City Link improves for Rentokil but still records a £26m loss

FACILITIES management group Rentokil Initial has seen a slight turnaround in the performance of its ailing Midland-based logistics arm, City Link.

Nevertheless, the Coventry-based operation still recorded an operating loss of £26.4m, although Rentokil said this represented a 15.7% improvement on 2011.

Rentokil said in its full year results statement that City Link had seen a 17% volume growth during 2012 and a 16% reduction in operating losses.

However, it said this had been offset due to a fall in revenue per consignment of 10% following a focus on large Tier 1 Business to Consumer customers. Rentokil said its immediate priority for 2013 was to focus attention on retaining more profitable smaller customers.

For the fourth quarter of 2012, City Link revenue grew 9.1% from £88m in 2011 to £96m, while for the year as a whole the figure was £322m (2011: £307m), an increase of 4.8%.
The revenue increase has been driven primarily from growth in online shopping in 2012. Rentokil said this had skewed the business’s customer mix towards the larger, but lower margin, Tier 1 customers leading to the overall decline in revenue per consignment.

It added that while new business was in line with expectations, declines in the smaller, higher margin Tier 2 B2B business was disappointing.

“A focus on further improvements in account management and customer service is underway to better meet customer requirements and drive retention,” it said.  

Looking ahead, it said the B2C market was expected to continue to grow while the B2B market would be more susceptible to economic conditions. 

“The 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.  Price increases will be implemented across our customer base reflecting our value in the market.  Further improvements in service through the introduction of new added value products including International and Post will be made,” it added.  

For Rentokil as a whole, the company saw a 2.8% increase in full year revenue to £2,546m, while adjusted pre-tax profit rose 10.1% to £191m.

Alan Brown, Rentokil CEO, said: “Rentokil Initial finished the year strongly, with adjusted profit before tax up 15.9% in Q4 and 10.1% for 2012 as a whole at constant exchange rates. These results were broad based, with every division improving both revenue and profit.  Furthermore, we increased organic revenue growth by 1.3% from negative 0.5% to positive 0.8% despite difficult market conditions for our largest businesses.

“While we remain mindful of continuing tough conditions across many of our markets, the operational changes we made during the year, together with the acquisition of Western Exterminator in December, give us confidence that 2013 will see us sustain the momentum we achieved in the final quarter of 2012.”