Big losses for Royal Mail as Britons post 16m fewer letters every day

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Royal Mail has revealed a massive 72 per cent collapse in half-year profits, after its letters business slumped into the red.

• The company has been hard hit by rival operators, as well as the popularity of e-mail and social networking sites. Picture: Getty Images

Further falls in the number of letters posted saw the division report losses of 66 million in the six months to the end of last month, against a 48m profit a year earlier.

The group said the average postbag was now at a level not seen since the mid-1990s, with letter volumes falling to about 68m a day - a drop of 16m in the past five years.

Royal Mail's overall operating profits dropped to 52m from 184m as it continued to suffer increased competition from rivals as well as the use of e-mail, websites and social media.

Yesterday's figures come a month after the government said Royal Mail was to be privatised. It is pushing the Postal Services Bill through parliament to enable private capital to be injected and will take on Royal Mail's 8 billion in pension liabilities to smooth the path for privatisation.

A Department for Business spokesman said: "These results really bring home the need for the action.

"Letter volumes have fallen by 5 per cent in six months and Royal Mail continues to lose money. The situation is not sustainable and that is why we are pressing ahead with our plans."

The privatisation plans face stiff opposition from the Communication Workers Union.

Billy Hayes, its general secretary, said: "These results are the strongest argument yet for keeping Royal Mail publicly owned and fully integrated.

"Overall, there was a group profit and the quality of service has been maintained - would anyone expect a private company to provide the universal service and good quality of service in this context?"

A 5 per cent fall in letter volumes during the first half was less than the 7.3 per cent seen last year, but Royal Mail said trading conditions over the past six months had been "exceptionally tough".

It cut 2,800 jobs in the half-year, largely from the letters business. It was by far the worst performing division, although Post Office operating profits more than halved to 20m in the first half.

Royal Mail said Post Office revenues had been hit by a fall in traditional business, such as benefit payments by the Post Office Account, and lower demand for services such as foreign currency.

Parcelforce Worldwide and General Logistical Systems achieved small increases in earnings.

Moya Greene, the former head of Canada Post, who took over as chief executive earlier this year, said: "With widespread predictions in the postal world that mail volumes will continue falling, perhaps by up to 40 per cent over the next five years in the UK, it's absolutely vital we step up the pace of modernisation."

The group is taking steps to try to halt the decline in business, extending opening hours for some 650 of its 1,400 delivery offices on Wednesdays and Saturdays to cater for people who work, while it also announced an evening delivery trial for online shoppers of House of Fraser or beauty chain L'Occitane.

But the government sees privatisation as the only way to provide the funding needed to help it compete. And Ms Greene said the current heavy regulation was "suffocating" the group.

The Postal Services Bill had its second reading in parliament last month, but has yet to be voted through and is not expected to become legislation until at least next summer. The government has said it will not look for a private investor until then.

Ministers plan to see at least 10 per cent of its ownership held by Royal Mail employees.

In spite of the weakening financial position, executives believe Royal Mail - which eight years ago was losing 1m a day - can still be attractive to investors if the government presses ahead with plans in its postal services bill to take over the group's 10.3bn pension deficit and lighten the regulatory burden.

The coalition wants to sell part or all of Royal Mail through a flotation or a sale within two to three years.

Trova Consulting, a corporate advisory firm, recently valued Royal Mail at between 700m and 5.7bn, underlining the difficulty of pricing the business.

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