Parcel delivery firm bought DHL arm to create a £600m-turnover rival to Royal Mail. Alistair Houghton reports

IT’S been a quiet time for big deals of late, but one of the region’s quiet business giants delivered a message that it is ready to take on the Royal Mail.

Home Delivery Network (HDN), of Whiston, took over DHL Domestic in a deal that creates a company with sales of more than £600m.

HDN already delivered parcels and packets on behalf of retailers from Shop Direct to Tesco and Marks & Spencer.

As well as expanding that business-to-consumer (B2C) arm, the deal – still subject to approval from the Office of Fair Trading – will give the enlarged HDN a new portfolio of business-to-business (B2B) delivery services.

Chief executive Brian Gaunt told LDP Business that the move will allow HDN to up its game and win more business from the titans of the delivery world.

“The market we operate in is dominated by large postal organisations – Royal Mail, TNT DPD and DHL,” he said.

“We had a £330m turnover in the B2C market with no business exposure.

“We were competing against much, much bigger players operating in many countries and operating in the B2C and B2B markets.

“If we wanted to try to develop our business, we had got to try to move into the B2B market.

“We can now work not just in retail but in areas such as financial services, manufacturing and telephony – areas we typically haven’t been involved in.

“With the scale that the business has got now, we can start competing from a scale perspective. We can compete on a more equal footing.”

Mr Gaunt says that both HDN and the DHL business are currently loss-making. The cost of the acquisition and integration will hit HDN’s bottom line in the short term, but Gaunt still expects the newly-enlarged group to go into the black in the financial year 2011-2012.

“By bringing these businesses together, we think we will have a better future,” he said.

“In terms of protection for employees, we’re better together than apart. We can give better service.

“The intention of the acquisition isn’t to collapse DHL into us. It’s to grow both businesses.

“85% of the DHL business is B2B. It’s complementary. We don’t believe we share many clients.

“They’ve got a big business in financial services – they operate for a number of banks. We don’t operate for any banks.

“They have a significant business in telephony – we don’t do any mobile phones.”

The recession may have hit high street trading hard, but online shopping is still growing as more and more consumers choose to hunt bargains online.

That means there is a growing demand for delivery firms such as HDN, meaning Mr Gaunt is confident it can keep growing sales.

He said: “Most pundits think internet shopping is growing at between 8% and 12 %.

“We can see that in our clients. We deliver parcels for Shop Direct, Tesco, M&S, Arcadia and Argos. Our client list is like a Who’s Who of retailing.

“The recession has had an impact on pricing. It’s a time when people can put pressure on price, because customers don’t want to lose contracts.

“But, in terms of volume, our business is in growth.

“If you look at the volume side, both us and DHL have seen growth.”

THE Royal Mail has naturally taken the lion’s share of the growth in home deliveries.

HDN is not aiming to take on the Royal Mail when it comes to delivering letters, but Mr Gaunt believes it is well-placed to take on the organisation when it comes to delivering small parcels such as CDs, DVDs and bagged clothing.

He said: “Between the 1kg and 2kg level, we believe that we can be as competitive as they can from a price perspective, and we also think we can provide better service. Royal Mail tends to be untracked. Once you’ve put something in second class and it’s in their system, you don’t know where it is. We have systems so can check where your parcel is.”

The Royal Mail has had a tough time of late as managers and unions struggle to agree a restructuring plan to turn the business around.

The quality of its service has also been criticised. Mr Gaunt, however, takes no pleasure in its discomfort.

“It’s in nobody’s interests to kick the Royal Mail,” he said.”“We all get fed from the same trough. We want customers to buy from the internet.

“If one company is not delivering the service that it maybe should, then it affects industry because it affects the confidence of internet shoppers.”

But Mr Gaunt is clear that the DHL deal means HDN is better-placed to win more business from Royal Mail.

“As a larger business, we can be more efficient,” he said. “We can drive down prices.

“We can provide an alternative to the Royal Mail that customers can choose to tie into.

“Look at the B2C market. We had 14% of the market, and with the acquisition we have 16.5%.

“Royal Mail has 31%. We are the next biggest and they’re almost double our size.

“There’s a big market. People are saying the Royal Mail isn’t doing a good job. We’d be stupid not to go into it.”

Mr Gaunt would not discuss the cost of the deal, but said the funding for it and for the investment that will be needed to integrate it had come from HDN’s shareholders.

HDN, like Littlewoods owner Shop Direct, is a standalone business owned by March UK. March is the investment vehicle for publicity-shy billionaires Sir David and Sir Frederick Barclay.

HDN itself was a part of Shop Direct until it became a standalone company in 2008. It was formed in 2005 from a merger of Littlewoods Business Express delivery service and the logistics arm of newly-acquired business Reality.

Mr Gaunt, originally from Durham, has spent his career in logistics for businesses including Asda and the Big Food Group. Before joining HDN two years ago, he was managing director of Christian Salvesen UK.

In his time leading HDN, he has pushed the company to offer more flexible delivery options to ensure customers are not left waiting for their parcels (see above).

With the DHL deal, HDN’s workforce will increase from 5,500 to 10,500 staff. It employs 300 people at Whiston, while about 100 people are employed at an HDN call centre run by Vertex. It also has a depot in Warrington.

HDN has had to make some tough decisions in recent times. Last year, it lost almost 400 people in a restructuring that saw 10 of 60 depots close. Now Mr Gaunt is leading the integration of HDN and its new acquisition. He says integrating the businesses will be a “huge task” as he works out how to merge the two delivery networks.

“From start to finish, it will take two or three years,” he said. “We don’t intend to rush it.”

One key decision will be what to name the enlarged company. The DHL business will keep the DHL branding for now, but Mr Gaunt is keen to give the whole group a new identity as soon as possible.

“It won’t be HDN,” he said. “We couldn’t have a business delivering to businesses that’s called ‘Home’.

“We will have to come up with a new brand that meets the aspirations of both our retail and business clients.”

For now, Mr Gaunt and his team are focusing on making a success of the DHL deal. But he cannot rule our another big deal in the future.

“I want this to be a great business that’s making money,” he said. “We’ve got ambitious shareholders.

“I won’t rule out future acquisitions. At some point, if the right opportunity came along, I’m sure we would still be interested.

“The key is that we want to keep growing. I believe we can do that without acquisition. There’s enough of a market place we can attack.

“From a personal perspective, I would hope that if you came back in three years’ time and asked anybody if they enjoyed working here, they would say ‘yes, I’m proud’.”

alistair.houghton