Rentokil freezes dividend payout

Rentokil told investors that it is to freeze its dividend payout as the support services group reported a 17 per cent drop in underlying profits for 2005.

The company insisted that its recovery programme is "on track". It said that the second half of 2006 should produce underlying profit growth, for the first time in at least three years.

Doug Flynn, brought in as chief executive last year after a boardroom coup, said: "Revenues were always going to have to recover ahead of profits. These businesses need a little oxygen to get the tip-line moving."

For 2005, revenues grew 4.8 per cent to £2.3bn, including an 8.2 per cent rise in the fourth quarter. Pre-tax profit, before amortisation, fell to £252.9m, from £304.6m in 2004. Rentokil's operations range from pest control to cleaning services.

Mr Flynn said that a new top management team was in place, the company had changed its organisational structure and bought and sold a number of its businesses. The capital structure and its pension liabilities had also been addressed.

"While we anticipate the turnaround being a difficult process, there are some clear signs of progress. We expect to see improving revenue growth and contract retention in 2006, despite unhelpful trading conditions in our main markets," Mr Flynn said. He conceded that much remained to be done and that was why there was "unlikely" to be a dividend increase in 2006, after a 10 per cent rise in 2005.

"The business turnaround process has affected short-term performance. After 2006, we will have to see the recovery is well established before we raise dividends," Mr Flynn said. As well as "remedial action" at some of the individual business units,a company-wide effort was still needed on sales and marketing, customer service and IT, he said.

Mr Flynn said that he believed Rentokil's security guards business should be sold but the company's board had taken no final decision on the issue.