UK: Rentokil Initial offloads City Link after five years of losses

PARCEL delivery firm City Link was today sold for £1 after its owner called time on five years of substantial losses.

Pest control and washrooms company Rentokil Initial has offloaded the division to restructuring specialist Better Capital, even though it believes the business has now turned the corner.

City Link made losses of £31million in 2011 and £26m last year, with the first three months of this year seeing a reduced loss of £8.1m.

Despite the boom in internet shopping, City Link has been impacted by weaker demand from higher margin small business customers.

Better Capital, whose other recent investments have included fashion business Jaeger and double-glazing firm Everest, will invest £40m in City Link in a bid to complete the turnaround.

Rentokil’s shares opened 7% higher today, despite the company warning of a £40 million charge in relation to the City Link sale.

Chief executive Alan Brown said City Link, which will continue to be run by its existing management team, had found a “very committed investor” in Better Capital.

Despite progress over the last two quarters, he said it was the right time to offload the business so Rentokil can focus on its operations in pest control, hygiene and workwear.

Mr Brown added: “I believe City Link has now turned the corner after five years of substantial losses.”

After a number of false starts in recent years, Rentokil’s bid to revive City Link has benefited from a new management team’s push to improve driver productivity, supported by better route handling.

City Link’s costs per delivery fell by 13% during 2012, while volumes were 17% higher.