The Royal Mail has reported a rise in group profits, despite seeing earnings from its letters business fall.
Full postal competition begins next year
Operating profits for the six months to 30 September rose by 20% to £159m, Royal Mail said, helped by gains at its European parcels business.
But on the letters side, Royal Mail said a fall in volumes led to 3% dip in operating profits to £168m.
The results come weeks before the postal market is due to be opened to full competition on 1 January.
Royal Mail also warned that the size of the £4bn hole in its pension scheme could hamper its efforts to revive the business.
Royal Mail said its General Logistics Systems - which includes its European parcels business - had performed "particularly strongly" with a £43m operating profit against a £23m profit in the same period last year.
But the fall in profits at Royal Mail's letters business came despite a rise in the price of a first-class stamp to 30p from 28p at the beginning of April this year.
"These latest results underline the massive and unprecedented challenges facing Royal Mail," said chairman Allan Leighton.
"We've come a long way since we launched the Renewal Plan in 2002 when the company was losing more than £1m every working day.
"But in just over a month's time, the postal market opens to full competition and Royal Mail is facing the prospect of the regulator imposing a price control which will undo the remarkable turnaround achieved in the last three years by our people."
Royal Mail has been in dispute with the regulator Postcomm over plans to cap the price of stamps.
The regulator wants a guarantee that first-class stamps will rise to no more than 34p by 2010.
Earlier this year, Mr Leighton warned that Postcomm's plans to cap prices would "literally starve Royal Mail of vital investment".
Volumes of profitable bulk mail - used by Royal Mail's biggest customers - dropped by 7.1%. First class fell by 4.2%, while second class fell by 3.8%, Royal Mail said.
"Royal Mail has to live in the real world, not the theoretical one of regulatory economists, and the reality is that we are seeing a significant decline in regulated mail volumes," said Royal Mail's chief executive Adam Crozier.
Mr Crozier added that the organisation needed to invest £2bn on replacing aging equipment and vehicles "to equip Royal Mail with the capabilities and efficient operations that rival companies already have".
Allan Leighton said the size of the £4bn hole in its pension scheme could serious hinder attempts to turn the Royal Mail around, and said it would need government help to close the gap.
"The hole is there and it has to be fixed," Mr Leighton said.
"We are dealing with a legacy from the past, if we could wipe that clear we could get on with running a profitable company," he added.
"We are generating £500m cash a year and may have to put twice that into the pension fund, if you don't have enough cash you go bankrupt."