Rentokil IT integration problems hit merger and profits

Rentokil Initial has blamed an overambitious IT systems integration programme for holding up the merger of its City Link and Target Express parcel delivery businesses, hurting that division’s profits and producing account management errors.

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Rentokil Initial has blamed an overambitious IT systems integration programme for holding up the merger of its City Link and Target Express parcel delivery businesses, hurting that division’s profits and producing account management errors.

The news marks a retreat by the group, which six months ago praised the success of the integration.

The company said that while weaker business-to-consumer spending had affected the division, “we have concluded that [it] played only a part in a downturn that can essentially be attributed to the fact that the integration programme tried to do too much too quickly without establishing a sound base”.

Certain decisions, including centralising account management, had hurt sales and lost customers, Rentokil admitted.

City Link plunged to a £13.4m operating loss in the quarter to 31 December, from a £14.3m profit in the same period the year before, and annual profits nearly halved to £19.4m after the group spent £25m on pulling the two businesses into the group under the City Link brand.

Rentokil Initial warned that overall profits would be “significantly lower” at the end of this year as a result, and said the City Link business was only likely to break even as it tried to improve customer-facing and internal IT systems and processes.

The company has also been forced to halt a depot rationalisation programme, which was a key part of the merger of the divisions, “until such time as our systems, processes and account management have been improved”. It would “pause physical integration” overall, it said, except for rolling out new technology including handheld consignment scanners that were delivering benefits.

Systems “harmonisation” in finance and operations would continue, it said, even though it had promised centralised back office facilities would be running at full strength at the end of 2007, as it moved to a range of new Oracle systems.

News that Rentokil Initial has had to halt a major part of the integration came as a surprise to the market because the company said last August that integration of the parcel delivery businesses was making “good progress” and proceeding more quickly than expected. It also raised speculation in the national press that the group would have to split up some of its activities. Rentokil acquired Target Express in 2006 and City Link the year before.

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