Michael Heron, chairman, said the organisation was in a fog of uncertainty that was already undermining customer confidence and causing loss of market share.
Spiralling Government demands for money were hampering the Post Office's ability to invest in the business, Mr Heron said. Last year it paid pounds 182m back to the Government under the target set by the Treasury. The payment, three times that required in 1992-93, will rise to pounds 226m in 1994-95.
The Royal Mail - by far the largest part of the Post Office - increased pre-tax profits from pounds 252m to pounds 296m but felt the first decline in a decade in traditional pillar box mail. The growth in the market was in bulk mail, which is vulnerable to competition.
Losses at Parcelforce increased by pounds 6m to pounds 19m. Bill Cockburn, Post Office chief executive, said an estimated pounds 10m worth of parcels business had gone to competitors because of uncertainty among customers over the future of the organisation. The Post Office Counters network made a profit of pounds 25m, broadly similar to last year.
The Government is due to publish its long overdue Green Paper on the options for the Post Office next week. These include selling a 51 per cent share in Royal Mail and Parcelforce while keeping Post Office Counters in public hands.
The Green Paper also outlines a proposal for the entire Post Office to remain state-controlled but with more commercial freedom.
Mr Heron said the Post Office board was extremely sceptical that it could be given any more real freedom while in state ownership. 'Our greatest worry is that such a solution would turn out to be impossible to deliver,' he said.
Robin Cook, Labour spokesman for trade and industry, said the record results showed the Post Office was a runaway public sector success story.
'It must be given the freedom to compete on equal terms with its rivals while remaining in the public sector, providing a public service,' he said.
Staff numbers decreased last year by 4,000 despite Parcelforce adding 1,000 to the workforce. All the reductions were voluntary.