How Royal Mail is making shareholders, customers happy

Highlights 

  • People have complained of postal delays.
  • Royal Mail claims that it has been working hard to improve its efficiency and delivery service.
  • But for shareholders, the company decided to give out £400 million via a special dividend and a share buyback.

Royal Mail is under tremendous pressure after complaints of postal delays were reported last week. Many Britons complained they have not received their expected posts for more than a fortnight. Royal Mail has apologised for not being able to ensure the safe and timely delivery of mail to the residents. As per media reports, the fundamental service was entirely out of order. To cover the new residential developments in Oxford, Royal Mail had recently revised its postmen and women's routes.

Media reports suggest that residents were quite displeased with the services of the postal delivery firm. People have been facing various issues, like not getting the right PIN numbers to not getting scans from hospitals on time. Royal Mail claims that it has been working hard to improve its efficiency and delivery time to prevent any further inconveniences. Its chief executive Simon Thompson said that the company wouldn’t invest in any services that are of beneficial for its customers.

RELATED READ: Royal Mail, Lloyds, Sareum, Greggs & Centrica: 5 stocks to focus on today

Even though Royal Mail has been failing Britons, it has formulised how to appease its shareholders. As the parcel delivery business of the company capitalised on the transition to online spending during the pandemic phase, the company decided to give out £400 million to its shareholders. Of this, £200 million would reach the shareholders through a share buyback and the rest via a special dividend. An interim dividend of £67 million would also be paid to the shareholders.

After hardly making any profits last year, a pre-tax profit of £311 million was recorded by Royal Mail in the first six months to 26 September mainly due to the structural shift in parcels. The company said that this shift would permanently benefit its parcel delivery system.
With this announcement, the shares of Royal mail also went up 7% on 18 November, while its market value jumped up by £300 million and touched £4.7 billion.

RELATED READ: Royal Mail zooms 7% as it offers double bonanza to shareholders

Even though Royal Mail has been making a lot of investments in automation to increase its efficiency and is also trying to make £110 million in costs savings, it is still giving out money to its shareholders as it has bounced back to normalcy from the impact of the pandemic.

According to Keith Williams, non-executive chair of Royal Mail, giving out higher returns to the shareholders is justified despite the critical time of Christmas ahead as enough cash flows would potentially be generated in the future to fund the company’s growth and investments in new technology. This decision was made despite the hiccups the company faced last Christmas while handling the high volumes of parcels.

Royal Mail’s share price performance

UK-based Royal Mail is a constituent of the FTSE100 index, and it was one of the top gainers on 18 November after the company announced the £400 million boost for its shareholders.

The current market cap of the LSE-listed company stands at £4,985.00 million. It has given a return of 76.07% to its shareholders in the last one year and its YTD return stands at 54.72% as of 22 November 2021.

Royal Mail Plc’s shares were trading at GBX 522.40, up 4.79%, at 10:32 AM on 22 November 2021 (GMT).

Comment


Disclaimer