Royal Mail’s profits double after jobs cull

But the earnings success of its day-to-day operations is being dwarfed by payments of more than £800 million a year to plug the companies £6.8 billion pensions deficit which has doubled over the last 12 months.

The continuing shake-up of the business is still seeing cash flowing out at a rate of £1 milion a day.

Royal Mail which is at the crossroads as the debate intensifies about whether or how the UK postal network can be privatised, has closed 2500 post offices and — since 2002 — shed around one-in-four of the workforce or 55,000 employees, 5000 of them in the last year alone.

Royal Mail Group's chief executive Adam Crozier has sought over the last seven years to transform the business with the help of Allan Leighton — who stood down as chairman of the group in March — and today he hailed Royal Mail's financial performance as "strong in extemely challenging trading conditions."

Royal Mail Letters which accounts for 70% of the group's £9.5 billion of revenues in the year to the end of March, turned the small loss from the year before into a £58 million profit though that still represents a profit margin of less than 1%.

That turnaround is due solely to the shake up in working practices which has seen the introduction of new technology in sorting offices and seen doorstep deliveries cut to one a day.

Revenues are down as the humble letter has made way to the internet and mobile-phone texts, as well as being hit by competition from the likes of rivals such as TNT, DHL and UK Mail which have snatched vast amounts of corporate post.

New chairman Donald Brydon said: "Postal services are facing an unprecedented level of competition from electronic communications.

"The average household spends just 50p a week on postage, a fraction of the amount spent on telephony and internet services."

But Brydon conceded the net has brought an upside too as homeshopping on the internet has brought record levels of packets and parcels being delivered by Royal Mail posties.

Its European delivery businesses saw profits rise 9% to £124 million and Parcelforce saw its profits up 50% at £12 million.

The shrunken Post Office network saw the prior year's losses of £34 million turned into a £41 million profit with revenues flat at around £900 million.

What the network has lost in post office closures it has gained from turning into the self-proclaimed People's Bank, offering banking and financial services and foerign exchange.

Crozier said he backed the recent Hooper Report which said Royal Mail should be allowed to compete on price with new rivals, that the Government should step in to relieve the business of its pension liabilities and that Royal Mail should be allowed to raise money in the City.