Rentokil at four-month low after profits warning

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The Independent Online

Rentokil warned yesterday that its profits would fall next year, sending shares in the rat-catching to security firm down by more than 5 per cent to a four-month low.

Rentokil warned yesterday that its profits would fall next year, sending shares in the rat-catching to security firm down by more than 5 per cent to a four-month low.

The group's chairman, Brian McGowan, stood by his forecast of a £350m profit for the current year, before currency movements, but said that a further deterioration in trading results for the first half of 2005 meant that profits would be lower than that next year.

When Mr McGowan ousted Rentokil's long-standing chairman Sir Clive Thompson in May and took the reins of the group, he said that if profits next year did not beat £350m "we are all dead".

He admitted yesterday that the prediction had been made without a full and proper understanding of the business and the challenges it was facing. Rentokil is still searching for a new chief executive to replace James Wilde, who was ousted in July, and it disclosed yesterday that operating profits from continuing operations fell by 11 per cent in the first 10 months of the year to £332.5m.

In its trading update, Rentokil also announced plans to sell part of its UK hygiene division and said it was reviewing options for its loss-making hospital textiles business in Germany. Together, the two businesses have sales of about £70m, representing less than 3 per cent of total turnover.

Under its new chairman, Rentokil has increased its spending on staff and service levels with the aim of increasing sales at the expense of short-term profit margins.

Mr McGowan said: "We are certain we are taking the right actions to return the company to sustainable growth. There is, however, no single, easy, quick-fix solution."

He ruled out a break-up of the group, saying it would not achieve anything for shareholders. "If it made sense to do it we would have had some approaches, but I have not had a single one since May," he said.

Mr McGowan said that it "could well take some time" before the search for a new chief executive bore fruit. He said that at any one time there were "several live prospects on the go" but it was a bit like buying a house. "Until you have exchanged contracts, you haven't closed the deal."

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