City Link parent firm Rentokil Initial says its recovery plan for the parcels courier is on track despite posting an £18.5m operating loss for the first six months of the year.

This 3.8% year-on-year reduction of its operating losses came as revenue rose 3.5% to £149.5m for the six months ending 30 June.

Alan Brown, CEO at Rentokil Initial, says: “We expect losses to reduce further in Q3 and for the business to be profitable in Q4.”

Revenue for the second quarter alone was up 5.3% to £76m, while the three month period saw it report a loss of £5.8m.

During the first half of the year, City Link’s new management team kicked off a turnaround plan for loss-making business. It is moving to variable pay for owner-drivers and there are also targets to reduce trunking, warehouse operations and back office costs.

In a statement to investors today (3 August) Rentokil Initial says hub and linehaul efficiencies improved during the first half. Furthermore a full route re-design is scheduled for completion in Q3.

Parcel volumes increased by 14% compared to the same period in 2011, however, City Link says a “change in customer mix” has led to revenue increasing by only 3.5%.

Last year, City Link posted an annual pre-tax loss of £31.3m on a revenue down 8.5% to £306.9m.