The Royal Mail has cut its losses by a third, but it is still losing �1.1m ($1.7m) a day.

Within two to three years we could make the business profitable

Allan Leighton, Royal Mail chairman

In the six months to September the company's trading loss hit �147m.

Including the cost of an ongoing shake-up, the loss amounted to �542m.

But chairman Allan Leighton told BBC Radio 4's Today programme that the company's finances had stabilised.

"Bit by bit, I think we're doing the right things.

"I never said this was going to be easy - this is one of the toughest things anybody will have to do.

He added: "Within two to three years we could make the business profitable."

Dividend for workers

But Mr Leighton warned that the Royal Mail's recovery was threatened by price controls published by the regulator Postcomm.

He said that unless the regulator changed the constraints the company's three-year recovery plan could be fatally damaged.

Royal Mail, which has now ditched the unpopular name Consignia, also gave details of a new share scheme for employees.

Everyone in the company will be given a share of the business so that if it hit profit targets workers would be paid a dividend.

Employees would get an annual payment of up to �800 each if the group made a �400m profit in the 2004-5 financial year.