Rentokil issues third profit warning on parcels business

Rentokil Initial, pest control-to-washroom services group, has issued its third profit warning in as many months as its ailing parcel delivery business, City Link, announced a worse-than-expected loss.

Alan Brown, newly appointed chief executive, said the division suffered an operating loss of £16.9 million in the first quarter. He said it was now likely to make a significant full-year loss rather than break even as had been hoped previously.

Earlier this year, Rentokil shocked the City when it announced its second profit warning in a little over two months resulting in both chairman, Brian McGowan and Doug Flynn, its chief executive, stepping down.

Last year, City Link reported £417.1 million in revenue and a £19.4 million profit. This contributes towards Rentokil Initial’s overall revenue of £2.2 billion and profit of £252.4 million.

The company said the first quarter performance from its remaining five divisions - Textiles and Washroom Services, Pest Control, Ambius, Facilities Services and Asia Pacific had remained in line with forecasts.

Mr Brown was asked about any plans to break up the group and commented there was no value to be created by trying to sell underperforming assets, rather, the businesses all had to be improved and then the group could look at ways of maximising value.

I don’t see any time in the next three years when we will be at that point, added Mr Brown.

Analysts said shareholders were impatient to see an improved return on their investment and might put pressure on management to sell off assets sooner and return cash.

The company now has a newly installed management team. Alan Brown is former chief financial officer at Imperial Chemical Industries (ICI) while newly appointed Chairman, John McAdam, is ICI’s former chief executive.

Last month, Rentokil was demoted from the FTSE 100.

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