Royal Mail posts first profit in three years as it cuts second-class deliveries

Royal Mail has posted its first profit in three years as it cuts back on second-class letter deliveries.

The postal service reported operating profits of £12m in the year to the end of March as it recovered from a £336m loss in 2024.

With redundancy costs included, Royal Mail remained in the red with an operating loss of £8m.

Martin Seidenberg, the chief executive of International Distribution Services (IDS), Royal Mail’s parent company, said: “It has been a year of change for IDS.

“Thanks to the hard work of our people and our investment in transformation, Royal Mail returned to profit for the first time in three years, marking an important milestone in the company’s turnaround.”

But he added: “I would say take it with a pinch of salt because we still have a lot to do to ensure that we remain profitable and that we will continue our transformation successfully.”

Nevertheless, the figures suggest that turnaround efforts are starting to pay off at Royal Mail, which was snapped up by Czech billionaire Daniel Kretinsky in a £3.6bn deal in April.

A key part of these efforts is to reform the company’s universal service obligation (USO) which requires it to deliver anywhere in the UK six days a week.

Bosses have long argued that the restrictions are a drain on Royal Mail’s finances amid a sharp decline in letter sending.

Regulator Ofcom has given Royal Mail the green light to scrap second-class letter deliveries on Saturday and instead offer an alternate weekday service in a move that could save the company up to £425m.

Royal Mail is currently trialling the new service – which also includes a relaxation of its delivery targets – in conjunction with unions.

In addition to USO reform, Royal Mail has also hiked stamp prices and increased its focus on parcels, rolling out thousands of lockers across the country and signing new partnerships with retailers including Sainsbury’s and Co-op.

The company last month rolled out its so-called “postboxes of the future” – solar-powered postboxes with digitally-activated drop-down drawers allowing customers to post parcels as large as a shoebox.

Other modernisation efforts include increased parcel automation, reducing central costs and implementing new working policies to reduce sick absence, which had been a major issue for the company.

Royal Mail’s revenues rose 7pc, driven by an increase in parcel volumes.

GLS, the group’s European parcels business, also posted a rise in revenue after more than doubling its locker network. Overall, IDS revenues rose 5pc to £13.1bn.

While reforms have improved Royal Mail’s finances, the postal service is still failing to meet its delivery targets.