Bosses at the logistics arm of Unipart have been hit by the termination of a key multi-million pound contract.

Alliance Boots, the parent company behind the Boots pharmaceutical chain, has decided to take its warehousing and distribution in-house and has curtailed its contract with Unipart, less than four years into a 10-year deal.

It means the Cowley-based firm has lost out to the tune of £7m a year after the decision which sprang from the merger of Alliance Unichem and Boots which was sealed in July last year.

Unipart bosses say they have been compensated for the loss of the arrangement which involved the management and operation of warehouses in Nottingham - Boots' home city - which handle about a third of the high street chain's products.

But they declined to say whether the deal struck matched the loss of earnings.

Corporate affairs director Frank Nigriello said: "As the merger went forward, they found a lot of things they were putting in place were not going to be needed in the new situation with Alliance.

"We came to an agreement and both parties were happy with the completed contract."

The blow comes after Unipart reported a 157 per cent drop in profits earlier this month.

The automotive parts and accessories divisions were particularly hard hit, thanks to the global slump in the industry, coupled with what chief executive John Neill last year identified as poor management.

The early termination of the Alliance Boots contract was revealed in the 2006 annual report and accounts which also show Mr Neill earned £922,000 compared with £757,000 in 2005, although this includes a £49,000 direct payment instead of the group contributing to a defined benefit scheme.

Mr Nigriello said that despite the Alliance Boots setback, the company had taken on four new "substantial" contracts which added up to "probably more" than that with the pharmaceutical giant.

An Alliance Boots spokesman said: "Boots the Chemists has benefited significantly from its relationship with Unipart Logistics which has helped us drive our performance to even higher levels."