📦Royal Mail delivers x20 increase in profits

DELIVERY
Royal Mail delivers x20 increase in profits

What’s going on?
Royal Mail announced bumper results for the six months to September driven by a huge increase in demand for its parcel services.

Profits came in at £378m, a twentyfold increase on where they were a year ago.

Why is this important?

The rise in online shopping during the pandemic has undoubtedly helped Royal Mail’s performance since last year. Parcels, rather than letters, provided it with most of its revenue for the first time in its 500-year history. 

The company reported a 7% increase in sales to £6.1bn boosted by UK parcel volumes which are now 33% higher than they were before Covid.

Since changing from government to private investor hands in 2013, the business has struggled due to falling letter volumes as more of us opt for email instead. Since 2005 letter sending has dropped by 60%.

But the strength in overall performance this half has brought good news for shareholders as Royal Mail announced it would give them back £400m through a special dividend and share buyback.

Takeaway
Royal Mail’s results mark a real reversal of fortunes. Before the pandemic, its efforts to modernise under former CEO floundered against union opposition. Since then it’s been helped by a pandemic-related booming ecommerce sector and also successfully taking out costs from the business.

The turnaround has been reflected in the share price, since April 2020 it has tripled from lows of under 150p to 469p today.
 

BANK
Metro Bank dumped by US suitor

Shares in Metro Bank tumbled 20% after the American private equity group Carlyle ended talks to buy the challenger bank.

It was just two weeks ago when Metro confirmed it had received a takeover offer from Carlyle, sending its shares up 30%.

But yesterday the private equity firm said it had agreed to end discussions with no reasons given. 

Metro was founded in 2010 and is the newest UK high street bank in over 150 years. Today it has more than two million customer and tries to stand out from its more traditional rivals with branches that are dog friendly and open seven days a week.

However Metro has struggled since launch, its smaller scale and intense competition has made the past decade of low interest rates a challenge for profitability.

On top of that a major accounting error in 2019 led to an overhaul in its leadership. 

Being ditched by Carlyle leaves Metro in an awkward position. It has 78 branches in expensive locations tied up in long leases with no break clauses. This comes at a time when most rivals are slimming down their physical footprint as banking continues to moves online.

A takeover would have given the bank much needed funds to transform the business for a digital world.

Metro’s board says it “continues to strongly believe in the standalone strategy and future prospects” of the bank. It would say that. Others might not be so sure.