City Link delivers more bad news for Rentokil

Efforts by Rentokil Initial to jumpstart the recovery of parcels arm City Link were under more pressure yesterday following a fresh consignment of losses from the division.

The pest control firm said City Link’s losses were nearly £25 million in the first nine months of 2011, including £6.8m in the most recent quarter due to “extremely competitive” market conditions and the loss of business in a disastrous 2010. Rentokil said it was confident of an improvement but analysts were frustrated at the pace of the turnaround.

Outside of City Link, trading was broadly in line with expectations, although Rentokil downgraded forecasts for cost savings this year to between £50m and £55m, from £60m previously.

It admitted more work was needed on improving productivity at City Link but said revenues projections for the arm were much better for this quarter and 2012.

Rentokil said: “While the market remained extremely competitive, we are particularly encouraged by the strength of the new business pipeline and by the conversion of approximately £25m of leads into new customers.”

However, price cutting meant revenues per consignment declined by 3.5 per cent in the third quarter and revenues dipped 8 per cent to £74.4m.

This was offset by profits growth in textiles and pest control, despite tough market conditions. Overall profits were 13.3 per cent lower at £36m in the quarter.

Investec Securities cut its full-year profits forecast by £10m to £188m.