More gloom at Rentokil as dividend is ditched

Long-suffering investors in Rentokil, the Royal rat-catcher, suffered another blow today as it axed its final dividend and warned that profits are set to carry on falling for another three to six months.

The new former ICI management team led by chief executive Alan Brown, which was parachuted in almost a year ago after the ousting of Doug Flynn, is downbeat on the outlook for the support services business.

Brown said: "Market conditions are very tough. There is a degree of unpredictability that most of us have never seen before."

Profits halved last year falling to £108 million with almost all businesses including washrooms, pest control and the parcels service City Link showing a downturn.

City Link had the worst performance plunging from profits of £44.8 million to losses of £43.5 million. But Brown said he was pleased not only with the progress made in cutting costs with 1000 staff having left the delivery firm last year but also its improved performance over Christmas. However he does not expect any real financial improvement in the business until the final six months of this year.

"We still have a lot to do," he said. "We are still effectively running two networks following the 2007 takeover of Target Express. That might sound incredible but it takes time to integrate these things. It's happening and I'm certain we will have cut the number of depots from 100 at the year end to no more than 86 by the end of 2009."

He said more job cuts were inevitable but added: "These are high labour turnover businesses so, hopefully, most of it will be through natural wastage."

At the half-year stage Brown slashed the group's dividend from 2.13p to just 0.65p and said that he expected to pay a final dividend of 1.3p. That is no longer the case.

"Given the uncertain economic environment, cash generation has got to receive high priority," he said.

"Cutting the final dividend will save us about £24 million and I want to see similar savings from working capital and from capital expenditure."

He said Rentokil was in no danger of breaching its banking covenant and has "around £200 million headroom" in its banking facilities. "But in the current circumstances an extra £75 million of headroom is sensible," he added.

Rentokil's revenues actually rose by 9.4% last year to £2.4 billion, but a large part of this was due to the 14% strengthening of the euro during the year with some 80% of turnover coming from the eurozone.

Brown and his colleagues, chairman John McAdam and corporate development officer Andy Ransom, were given multi-million pound share-related reward packages when they came in last March.

They launched their three-year recovery plan last October and have a long way to go before they start to collect. The first tranche of the bonus scheme starts in March 2010 if the share price reaches and stays at 180p. For the biggest rewards it has to reach 280p.

But the shares have already halved since the trio arrived and today fell another 4p to 41p.