Royal Mail profits fall after loss in letters business

The Royal Mail's main letters delivery unit has seen a fall in mail volumes

Royal Mail has seen its half-year profits fall by more than two thirds after its core letters delivery business returned to making a loss.

Its group-wide operating profits were £52m in the first six months of 2010, down 72% from £184m a year earlier. No pre-tax profit figures were released.

The loss at Royal Mail Letters totalled £66m, against a £48m profit last year.

Royal Mail said the loss was caused by a continuing fall in mail volumes and had been limited by cost-cutting.

It said mail volumes fell by a further 5% during the first half of the year, as more customers used e-mail, websites "and, increasingly, social media for communications in place of the traditional letter".

Royal Mail - which the government announced last month is to be privatised - said it was also being increasingly affected by online retailers choosing rival carriers to deliver goods.

Royal Mail Letters now delivers 68 million items per day on average, 24% less than in 2005.

However, the Communication Workers Union, which represents most Royal Mail workers, said falling profits should be taken as "the strongest argument yet for keeping it publicly owned", in order to ensure the universal service was maintained.

CWU deputy general secretary Dave Ward also said that the union believed regulation and pricing controls were "strangling Royal Mail".

"Mail volumes fell by less than the same period last year, but the loss of 2.5 pence per item to competitors to deliver their mail is a recipe for disaster," he said.

'Tough conditions'

Royal Mail said it was continuing with modernisation and cost-cutting measures in its letters unit.

It said that the number of UK employees across the group as a whole fell by 2,800 in the first half of the year, "the large majority in the letters business".

At the Post Office business, operating profit for the first half of the year fell to £20m from £41m a year earlier.

Royal Mail said the Post Office had been hit by lower customer numbers and a knock-on decline in the number of people buying foreign currency and travel insurance.

The two other main divisions within Royal Mail - Parcelforce Worldwide and General Logistics Systems - performed better thanks to higher business levels.

Operating profits at Parcelforce Worldwide - its express parcels delivery business - rose to £8m from £7m a year earlier.

At General Logistics Systems - its European parcel delivery unit - operating profits rose to £51m from £45m.

Moya Greene, Royal Mail chief executive, said: "Trading conditions over the last six months have been exceptionally tough.

"I pay tribute to our frontline employees for the way they are getting on with the essential modernisation changes we are introducing."

She added that with mail volumes continuing to decline, it was "absolutely vital we step up the pace of modernisation".