Rentokil trio closes in on £90m bonus

Boost to annual profits as turnaround team cuts costs and raises sales
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The Independent Online

Three executives brought in to rescue Rentokil Initial moved a step closer to a £90m payday yesterday as the support services group posted a strong increase in profits and the first in the black performance from its troubled City Link subsidiary for more than two years.

Alan Brown, chief executive, John McAdam, chairman, and Andy Ransom, executive director, who were hired as a team in March 2008 with a brief to turn ailing Rentokil around, stand to make more than £30m each if the company's shares hit a series of trigger price levels. Yesterday's results boosted Rentokil's share price by almost 10 per cent to 129.7p, well above the first trigger point of 120p.

Mr Brown said Rentokil's full-year profit had come in at £166.5m last year, a 54 per cent increase on 2008, with all of its most troublesome businesses "making strong progress". A surge in revenues was partially accounted for by the weak value of Sterling, and Rentokil is not paying a dividend in order to reduce its debt. However, it promised to make £75m of savings during 2010 to improve the bottom line.

Those savings will come on top of £82m of cost cuts made last year and the company warned it is expecting to make some job cuts, though these are likely to be confined to temporary staff in the parcels unit.

At City Link, the division most publicly blamed for Rentokil's problems, operating losses for the full year were reduced by 87 per cent to just £5.6m in 2009, and the parcels delivery service actually made a profit during the final quarter of the year for the first time since 2007.

Mr Brown said Rentokil's finances were now sufficiently robust for the company to begin thinking about making small acquisitions, though he also warned that the business currently expected to "see no easing in economic conditions across most of our markets this year".

Rentokil's appointment of Messrs McAdam, Brown and Ransom, raised eyebrows amongst corporate governance groups, with the bonus deal they were offered considered highly unusual. All three men, hired for their track record of having transformed chemicals business ICI, were set absolute share price performance targets, rather than being asked to outperform rival companies, or the stock market as a whole, which would be the more conventional arrangement.

In theory, all three men could receive their incentive payments in deal, just by virtue of having served the company during a period of rising stock market valuations.

Under the five year deal, some 7.5 million Rentokil shares have been earmarked for each of the executives, with tranches of the stock due to be handed over as the company's share price moves above certain thresholds.

The first of these targets, 120p, was breached yesterday, though the price has to average at least this level for a 60-day period in order for the Rentokil directors to qualify for their first distributions, worth 20 per cent of their total allocations. They would then be in line to receive the rest of the stock if Rentokil's share price hit 180p, and were it to rise to 280p, an additional 3.75 million shares would be handed over to each man.

Should all those targets be hit, the three men would have received stock worth £31.5m each, in addition to generous salary and bonus packages. Mr Brown was appointed on an annual salary of £775,000, as well as a bonus potentially worth as much again.

When the deals were awarded, however, Rentokil argued that the business was in a very vulnerable position, having seen its shares collapse to an all-time low of around 30p at the end of 2009 following two disastrous profits warnings. The shares were trading at 72p when the trio was appointed.

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