Price increases helping City Link, but losses up 18.7%
Friday, May 4th, 2012
Struggling UK parcel delivery firm City Link saw its sales increasing 1.7% in the first quarter of the year under its new management team, but losses for the quarter grew by GBP 2m.
The company saw its losses for the quarter up to the end of March 2012 growing by 18.7% compared to the same period last year.
City Link achieved a GBP 73.5m revenues in the quarter, but its operational loss for the quarter spiraled to GBP 12.7m.
City Link, which hired Royal Mail Parcelforce executives David Smith and Robert Peto last year as MD and finance director, invested GBP 1.9m in its reorganisation during the first quarter, almost matching its additional losses during the three months.
Parent company Rentokil Initial, which also operates in the pest control and textiles industries, said City Link’s new management team was beginning to gain traction, thanks to better pricing and cost savings.
Alan Brown, the Rentokil CEO, said yesterday that City Link had had a “dreadful” January, particularly with pressures on pricing with “very unusual trading conditions” at the time.
But, he insisted performances had improved in February and March with prices stabilising, leaving the company in a “pretty good shape” heading into the second quarter with some of the big business-to-consumer customers agreeing higher prices across the parcel market.
“It has now clearly sunk home among the B2C market that you cannot continue to trade at current price levels in the marketplace,” said Brown. “There’s a certain effort from the players, particularly those making significant losses, to redress the market pricing.”
One of City Link’s big rivals, Yodel, said last month it was now negotiating with major retailers to increase parcel delivery prices.
Meanwhile, City Link has been seeing good results for its change in policy to pay subcontracted drivers per job rather than per day, according to its CEO.
“We are seeing really substantial productivity increases”The company has now rolled its new per-delivery payment system to 18 of its 65 depots, which is pushing individual depots to reduce the number of journeys being run each day.
With about a third of the depots implemented, Brown said the number of packages delivered per driver per day had increased from around 70 last year to “the low 80s” per day on average, up to 130 in urban areas like London.
“The results have been pretty dramatic in the depots where we’ve implemented the scheme. We are seeing really substantial productivity increases,” said Brown, who added that there had been only “minor knock-on effects” on service quality from the new system.
City Link is not yet planning on moving its employed drivers to a similar system, Brown said.
Elsewhere, the Rentokil CEO said City Link’s “Depot Blueprint” initiative to bring service levels in line across all facilities was also helping bring down costs, raising the number of parcels handled per employee at some depots by as much as 50%.
As he commented on expectations that City Link’s performance will improve in the second half of the year, Brown revealed considerable uncertainty about the impact of the summer’s Olympic Games in London.
The Rentokil CEO said City Link had “pretty strong momentum” in its Olympics strategy, but he said companies across the parcel industry were expecting significant impacts.
Brown said: “I think that we felt quite comfortable about predicting that we’re going to get to at least break-even in the second half of the year, but were not for the uncertainties surrounding the Olympic Games, which is looking as though it’s going to be quite a disruption for all the parcel carriers in the South East of England.”