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Last Updated: Thursday, 28 February 2008, 17:18 GMT
City Link to hit Rentokil profits
City Link lorries
A new management team has now been put in place at City Link
Shares in Rentokil Initial fell by 23% after it said 2008 profits would be lower than on last year after problems at its City Link parcels delivery unit.

Its comments came as it announced a 1.1% rise in annual profits for 2007 to 211.4m, below analysts' expectations.

Rentokil described the performance at City Link as "unacceptable". It had already warned in December that City Link's problems would hit profits.

Rentokil also said that its chairman, Brian McGowan, was stepping down.

At the end of trading, shares in Rentokil were down 24.5 pence, or 23%, at 80.5p.

Not delivering

Despite the progress delivered by most of the group, the performance from City Link was unacceptable
Doug Flynn, Rentokil Initial chief executive

When Rentokil flagged up problems at City Link in December last year, it blamed the problems on weak consumer spending in the run-up to Christmas.

However, following a review, Rentokil said it had discovered there were deeper problems with the business, relating to the integration of new acquisitions.

A new management team has now been put in place at the business, the company said.

"Despite the progress delivered by most of the group, the performance from City Link was unacceptable," said Rentokil Initial chief executive Doug Flynn.

"Actions are in hand to improve the situation but this is a trend business and improvements will take time to come through," he added.

"This means that 2008 adjusted profit before income tax for the group is expected to be significantly lower than 2007 and will be heavily dependent on the performance from City Link."

Rentokil - whose range of businesses includes pest control and cleaning - also announced that its chairman Brian McGowan was to step down by no later than the company's annual meeting on 14 May.

"I have enjoyed my time with the group but have decided that the time has come for the board to look for a new chairman to help guide Rentokil Initial through the next stage in its development," Mr McGowan said.

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08 Feb 06 |  Business

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