Rentokil disappoints with 25% fall

RENTOKIL chairman Brian McGowan today said critics could label his controversial turnaround strategy at the business a flop if there were still no signs of a much needed recovery by the summer.

Speaking as the hygiene-to-pest control group unveiled a bleak set of annual figures - with pre-tax profits down as expected by 25% to £297.8m - McGowan asked to be judged on the coming 'year of transition' when the benefits of his changes should begin to show.

The former senior non-executive has put £35m of costs into Rentokil since booting out former chairman Sir Clive Thompson in a boardroom coup last May, most of it spent bringing in 'hundreds' of new sales and marketing staff.

A new chief executive, Doug Flynn, joins from Aegis in April to replace former boss James Wilde, pushed out three months after Thompson.

McGowan said: 'By the time we get to August and the interims, if you've not seen any signs of improvement then you have to question the strategy.

'If you say to me what have I done, I've put the profits down. But I've put in costs for the right reasons, short-term pain for longterm gain. If I hadn't done this the business would have drifted down and down in a spiral.'

McGowan reiterated previous guidance that Rentokil's half-year profits are likely to be just as gloomy as today's annual figures. He said there had been 'no noticeable improvement' in short-term trading and Rentokil's ability to hang on to new business. Underlying pre-tax profits in the 12 months to December - excluding one-off costs - were £347.2m, about the level forecast in the City. Turnover edged up by £1m to £2.43bn.

Operating profits at the core hygiene services division fell by more than 16% to £170m.

On taking over, McGowan blamed Thompson, the self-styled Mr 20%, for under-investing in the business and concentrating on short-term goals. He rejected calls for the sale of the conferences and parcels delivery arms, but admits Flynn may have his own ideas. 'We are building a platform for Doug Flynn to take this business forward,' he said.

Another looming problem could be the pensions deficit. This has widened by about £50m to £184m, and Rentokil conceded its cash contributions would probably have to go up again in 2006 after a £3m increase to £10m this year.

The group put the bigger deficit down to increased life expectancy and bond yield movements.

Shareholders will bag a dividend of 6.71p, an increase of 10%. McGowan is lifting this year's and next year's payout by 10% to bring Rentokil closer in line with its rivals.