Business Post delivers key deal

Business Post shares gained more than 4pc yesterday after the mail and parcel delivery group won the first postal services contract the Government has put out to tender.

The shares closed 18 higher at 439p following the pounds 12m deal with the Department for Work and Pensions (DWP). Guy Buswell, chief executive, said: “We expect other departments to follow suit.”

The DWP’s decision will come as a blow to Royal Mail as private sector competitors make further inroads into its market. Business Post is its largest rival with more than 4pc of the market, delivering over 100m items a month.

Including the 14 other licence holders, Royal Mail has lost 10pc of its business since the process of deregulation began almost three years ago. A recent National Audit Office report estimated that the Government could save pounds 31m annually from more efficient postal services.

UK Mail, Business Post’s mail division, started delivering letters in May 2004. It now has revenues of pounds 40.4m – about 15pc of group turnover – and profits of pounds 3.2m.

DWP will be UK Mail’s largest contract by revenue. By volume, the biggest is NatWest owner Royal Bank of Scotland – the largest mailer in the country.

Business Post competes with Royal Mail on price and service. It does not offer an overnight delivery but guarantees a two-day service cheaper than second class.

It also picks up mail as late as 8pm and tracks all packages. It does not offer end-to-end delivery, but pays Royal Mail about 13p an item as the “access price” for final mile delivery by postmen.