Rentokil reports recovery signs

Rentokil Initial posted a 17% slump in profits today but insisted its turnaround strategy was on track.

The troubled pest control and hygiene firm said pre-tax profits fell from £304.6m (€446.7m) in 2004 to £252.9m (€370.9m) last year as it addressed “a set of deeply rooted problems” in its businesses.

But with revenues up nearly 5% to £2.29bn (€3.4bn), Rentokil said it was heading in the right direction and forecast profits to start rising again at the end of this year.

Rentokil's profits have been on the slide for two years and its share price has fallen from a high of 283p four years ago to 160p last night. The stock fell a further 2% today.

Long-standing chairman Clive Thompson was ousted in 2004 following a profits warning and a year ago Doug Flynn was appointed chief executive.

He pledged to concentrate the company on pest control and washrooms as these offered the best platform for growth. Pest control revenues were up 2.2% last year while washrooms improved 1.8%.

Mr Flynn said today’s results were “absolutely in line with where we expected to be”.

He added: “These businesses need some oxygen to get them moving again. We said that we were going to see revenues rise before we started to see profits flatten out and then start to rise again.

“We expect that 2006 is going to be flat but we also expect to see a rising profits trend in the second half of 2006 and we expect that will continue into 2007.”

But Mr Flynn added that market conditions in 2006 would be tough in Europe and would weaken in the UK. He also said there would be significant investment and one-off costs in the first half of the year, which would impact on results.

Last year Rentokil sold off its 29 UK conference centres to private investors for £325m (€476.6m) and announced plans for the possible sale of its security division Manned Guarding Arm. It also closed its loss-making UK linen and workwear business.

Mr Flynn said: “In 2005 we set out to determine the causes of the deep-set problems facing Rentokil and to develop a clear plan to address them. This has been done and the plan is now being implemented.”

Seymour Pierce analyst Kevin Lapwood said the results were in line with expectations.

“That being said, they were still pretty awful, although this has of course been reflected in the share price for some time. The good news is that the situation at Rentokil has not got any worse, and there are some signs that they are getting better.”