Page last updated at 14:17 GMT, Thursday, 23 October 2008 15:17 UK

Royal Mail profits sharply higher

First class stamps
Making money, but Royal Mail is delivering fewer letters

Royal Mail doubled its operating profits to 177m in the first half of 2008/09 from a year ago, helped by cost cuts and greater efficiency.

The average daily postbag is now 79 million items. This is five million fewer letters than two years ago.

The postal group is facing competition from commercial rivals, who handle one in three of every letter posted.

The figure provided does not include exceptional items - such as redundancy costs - which may have reduced profits.

A clearer picture of its profitability will emerge in its annual results.

Royal Mail also said stock market falls had pushed the group's pension deficit from 2.9bn in March this year to 4bn.

Hard times

Chairman Allan Leighton said the results showed that progress was being made in tough economic circumstances.

"This strong performance has been delivered against a backdrop of falling mail volumes, increased competition, an unsatisfactory regulatory regime and the challenge of meeting the heavy demands of our pension scheme," he said.

Cost cuts and improved efficiency have contributed to rising profits and the group will soon have closed nearly 2,500 post offices.

Royal Mail wants "fairer" regulation, arguing that it is difficult to change prices and introduce new products and services in the competitive business mail market.

A government decision on the future of the Post Office Card Account - which is expected soon - is of "critical importance" to its future, it said.

Universal problems

Royal Mail's 350-year monopoly ended at the start of 2006, when other licensed operators were given the right to collect and deliver mail.

While it has lost business in the lucrative bulk mail collection and sorting market, it is still obliged to deliver letters to and from anywhere in the UK at a uniform tariff.

This Universal Service, as it is called, continues to be loss-making, the group said.

It noted that there were "huge challenges to be overcome to secure the future of the Universal Service".

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