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Royal Mail has revealed annual operating profits more than halved after seeing labour costs soar following minimum wage hikes and an extra £133 million employee tax bill.

Owner International Distribution Services (IDS) – bought last year by Czech billionaire Daniel Kretinsky – said Royal Mail’s operating profits plunged to £96 million in the year to March 31, down from £198 million the previous year.

Royal Mail’s employee costs rose by 5.5% over the year, including a 4.2% pay increase for frontline staff and the impact of a £133 million national insurance contributions hike.

The previous year had also benefited from the 2024 general election boost to letter mailings.

On an underlying basis, Royal Mail earnings lifted to £5 million, up from £2 million a year earlier, as revenues rose 2.6% to £8.4 billion.

But underlying earnings in the wider IDS group slumped by a fifth to £222 million as the firm’s GLS parcel arm was hit by regulatory changes in Italy and a challenging trading environment in Canada.

GLS earnings fell 17.1% to £237 million over the year.

IDS overall pre-tax profits fell by more than two-thirds to £141 million from £429 million the year before.

It said extra costs included another £57 million related to the firm’s £3.6 billion takeover by Mr Kretinsky’s EP Group, on top of £28 million in costs of the acquisition the previous year.

The group said Royal Mail’s parcel volumes rose 7% to 1.4 billion over the year, but addressed letters fell 10% to 5.7 billion.

It said the decline reinforced the need to overhaul the universal service.

Royal Mail is pressing ahead with the rollout of changes nationwide that will see second class post delivered every other weekday, with the Saturday service being scrapped across the UK.

It comes after an agreement with trade unions, which had been holding up the extension of the changes across its full network of around 1,200 delivery offices.

Royal Mail is under increasing pressure to improve service levels, with regulator Ofcom launching an investigation earlier this month into the firm’s failure to meet its delivery targets over the past year.

Royal Mail revealed in May it had missed targets for another year running, achieving 75.7% of first class mail arriving the next working day over the 12 months to the end of March and 90.2% of second class mail delivered within three working days.

It was fined a record £21 million by Ofcom in October last year for missing targets in 2024/25.

Martin Seidenberg, group chief executive at IDS, said: “Following Royal Mail’s agreement with the unions we are rolling out universal service changes across the UK which will lead to a more efficient, reliable and sustainable service for our customers.

“GLS continues to grow revenue and parcel volumes despite challenging conditions in parts of Europe, underlining the resilience of the group and the strength of our international network.”

IDS said it is continuing to ramp up its network of parcel lockers to capitalise on booming ecommerce and marketplace sales, with out-of-home parcel volumes up 40% over the year for Royal Mail.