Rentokil in huge clearout as growth target abandoned

Click to follow
The Independent Online
RENTOKIL INITIAL formally abandoned its long-standing 20 per cent earnings growth target yesterday and said it was prepared to listen to offers for a quarter of its businesses.

The support services group, whose shares have plunged since it admitted earlier this year that it would miss its target, unveiled a new benchmark for its performance, though it failed to impress the City.

The revised goal is to substantially outperform the support services sector over the next five years by concentrating on its core activities. These will be hygiene, pest control, property services, security and transport.

Other divisions could be sold including plant hire, distribution, some personnel operations, and the timber preserving business on which the original Rentokil empire was founded.

Sir Clive Thompson, chief executive, said he was not putting the "for sale" sign over the divisions, which account for a quarter of group sales, but was now more open to disposals. He also said the group would review its options on a possible return of funds to shareholders but still had the firepower for a pounds 1bn acquisition. The shares shed a further 11p to 238.5p.

Sir Clive, who earned the nickname "Mr 20 per cent" for producing high returns for 14 consecutive years, said existing institutional shareholders had been keen for him to shed the earnings target. "But they wanted me to do it after they had sold the shares." He added that institutions which did not hold the stock had also wanted the target ditched so they could buy the shares more cheaply. "We are now able to satisfy both parties, " Sir Clive said.

Sir Clive, who is also president of the CBI, was speaking as Rentokil unveiled a 10 per cent increase in first half profits to pounds 253m. The main drag on the group was its lower margin activities such as public sector cleaning and catering where it has lost contracts buy pitching its prices too high. "We are now prepared to be more flexible on margins," Sir Clive said.

Other factors included little contribution from acquisitions and the crisis in Asia where recovery has been slower than the group expected.

To boost sales Rentokil is embarking on a new database marketing initiative designed to improve cross-selling opportunities. Rentokil has more than 400,000 client in the UK who purchase an average of only two of the company's services. It has created a unified database which will be rolled out in Britain in October with Europe and following next year.

Rentokil shocked the market in March with a profits increase of just 17.6 per cent, At its annual meeting in May it warned that profits would grow only 10 to 15 per cent at the half year. The warnings savaged the shares which hit a low of 222p in early August.

Profits and earnings growth in the second half are expected to be in line with those in the first, the company said with the new strategy assisting results next year.

Analysts said Rentokil was likely to seek a major acquisition to boost its performance. It has been linked with Compass, the catering group, and Williams, the fire and security services company. But they were disappointed with the figures which were at the lower end of expectations. "It will be a long haul back to favour," one said.

The businesses Rentokil may sell have combined sales of around pounds 300-pounds 400m. Sir Clive said they should fetch "several hundred million pounds."

Outlook, page 17

Comments