Rentokil Initial's struggling parcels business City Link is continuing to hold back progress at the rat catcher to cleaning group.
The company said overall first quarter revenues rose 0.7%. Within that, textiles and hygiene rose 2%, pest control up 1.1%, facilities services up 13.2% but City Link fell 13.4%. Still there was a glimmer of hope for the parcels division. Chief executive Alan Brown, one of a group of executives heavily incentivised to turn the business round, said:
The UK parcels market was particularly challenging during the first quarter. City Link will continue to deliver poor financial performance in the second quarter, but I anticipate an improvement in the third quarter based on strong operational progress since February, plus major improvements in information technology and customer care. Together, these are driving a differentiated position for City Link in the UK market. This has resulted in a promising new business pipeline which is anticipated to come on stream in the late second quarter and early third quarter.
The first quarter results from Rentokil give little encouragement that the recovery is about to materialise. Losses continue at City Link and the textiles and hygiene division continued to be held back by problems in the Benelux region. There is no sign yet of the top-line growth that was targeted by the management last year. We have downgraded our 2011 and 2012 estimates and move from hold to reduce. There is better value elsewhere in the sector.
Investec said:
Despite a difficult market background, today's update shows revenues slightly up on the corresponding period, but profitability (as expected) is down; results are mixed across the various divisions. We are reducing our forecasts to reflect the difficult trading outlook for 2011. Although the rating does not look that high, we do not believe that there is much to go for in the short term and maintain our hold recommendation.
