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City Link gloom afflicts Rentokil

By This Is Money
Updated: 08:33 EDT, 18 February 2011

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Shares in Rentokil Initial slumped 6% after it announced a further overhaul of its troubled courier business City Link and delayed reinstating its dividend.

U-turn: Rentokil admits it cut too many staff and now plans to take on more City Link drivers

The support services company said it wanted to turn around both City Link and its Textiles & Hygiene Benelux operation before it resumed dividend payouts.

Despite the difficulties in some parts of its business, Rentokil reported a 15% rise in adjusted annual profits to £192.3m while sales fell 1% to £2.5bn.

Its stock was down 6.1p to 91.9p by lunchtime today.

Rentokil described City Link's 2010 performance as particularly disappointing as December's severe weather added to ongoing operational failings.

Losses in the final quarter reached £3.6m and meant the deficit for the year widened to £9.6m, from £5.6m in 2009.

The firm plans to close City Link's head office in Camberley by April and move jobs to Heathrow, as well as launch investment in new call centre, route optimisation and web programmes.

The improvement programme will be in place by next October but Rentokil warned of further disappointing results from City Link until then.

The operation is currently being run by Rentokil's chief executive Alan Brown after its managing director Stuart Godman resigned by mutual consent in December.

It has been restructured in recent months after it sold its Wednesbury hub and opened new centres in Warrington and Peterborough. Three depots were closed and a combined depot for post operations opened, bringing total depot numbers to 75.

But Rentokil admitted that it cut too many staff and it now intends to employ more drivers to reduce its dependency on more expensive sub-contractors.

It also plans to appoint a customer care director as part of a drive to improve service and will launch a new service to allow customers to track the progress of their parcels online.

Rentokil chief executive Alan Brown said Rentokil was half way into a five-year turnaround plan that has, in most cases, shown successful structural change.

He reported strong profits growth in pest control and facilities services, with earnings up 10% and 21.6% respectively.

Revenues at its textiles and washroom services arm declined by 2.5% after strong competition in France and the Netherlands.

Mr Brown commented: 'City Link's operational inefficiencies are expected to be addressed by October 2011 but financial delivery will be weak until then.

'Textiles & Hygiene Benelux controls have improved and pricing pressures have reduced but the recovery plan is at an early stage of development.'

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