A rival business to the Royal Mail is set to break even in its first year of operation after reporting fasterthanexpected progress.

UK Mail, which is a division of Business Post and the first company to breach the Royal Mail's 400-year monopoly on the delivery of letters, said it was handling the equivalent of 250 million items a year following its launch in May.

The company said it held almost one per cent of the market, with customers being a much higher average size than originally envisaged and covering a range of sectors.

In light of the progress, UK Mail is forecast to break even for the year to March 31, rather than incur a small loss as previously expected.

The service was set up by Slough-based parcels group Business Post after regulator Postcomm gave companies the right to enter the UK market in 2003. Business Post joined the FTSE-250 in January.

UK Mail collects post from customers and processes it through its network of 64 sites - the largest of which is in Birmingham - before passing it on to Royal Mail for delivery by local postmen. Customers include Royal Bank of Scotland and Powergen.

Despite the progress with UK Mail, shares in Business Post fell six per cent to 605p after it warned profits for the group would be "slightly below" market hopes - at around five per cent adrift of expectations.

Among factors for the shortfall, Business Post said market conditions in the pallet network sector had been disappointing, with turnover growth in the second half of the year down to 14 per cent from 18 per cent in the first half. It also warned that its network services division - responsible for collection and delivery services to business units within UK Mail and its parcel services arm - had incurred additional costs in the run-up to Christmas.

On a brighter note, the company said its division focused on the home delivery market was expected to increase turnover by 50 per cent for the year while sales and profitability of its courier work had improved in the second half.

And it said the market for cross border shipments continued to grow at roughly twice the rate of the domestic market and with the introduction of new services and strong new business growth it expects its international division to boost turnover by 16 per cent in the year.

Turnover is expected to be in line with expectations but profits in the period to March 31 will now be below market hopes, currently at £21.5 million. It reported profits of £19.1 million a year earlier.

UK Mail said last month that it had secured a major supply deal with the Royal Bank of Scotland. Under the contract UK Mail will collect and distribute mail for RBS.