Investment: Rentokil misses target for first time in 13 years

RENTOKIL INITIAL, the business services group, yesterday failed to live up to its self-imposed growth target for the first time in 13 years when it reported an 18 per cent increase in earnings per share for the year to last December.

The rise falls just short of Rentokil's aim of raising its earnings per share by a fifth each year - a target the company had met so consistently it had earned Sir Clive Thompson, its chief executive, the nickname "Mr Twenty Per Cent".

Shares in Rentokil lost over 10 per cent of their value yesterday, dropping 48p to 400.75p. However, analysts said the fall was not the result of the company missing its target but was due to Rentokil reporting almost no turnover growth last year.

Sir Clive yesterday said the company had failed, even though an analysis of Rentokil's results showed that, allowing for exchange rate movements, the company's earnings per share had increased by 22 per cent.

Growth was also affected by the Asian crisis, with Rentokil's profits in the region falling 24 per cent last year. In the United States, profits increased by only 12 per cent after Rentokil decided to eliminate low- margin contracts and sell some of its resorts management division.

Sir Clive insisted that Rentokil would maintain 20 per cent earnings growth as a target, although it was unlikely to be met so consistently in the future. "If you achieve it 80 per cent of the time you're doing well," he said.

However, observers said Rentokil would have to concentrate on lifting its sales if it was to continue increasing its earnings. In the year to December, Rentokil's revenues increased by just 0.8 per cent to pounds 2.90bn. Even adjusting for exchange rate movements, the increase was no more than 3.4 per cent.

"If you buy into a company with no apparent turnover growth you're basically taking the future on trust from the management," one analyst said.

Sir Clive said Rentokil would seek to revive its top line growth by concentrating on sales and marketing. Meanwhile, the company is also investing in computer databases to make sure that it is selling a full range of services to all of its customers.

Sir Clive said that if the company could increase its turnover by 11 to 13 per cent a year it would have a good chance of hitting its target by making acquisitions and improving efficiency. "I've never seen a business that can't be improved and I include this business in that," he said. However, he suggested the company was unlikely to make another acquisition in the coming year because prices were too high.

For the time being, the City is taking Sir Clive at his word - brokers are forecasting pre-tax profits of around pounds 585m for the current year, which is an increase of 19 per cent. However, for Rentokil to justify its shares trading on a forward earnings multiple of 28, the company will have to start delivering turnover growth. That looks unlikely for the coming year, making the shares look high enough.

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