Rentokil remains under pressure

Pest control-to-hygiene group Rentokil Initial today announced falling profits due to difficult trading and the cost of its business shake-up.

Rentokil said the year had begun largely as expected, with a 16.5% decline in profits in the four months to April 30 compared with the same period in 2004.

The group said it continued to face challenges from a difficult, price-competitive market, which were likely to continue into the second half.

It added that it was now feeling the full effect of significant increases in investment in sales, marketing, service, IT and personnel that the company began last May.

Rentokil chairman Brian McGowan and new chief executive Doug Flynn are hoping the investment will help to reverse the 25% fall in bottom-line profits to £297.8m (€433.3m) in 2004.

Last year, Rentokil announced the departure of long-time chairman Clive Thompson and chief exeutive James Wilde, who had only held the post for 18 months, after warning on profits.

Mr McGowan and Mr Flynn launched a review of the firm’s operations, but ruled out a full-scale break-up of its services group after Mr McGowan pinpointed the need to get businesses working more “efficiently and effectively”.

In a trading update ahead of today’s annual meeting, Mr McGowan said the benefits of the extra investment should start to come through progressively during the second half.

However, he said: “The board remains of the viw that the year as a whole is likely to give a weaker performance than in 2004.”

The group said its biggest division, hygiene, increased its turnover by 2.4%, but saw operating profits fall by 11.3%.

Turnover in its pest control division lifted by 3.2%, but operating profits fell 10.9%.

Its security division saw a similar performance, increasing turnover by 4.4% but seeing profits decline by 11.3%. Its facilities management operation witnessed falls in turnover and profits.

Rentokil said it was increasing its dividend by 10% to 7.38p per share.

Shares in the group fell 3% or 5.25p to 151p as analysts gave a lukewarm response to the figures.

Analyst Robert Morton at broker Investec advised investors to sell the stock and said he would be cutting his adjusted pre-tax profits forecast for this year to £315m (€458m) from £325m (€473m).

“We continue to believe it will take some considerable time to turn the business round,” he said.

Alan Mathews at Seymour Pierce said the update looked slightly worse than expected, but maintained his hold rating.