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Nov 8, 2007
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Olympics clean-up helps keep Rentokil on track

By
Reuters
Published
Nov 8, 2007

By Mark Potter

LONDON (Reuters) - Services group Rentokil Initial posted a 21 percent rise in third-quarter underlying profit and said its recovery was on track, helped by a contract to clean up Beijing ahead of next year's Olympic Games.

The firm, whose businesses range from rat catching to tropical plant hire, said on Thursday profit before tax from continuing operations reached 59.1 million pounds in the three months to September 30, before goodwill and at constant exchange rates.

Growth was driven by its courier and facilities services units, as well as its Asia-Pacific operations, where its pest control business is the preferred supplier for the "Clean Beijing" campaign ahead of next year's Olympic Games.

"The business in Beijing is mostly around crawling and flying insects," Chief Executive Doug Flynn told reporters, adding there was a particular problem with German cockroaches. "If you had an apartment in Beijing, trust me you'd notice it."

Rentokil has been battling stiff competition over the past few years and has sold its electronic security, guarding and conferences units to focus on more profitable businesses such as its biggest, textiles and washroom services.

It has also been restructuring by, for example, setting up a shared service centre for its various operations and closing some of its parcel depots.

"The company is not the finished article, but today's results demonstrate tangible progress towards the group's objective of delivering sustainable profits growth," Flynn said on a conference call.

SHARES FALL

Rentokil shares, which had outperformed the support services sector this year by 8 percent at Wednesday's close, were down 2.4 percent at 165 pence by 10:15 a.m., while the market as a whole .FTAS was down 0.7 percent.

"We believe the shares are now looking expensive for this stage of the economic cycle," analysts at brokerage Panmure said in a note, cutting their rating on the stock to "sell" from "hold."

"The rest of the support services sector is enjoying secular growth with little impact from GDP movements. Rentokil is more sensitive to the economic cycle and ... we see greater growth elsewhere in the sector."

Rentokil reiterated its forecast for 2007 underlying profit to be broadly in line with last year's 209 million pounds, and for 2008 underlying profit to grow by a mid-to-high single digit percentage.

The firm said it had spent 173 million pounds on 86 acquisitions so far this year and Flynn told reporters this rate of dealmaking was likely to continue.

"It wouldn't be unreasonable to expect us to continue in 2008 at roughly the rate we're at now," he said.

Acquisitions were likely to be focused in the Asia-Pacific region and the European and North American pest control business, while a deal in textile and washroom services -- which would probably be larger -- was also possible, Flynn said.

However, the firm had probably finished a flurry of deals for its parcels business, he added.

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