The Post Office made an operating profit of £53 million in the first half of the financial year, £8 million down on a year ago, new figures have shown.
Revenue fell by £21 million to £604 million, including a £9 million decline from Government services.
The Post Office, which is independent of the recently-privatised Royal Mail, said its operating costs had fallen by £15 million to £422 million, mainly due to lower sales volumes.
Chief executive Paula Vennells said: "Like many high street retailers, this has been a challenging six months for the Post Office but we are cautiously optimistic that the economic climate is improving and we are well positioned to take advantage of the increased levels of consumer confidence.
"It is now 18 months since the Post Office began operating independently of Royal Mail. The Post Office is going through a period of great change and innovation. We are resolute in our determination to build a flourishing modern business but one that remains the bedrock of communities across the country.
"Since the start of 2012, 1,400 branches have been modernised, offering a new customer experience, with extended opening hours totalling over 34,000 extra hours a week."
Personal finance revenue increased by 23% driven by growth in savings products, while financial services revenue increased by £1 million to £139 million.
The Post Office said turnover in the six months to September was £501 million, £18 million lower than the same time last year.
National Federation of SubPostmasters general secretary George Thomson said: "The 'front office for government' is clearly not working. In fact, it has now gone into reverse.
"Ministers have made great play of the importance of new government services to the Post Office's future, and have continued to insist that the plan is on track. Instead, what we are witnessing is the opposite of joined-up government, with individual departments actively undermining the Government's own policy of increasing the use of post offices.
"Subpostmasters will view the decision on tax discs, coupled with these dire figures from the Post Office, as an absolute betrayal by the Government. Together, these developments represent a devastating blow to our post offices, on which thousands of communities and millions of people and small businesses depend.
"The bleak picture revealed by the results is mirrored by the ongoing collapse in subpostmasters' incomes. Many are now struggling to make a living from their post office and retain the service in their local community. When this happens, post offices will close."
Mike O'Connor, chief executive at Consumer Futures, said: "The latest financial results must raise concerns over the sustainability of Post Offices which are a vital part of communities across the UK.
"Post Offices are part of our social infrastructure and we need to ensure that they thrive. This means a change to return the network to health. The Network Transformation programme is rolling out new operating models and it will have to deliver a more cost effective system.
"Post Offices can be the front office for national and local government and it is worrying to see a drop in UK Government services. It is important that this part of the business grows. The challenges facing the Post Office are significant, but the social value they represent justifies public support. This means customers need to be at the core of the strategy."
The Post Office has faced strikes in recent months over pay and the franchising of Crown offices.
Unite, which represents managers, warned of further industrial action unless the row over pay is resolved.
Unite official Brian Scott said: " Whichever way you look at it the Post Office is in a healthy financial position and can easily afford to make a consolidated pay increase to staff; something it has adamantly refused to do since June 2011.
"Unite members in the Post Office have been working extremely hard to deliver change and it is clearly working. They, therefore, deserve recognition for this and a negotiated pay settlement is a priority.
"This year is the first time since 1979 that Post Office managers have taken strike action, which shows the strength of feeling on this issue.
"The top executives need to stop dragging their feet and get around the table, otherwise further strike action is a real possibility which would hit high street post offices."