Royal Mail delivers $540 mln boost for investors as parcels boom

Britain’s Royal Mail (RMG.L) announced a surprise 400 million pounds ($540 million) for shareholders on Thursday, as a booming parcels business helped it offset cost pressures to deliver higher half-year profits.

Shares in the company, one of the world’s oldest postal firms, rose more than 5% as it outlined plans to buy back 200 million pounds of shares and for a special dividend to match.

After years of struggling with a declining letters business, Royal Mail has benefitted from a surge in online shopping that has accelerated since the pandemic.

Adjusted operating profit jumped to 404 million pounds in the six months ended Sept. 26 from 37 million a year earlier.

Soaring demand for parcels, however, is coupled with an expected rise in costs due to higher inflation and a shortage of lorry drivers.

“A key risk to a bumper festive season for Royal Mail is whether supply chain issues spoil the party,” AJ Bell analyst Russ Mould said, with stock availability a worry for retailers.

The company’s shares, which have been under pressure in recent months, were up 5% to 460.72 pence at 0930 GMT.

Royal Mail said its cost-reduction drive, which includes more automation, would help it address inflationary pressures.

The company has identified 190 million pounds of savings so far, it said. It will also increase prices of its letter services from January.

Royal Mail, which is in talks with unions over a new pay deal for next year, said it had to pay more for temporary workers hired for Christmas. It has taken on about 20,000 seasonal workers this year, compared with 33,000 last year.

The company forecast full-year profit for its UK business at about 500 million pounds, up from 344 million the year before.

($1 = 0.7410 pounds)