Fierce competition in parcels and letters sees Royal Mail's half year profits drop by a fifth

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Fierce competition in parcels and letters saw Royal Mail’s half year profits drop by a fifth.

Shares fell more than 8 per cent to end 39.2p down at 430p after the privatised group revealed a slip in operating profits from £353m to £279m, while sales barely grew at £4.5bn.

Pre-tax profits, which include financing costs and other non-trading items, dropped from £233m to £218m.

The group had been banking on the lucrative parcels division to make up for a decline in letters.

But Royal Mail warned that Amazon and Whistl, formerly TNT, would hamper progress.

Many Amazon parcels are delivered by Royal Mail. But a growing number are being handled by rival firms. Royal Mail has also criticised TNT for ‘cherry-picking’ urban areas for business mail.

Under the ‘universal service obligation’, Royal Mail must be able to deliver letters to every address in Britain on six days a week.

The company needs lucrative work in cities to subsidise loss-making rural operations.

Royal Mail has already slashed the number of post boxes available, and will get postmen to start collecting on their rounds – meaning some areas face a ‘final collection’ time of 9am. Revenues from the UK parcels and letters arm were flat at £3.7bn, but profits fell by almost a quarter to £172m.

The number of letters delivered fell 3 per cent to 6.5bn, though this was better than the 6 per cent feared. Revenues from letters rose 1 per cent to £2.2bn as stamp prices rose.

Junk mail revenues rose 5 per cent to £571m and revenue from parcels was down 1 per cent at £1.5bn. International business GLS fared better, with sales up 7 per cent at £1bn and profits rising from £62m to £69m.

Chief executive Moya Greene said: ‘I am pleased with our overall performance. We have delivered revenue growth in line with our expectations.’