Rentokil sees operating profits drop

Rentokil Initial saw revenue growth accelerate in the first three months of 2012 but operating profits fell year-on-year mainly as a result of higher central costs and losses at its City Link franchise.

The firm, which runs a range of businesses including textile services, pest control, hygiene services and parcel delivery, said revenue grew 3.6% year-on-year at constant exchange rates (CER) to £624.4m, up from the 2.6% growth in the fourth quarter of 2011.

However, adjusting operating profit at CER fell 6.7% to £33.3m. The firm said that City Link losses were higher than last year but it expects a significant improvement in the second half. Central costs were higher reflecting increased investment in Programme Olympic.

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"The momentum in sales growth generated during 2011 has continued into 2012, with further improvement in organic growth rates and strong performance from our recent acquisitions. Market conditions have generally remained challenging, especially in our Southern European businesses.However, Pest North America benefited from relatively mild weather," said Chief Executive Officer Alan Brown.

"Assuming economic conditions do not deteriorate further, we anticipate continued organic growth and that this, coupled with productivity improvement at City Link, will convert into a year-on-year improvement in financial performance in the second half of the year," Brown said.

Operating cash outflows increased from £6.9m last year to £19m, as a result of increased capital expenditure and the phasing of working capital. The group said it typically incurs outflows in the first quarter due to the seasonality of the business.

Shares were down 4.73% at 82.5p in early trading on Friday.

BC