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Last Updated: Thursday, 17 November 2005, 16:30 GMT
Parcels boost Royal Mail profits
Royal Mail sorting office
Full postal competition begins next year
The Royal Mail has reported a rise in group profits, despite seeing earnings from its letters business fall.

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.

Position threatened

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.

Royal Mail has to live in the real world, not the theoretical one of regulatory economists
Adam Crozier, Royal Mail chief executive

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."

Vital investment

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".

Pension gap

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."

Why Royal Mail wants to raise the price of stamps

Royal Mail plays down job cut bid
07 Aug 05 |  Business
Royal Mail opposes new price caps
01 Jun 05 |  Business
Royal Mail delivers record profit
17 May 05 |  Business
Royal Mail staff promised bonuses
15 May 05 |  Business
Price rise for first class stamps
07 Apr 05 |  Business

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