Rentokil warns European trading will still be tough in 2015

(Adds CEO and analyst comments, details)

By Li-mei Hoang

LONDON, Nov 7 (Reuters) - British services firm Rentokil Initial warned investors on Friday that trading would remain difficult in some of its European markets into 2015, weighing on profits despite improvements elsewhere.

Rentokil, which provides services ranging from cleaning to pest control, makes roughly half its profit in Europe, though that includes countries like Germany where it has seen growth.

The caution on Europe's tougher markets and weaker sales in the quarter sent its shares almost 4 percent lower on Friday, despite third quarter profit roughly in line with analyst expectations.

"I don't think Europe is going to get better anytime soon," Chief Executive Andy Ransom told Reuters.

"I think the shape that we are seeing in the third quarter, that will carry through into the fourth quarter and I suspect certainly into the first part of next year. I don't think anyone is brave enough to call a change in economic environment in Europe at this stage."

Ransom has spearheaded a major restructuring programme to improve Rentokil's performance, disposing of its facilities management arm and parcels delivery business. The group sold its Spanish medical business in the first half of the year.

He said on Friday that Rentokil would continue to make "good progress" and was also pressing ahead with acquisitions, with 5 deals done in the quarter. Ransom lifted his expected spend to 80 million pounds this year and 50 million pounds next year.

"M&A is absolutely part of the DNA of the organisation. We've got a very strong pipeline and we are hoping to close a few more deals in the fourth quarter," he said.

Rentokil said its adjusted third-quarter operating profit fell 4.1 percent to 62.6 million pounds. Excluding the impact of the strong pound and other exchange rate fluctuations, operating profit would have risen 4 percent.

Its revenues fell 3.4 percent at actual exchange rates.

Rentokil, which operates in more than 60 countries, said it estimated the impact of currency movements would be around 17 million pounds for the full year.

Shares (Berlin: DI6.BE - news) in the company were 3.6 percent lower at 118 pence at 1020 GMT, making it one of the heaviest losers on the FTSE 250 index.

"Rentokil has been hit by currency issues but the underlying performance, given its European exposure, is where it was expected to be," said Whitman Howard analyst Stephen Rawlinson. (1 US dollar = 0.6319 British pound) (Reporting by Li-mei Hoang; Editing by Clara Ferreira Marques)