New focus for Initial Hygiene UK but cleanroom laundry service continues

Multinational service company Rentokil Initial will close the loss-making UK linen and workwear operations of Initial Hygiene UK at the end of this month.

Following the closure, the business will trade as Initial Washroom Solutions, focused on providing washroom management services and offering products for hand drying and washing, air care, sanitary disposal and washroom sanitisation. It will also continue to provide dustmats on a rental basis. Additional services will include the provision of a specialist high-care and cleanroom laundry operation, servicing industries such as pharmaceutical companies and food manufacturers.

Rentokil Initial announced in November 2004 that it planned to exit the loss-making linen and workwear elements of Initial Hygiene UK in order to focus on its market-leading UK washroom and dustmat business. The closure does not affect its linen and workwear operations in continental Europe, where the company says it has built up a number of profitable and growing businesses.

The UK linen and workwear operations employed some 2,000 people across the UK and a large number of those are being made redundant.

The company blamed significant underinvestment and an inefficient distribution structure as contributing to its failure, but said it will continue to develop the washroom and dustmat business, Washroom Solutions UK, which it says has a strong and profitable market position.

The company had examined whether it was possible to sell the business to one or more third parties while ensuring an orderly and controlled transfer of customer contracts. However, it said the serious risk of regulatory intervention and the consequent uncertainty in terms of timing, costs and eventual exit, led the board to conclude that a third party sale was not feasible and that closure was the only viable option.

Doug Flynn, chief executive of Rentokil Initial plc, said: “Our UK linen and workwear activities have sustained considerable losses for several years and the need to exit this operation has been clear for some time. It is always a difficult decision to close an operation, especially one that employs so many people. We are committed to doing all we can to minimise the level of redundancies and to support all our employees and customers affected by the closure.”

The turnover in 2004 for UK linen and workwear activities was £55m with operating losses of £5m. In 2005, turnover was broadly similar with operating losses of circa £9m. An exceptional asset impairment charge of £28m was reported in the first half of 2005 and further reorganisation costs of £4m were incurred in the second half. It was announced that total one-off exit cost was expected to be in the range of £40-45m (in addition to operating losses to the point of exit). The impact of closing rather than selling was expected to increase these costs to £45-50m. Included in this amount is £13-18m of cash costs to be incurred in the first half of 2006. These will be significantly offset by the sale of surplus property and other assets during 2006 and 2007.