City Link H1 profits and revenues up strongly

City Link British express delivery group City Link generated strong growth in revenues and profits in the first half of 2007 following its acquisition of rival Target Express and due to good organic growth ahead of the overall market, parent group Rentokil Initial announced in its interim report today.

The parcels firm, which claims to be one of the domestic market leaders, increased half-year revenue by 148.5 pct to GBP 203 million (EUR 300 million) from GBP 81.7 million in the first half of 2006. Excluding acquisitions, organic revenue growth was 9.7 pct compared with estimated market growth of 4 pct, the group pointed out.

City Link improved half-year adjusted operating profit by over 75.9pct to GBP 24.1 million, representing a profit margin of 11.9pct. Second-quarter figures were similar, with revenue up 127.9 pct and adjusted operating profit up 73.8pct.

In 2006, City Link had an operating profit of GBP 32.6 million on revenues of GBP 213.3 million. The company bought Target Express in November 2006 and a number of franchise operations during 2006 and 2007.

Rentokil Initial CEO Doug Flynn said in a H1 presentation that City Link was maintaining its strong customer retention and growing organically ahead of the overall British express market. Consignment numbers were up by 8 pct in the first half-year, and the company was making progress in pricing and cost recovery, he noted.

City Link’s B2B revenues, which account for about 70 pct of its network turnover, were strongly ahead of last year during the first half, the group said in its half-year report. However, there was evidence of some down trading and slower sales growth in the B2C segment in the early months of the year.

The integration of Target Express is ahead of schedule, Flynn said. Since May 1, the two businesses have operated under one brand – City Link – with a single sales force and single sales proposition. In July, the businesses moved to a single operating platform, utilizing the City Link trailer and cage configurations.

During September the first two combined depot operations will be in place, with the rest of the depots merging during the next 18 months. A total of 55 depots are now planned to be closed and 15 new locations opened, compared to an original estimate of 27 closures and 3 openings. By December 2008, City Link aims to operate a consolidated network of 63 depots with aligned network operations.

H1 integration costs of GBP 2.7 million were treated as one-off costs. The group now expects total integration costs of some GBP 23 million, of which around GBP 9 million are likely to be incurred this year. Although these integration costs are higher than the earlier estimate of total integration costs of GBP 12 million, with GBP 6 million in 2007, the additional integration spend will allow an earlier realization of synergy benefits in 2007 and 2008, the group pointed out.

In addition, eight franchise businesses were acquired during the first half-year for GBP 14.2 million, bringing total spend on the franchise purchase program to GBP 66.1 million. Two franchises with combined 2006 revenues of GBP 2.9 million remain outstanding and the buy back program is expected to be completed by the end of the third quarter, the group said.