Britain's Royal Mail has forecast slightly higher costs than the market expected, to modernise and restructure its UK operation in the face of high competition in the domestic postal and parcel markets. 

The former monopoly also cautioned that competition in the UK letter and parcel markets remained cut throat.

But it said it continued to be confident about delivering full-year performance in line with current market expectations. 

Prospects of the company hinge on its ability to cut costs and modernise operations to gain a larger share of the parcels market, which is growing due to a boom in online shopping. 

The delivery firm also lost a key customer in Amazon, which has started delivering parcels via its own network. 

Royal Mail today forecast costs associated with its UK transformation of around £160m for the current financial year.

Analysts said this was higher than the market average, which was at £142m, and could drag down Royal Mail's results for the year ending March 2017. 

The company said today its adjusted operating profit before transformational costs rose 5% to £742m in the year ended March 27. Analysts on an average were expecting £727m.

Royal Mail said it  handled 3% fewer addressed letters in the year, a smaller decline than it had forecast, largely due to the return of direct delivery volumes.