Royal Mail today reported a rise in underlying annual profits as a squeeze on costs helped offset a lower than expected performance from its parcel business.

Adjusted operating profit before transformation costs was up 6% to £740million for the year to the end of March. Including pension accounting charges, the figure was 9% lower at £611m.

Chief executive Moya Greeene said operating profits were in line with expectations.

She added: “Our continued focus on efficiency resulted in a better than expected UK cost performance, offsetting lower than anticipated UK parcel revenue.

“At the same time we have delivered a large number of innovations at pace as we transform our business.

“Our trading environment remains challenging, but we are now poised to step up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.”

She said trading in the current financial year was in line with expectations but overall performance would be dependent on the crucial Christmas period.

The full-year dividend for shareholders is to rise by 5% to 21p.