City Link Update
Rentokil Initial PLC
21 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 two
months has begun to address the operational problems within the business. This
team, consisting largely of individuals experienced in running non-franchise
networks, has already enjoyed some success in improving service levels and in
re-establishing relationships with customers.
However, the declining performance trend of the fourth quarter 2007 has
continued into Q1 2008. This is a result of the difficulties experienced in
integrating the City Link franchisees and the Target Express acquisition with
the core City Link business. This has led to a greater than anticipated
adjusted operating loss of £16.9 million for Q1 2008 (of which £10 million is
attributable to non-recurring costs).
The previous guidance was that City Link may not trade better than break even
for 2008. Although the full year outcome remains unclear, in light of first
quarter trading and the current trends in revenue and costs, it now appears
likely 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 the
revenues of City Link (including Target Express) and its franchisees.
(2) Revenue represents the total sales of City Link, the franchises that
have been acquired and Target Express. The difference between network revenue
and revenue therefore represents largely the revenue of the franchises not yet
acquired.
(3) Before one-off costs of £nil for the first quarter of 2008, £0.9m for
the 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-off
items and amortisation.
Network revenue was 11% lower than Q1 2007. Adjusted for lower trading days in
2008, revenue was down 8%.
Revenue from the top 50 customers, which accounts for 26% of total revenue, has
grown year on year. The loss of revenue is primarily from small accounts, which
have been particularly adversely affected by the buy-back of franchisees and the
problems experienced as a result of the attempted integration of Target Express
and City Link.
Headline costs have risen sharply from £84.3 million in Q1 2007 to £112.1
million in Q1 2008. Approximately £13 million of this increase is attributable
to 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 meet
with a number of major customers and to visit several depots. I have been
encouraged by the reaction of these customers to the progress we are now making
and by the enthusiasm of the staff within our depots and the new and experienced
leadership team within City Link who are committed to delivering a rapid
turnaround in service to all our customers.
'I am confident the improvement in service will be significant and rapid, based
on the performance in recent weeks and the switching of management attention
from integration to service and customers.
'However, the return of City Link to its former levels of profitability is
likely to take some time. I believe this can be achieved by developing
integrated information systems, by optimising our hub and depot network and by
capitalising 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 and
Asia Pacific remains in line with expectations. Full details will be given in
the 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 2700
Katharine Rycroft, Head of Investor Relations 07811 270734
Media enquiries:
Malcolm Padley, Head of Corporate Communications Rentokil Initial plc 07788 978199
Kate Holgate, Tom Williams Brunswick Group 020 7404 5959
A conference call for analysts and investors will be held today at 8.00am. To
join this call, please dial 020 7131 0500 giving participant code 629032.
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