Business review

City Link

Market conditions

2009 saw unprecedented declines within the domestic parcel market. In the 12 months to the end of Q4 2009 the value of the market fell by some 8% (£170 million) year on year. Severe pressure on price has accounted for almost all of this decline. Volumes in the final quarter of 2009 were 6% higher than in 2008, resulting in full year volumes remaining broadly similar to the previous year.

£m	Fourth quarter 2009	2008	Change	Full year 2009	2008	Change
At 2008 constant exchange rates:
Revenue	100.9	97.2	3.8%	353.1	381.9	(7.5%)
APBITA*	2.7	(4.0)	–	(5.6)	(43.5)	87.1%

*Adjusted profit before interest, one-off items and amortisation and impairment of intangible assets, other than computer software.

City Link’s operating loss of £5.6 million is £37.9 million better than the corresponding loss in 2008 despite a £28.8 million reduction in reported revenue to £353.1 million. The business returned to profitability in Q4 2009 posting a profit of £2.7 million – £6.7 million better than the corresponding period in 2008. Revenue declined by 7.5%, impacted by difficult economic conditions, pricing competition and the full year effect of poor service in 2008. Q4 revenue was £15.8 million (19%) higher than Q3 reflecting the seasonal sales uplift, and £3.7 million (3.8%) ahead of Q4 2008, with particularly strong growth in the B2C business.

Volumes were down 3.1% on 2008 and revenue per consignment (RPC) weakened by 4.5% on the prior year.

City Link’s customer base has been broadly consistent throughout the year although many are trading at lower levels. The market has been extremely competitive during 2009 with severe price cutting by competitors in order to drive volumes through their networks.

City Link’s improved loss performance has been driven by cost savings of £54 million in 2009. This was achieved through depot closures (97 to 84 by year end) and reductions in vehicles and headcount. Vehicle fleet numbers are a third lower than this time last year and total employee numbers have fallen below 5,500, a 16% reduction since December 2008. Plans to migrate from two hubs to one will be implemented by the end of H1 2010.

Apart from periods of heavy snow in early February and early December 2009, customer service has remained consistently above our 98.5% target. The restoration of customer call handling at depots was completed early in the year and has been met with very positive customer feedback.

The successful roll-out of new hand-held scanners and an upgraded route scheduling tool has underpinned improved productivity and customer service. The functionality of the new scanners has been expanded to allow delivery drivers to capture real-time customers’ door and parcel images. This latter feature, which we believe is industry-leading, will further aid electronic, real-time proof of delivery. Additional improvements include the recently relaunched City Link website which has been very positively received by customers.

DSO at the end of the year was 34 days, an improvement of 10 days on 2008.

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2010 preview

There have been signs of recovery within the market recently, with forecasts suggesting the parcel market will return to positive growth by the latter stages of 2010. Even so the market is expected to remain very competitive throughout the coming year as excess capacity in the industry still remains the predominant feature.

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