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Rentokil counts cost of suspended Libya rat contract

By This Is Money
Updated: 07:01 EDT, 6 May 2011

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Rentokil Initial has taken a £4.8m hit from the suspension of a rat-catching contract in strife-torn Libya, the company revealed.

On hold: Rentokil's rat-catching contract with Libya has been suspended

The one-off provision was announced with its first quarter results, which showed a 10.1% drop in adjusted pre-tax profits to £27.4m.

The company said sales in its pest control division were down 2.6% at £132.8m in the three months to March 31 after its deal with Libya's government to tackle a dangerous rodent infestation in the capital Tripoli was put on hold.

Rentokil was already at loggerheads with the North African state over delayed payments for the contract but the violent civil war which broke out in February has seen the agreement put on ice.

Elsewhere, Rentokil revealed further woes for its ailing delivery business City Link, which reported a first quarter operating loss of £10.7m, up from a £4.4m loss the previous year.

Rentokil said group revenues in the first quarter edged up 0.7% to £609.7m as declines in pest control and City Link were offset by a stronger performance at Initial Facilities Services, which provides work ranging from window cleaning to waste management.

Chief executive Alan Brown said: 'The UK parcels market was particularly challenging during the first quarter. City Link will continue to deliver poor financial performance in the second quarter but I anticipate an improvement in quarter three based on strong operational progress since February.'

He added that the textiles and hygiene business in the Benelux region had stabilised and was trading in line with internal expectations.

The group's textile and hygiene arm saw revenues increase 2% to £189.9m, driven by a strong performance in Germany and its hospital supply business.

When it reported annual results in Februay, Rentokil delayed reinstating its dividend, saying it wanted to turn around both City Link and its Textiles & Hygiene Benelux operation before it resumed payouts.

Rentokil's shares were up 2p at 93.05p in trading today.

View from the City

Kevin Lapwood of Seymour Pierce said Rentokil's first quarter profit figure was well below the broker's expectations and also below the consensus City forecast.

'Once again the damage was done in the City Link business,' he said. 'Despite the optimistic tone of the statement, this is not likely to be resolved in the near future.

He changed Seymour's recommendation from hold to reduce, saying: 'There is much better value in the facilities management sector (we prefer Carillion and Mitie).'

Robert Morton, analyst at Investec, said: 'There were not too many surprises in today's trading update with results likely to improve as the current year progresses, despite a difficult trading background.'

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