Rentokil's new team takes axe to dividend

Alan Brown, chief executive, said: "We are on a three-to five-year journey to profit recovery. We have begun strongly but we have to develop a cost saving agenda.

"Cutting the dividend by 70% will save us £100million. We have already identified £25million of savings at City Link but we need more than that.

"Elsewhere we clearly have a lot of work to do with more structural changes. In particular, we spend 20% of revenues on administration which is clearly too high."

He would not be specific on future job cuts only saying that 500 have already gone out of 7000 at City Link and that another 300 of the courier's 3000 vans are set to come off the road soon.

City Link has been the Achilles' heel of Rentokil and cost former chief executive Doug Flynn and former chairman Brian McGowan their jobs last March.

Brown, the former finance director of ICI, was parachuted in as chief executive alongside former ICI colleagues John McAdam as chairman and Andy Ransom as head of business development.

The three are on a private-equity style incentive package and could share more than £100million if they get the share price up to 280p by March 2011. Today the shares fell more than 10% - crashing 7"p to 66p.

City Link lost £29.4million in the first half of the year and Brown said that while the business was "now back at the top of the class working at 98% capacity" it was likely to lose a similar amount in the second half.

That was by far the biggest dent in the group's profits, which slumped 55% in the six months to June to just £39.3million. Revenues rose by 4.8% to £1.12billion.

The dividend is slashed by 70% to 0.65p a share and analysts are assuming a similar cull at the final, which would result in a total payout for the year of only 2p a share compared with 5.25p a share last year.

Brown said that it was unlikely there would be any improvement in profitability during the rest of the year, with the UK washroom and pest control businesses and the European washroom operations all being hit by economic slowdown and more particularly the rising costs of energy and vehicle fuel.

Looking into 2009, he said, the bulk of any improvement would only come from recovery at City Link.

But Brown said that since June business in the UK parcels industry had fallen by nearly 12%, although City Link had not fared quite so badly as that.

The group was also likely to face a higher interest rate bill as it refinanced its maturing debt.

He also said it was too early to predict what the likely costs of restructuring and redundancies in the other businesses would be during 2009.