Rentokil Initial Regulatory News (RTO)

25 Jan 2006 10:00

Rentokil Initial PLC25 January 2006 25 January 2006 Closure of Loss-Making Linen and Workwear Services Rentokil Initial plc (the "Company") today announced the closure of theloss-making UK Linen and Workwear operations of Initial Hygiene UK, in order tofocus on its market-leading UK Washroom and Dustmat business. Having exploredthoroughly all options for exiting the loss-making operations, the Company hasregretfully concluded that these operations will be closed on 30 April 2006. A full consultative process with customers and affected employees will beginimmediately, in an effort to ensure continuity of service with alternativesuppliers and to minimise the potential redundancies resulting from the closure.The Linen and Workwear operations currently employ some 2,000 people acrossthe UK and up to 1,700 positions could be made redundant. An employeeconsultation process will be undertaken and the Company will make all efforts tominimise redundancies including considering alternative employment within theRentokil Initial Group. No final decisions as to numbers of redundancies will bemade until the conclusion of the collective and individual consultationprocesses. Rentokil Initial plc announced in November 2004 that it had taken the decisionto exit the loss-making Linen and Workwear elements of Initial Hygiene UK. TheUK Linen and Workwear business has been significantly underinvested, is based onan inefficient distribution structure and historically has pursued a flawedcommercial strategy. The Company will continue to develop its UK Washroom andDustmat business, Washroom Solutions UK, which has a strong and profitablemarket position. To that end, management started the complex and lengthy processof separating the plant and delivery mechanisms relating to Linen and Workwearfrom the activities being retained. This separation was finally completed inDecember 2005. In parallel with the operational separation, the Company explored in detail howbest to structure an exit and so stem increasing losses, while protecting thevalue of the on-going UK Washroom and Dustmat business. In particular, theCompany examined whether it was possible to sell the business to one or morethird parties while ensuring an orderly and controlled transfer of customercontracts. However, the serious risk of regulatory intervention and theconsequent uncertainty in terms of timing, costs and eventual exit, has led theBoard reluctantly to conclude that a third party sale is not feasible and thatclosure is the only viable option. Customers of the UK Linen and Workwear services have been notified of thedecision today and the Company will provide comprehensive support to them insourcing alternative supply. The UK Linen and Workwear activities' 2004 turnover was £55 million withoperating losses of £5 million. In 2005, turnover is broadly similar withoperating losses of circa £9 million. An exceptional asset impairment charge of£28 million was reported in the first half of 2005 and further reorganisationcosts of £4 million have been incurred in the second half. At the half year itwas announced that total one-off exit costs were expected to be in the range of£40-45 million (in addition to operating losses to the point of exit). Theimpact of closing rather than selling this activity is expected to increasethese costs to £45-50 million. Included in this amount is £13-18 million ofcash costs to be incurred in the first half of 2006. These will besignificantly offset by the sale of surplus property and other assets during2006 and 2007. Doug Flynn, Chief Executive of Rentokil Initial plc, said: "Our UK Linen and Workwear activities have sustained considerable losses forseveral years and the need to exit this operation has been clear for some time.It is always a difficult decision to close an operation, especially one thatemploys so many people. We are committed to doing all we can to minimise thelevel of redundancies and to support all our employees and customers affected bythe closure. "Today's announcement does not impact our Linen and Workwear operations incontinental Europe where we have built up a number of profitable and growingbusinesses. In the UK our focus is now on delivering the opportunity we have inwashrooms and dustmats by improving efficiency and service to our customers." Enquiries Rentokil Initial plc +44 (0) 1342 833022 Charles Grimaldi, Corporate Affairs Director Brunswick Group LLP +44 (0) 20 7404 5959 John Sunnucks Kate Holgate Jon Rhodes Notes for Editors: Rentokil Initial plc is one of the largest business services companies in theworld, operating in all the major economies of Europe, North America, AsiaPacific and Africa. The company has some 90,000 employees providing a range ofsupport services in over 40 countries. The UK Hygiene business has traditionally provided four services: linen,workwear, washroom, and dustmats. The business services UK customers through anationwide network comprising 12 plants and 35 dedicated service centres andemploys around 4,000 people. Key customer groups include hospitality,educational, retail and office based businesses. Following the closure of the Linen and Workwear operations the business willtrade as Initial Washroom Solutions, focused on providing innovative washroommanagement services featuring exclusive products for hand drying and washing,air care, sanitary disposal and washroom sanitisation. Dustmats will be providedon a rental basis. Additional services will include the provision of aspecialist high care and clean room laundry operation servicing industries suchas pharmaceutical companies and food manufacturers. Rentokil Initial plc, Felcourt, East Grinstead, West Sussex RH19 2JY This information is provided by RNS The company news service from the London Stock Exchange