City Link losses plummet to £31.3m

City Link parent Rentokil has blamed a decline in both volumes and rates for the parcel firm’s “disappointing” £31.3m pre-tax loss during 2011, compared with a £9.6m loss the previous year, on a revenue down 8.5% to £306.9m.

It has also revealed a significant hit from writing off intangible assets of £146m during the year due to City Link’s poor performance, of which £108m related to goodwill and £38m related to customer lists.

Parcel volumes were down by 3.5% compared with 2010, while rates dipped by 5%, which City Link says was driven by a loss of smaller and medium-sized customers in Q1, due to poor service levels it provided in December 2010, the Christmas period hit by extreme weather conditions. It also blames a “very competitive market” and a lack of investment in account management.

However, the parcels firm says it has “dramatically” improved customer service levels in 2011, which have remained consistent throughout the year, and this investment is now gaining momentum, with an extra £25m won in new annual contracts and more business in the pipeline.

City Link also says there is a need for it to raise its rates, following “many years of serial decline in the industry as a whole”.

The company is expecting B2C to continue to grow in 2012, with B2B remaining more susceptible to economic conditions, however excess capacity in the market is continuing to make pricing “extremely competitive”.

Rentokil adds that City Link “continues to disappoint”: despite an 8% rise in Q4 volumes and a 0.5% increase in revenue, losses were £3.1m greater than in Q4 2010, which it blames on low productivity, driven in part by conservative resource planning for the Christmas peak.

It adds: “The financial performance of the business will remain poor in H1 2012, however, we remain committed to resolving the key revenue and cost control issues facing this business. I am encouraged by the immediate impact of the new City Link MD and FD and by the quality of the improvement plan being implemented.”

David Smith joined City Link as MD in June 2011, while Robert Peto was appointed as FD; both previously held senior positions at Royal Mail.

Key objectives for the year include a focus on “profitable new customers”; development of higher margin services; and the delivery of £20m in cost savings, focused on driver productivity, supported by hub and trunking, warehouse and back office cost reductions.