Rentokil warns on turnaround as profits fall

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The Independent Online

The ratcatching to washroom hygiene specialist Rentokil Initial unveiled a sharp fall in quarterly profits yesterday and underlined that it will do no better this year than last.

Pre-tax profits tumbled almost 19 per cent to £50.4m in the three months to the end of March, as the company faced lacklustre demand across Europe and battled a legacy of under-investment. Doug Flynn, Rentokil's chief executive since April last year, said: "The economic environment in some of our major markets remains unhelpful. We continue to believe that we will not achieve growth in full-year adjusted profit before tax before 2007. We've got a lot to do and the turnaround will take time."

However, sales grew by 9.5 per cent to £535.1m and Mr Flynn, who also saw off a bid from Sir Gerry Robinson last year, reassured investors that they should expect the second half of the year to be better. Contract losses have slowed after investment in new computer systems, marketing and staff training, Mr Flynn said.

That buoyed the shares, which have fallen 4.7 per cent this year while the FTSE 100 has risen by 7.5 per cent. They gained 3.75p to 157.75p yesterday, valuing the company at £2.9bn.

Some analysts, including Robert Morton at Investec Securities, were encouraged but others remained cautious. Andrew Darke, at Williams de Broë, said: "It's still a long hard slog. There's not a huge amount of recovery." He is advising clients to sell the shares.

In August, Mr Flynn began his plan to revive Rentokil's fortunes. He sold its British and Canadian manned security businesses in March and their Belgian equivalent last month. In November, its Initial Style Conferences business was sold. Talks continue over a possible sale of its American security arm. "We continue to be in some level of discussion on that business," Mr Flynnsaid. "From that, we will determine whether we ultimately proceed to sell the [security] business or not."

In December, Rentokil became the first FTSE 100 company to freeze its final-salary pension scheme for existing members. The following month, it axed about 1,700 jobs.