British express delivery group City Link generated strong growth in revenues and profits in thefirst half of 2007 following its acquisition of rival Target Express and due to good organic growth
ahead of the overall market, parent group Rentokil Initial announced in its interim report today.The parcels firm, which claims to be one of the domestic market leaders, increased half-yearrevenue by 148.5% to GBP 203 million (EUR 300 million) from GBP 81.7 million in the first half of2006. Excluding acquisitions, organic revenue growth was 9.7% compared with estimated market growthof 4%, the group pointed out.
City Link improved half-year adjusted operating profit by over 75.9% to GBP 24.1 million,representing a profit margin of 11.9%. Second-quarter figures were similar, with revenue up 127.9%and adjusted operating profit up 73.8%.
In 2006, City Link had an operating profit of GBP 32.6 million on revenues of GBP 213.3million. The company bought Target Express in November 2006 and a number of franchise operationsduring 2006 and 2007.
Rentokil Initial CEO Doug Flynn said in a H1 presentation that City Link was maintaining itsstrong customer retention and growing organically ahead of the overall British express market.Consignment numbers were up by 8% in the first half-year, and the company was making progress inpricing and cost recovery, he noted.
City Link’s B2B revenues, which account for about 70% of its network turnover, were stronglyahead of last year during the first half, the group said in its half-year report. However, therewas evidence of some downtrading and slower sales growth in the B2C segment in the early months ofthe year.
The integration of Target Express is ahead of schedule, Flynn said. Since May 1, the twobusinesses have operated under one brand – City Link – with a single sales force and single salesproposition. In July, the businesses moved to a single operating platform, utilising the City Linktrailer and cage configurations.
During September the first two combined depot operations will be in place, with the rest ofthe depots merging during the next 18 months. A total of 55 depots are now planned to be closed and15 new locations opened, compared to an original estimate of 27 closures and 3 openings. ByDecember 2008, City Link aims to operate a consolidated network of 63 depots with aligned networkoperations.
H1 integration costs of GBP 2.7 million were treated as one-off costs. The group now expectstotal integration costs of some GBP 23 million, of which around GBP 9 million are likely to beincurred this year. Although these integration costs are higher than the earlier estimate of totalintegration costs of GBP 12 million, with GBP 6 million in 2007, the additional integration spendwill allow an earlier realisation of synergy benefits in 2007 and 2008, the group pointed out.
In addition, eight franchise businesses were acquired during the first half-year for GBP 14.2million, bringing total spend on the franchise purchase programme to GBP 66.1 million. Twofranchises with combined 2006 revenues of GBP 2.9 million remain outstanding and the buy backprogramme is expected to be completed by the end of the third quarter, the group said.
