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Rentokil wins from explosion of bed bugs

By This Is Money
Updated: 07:07 EDT, 5 November 2010

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Rentokil Initial posted a profit today after a strong performance in its rat-catching division offset ongoing difficulties at its City Link delivery arm.

Profit from pests: The firm has grown pest killing revenues.

The firm, which is based at Gatwick, said its pest control business delivered strong profit growth in the three months to September 30, particularly in the UK and US.

City Link reported an operating loss of £1.3m for the quarter, which was flat year-on-year, due to an 'extremely competitive market' and price-cutting across the industry.

But parent company Rentokil Initial, which employs 68,000 people worldwide, posted a 16% rise in adjusted pre-tax profits to £57.3m, beating City expectations.

A spokesman for Rentokil said an increase in calls to tackle bed bugs was one reason for the improved business in the pest control division.

Cities like New York have experienced an invasion of the blood-sucking creature - Cimex Lectularius - which can hide in headboards and behind wallpaper.

The end of the quarter also saw a return to the 'rat season' as rodents retreat indoors due to the cooler weather conditions.

Economic recovery and jobs growth also boosted the pest control arm, the firm added.

In North America, pest revenues grew by 6%, while in the UK the figure was up 2.3% and led to a profit lift of 18.6%. Elsewhere, its contract with the Libyan government saw revenues decline and timings of payments 'remain variable'.

Former ICI boss Alan Brown was drafted in more than two years ago to lead the revival of Rentokil after recession and a botched expansion under previous management plunged City Link into the red.

Mr Brown said he expected trading performance in the fourth quarter to remain difficult for City Link, but added that group full year performance was likely to be in line with market forecasts.

Although City Link is still making a loss, its year-to-date operating losses have improved by 28% on a year earlier, on the back of a structural reshuffle within the business.

The business closed and sold its Wednesbury hub and opened two new hubs in Warrington and Peterborough. Three depots were closed and a combined depot for post operations opened, bringing total depot numbers to 75.

Kevin Lapwood, support services analyst at Seymour Pierce, said the results confirmed there was a long way to go before a recovery can be announced.

He said: 'The main problem is how to get revenue growth without impairing service levels. In terms of the outlook for the full year, Rentokil indicated that trading conditions continued to be challenging in most of its markets, particularly in continental Europe.'

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