City Link focuses on strategy to stem losses

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Parcel carrier City Link is looking for higher margin business as well as cost savings after seeing losses rise to £38.1m in 2011 from £9.6m the year before.

Alan Brown, chief executive officer of parent company Rentokil Initial, said: “City Link continues to disappoint. While Q4 volumes grew eight per cent and revenue by 0.5 per cent, losses were £3.1m greater than Q4 2010 due to low productivity, driven in part by conservative resource planning for the Christmas period.”

The operating loss for the fourth quarter increased to £6.7m from £3.6m in 2010.

The group said there was a need to increase parcel prices after many years of serial decline in the industry as a whole.

Despite operational improvements during 2011 revenue was down 8.5 per cent to £306.9m, reflecting a 3.5 per cent volume decline and 5.0 per cent decline in Revenue Per Consignment (RPC).

RPC decline was driven by a loss of smaller and medium sized customers in Q1 predominantly due to poor service quality in December 2010, a very competitive market and a lack of investment in account management. The group said quality of service improved in 2011 and has consistently been at a high level throughout the year.

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City Link invested in both account management and customer service during the year and has been picking up new business. It exited the year with an additional £25m in annualised contract sales and the new business pipeline remains in excess of £50m.

The group said it expected the B2C market to grow in 2012 while the B2B market remained more susceptible to economic conditions, around which there remained uncertainty.

“Excess capacity in the market continues to make pricing extremely competitive. Key objectives for the coming year include: top line growth with a focus on profitable new customers; development of higher margin offer lines and; the delivery of £20m in cost savings, focused on driver productivity and supported by hub and trunking, warehouse and back office cost reductions,” the group said.

“A strong plan has been put in place by the new leadership team. Though we do not expect an improvement in financial performance during H1 2012, we expect to see better results in H2 2012.”

Rentokil Initial’s group sales rose 1.9 per cent t £2.54bn but operating profit was down 6.1 per cent to £224.7m while the group produced a –pre-tax loss of £50.5m for the year.

It has written off intangible assets at the 2011 year end relating to City Link. The total write down amounted to £146m of which £108m related to goodwill and £38m related to customer lists.


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