Rentokil rejects sell-off as profits plunge

Pest control-to-hygiene group Rentokil Initial today said it had no plans to break itself up as it revealed a 10% fall in half-year pre-tax profits to £180.4m (€268.4m).

Rentokil provides pest control, washroom, security guarding and other services in 40 countries, including Ireland and the UK.

The troubled group, which has ousted its former chairman and chief executive and warned on profits since May, insisted its problems were operational, rather than structural.

It added that its parcels and conferencing operations, the divisions that have attracted most talk of a sell-off, were “highly profitable and relatively trouble-free”.

Chairman Brian McGowan, who has launched a review of the business, said Rentokil did not suffer from “the problem of a good core business being held back by under-performing peripheral businesses”.

“The key to Rentokil is not in divestment potential,” he said. “It is in getting the operational businesses working more efficiently and effectively.”

Rentokil controversially parted company in May with former chairman Clive Thompson after warning that annual profits would be substantially down on last year.

Thompson became known as Mr 20% for his earnings record after becoming the group’s chief executive more than 20 years ago.

In July, Rentokil announced its second surprise management change in as many months with the departure of chief executive James Wilde.

Mr McGowan, who became interim executive chairman after Thompson’s departure, said it had been clear that the business needed “a fresh perspective and new leadership”.

In a conference call with journalists today, he said the overwhelming common theme of his 14-week review of Rentokil had been “a concern at the operational issues facing the group – not the make-up of the group”.

He said he had talked to managers and staff at all levels and had found problems including a “stifling and bureaucratic culture” which prevented effective decision-making.

Changes would involve streamlining the business to enable “operational people to make decisions at the appropriate level”.

Investors had expected Rentokil to sell parcels and conferencing, worth an estimated £600m (€892m), in order to focus on its contract cleaning and pest control businesses.

Mr McGowan said the group had considered breaking itself up and that it had received a lot of interest in the conferencing operation, with lesser interest shown in parcels.

But he added: “These two are good profitable, self-contained businesses. They don’t cause any trouble or divert management attention and selling them would just be a sideshow.”

However, Rentokil would continue with its strategy of divesting small, under-performing businesses, Mr McGowan added.

Shares in the group were down more than 5% or 8.5p to 144.5p in the first hour of trading.

While the group had decided not to make major disposals "for the time being'', Mr McGowan said acquisitions would be among five key areas of focus.

Acquisitions would be on the agenda of every management meeting and a senior mergers and acquisitions specialist would be appointed as group acquisitions director.

Other focus points would be devolving responsibility for decisions, appointment of a human resources director to motivate and incentivise the group’s 90,000-plus staff, accelerating IT development and better commercial exploitation of inventions and developments.

Mr McGowan said headhunters had been appointed and were well into the process of finding a new chief executive, but was unable to give a timescale for the appointment.

He said the new appointee would be expected regularly to monitor opportunities for divestments in conjunction with the board, but added: “I don’t envisage any new chief executive undertaking radical change to what we have today.”

The group confirmed a 10% rise in the full-year dividend to 6.71p, with a further 10% increase in 2005.