Struggling major British parcels firm City Link saw its losses triple last year due to a “disappointing” operational performance as volumes fell but owner Rentokil today stressed its
commitment to turning around the business.City Link, which has suffered from weak results and management changes in recent years, closed2011 with revenues down 8.5% to £306.9 million. Its volumes fell 3.5% and revenue per consignmentworsened by 5%. The firm’s adjusted operating loss, before diverse write-offs and one-off items,widened by 226% to £31.3 million. Losses were also impacted by slow progress on cost savinginitiatives and productivity in particular.
In Q4, 2011, which includes the peak Christmas season, revenues rose fractionally by 0.5% to £88million with volumes up 8% but operating losses were 86% greater at £6.7 million.
Rentokil said that given the poor performance of the business in 2011 it had written offintangible assets at the 2011 year end relating to City Link. The total write down amountedto £146m of which £108m related to goodwill and £38m related to customer lists.
Alan Brown, Chief Executive Officer of Rentokil Initial plc, said: “City Link continues todisappoint. While Q4 volumes grew 8% and revenue by 0.5%, losses were £3.1m greater than Q42010 due to low productivity, driven in part by conservative resource planning for the Christmasperiod. The financial performance of the business will remain poor in H1, 2012, however, weremain committed to resolving the key revenue and cost control issues facing this business. I amencouraged by the immediate impact of the new City Link MD and FD and by the quality of theimprovement plan currently being implemented.”
Describing the company as “a problem child”, Brown added on a conference call that City Link “isnot for sale but it could of course be bought”. Rentokil stated: “Though we do not expect animprovement in financial performance during H1 2012, we expect to see better results in H2 2012.”</p>
Rentokil Initial last year recruited two senior executives from Royal Mail to lead the recoveryof loss-making City Link. David Smith, a former head of Parcelforce, joined managing director whileRobert Peto is the new finance director. Both successfully turned around Parcelforce several yearsago.
“The new City Link leadership team brings a great deal of successful UK Parcels industryexperience to the business. They have begun to implement a comprehensive recovery plan whichwe expect to show material results by Q3 2012. The plan targets productivity savings in excessof £20m primarily through driver productivity, supported by route and round optimisation and a moveto variable pay for subcontractors. There are also initiatives to reduce trunking, warehouseoperations and back office costs,” Rentokil stated.
Reviewing the company’s development last year, Rentokil said that the yield drop was driven by aloss of smaller and medium sized customers in Q1 predominantly due to poor service quality inDecember 2010, a very competitive market and a lack of investment in account management. Quality ofservice improved dramatically in 2011 and has consistently been at a high level throughout theyear. City Link invested in both account management and customer service during the year and as aresult is now gaining momentum in winning new business. It exited the year with an additional £25min annualised contract sales and the new business pipeline remains in excess of £50m. There is alsoa need, however, to increase prices after many years of serial decline in the industry as a whole.
Looking at British market trends and strategy for this year, Rentokil said: “The B2C marketis expected to continue to grow in 2012 while the B2B market remains more susceptible to economicconditions, around which there remains uncertainty. Excess capacity in the market continues to makepricing extremely competitive. Key objectives for the coming year include: top line growth with afocus 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 & trunking, warehouseand back office cost reductions.”
