Royal Mail sees half-year profits drop by third and warns trade union talks could hit financial performance

Revenues rise with most of the growth coming from Europe as UK letters and parcels arm sees a flat performance

Royal Mail says the 'industrial relations environment' could knock its financial performance (Getty)

Royal Mail has seen profits drop by nearly a third and warned that efforts to reach a deal with unions over workers' pay and pensions could hit its financial performance.

The FTSE 250 firm said it was a "priority" to reach an agreement with the CWU - the communications union - with the mediation process likely to run until Christmas or beyond.

While the company's annual results hang on the crucial festive period, Royal Mail said the "industrial relations environment" could knock its second-half performance.

It came as pre-tax profits tumbled 30 per cent to £77m, down from £110m for the 26 weeks to September 25 last year.

Adjusted operating profit before transformation costs - the Royal Mail's preferred measure - climbed 7 per cent to £323m over the period.

Revenues also rose 2 per cent to £4.8bn, with the lion's share of the growth coming from its Europe-focused parcel business General Logistics Systems (GLS), helping to offset flat revenues at its UK letters and parcels arm.

Chief executive Moya Greene said the firm had enjoyed a good start to the year.

She added: "GLS delivered a strong performance with revenue up 9 per cent. Outside the EU, GLS is also growing through selective acquisitions to capture higher growth markets.

"UKPIL revenue was broadly unchanged, having declined by 2 per cent in 2016-17. Our investment in our business is paying off. We have won new parcels business; volumes were up 6 per cent. There was a resilient letters performance.

"As previously announced, we are now in external mediation with the CWU. Our priority is to reach agreement with the CWU to help underpin the sustainability of the business."

Revenues at GLS - which largely operates in Germany, Italy and France - rose to £1.205bn for the half-year, up from £942m in 2016.

UKPIL recorded marginally lower revenues of £3.624bn, down from £3.641bn over the same six-month period last year.

Focusing on Christmas, Ms Greene said: "Our performance for the full year, as always, will be dependent on the important Christmas period.

"We are opening six temporary parcel sort centres and recruiting over 20,000 staff. We are also extending opening hours at many of our Enquiry Offices to help retailers and consumers."

PA