Rentokil shares slide on new profits warning

Shares in Rentokil Initial fell nearly 5 per cent yesterday after the services group cut profit forecasts for its biggest business. The company said full-year profits at its textiles and washroom services division will be lower than expected due to tough trading conditions. However, it was keen to stress rivals were suffering from the same weak market conditions and that the setback was not the result of company-specific problems.

Rentokil, a pest control to linen-cleaning specialist, also posted first-half results. These revealed a 6.8 per cent drop in profits to £102m and were broadly in line with the expectations of City analysts. Operating profits at its textiles and washroom services business fell 18.8 per cent to £55.3m.

Doug Flynn, Rentokil's chief executive, said the company's other units, which include a parcel delivery service and tropical plant operation, would show improving profit trends during the second half of the year and predicted that the group would return to modest growth in 2007.

Robert Morton, an analyst at Investec Securities, was not so certain. He said: "We believe the long-awaited recovery in profitability is still some way off." He reiterated his "sell" rating on Rentokil's shares, which closed as the worst performers in the FTSE-100 index, down 7.5p to 152.3p.

Mr Flynn, who last year successfully fended off an attempt by the businessman Gerry Robinson to install himself as executive chairman, has initiated far-reaching reforms at Rentokil designed to streamline the group, grow its sales, and dispose of underperforming operations. In November, he offloaded the Initial Style Conferences business for £325m. This spring saw the sale of Rentokil's UK and Canadian guarding businesses for of total of £105m.

Rentokil yesterday also trumpeted an expansion into the Asia pacific region via the purchase of a washroom and dust mat business.