Rentokil recovery may take 5 years

Rentokil Initial saw its profits halve in the first six months of the year, and admitted that the business could take five years to turn around.

One analyst said a rights issue was "a distinct possibility," and added that the market will worry that the group could breach banking covenants. The company has denied both claims.

Pre-tax profits for the first half fell from £88m in 2007 to £39.3m. Rentokil blamed market conditions, losses at its parcel delivery business and a deterioration of its UK washroom and textiles business. It added that a recovery "will take time".

Rentokil's shares plunged 6.1 per cent, or 4.5p, to 69.25p yesterday. They have been falling since December when Rentokil issued the first of four profit warnings, which prompted the resignation of the chairman and chief executive.

Rentokil's new chief executive, Alan Brown, said the company faced "massive issues" and said its turnaround plan would take between three and five years to complete. "We have a lot to do and will have to deliver it in increasingly difficult economic circumstances," he said.

Mike Murphy, analyst at Panmure Gordon, said: "The real issue for the group is how long will the recovery take and whether the banks will be supportive."

He floated the possibility of a rights issue and added that "the market is likely to worry about covenants" as the debt is due to be refinanced. Mr Brown replied: "It would be folly to rule out a rights issue, but it is not something I have so far considered," adding the bank was well above its covenants.

The group has slashed its dividend by 74 per cent to 1.95p this year. Analysts at Kaupthing said this indicates "management assessment of its financing problems and the required use of cash in the restructuring process".