Strikes at Royal Mail have given a short-term boost to Rentokil Initial’s struggling parcels business, but the cost of handling the sudden spike in demand was high, the services group said yesterday.

Rentokil’s City Link parcels business was at the heart of a string of profit warnings in 2007 and 2008, but the group said yesterday that it had benefited only “to a modest extent” from the sudden rush of new customers from Royal Mail.

Adjusted profits at Rentokil, which is 18 months into a five-year turnaround plan, more than doubled to £49.6 million in the third quarter under the leadership of Alan Brown, the chief executive brought in from ICI to turn the company around.

Mr Brown said that City Link would return to profit in the fourth quarter. The division, which made a loss of £43 million in 2008, is likely to make a £7 million loss in 2009, after cutting 1,300 jobs and reducing the number of vehicles it has by 1,000.

He added that there had been a rush of new customers caused by the Royal Mail industrial action, but said: “Our City Link business is about long-term relationships. It’s not an option for us to fleece our customers just because there is a sudden increase in demand.”

Mr Brown and his team have put in place a five-point plan, which concentrates primarily on improving customer service and getting the job right first time as a way of rescuing the beleaguered services business.

“It’s been about getting our service right, so we don’t have to redo jobs and pay credits to customers,” he said.

Rentokil shares have more than doubled in the past year. Estimates are that the company will make full-year operating profits of £155 million, up from £108 million the previous year.

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