Rentokil Initial Regulatory News (RTO)

21 Apr 2008 07:01

Rentokil Initial PLC21 April 2008 21 April 2008 RENTOKIL INITIAL PLC (RTO) CITY LINK UPDATE The difficulties experienced in the group's parcel delivery business, City Link,have continued through Q1 2008. The new senior management team put in place at City Link over the past twomonths has begun to address the operational problems within the business. Thisteam, consisting largely of individuals experienced in running non-franchisenetworks, has already enjoyed some success in improving service levels and inre-establishing relationships with customers. However, the declining performance trend of the fourth quarter 2007 hascontinued into Q1 2008. This is a result of the difficulties experienced inintegrating the City Link franchisees and the Target Express acquisition withthe core City Link business. This has led to a greater than anticipatedadjusted operating loss of £16.9 million for Q1 2008 (of which £10 million isattributable to non-recurring costs). The previous guidance was that City Link may not trade better than break evenfor 2008. Although the full year outcome remains unclear, in light of firstquarter trading and the current trends in revenue and costs, it now appearslikely that the division will incur a significant full year loss. Quarter One Quarter Four 2008 2007 2007 £m £m £m Network revenue (1) 96.0 107.3 108.0 Revenue (2) 95.2 94.5 106.5 Costs (3) 112.1 84.3 100.2 Profit/(loss) (4) (16.9) 10.2 6.3 (1) Network revenue represents the total system sales and combines therevenues of City Link (including Target Express) and its franchisees. (2) Revenue represents the total sales of City Link, the franchises thathave been acquired and Target Express. The difference between network revenueand revenue therefore represents largely the revenue of the franchises not yetacquired. (3) Before one-off costs of £nil for the first quarter of 2008, £0.9m forthe first quarter of 2007 and £19.7 million for the fourth quarter of 2007. (4) Profit/(loss) is adjusted operating profit and is stated before one-offitems and amortisation. Network revenue was 11% lower than Q1 2007. Adjusted for lower trading days in2008, revenue was down 8%. Revenue from the top 50 customers, which accounts for 26% of total revenue, hasgrown year on year. The loss of revenue is primarily from small accounts, whichhave been particularly adversely affected by the buy-back of franchisees and theproblems experienced as a result of the attempted integration of Target Expressand City Link. Headline costs have risen sharply from £84.3 million in Q1 2007 to £112.1million in Q1 2008. Approximately £13 million of this increase is attributableto the cost bases of the acquired franchisees (offset by the acquired revenue).A further £10 million is attributable to non-recurring costs and the balance of£5 million to underlying cost increases. Alan Brown, Chief Executive of Rentokil Initial plc, said: "During my familiarisation with City Link, I have had the opportunity to meetwith a number of major customers and to visit several depots. I have beenencouraged by the reaction of these customers to the progress we are now makingand by the enthusiasm of the staff within our depots and the new and experiencedleadership team within City Link who are committed to delivering a rapidturnaround in service to all our customers. "I am confident the improvement in service will be significant and rapid, basedon the performance in recent weeks and the switching of management attentionfrom integration to service and customers. "However, the return of City Link to its former levels of profitability islikely to take some time. I believe this can be achieved by developingintegrated information systems, by optimising our hub and depot network and bycapitalising on the growth of the UK parcels market." First quarter performance from Rentokil Initial's remaining five divisions,Textiles and Washroom Services, Pest Control, Ambius, Facilities Services andAsia Pacific remains in line with expectations. Full details will be given inthe Company's First Quarter Trading Update to be issued on 2 May 2008. Enquiries: Shareholder/analyst enquiries: Andrew Macfarlane, Chief Financial Officer Rentokil Initial plc 020 7592 2700Katharine Rycroft, Head of Investor Relations 07811 270734 Media enquiries: Malcolm Padley, Head of Corporate Communications Rentokil Initial plc 07788 978199Kate Holgate, Tom Williams Brunswick Group 020 7404 5959 A conference call for analysts and investors will be held today at 8.00am. Tojoin this call, please dial 020 7131 0500 giving participant code 629032. This information is provided by RNS The company news service from the London Stock Exchange