Rentokil pledges further improvements at City Link

FACILITIES management group Rentokil Initial has pledged its number one priority for the remaining months of the year is to turn around the performance of its ailing logistics arm City Link.

Rentokil interims show the Coventry-based parcel delivery firm recovered slightly in the second quarter seeing sales rise 5.3% on last year to £76m. The performance represented an 18.3% reduction in Q2 operating loss compared with 2011.

During the first six months of the year, City Link revenue rose 3.5% to £149m compared with the same period last year although its operating loss declined  by 3.9% overall.

Rentokil, whose Initial Facilities division is based in Dudley, said its plan was to continue to turnaround the financial performance of City Link and the installation of a new management team was starting to see improvements.

Alan Brown, Rentokil’s chief executive, said: “City Link’s recovery plan is progressing in line with expectations, both in terms of financial performance and underlying action plan. We expect losses to reduce further in Q3 and for the business to be profitable in Q4.”

During H1, Rentokil said City Link’s new management began implementation of a comprehensive recovery plan which was expected to show material improvements by Q3 2012. The plan targets productivity savings primarily through driver productivity, supported by route and round optimisation and a move to variable pay for owner drivers.  
There are also initiatives to reduce trunking, warehouse operations and back office costs.

“Implementation is on track, with substantial productivity improvements being delivered as roll-out progresses.  Hub and line haul efficiencies have improved during the period with a full route re-design scheduled for completion in Q3,” said the group in its interims statement.

“The depot network continues to be consolidated with a reduction of three sites in the first half.  Investment in improved scanning technology is being made to drive further quality improvement.
 
“Although volume has increased by 14% on the prior year, change in customer mix has led to revenue increasing by only 3.5% in H1.
      
It added that City Link had made considerable progress implementing volume-based remuneration for owner drivers. Benefits from these measures are expected to drive a further improvement in financial performance in H2.
 
For the Rentokil group as a whole, H1 revenues increased 2.9% on last year to £1.282bn, with pre-tax profit up 7.3% at £78.1m.

“We anticipate that continued growth, coupled with further productivity improvement at City Link, will deliver year-on-year improvement in financial performance at constant exchange rates in Q3, and most notably in Q4 this year,” added Mr Brown.