Rentokil’s woes continue as dividend cut by 70%

Last month, Rentokil Initial, the pest control-to-washroom services group, issued its fourth profit warning since December, which sent shares plummeting by 30%.

Today, it has reported that pre-tax profits for the half-year to 30 June fell by 55% to £39.3 million. In early trading today, shares fell more than 10% following the news.

Furthermore, the group said the interim dividend has been slashed to 0.65p a share, down from 2.13p which represents a fall of 70%.

According to chief executive, Alan Brown, slashing the dividend will save the company £100 million. This is not in the best interest of shareholders, continued Mr Brown, but maintained that the company should be given several years for improvements to be made.

The group is in the midst of a restructuring programme which will result in hundreds of job losses.

Mr Brown, who is former chief financial officer at Imperial Chemical Industries (ICI), did not divulge how many job cuts there will be but said that 500 have already gone out of 7000 at City Link while 300 of the courier’s 3000 vans are set to come off the road shortly.

According to Rentokil, improvements in the business are being slowed by challenging economic conditions. Furthermore, Mr Brown, said that it was unlikely there would be any improvement in profitability during the remainder of 2008.

Difficulties at its City Link parcels delivery meant former chief executive Doug Flynn and former chairman Brian McGowan were forced to step down. In March, the company’s problems continued after it was demoted from the FTSE 100.

At the end of the first quarter, City Link had overdue debts of £14 million. According to Mr Brown, this has been halved but there was still further progress to be made.

Mr Brown concluded by saying we’re still a profitable business but currently the level is unsatisfactory. The 5% operating margin should be back in the double digits in the long-term.

Story link: Rentokil’s woes continue as dividend cut by 70%