Royal Mail profits have plunged but it is predicting higher sales after revenue from parcel deliveries surpassed those from letters for the first time in the postal group’s near 500 year history.

The FTSE 250 firm, which traces its roots to a service founded by King Henry VIII in 1516, has seen parcel volumes surge thanks to a boom in online shopping during the pandemic. It is gearing up for its busiest ever Christmas.

But the virus crisis has led to rising costs in the first half, such as for PPE and staff overtime.

There are also restructuring costs, with plans announced in June to cut around 2000 management jobs.

Pre-tax profits in the six months to September 27 tumbled to £17 million from £173 million. It recorded a operating loss of £20 million, down from a £61 million operating profit.

However, investors chose to focus on 9.8% group revenue growth during the period, and Royal Mail’s revenue from parcels deliveries outstripping those from letters.

Shares in Royal Mail leapt 20.7p, or more than 7%, to 306.7p. The shares floated at 330p in 2013, and the privatisation was met with criticism, including from trade unions, that the firm was sold off too cheaply.

Today Keith Williams, Royal Mail’s interim executive chair, said: “The level of revenue growth in the first half shows we have the right strategy and that Royal Mail can be cash generative and a sustainable, profitable business in the future.”

As well as a surge in online shopping orders helping to offset lower levels of letters, with post from advertisers much weaker, Royal Mail has seen an influx of work from the government. It has been collecting and delivering scores of Covid-19 test kits.

Williams said current trading at the group, which is also behind international parcels business GLS, is “very strong”.

The latest lockdown, looming Black Friday event, and customers’ concerns about people not getting gifts in time, is expected to lead to more online orders being delivered.

Royal Mail has recruited around 33,000 temporary workers for the festive period. It usual has around 20,000 extra at Christmas.

Royal Mail revenue for the year to March 31 is projected to be between £380 million to £580 million higher than the prior 12 months when it recorded sales of £7.7 billion.

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