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Royal Mail reports rising profits but warns over business uncertainty

While pre-tax profits rose, letter revenue slumped.

Royal Mail has reported rising full year profits, but warned that increasing levels of business uncertainty pose a risk to future prospects.

The group said that pre-tax profits rose 25% to £335 million in the year to March 26, with revenue rising 1% to £9.78 billion.

However, Royal Mail added that UK letter revenue slumped 5%, which it said “reflected the levels of business uncertainty following the EU referendum”.

Letter revenue slumped by 5% (Andrew Milligan/PA)

The group said: “We maintain our outlook for addressed letter volume declines of between 4% to 6% per annum (excluding the impact of political parties’ election mailings) over the medium term but would expect to be at the higher end of the range of decline in 2017-18 if the current climate of business uncertainty persists.”

Operating profit, the group’s preferred measure of performance, slumped 6% to £712 million.

Chief executive Moya Greene said: “This has been a more challenging period for UK businesses and we have come through it well.

Moya Greene outlined the challenges faced (Dominic Lipinski/PA)

“Through a combination of our strategic approach to costs and more efficient investment spend, we will support our progressive dividend policy with the in-year trading cash generation of the group.”

Parcel deliveries in the UK, where competition from the likes of FedEx and UPS has eaten into Royal Mail’s market share, rose 3% and helped mitigate falling letter sending activity.

Royal Mail added that it is on track to avoid around £600 million costs by 2018.

The company, which was privatised in 2013, is also facing the prospect of strike action over plans to close its defined benefit pension scheme next year.

The company is facing strike action (PA)

The Communication Workers Union is threatening industrial action after rejecting Royal Mail’s alternative proposal of a defined benefit cash balance scheme.

Shares rose 1.75% to 437.7p in morning trading.

Russ Mould at AJ Bell said: “Investors gave Royal Mail’s full-year figures the stamp of approval with the group’s shares topping the blue-chip board in early trading.

“Royal Mail has made good progress against all its strategic priorities despite a challenging operating environment. Revenues and pre-tax profits rose and the group’s progressive dividend policy is underpinned by a combination of its strategic approach to costs and more efficient investment spend.”

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