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Market conditions

During 2011 there was continued growth in the B2C sector, whilst growth in the B2B sector was largely flat following economic output. There continues to be very high levels of competition within the industry forcing an underlying downward pressure on price.

 
  Fourth Quarter
 
   Full Year
 
£m
At 2010 constant exchange rates: 		2011 2010 change   2011 2010 change
Revenue 88.0 87.6 0.5%   306.9 335.5 (8.5%)
Adjusted operating profit (before amortisation and impairment of intangible assets,1 reorganisation costs and one-off items) (6.7) (3.6) (86.1%)   (31.3) (9.6) (226.0%)
At actual exchange rates:              
Adjusted operating profit (before amortisation and impairment of intangible assets,1 reorganisation costs and one-off items) (6.7) (3.6) (86.1%)   (31.3) (9.6) (226.0%)
    1 Excluding computer software
 
 

Performance review

Despite operational improvements during 2011 the business made an operating loss of £31.3 million on revenue down 8.5% to £306.9 million reflecting a 3.5% volume decline and 5% decline in revenue per consignment (RPC). Losses were also impacted by slow progress on cost saving initiatives and productivity in particular.

RPC decline was driven by a loss of smaller and medium sized customers in Q1 predominantly due to poor service quality in December 2010, a very competitive market and a lack of investment in account management. Quality of service improved dramatically in 2011 and has consistently been at a high level throughout the year. City Link invested in both account management and customer service during the year and as a result is now gaining momentum in winning new business. It exited the year with an additional £25 million in annualised contract sales and the new business pipeline remains in excess of £50 million. There is also a need, however, to increase prices after many years of serial decline in the industry as a whole.

Given the poor performance of the business of the division in 2011 we have written off intangible assets at the 2011 year end relating to City Link. The total write down amounted to £146 million of which £108 million related to goodwill and £38 million related to customer lists.

A strong plan has been put in place by the new leadership team. Though we do not expect to see an improvement in financial performance during H1 2012, we expect to see better results in H2 2012.

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2012 outlook and objectives

The B2C market is expected to continue to grow while the B2B market remains more susceptible to economic conditions, around which there remains uncertainty. Excess capacity in the market continues to make pricing extremely competitive.

Key objectives

  • Continue to drive top line growth with focus on profitable new customers
  • Deliver £20 million in cost savings, focused on driver productivity and supported by hub and trunking, warehouse and back office cost reductions
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