Rentokil profits shrink 6 per cent

Rentokil Initial, the security and cleaning services group which was known for its 20 per cent earnings growth record until last year, yesterday reported a shrinking of profits for the first half of this year.

Rentokil Initial, the security and cleaning services group which was known for its 20 per cent earnings growth record until last year, yesterday reported a shrinking of profits for the first half of this year.

The company, which offers support services including pest control and office plants, missed City forecasts and said that operating profits in its core business fell by 6.3 per cent to £190m for the six months to 30 June. The performance of the on-going businesses was hit by increased marketing costs and the loss of contracts.

Sir Clive Thompson, the chief executive of Rentokil for the last 18 years, said: "We are taking a step back this year, in order to have the company in better, more resilient shape for the future. We are getting out of cyclical businesses."

Rentokil has sold nine non-core businesses, to raise £545m, mostly in the first half of this year. It said it was on target to raise £600m from disposals by the end of the year.

Geoff Allum, an analyst at Investec Henderson Crosthwaite, said: "These are very disappointing results. I think they will struggle to grow in the future too. If the market is as bad as they say it is, there could be another decline [in profits] next year."

The company announced it would introduce a home delivery service for e-tailers, to be launched on Friday. Rentokil has spent £20m to enable its City Link parcel delivery business to be upgraded, with new sorting facilities, IT systems and vehicles. E-tailers will be able to use City Link to handle the delivery of their products.

Rentokil was yesterday also forced to perform a strategic U-turn in its facilities management arm. It admitted that it would now offer "bundled contracts" - several services in one contract. Rentokil, which was last year forced to abandon its 20 per cent earnings growth target, said that profits for the second half of this year would be flat, at around the £227m achieved for the period last year.

Sir Clive said profit growth would be seen again from next year. Rentokil now has the more modest annual target of 8-15 per cent growth in the "medium term", defined by Sir Clive as three or four years. "Any decent management team should be able to deliver that, as there is nothing wrong with the businesses we now own," he said.

Rentokil, which has spent £1bn buying back shares this year, said it had another £1.5bn to spend on acquisitions and buybacks. Its shares closed up 0.25p at 161p yesterday.