Rentokil Initial, the pest control to plant watering business, has said it will rely on acquisitions and “nimble” managers to restore growth as it unveiled a 10 per cent fall in interim profits.
The statement was ill-received in the City, where Rentokil stock slumped 7 per cent in early trade, wiping £180 million from the company’s stock market value.
The support services empire, which in May ousted its architect, Sir Clive Thompson, and began a strategic review, said that proposals to revive growth by spinning off businesses had not been backed by investors and staff.
The “overwhelming common theme” of a three-month consultation process had been a “concern at the operational issues of the group, not the make-up of the group”, Rentokil said, stating that it had “no immediate plans for [a] major break-up or major disposals”. The parcels and conferencing units, which had been rumoured as likely to be sold, were “highly profitable and relatively trouble free”.
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The company would instead focus on takeovers, with acquisitions to be placed on the agenda of every management meeting and an acquisitions director appointed. Takeovers were sought in particular in the hygiene and security markets.
Further reforms would include increasing transparency, cutting bureaucracy and empowering managers.
“New initiatives will devolve authority to the appropriate levels within the business, encouraging managers to be more nimble,” Rentokil said.
Brian McGowan, who succeeded Sir Clive as the Rentokil chairman and has taken on executive duties since the departure of James Wilde as chief executive last month, said: “The key to future growth is in getting the businesses working more effectively and more efficiently.”
However, many analysts disagreed with Deutsche Bank stating: “We see the outcome of the business review as very disappointing. It only covered softer issues such as changing the culture, and is simply the latest in a long line of reviews.”
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Magdalene Miller, an investment director at Standard Life Investments, a Rentokil shareholder, said: “It could be a long drawn-out saga before we see any turnaround in Rentokil’s operations.”
Rentokil also unveiled pre-tax profits of £180.4 million for the first six months of the year on turnover down 0.8 per cent to £1.21 billion.
The company revealed it had appointed consultants to review the UK hygiene business where operating profits slumped by nearly 40 per cent to £17.3 million. Options were being considered for the German hospital linen unit where profits fell by 23.7 per cent.
Barclays stockbrokers said: “With no new chief executive in sight, a deteriorating margin and speculation of a break-up weakening, we believe the stock will be weak in the short term.”
Rentokil shares stood 7.75p lower at 142.25p in afternoon trade.