City Link, one of Britain’s largest express parcel companies, isheading for a “significant” loss this year after ending Q1 in the red, according to parent groupRentokil Initial. Some depots may be closed to reduce operating costs.
In a statement released to the London stock exchange on April 21,Rentokil said that the difficulties experienced by the parcels company in late 2007 had continuedthrough January-March 2008.
In 2007, City Link increased revenues by 95.5% to £417.1 million(€547.5 million) due to consolidation of Target Express and former franchisees but its operatingprofit dropped 44.3% to £19.4 million, including a Q4 loss of £13.4 million. Rentokil said inFebruary that City Link’s 2007 performance had been “unacceptable”, and had been marred by poormanagement, weak integration and low organic growth. It sacked City Link boss Michael Cooke, haltedthe integration of Target Express depots and announced new sales and customer servicemeasures.
Then in March, Rentokil CEO Doug Flynn and chairman Brian McGowan wereforced to resign over the City Link situation which had prompted two group profit warnings. AlanBrown became the new group CEO and John McAdam was named chairman. Both joined from British firmICI which they successfully restructured in recent years.
In its latest statement, Rentokil said the new City Link managementteam was starting to improve service levels and re-build customer relationships but thedifficulties integrating Target Express and former franchisees remained.
As a result, City Link made a greater than expected Q1 adjustedoperating loss of £16.9 million (of which £10 million was attributable to non-recurring costs) fromthe Q1, 2007, operating profit of £10.2 million. The carrier’s network revenue, includingindependent franchisees, fell by 10.5% to £96 million (which was 8% taking the fewer trading daysinto account). The revenue drop was mostly from small customers. Costs rose 33% to £112.1 milliondue to higher costs at former franchisees, underlying increases and one-off items.
Rentokil said that in light of the Q1 results it was revising itsprevious guidance that City Link might not trade better than break this year, and it now appearedlikely that the division would incur a “significant” full year loss. UK media said the loss couldreach £70 million.
The new group CEO, Andrew Brown, stated: “The return of City Link toits former levels of profitability is likely to take some time. I believe this can be achieved by developing integrated informationsystems, by optimising our hub and depot network and by capitalising on the growth of the UKparcels market.”
Brown was cited by UK media as saying that City Link “clearly” did notneed 94 depots and 10 of them were under-performing. A new hub would be opened close to Heathrowfor southern England parcels to replace a more distant facility in Coventry. Brown also criticisedthe wide diversity of IT systems at the old City Link, Target Express and the acquired franchisees.The Rentokil chief said it might take 3-5 years to turn around the parcels company but stressedthere was “no question” of selling it.
