Royal Mail reports profit of £671m

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File photo dated 17/12/13 of Royal Mail staff sorting Christmas parcels at Nottingham Mail Centre in Beeston. Photo: Rui Vieira/PA Wire

By Joel Hills - ITV News Business Editor

Royal Mail is legally bound to deliver letters six days a week to every address in Britain for the same price.

The universal service was enshrined in an act of parliament in 2011 but seven months after privatisation Royal Mail is warning that the service will not be sustainable without change.You my have noticed that Royal Mail is no longer the only postie in town.

When it comes to collecting and sorting letters Royal Mail has faced competition for some time but its rivals are now allowed to deliver "the final mile" too.

Royal Mail's Chief Executive Moya Greene told me that, as it stands, the business has been managing the decline in letters but that direct delivery competition is a "fire accelerant that's not going to go".

As it stands Royal Mail uses the profits it makes delivering letters in the most densely populated parts of the UK to subsidise delivery to remoter areas - where 60 pence doesn't cover the costs of getting a letter to the front door.

Read: Union describes Royal Mail privatisation as 'botched'

Moya Green says as it stands competition is "unfair". Royal Mail's rivals "cherry-pick" the most profitable routes and thereby diminish the company's ability to run the universal service profitably.

Royal Mail estimates that by 2016 letter revenues will fall by a further £200m and letters delivery will no longer be "economic".Ofcom is to start to review how direct delivery is working next year.

Moya Green says it need to happen now."We can't watch this continue", she told me. "This doesn't have to happen, if the regulator acts now we can deal with problems before they materialise".Shares in Royal Mail have opened down sharply this morning.

This privatised company is effectively warning that the public service it offers is not sustainable without change.

Ofcom has issued a statement this morning. It says:

We do not believe that there is presently a threat to the financial sustainability of the universal postal service.

On the issues of the intense heat of competition, Ofcom added:

We would expect Royal Mail to take appropriate steps to respond to the challenge…including improving efficiency.

In other words, stop whinging and get on with it.

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