Rentokil Initial Plc has said that its City Link parcel delivery business has continued to experience difficulties in the first quarter of 2008.

In a statement the company said the new senior management team at City Link had begun to address the operational problems with the business in the last two months, and had already enjoyed some success in improving service levels and in re-establishing relationships with customers.

Despite this, Rentokil admitted that the declining performance in the final quarter if 2007 had continued into the first quarter of 2008, thanks to difficulties experienced in integrating the City Link franchisees and the Target Express acquisition with the core City Link business.

In total the company said it had a greater than anticipated adjusted operating loss of £16.9 million for the first quarter of 2008, however the company added that £10 million of that was due to non-recurring costs.

Rentokil revised its estimate on the full year performance of City Link, saying it was no longer likely to break even and would probably make a significant full year loss.

Alan Brown, chief executive of Rentokil Initial, said, The return of City Link to its former levels of profitability is likely to take some time. I believe this can be achieved by developing integrated information systems, by optimising our hub and depot network and by capitalising on the growth of the UK parcels market.

Rentokil said that the first quarter performance of its remaining five divisions were in line with expectations and that full details would be given in a trading update on 2 May 2008.