Royal Mail said mail volumes dropped 5.5% in its financial year 2008/9, which it said outweighed the effects of the stamp price rise in April 2008, resulting in a 2% drop in its letters division revenue to £6.7bn.
It claims every 1% decline in mail volume costs it £70m in revenue.
Despite the revenue fall, the division turned its £3m operating loss in 2007/8 into a £58m operating profit.
For the first time in two decades all four divisions of Royal Mail -- made up by General Logistics Systems, Parcelforce Worldwide and Post Office -- were in full-year profit.
Royal Mail claimed it has spent almost £400m on capital expenditure in its letters business this year. It has installed its first new generation automated sorting machine in Kingston and placed an order for 75 more.
Adam Crozier, chief executive of Royal Mail, said: "In a few years' time we predict that half Royal Mail's overall revenues and 75% of its profits will come from parcel and packet services, driven by the real opportunities of e-commerce and fulfilment.
"The huge effort to modernise the Letters business provides the best opportunity to secure the future of the Universal Service."
The company's improved results come ahead of a crucial House of Commons vote next month on government legislation paving the way for a minority stake in Royal Mail to be sold to a private company.