Rentokil's shares drop 30 per cent on fourth profit alert

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The Independent Online

The new boss of Rentokil Initial said the performance of the rat catcher-to-cleaning services group could deteriorate further after it issued its fourth profits warning since December.

Alan Brown, who became chief executive in March from ICI, along with two other ICI directors, said: "They [the numbers] are not pretty, but it is par for the course. I have been in this situation three times before [at previous companies, such as Unilever] and things always get worse before they get better."

Shares in Rentokil dived 30 per cent after Rentokil Initial said it was reducing forecasts for profits before tax and amortisation for the current financial year to the end of December from £150m to £115m, as a result of its ongoing problems, However, Mr Brown added: "When you fix it, things always seem sweeter when you pull back from the precipice."

Asked about a five-year incentive plan which is based on hitting a £1.80 share-price target, Mr Brown said a complete turnaround of the business may take that long.

Mr Brown said he had no regrets about joining Rentokil and vowed to roll up his sleeves. "I am not someone who likes to get up late in the morning," he said.

Mr Brown, who was previously the ICI chief financial officer, pulled no punches in saying that the operational issues in a number of its businesses "originate from poorly executed restructuring or acquisition integration programmes initiated between 2005 and 2007".

In particular, he criticised Rentokil Initial's washroom services business for an over-centralised operating model, being under-resourced in driver numbers and poor customer service, although he said the pest control division suffered from similar problems, albeit to a lesser extent.

He said: "The biggest weakness is the lack of focus on customer service coupled with a lack of focus on operational excellence. We just lost site of our customers completely and we were just focused on financial targets in the UK washroom businesses." For instance, he said that some branches did not have a sufficient number of drivers to service customers adequately because of "budget constraints". Its washroom business provides services such as replenishing toilet seats and hand dryers at supermarkets.

Mr Brown said it "would be easy" to fix its problems through initiatives such as restoring responsibility to branch managers to serve customers better.

Rentokil's shares fell by 30.75p to 70.75p yesterday. Mr Brown said that Rentokil's flagship pest control business had been hit by a slowdown in orders resulting from the wet weather conditions. "Bee swarm [orders, for example] have been few and these have been affected by the weather," said Mr Brown.

However, he stressed that its pest control business had huge potential in global markets. "We have got tremendous opportunity in the developing market because of increased focus on hygiene." In particular, he said the growth potential in large developing cities was "fabulous". Rentokil provides pest control services in countries including India, Malaysia, Indonesia and Guyana.

Rentokil said that performance had improved at its struggling parcel delivery unit City Link, but said that sales had weakened as the quarter progressed, partly as a result of the economic downturn.