It didn't provide the per-share amount of the special dividend.
In addition, Royal Mail plans to "move towards" a net nil cash position on a pre-IFRS 16 basis over the next two years. Pre-IFRS 16 net cash stood at GBP685 million on September 26, up substantially from GBP47 million a year earlier.
"We now have more visibility on the strategic progress and performance of both businesses, and while there is more to do, the board has decided that we should re-examine our retained cash balance," Non-Executive Chair Keith Williams said.
"As a first step, we will return GBP400 million of cash to shareholders, partly through a share buyback and partly from a special dividend."
It warned on inflation in its wider guidance beyond financial 2022, meanwhile.
"It seems increasingly clear that inflationary pressures will persist. In Royal Mail, employer national insurance contributions will increase by 1.25% from April 2022, impacting employment costs in FY 2022-23 by GBP50 million. We expect the flow through costs of the shorter working week, to be around GBP40 million in FY 2022-23," the company said.
On labour unions, it added: "We will also need to secure pay deals with both Unite/CMA and CWU."
By Eric Cunha; ericcunha@alliancenews.com
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