Royal Mail profit up to £404m

The Royal Mail increased its operating profit by £83 million in the last financial year to £404 million, a rise of 26%, despite facing a series of strikes by postal workers, the company announced today.

The increased profits also came against the backdrop of falling mail volumes, with 13 million fewer letters posted every day than in 2005.

The Royal Mail said the latest performance showed the positive impact of continued modernisation in the business and increased efficiency, issues which sparked last year's dispute with the Communication Workers Union.

Group revenues dipped for the first time in a decade, to £9,349 million, although all four of the Royal Mail's businesses remained in profit.

Around three quarters of the £2 billion investment plan aimed at transforming the Royal Mail's operations has been spent, it was announced today.

Around 8,000 jobs were cut in the last financial year, all through voluntary measures, it was revealed.

Royal Mail chairman Donald Brydon said: "These are good results achieved against a backdrop of harsh economic conditions and the relentless reduction in the number of letters sent by customers, not just in the UK but around the world.

"However, huge challenges remain, including the need to find a resolution to our historic pension deficit, and the need to reach agreement with Postcomm on a regulatory regime more suited to today's changing marketplace.

"The strikes called by the CWU in 2009 clearly had an adverse effect on Royal Mail Letters and I am delighted that the recent ballot of union members endorsed the agreement struck between the group and the CWU which will allow for still further progress towards our modernisation goals and help us to protect the universal service while providing a fair reward for our people and recognising the important role they play in achieving the transformation we so urgently need."

Mr Brydon thanked Adam Crozier, who stepped down as chief executive in April, for leading the transformation of the group over the past seven years.

Customers posted fewer letters, switched from first to second class and increasingly used other forms of communication such as email in the past year, said the Royal Mail.

Traditional government business also fell, but the impact was more than offset by modernisation and lower costs.

The Royal Mail's letters operating profit more than doubled to £121 million even though revenue fell by £143 million, leaving a profit margin of 2%.

Revenue generated by post offices fell by £70 million, mainly because of lower income from the Post Office Card Account.

Record target-beating performance was delivered by Royal Mail's postmen and women in the spring and early summer of 2009, but Royal Mail said it regretted that the strikes later in the year resulted in the company falling short of some of its annual quality of service targets.

Royal Mail said its Parcelforce Worldwide business continued to perform well in the "hugely competitive" time-guaranteed parcel sector.

Despite the recession, the parcels business maintained its revenues at £399 million for the year and its operating profit rose to £17 million - a 42% increase.

The Royal Mail said it paid £867 million into its pension schemes in 2010, adding that the deficit in its main scheme was expected to be "significantly higher" than the current valuation of £3.4 billion.

Mr Brydon added: "Despite the very significant pressures in all parts of the company, Royal Mail Group has continued to demonstrate its ability to withstand the combined pressures of recession and competition and has shown real momentum in driving forward our modernisation and making the changes which are so important if the company is to survive and thrive.

"To echo the words of Adam Crozier at this time last year, we know that despite the challenges of difficult and uncertain markets, we have the resilience and determination to continue our transformation and to become the world's best postal company. The strong and robust performance we have shown over the last 12 months shows we are making good progress."