Securiguard acquisition fuels Rentokil advance: New division's performance in line with expectations

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RENTOKIL's hostile takeover of Securiguard last July helped the environmental services group's pre- tax profits to advance 35.6 per cent to pounds 147m in 1993, with turnover 35 per cent higher at pounds 600.3m. The dividend for the year rose from 2.31p to 2.85p.

The Securiguard acquisition raised City eyebrows because it has much lower margins than Rentokil's other businesses. Its 1993 operating margin was 5 per cent compared with a group average of 24 per cent.

Clive Thompson, group chief executive, said: 'The results at Securiguard are in line with our expectations when we bought it, but we will improve the margins steadily over the next few years.' Disposals of some Securiguard activities would be considered.

The group's most profitable areas were pest control, with operating profits of pounds 49.6m and turnover of pounds 169.2m last year, and healthcare services, which made pounds 55m on sales of pounds 189.4m. Turnover in tropical plant care rose 28 per cent to pounds 80.8m and made Rentokil operating profits of pounds 14.6m.

Nyren Scott-Malden, an analyst at BZW, said: 'The group has a good history of improving margins all round, and there is no sign of that changing. It has the lowest costs and can charge a premium price.'

Trading conditions were difficult on the Continent. The company said profits growth, at 21.4 per cent, was held back by the weakest economies, notably Germany.

US profits rose 56.2 per cent, with a good performance in tropical plants. Currency movements boosted both figures. The increases at constant exchange rates were 13.5 and 34.2 per cent respectively.

Results in Australia were 'disappointing'. Mr Thompson said Rentokil would make management changes to improve that business, which had not been well run. He described growth in other parts of the Asia-Pacific region as excellent.

He said: 'We see a continuation of strong growth. Even continental Europe looks better than in 1993.'

Rentokil, which spent pounds 102.6m on acquisitions last year, plans more - probably security businesses in the UK or elsewhere. Operations generated pounds 163.5m, and at the year-end the group had net cash of pounds 15.6m.

Analysts' forecasts for pre-tax profits of about pounds 180m in 1994 suggest that Rentokil will beat its target 20 per cent annual increase. The shares closed 7 1/2p lower at 248 1/2p.