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Three reasons why Royal Mail isn't going to die just yet

Lianna Brinded
Head of Yahoo Finance UK
Royal Mail workers at work in a Royal Mail sorting office on February, 2 2019 in Cardiff, United Kingdom.(Photo by Matthew Horwood)

Royal Mail (RMG.L) faces extinction as the the death of the letter, rise of the email, threats of nationalisation, as well as competition from major retailers like Amazon (AMZN) taking over the delivery arena.

But in early trading today, shares in the British postal service rose by over 7% as it announced the three main things that will keep it alive.

Royal Mail share price. Chart: Yahoo Finance

In its full year results, Royal Mail revealed that it was going to enact on a drastic turnaround plan to battle all the elements — and investors seem to be rejoicing.

First up, Royal Mail said it would slashed its dividend by 40% to fund a new five-year turnaround plan. This would mean that the company would be in a better position to compete against online parcel deliveries. For example, the likes of Amazon which uses its own delivery network to get packages to buyers in as a little as the same day of purchase.

Secondly, it is investing around £1.8bn ($2.28bn) in its its UK postal service to help it navigate headwinds, expand overseas, and mitigate any growing threats of re-nationalisation that has come from Britain’s main opposition party, Labour.

Thirdly, amid the continual decline of letter, it will be focusing on parcel delivery. It will be introduce second daily delivery of parcels, including 1,400 parcel postboxes across the UK. It’s a move that will be the single largest repurposing of the postbox network for over 160 years.

Royal Mail CEO Rico Back said the group plans to earn 40% of revenue from its operations outside Britain and 70% from parcel deliveries by the end of the five-year period, according to Reuters.

READ MORE: Royal Mail shares hit record low as email continues to kill the letter