Rentokil's City Link delivers first profit in two years

Problems at the parcels business compounded by a dire economic backdrop had prompted a slew of profit warnings from Rentokil but the division posted an operating profit of 2.7 million for the final quarter of 2009.

While City Link was loss- making for the year as a whole, management have taken drastic action to cut 54m in costs – slashing staff numbers by nearly a fifth to below 5,500 and cutting its vehicle fleet by a third.

Commentators said City Link tried to expand too quickly through acquisitions and buying up former franchises, and unsettled customers by centralising account handling processes and was hit by the credit crunch in 2007.

Following an overhaul of the business – including a well- received move to restore client handling to depots – the group is seeing far higher levels of customer satisfaction despite disruption from recent heavy snow.

Revenues for 2009 were 7.5 per cent down despite the return to profit amid fierce competition and lower demand as a result of the recession.

The other under-performing divisions – washrooms and pest control businesses in Australia and the UK – also showed "good progress", Rentokil said.

Across the overall group, underlying pre-tax profits rose by 30 per cent to 166.5m as the group earmarked a further 75m in cost savings for 2010. Revenues fell 2.2 per cent to 2.53 billion.

Chief executive Alan Brown – part of a team of former ICI bosses drafted in to revive Rentokil – said he saw "no easing" in economic conditions across most markets this year but was aiming for "modest growth". He added: "Above all in 2010 we intend to lay the foundation for profitable growth in 2011 and beyond."

Panmure Gordon analyst Mike Allen said: "Final results are ahead of our expectations reflecting a stronger than expected performance on cost savings, rather than a helpful market backdrop."

He added: "We remain very comfortable with the 'self help initiatives' the company can deliver, with cost saving guidance raised from 50m to 75m."

But Kevin Lapwood, an analyst at Seymour Pierce, warned that a "question mark" still hung over revenue growth.