CommercialFleet

New owner targets efficient deliveries to return City Link to profit

Expert fleet management will play a key role in plans to turn around ailing delivery firm City Link, following its sale by Rentokil Initial for £1 last month.

For years, City Link has been a highlight of its parent company’s annual reports for all the wrong reasons, with regular losses amid tough trading conditions.

Overall management was described as weak in a 2010 report before new leaders were parachuted in, but still the business has been dogged by its poor financial performance, including a full year operating loss of £26.4 million in 2012.

The change in ownership brings a clean slate for the troubled fleet, together with £40 million in new investment.

New owner and investor Better Capital is run by its founder, private equity veteran John Moulton, who is most famous for his failed bid to buy MG Rover at his previous venture capital firm Alchemy.

Other Better Capital acquisitions include glazing firm Everest and the Readers Digest.

The acquisition of City Link has created a stand-alone delivery fleet with around 1,340 vans. Rentokil Initial will still have a fleet of more than 1,500 cars and 4,000 vans in its core hygiene and pest control business.

Both fleets will hold a place in the 2013 Fleet200, the listing of the country’s 200 biggest car and van fleets in 10 key industry sectors.

For Moulton, there is clear profit potential at City Link, particularly as it has made steady progress under its current management team, who have moved with the business as part of the sale.

Moulton has told the press “we can see a way forward” and says there are signs the business could be in the black within months as the company is “improving quite rapidly”.

There is certainly potential for growth, as the UK parcels market is worth an estimated £12 billion and is set to grow by 7% by 2016.

The challenge for City Link is to focus the business in the most profitable areas, particularly as margins are incredibly tight in the battle for business with industry giants such as DHL and Royal Mail. There is also a need to balance big contracts that drive volume with smaller deals that are more profitable.

The business-to-consumer (B2C) market is set to grow 10% to 25%, while the business-to-business market is expected to grow in line with GDP over the next few years.

Growth in B2C is driven by online retailing, up 70% since 2008. Consumer confidence in direct channels is increasing, leading to higher-value, bigger and bulkier goods being carried. Get it right and the returns could be between 5% and 10% pre-tax profit margins.

While City Link saw a 13% cost-per-delivery reduction last year and 17% growth in volume, revenue per consignment fell 10% because its sales mix relied too heavily on large business to consumer customers.

Efforts to maximise retention of more profitable smaller customers is a key priority for 2013 and the performance of the fleet in delivering on time, every time, is a vital part of that strategy.

As a result, City Link has also invested in specialised equipment to maximise the speed and accuracy of its fleet delivery operations.

For example, unlike some rivals, the business transports parcels in cages from the collection depot to the delivery depot, which ensures goods arrive safely and on time.

New scanning technology will also provide accuracy of product delivery. GPS technology enables provision of estimated times of arrival to customers, with the service offered on 98% of deliveries by next year.

City Link managing director Dave Smith, who remains in post to continue the business plan put in place last year, said: “We will all benefit from the expertise of Better Capital in business turnaround and from the certainty of funding the deal provides.

“In the short term it is business as usual, but we will soon start to see the access to new capital, and the expertise Better Capital bring, accelerating the investment and improvements we are making in our customer experience.”

Alan Brown, chief executive of Rentokil Initial, added: “I believe City Link has turned the corner after five years of substantial losses. There is strong growth in the B2C parcels market, it has a great management team and we have a very committed investor in Better Capital.”



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Comments

  • Mr City Link (20 Years service) - 08/06/2013 21:26

    The business has already seen some major changes, the number of staff placed at risk of redundancy has gone through the roof. The safety team has been cut from 7 down to 3. Remember "Safety Matters" and staff are being asked to do twice the work. Just remember these people have had NO wage rise for 8 years yet the management all drive around in big flash cars......Better capital please remember the people who worked long hours with no extra pay when you come to sell the business

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    • Mr westbrom - 13/06/2013 20:56

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    • Mr westbrom - 13/06/2013 20:59

      @Mr City Link (20 Years service) - very well said less pay more work and no thanks for anything just constantly expected to do more

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    • 10 year plus man - 23/07/2013 16:46

      @citylink 12yearperson - as a frontline worker I see different things happening no pay increase for years. now told to take harsh pay cut management treating you like dirt on there shoes. this im told is that this is now the way the company want it to be which is a total disgrace. I have never known such bad moral in the company as it is now cuts are always on the frontline workers was said its a level playing field we are now on what rubbish someone at the top needs to really look at whats happening at grass roots people cannot carry on being treated in the manor that they are now would like to hear comments from anyone who feels the way I and my fellow workers are feeling

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    • 17yr worker - 23/02/2014 19:55

      @Mr westbrom - they treat their staff like dirt. Nearly 240mil they have wasted on new trunkers in 4yrs but say they have no money to give their employees a pay rise. Plus they keep making people unemployed!! Maybe if they stopped wasting their money on stupid things they will actually make some money and give their long suffering employees a pay rise that they deserve!!!

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    • honest bob - 24/02/2014 11:59

      @Mr westbrom - you said it all.

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  • Dave White - 17/07/2013 17:04

    I had 7 vans in city link & the way I was treat along with my drivers were a total discrace . In the end I had no choice but to get rid of my drivers & land myself with £35,000 wort of debt for which I am still paying now . When they bought Target express they changed everything for the worst by changing all there trailers at a cost of millions & then realised that the trailers Target Express had we're the right ones so had to change them back you will see a few at there Initial depots

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  • Honest Bob - 24/02/2014 11:40

    I have worked for City Link for five years. they have serous management issues, under manning and a cavalier attitude to health and safety.

    During my first year, I read in the Mail Business News that the chairman of Rentokil paid himself a £90 million bonus for cutting City Link losses from £70million to £90 million.

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  • cerys adams - 27/05/2014 22:02

    Jobs for the boys at depot management. Too much papering over the cracks, figure fiddling, etc. Dishonestly, lack of respect for staff. Serious health and safety issues. The list is endless and quite alarming. Need a whole new breed of manager. The ones I experienced would fail the most basic literacy test. Very poor indeed.

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    • ex employee 13 years - 17/06/2014 07:56

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  • Mcr driver - 27/05/2014 23:48

    when Citylink took over target,the writing was on the wall. The then CEO Petar C. Had them over big time,now he owns DX secure and has also added night freight to the business !

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  • Honest Bob - 12/06/2014 10:45

    I don't think it is getting better, whatever Link News says. the organization is too top down. Orange hi viz jackets encourage preening and the echelon is self selecting. Vosa and HSE could do serious damage to this enterprise. Manning has been cut to serious deficiencies. It is only the desperate underclass and immigrants who keep them going. The SCP is naked exploitation, but it is the business model. City Link don't want to employ drivers. They want the inevitable losses to go elsewhere. Funny thing is, the Link official newspaper says the BBC wants employees to be involved in a documentary. Will that be papering over the cracks.

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  • Honest Bob - 25/06/2014 17:54

    Interestingly the BBC are asking employees, via line managers, to put themselves forward for a BBC documentary about on lone shopping. The City Link Board should be careful because this could be a Trojan Horse looking at deeper issues.

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  • Jason - 31/08/2014 22:16

    I was looking at getting back into the parcel business, i previously worked with Target Express and the company was a joy to work with, i left when City link took over, now its under new management, i wonder if the concerns i had years ago will be addressed, a brief example, paid per drop work is great for some condensed areas however when your round is outside the main cities/industrial estates then it becomes harder to make any money at all, in the north east the Hexham round can be a vast area to cover with higher running costs/mileage but the same rate was offered as Newcastle city centre which was clearly a bread winning round, i decided at the time that City link lacked understanding of my situation and the managements general attitude towards my concerns left me no choice but to say goodbye. A great shame as i really did enjoy the work, upon reading the comments here, returning to parcel work through City Link looks to be a bad decision.

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