City Link cuts losses and lifts Rentokil shares

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An end to Rentokil Initial’s long-running troubles at City Link looked to be around the corner yesterday after the parcels business posted reduced losses.

Shares in the pest control and washrooms operator jumped five per cent as it revealed City Link should be profitable in the fourth quarter of this year.

After a number of false starts in recent years, Rentokil’s attempts to revive the business have benefited from a new management team’s push to improve driver productivity, supported by better route handling.

Its depot network has also been consolidated with a reduction of three sites in the first half, helping to cut City Link’s operating loss for the second quarter by 18 per cent to £5.3m. Revenues were up by 5.3 per cent to £76m.

Chief executive Alan Brown said: “City Link’s recovery plan is progressing in line with expectations, both in terms of financial performance and underlying action plan.

“We expect losses to reduce further in the third quarter and for the business to be profitable in the fourth quarter.”

Across the group, profits were up 75 per cent at constant exchange rates to £46.6m for the first six months of the year, helped by a reduction in one-off and reorganisation costs.

Rentokil said it was on track to exceed its year-end guidance of £50m cost savings, with back office processing efficiencies among areas targeted.

It has also rolled out customer care initiatives across the group, including in call centre technology and organisation, and stepped up growth in pest control through acquisitions in countries including Canada and Brazil.

Second quarter operating profits of £31.8m and £32.6m in the textiles and hygiene and pest control divisions respectively were down 4.8 per cent and 3.6 per cent but higher on constant currency exchange rates.

Yesterday’s half-year results were slightly ahead of expectations, although analysts remain nervous about the impact of currency headwinds.

Investec Securities analyst Robert Morton said: “It may be too early to bank on it, but if the recovery at City Link does finally come through, then the shares should start to perform.”