City Link narrowed its losses by 54% in 2012, but a reduction in volumes from higher margin B2B customers meant that its performance was behind the expectations of parent company Rentokil Initial.

The parcel firm's pre-tax loss shrunk to £35.9m for the year ended 31 December 2012, from a loss of £78.3m in 2011.

City Link said it the reduction had come from improvements to driver efficiency, which saw it move to a variable pay scheme for owner-drivers and improve drivers' routes. It also reduced trunking, warehouse operations and administrative costs.

Turnover for the year was up 4.8% to £321.7m from £306.9m in 2011, which it said was mainly driven by growth in B2C custom from online shopping. Fourth quarter turnover was up 9.1% compared to the same period the previous year.

City Link's customer mix moved towards "larger, but lower margin" customers in 2012, as it experienced a decline in higher margin B2B business.

Rentokil said in a statement: "While we have been pleased with the cost savings and the growth in Tier 1 business, the disappointing performance of higher margin smaller customers has meant that financial performance in the year was behind our initial expectations."

It plans to increase prices, as well as introducing an international and postal services.

The statement said: "Focus for 2013 will be on improving service and account management for all customers with a particular emphasis on Tier 2 and Tier 3 customer retention."