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Royal Mail annual profits jump 12% to £671m

Profits at Royal Mail increased but chief executive Moya Greene said the future of universal service was endangered by TNT’s low prices

Royal Mail has warned about the risks facing the postal service as it battles cheaper rivals, despite posting 12 per cent rise in profits in its first full-year results as a public company.

When the Government controversially sold off the 500-year-old postal operator for £3.3 billion last year, it included guarantees that Royal Mail would continue to deliver mail to all of the UK’s homes, six days a week.

It has to provide access to competitors such as TNT Post for final-mile deliveries. But chief executive Moya Greene today said TNT’s plans to deliver post to almost half of addresses in lucrative high-density areas, like London, which only represent 8 per cent of the UK’s land, meant it could “cherry-pick easy-to-serve areas”.

She said that could take £200 million off Royal Mail’s revenues by 2017 and threaten universal service.

“Legally,” Greene warned, “we’re not allowed to match [TNT] on price. It’s very unfair and means there’s a prospect we will not be able to sustain a commercial rate of return in universal service.”

She added: “Parliamentarians need to make a very minor change to the Postal Services Act so we can get a review of direct delivery done right away. Universal service is a precious thing, but a fragile thing.”

But an Ofcom spokesman hit back: “We do not believe that there is presently a threat to the financial sustainability of the universal postal service. Royal Mail [should] take appropriate steps to respond to the challenge posed by competition, including improving efficiency.”

The comments came as Royal Mail made more money delivering parcels than post last year for the first time in its history. Parcel revenues made up 51 per cent of its overall earnings, which rose 2 per cent to £9.5 billion.

Pre-tax profit increased 19 per cent to £363 million for the year to April, and the decline in the number of posted letters slowed to 4 per cent. That, Royal Mail said, was partly because the amount of mail in its sacks was boosted by energy companies writing to customers about price rises in October.

Greene, who moved to London from Canada to run the mail group, dismissed rumours she may be looking for her next job, saying: “I love the Royal Mail. I still have great ambitions for this wonderful enterprise.”

The shares fell 7 per cent, or 39.5p, to 535.5p, still sharply higher than the 330p float price.