Britain's Rentokil Initial Plc, the subject of a take-over approach, said on Thursday it planned to keep the company largely intact after a strategic review as it posted a 20 percent fall in first-half profit. New Chief Executive Doug Flynn also said that while he did not expect an improvement in tough market conditions in the near future, "there are encouraging signs".
Flynn, who began the review when he joined in April, said: "Issues affecting the group are not that complex individually, but there are many of them. Management believes that the issues can be fixed, but it will take time."
Rentokil is to sell its small Initial Style Conferences unit by the end of the year and focus on its other businesses, ranging from rat-catching to hygiene and security, where it hopes profitable growth can be sustained.
"Few companies have so many pillars for growth," said Flynn, whose first results statement as CEO included a stinging attack on previous management for running the company on unrealistic budgets, with cost-cutting that destroyed service quality and led to lost contracts.
On Monday, businessman Gerry Robinson said he intended to make a bid approach via his company Raphoe Management Ltd to the board of Rentokil, whose shares had fallen around two-thirds from their highs of 1999.
A source familiar with the situation told Reuters there had been contact earlier this week both at board level and between the two companies' advisers, Europa Partners for Raphoe and UBS for Rentokil.
Rentokil would not comment on the approach, referring reporters to its statement on Monday, when it said it would consider "any proposal that Raphoe (Robinson's company) makes in the context of the value available to shareholders from the plans that the new executive team has for the company".
Rentokil made 135.4 million pounds ($243 million) profit before tax and exceptional items at constant 2004 average exchange rates in the six months to end-June.
It warned in May its performance this year would be weaker than in 2004, due to stiff competition and spending cuts by customers in an uncertain economic environment.
Rentokil shares, which underperformed their sector by 7 percent over the past 12 months, were flat at 162.25 pence at 1130 GMT, valuing the firm at 2.97 billion pounds.
Cazenove said that while Rentokil's results and strategy were much as it had expected, the tone of the statement was "quite strong and bullish".
Standard & Poor's said: "Although Rentokil's operating performance and margins remain under pressure as a result of the competitive market environment and internal operating inefficiencies, S&P expects that the decline has bottomed out."
In 2004, Rentokil ousted long-standing chairman Clive Thompson - known as "Mr 20 percent" for leading years of rapid growth - accusing him of focusing on short-term returns rather than the future of the business. CEO James Wild also left.
"The '20 percent' era ended in 1998. Our review has shown how the pressures, both internal and external, to meet expectations led to management prioritisation of very short-term goals. Prices were pushed to unsustainable levels. Costs were relentlessly taken out - often to the detriment of growing the business. Service quality was sacrificed," Flynn said.
Rentokil will book a one-off second-half charge of 10-15 million pounds relating to its reorganisation. Flynn said there would likely be a further charge in 2006.
The company's immediate focus will be pest control, washroom and textiles, which provide "the greatest opportunity to drive shareholder value", Flynn said.
Sources familiar with Gerry Robinson's intentions told Reuters any deal would leave existing Rentokil shareholders with at least 90 percent of the new firm, which Robinson would run.
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