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Royal Mail is being investigated by Ofcom after the service failed to deliver more than a quarter of first class post on time.
The investigation – which could result in a multi-million pound fine – was launched after just 75pc of first class letters arrived within one working day, far below Royal Mail’s target of 93pc.
A target for 98.5pc of second class post to be delivered within three working days was also missed, by around 6 percentage points.
It marks the sixth consecutive year that Royal Mail has fallen short of its targets. Ofcom last year fined the business a record £5.6m for its failings, while in 2019 it handed down a £1.5m fine.
The missed targets were revealed in the delayed full-year results of parent company International Distributions Networks (IDS), which is being targeted for a takeover by Czech billionaire Daniel Křetínský.
It hailed a turnaround in Royal Mail’s fortunes, saying the business has “crossed an inflection point” as it battles to shore up its finances amid a slump in letter sending.
The 500-year-old postal service posted losses of £348m in the year to the end of March, down from a loss of more than £1bn the previous year, when the company was hit by crippling strike action and booked a £539m impairment charge.
It came close to breaking even in the second half of the year, when costs linked to voluntary redundancies were stripped out.
Martin Seidenberg, chief executive of parent company IDS, said: “In the last six months we have set Royal Mail on the right trajectory. We made good progress delivering our modernisation agenda and returned to growth in the second half.
“We have improved quality, won back customers lost during industrial action, controlled costs and delivered Christmas for our customers. Positive momentum is building, although there is hard work in front of us to get back to profitability.”
Bosses said that Royal Mail enjoyed strong growth in letter revenues in the second half of the year as two increases in stamp prices offset the decline in volumes, while parcel revenues also picked up.
The postal service has also benefited from cost-cutting efforts and measures to improve efficiency by cracking down on perennial issues such as staff sick absences.
Losses were largely offset by a £320m profit at GLS, the European parcels business of IDS. IDS proposed a final dividend of 2p for the year, which it said was funded by GLS.
The figures will stoke speculation that Mr Křetínský could look to split Royal Mail’s struggling letters business from its profitable parcels division.
The tycoon, known as the “Czech Sphinx” for his inscrutable business manner, is expected to make a formal £3.5bn offer for IDS next week.
The board has said it has minded to accept his proposal, subject to undertakings on public interest matters.
Mr Křetínský’s company EP Group, which is already the largest shareholder in IDS, now has until 5pm on Wednesday to either make a firm bid or walk away.
Analysts have suggested that the tycoon could look to merge GLS with PostNL, the Dutch postal operator in which he also holds a major stake, though sources close to the Czech sphinx insist he will not break up the company.
Overall, IDS posted a pre-tax loss of £75m for the year, narrower than the £110m loss posted the previous year. Revenues rose by £635m to £12.7bn.
Royal Mail’s finances have been a key point of contention in the takeover discussions as the company grapples with a slump in letter volumes.
In its results, which were delayed from Thursday after KPMG asked for more time to carry out its audit, IDS reiterated its call on Ofcom to act “without delay” to approve reforms to Royal Mail’s so-called universal service obligation.
Bosses have previously warned that outdated regulations have made the company financially unsustainable.
Under its proposals, the company would deliver second class mail just three times a week, though six-day deliveries would be maintained for first class post.
EP Group has agreed to maintain Saturday deliveries for first class letters and the one-price-goes-anywhere service as part of any takeover bid.
Other undertakings to ministers include maintaining employees’ current rights, protecting the Royal Mail brand and keeping the company’s headquarters and tax base in the UK.
However, the decision by Prime Minister Rishi Sunak to call an election means any decisions on whether to clear a takeover by Mr Křetínský will likely fall to the next government.
A Royal Mail spokesman said: “We will engage with Ofcom throughout their investigation. We would reassure customers that quality of service is extremely important to us, and we are taking every action to improve first and second class deliveries.”
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