UPDATE 1-Rentokil sells troubled courier arm for one pound

Mon Apr 29, 2013 4:53am EDT

* City Link sold to private equity

* Q1 adj. pretax profit up 11 pct to 25.1 mln stg

* Retains previous FY guidance

* Shares up 5.6 pct

By Neil Maidment

LONDON, April 29 (Reuters) - Pest control to hygiene group Rentokil Initial said it had sold its loss-making courier arm City Link to private equity firm Better Capital, exiting a business that has dragged on group performance for years.

Previously described as a "problem child" by Rentokil bosses, and like an "albatross round the neck of management" by analysts, City Link has racked up losses every year since 2007 despite efforts to turn it around.

Shares in FTSE 250-listed Rentokil rose 5 percent to 102 pence on Monday after the firm announced the sale of the parcel delivery firm for just one pound.

"Rentokil Initial has decided to divest of City Link at this stage of the turnaround so that we can concentrate on our core international businesses in Pest, Hygiene and Workwear," Rentokil Chief Executive Alan Brown said in a statement.

"The sale positions Rentokil Initial as a stronger and more focused group."

City Link, which has struggled with poor management in a competitive market, posted an operating loss of 26 million pounds ($40 million) for 2012, and a loss of 8.1 million pounds in the first quarter of 2013.

The latter represented a 4.6 million pound improvement on the same period a year ago, reflecting the impact of a new management team that will now continue to run the business, backed by a 40 million pound investment from Better Capital.

Analysts at Espirito Santo said the sale was welcome news.

"We believe the exit of City Link is much more important than its financial consideration. City Link has been a persistent thorn in the side of management's efforts to deliver a turnaround at Rentokil and has assumed both significant financial cost and management focus, detracting from the core of the business," they said in a note.

Rentokil, which offers services from hiring work uniforms and plants to catering and security, said it believed City Link had only recently become sellable following improvements to the business. It had been looking to exit for the last four months and had held talks with more than one party, Brown said.

The group will take an exceptional charge of around 40 million pounds on the disposal, writing off 30 million pounds of assets and taking cash costs of another 10 million pounds.

Rentokil also posted an 11 percent rise in group adjusted pretax profit to 25.1 million pounds for its first quarter on Monday, with acquisitions helping underpin a 2.7 percent rise in revenue to 644.8 million pounds.

Despite citing tough trading conditions in Europe, the group said it was retaining its full-year guidance.