Alan Brown, the chief executive of Rentokil Initial, yesterday refused to rule out the possibility of the troubled company holding a rights issue.

Fears of a cash-call by the pest control-to-parcel delivery services conglomerate were raised by Mike Murphy, an analyst at Panmure Gordon, who said that the company might need to look for some equity financing to ensure it did not breach its banking covenants as profits fell.

Rentokil reported a 72 per cent fall in first-half pre-tax profit to £18.3 million, below the City's already downbeat expectations, and gave warning that the rate of losses would continue for the rest of the year.

The company slashed its interim dividend by nearly 70 per cent to 0.65p and said that the group's recovery would take the best part of five years. It also said it was likely to refinance its existing debt at higher interest rates, offsetting performance improvements.

Under the terms of the company's bank loans, its earnings must remain at a certain level. While its profits will be high enough this year to meet this requirement, if they fail to improve in 2009 and it is forced to pay higher interest rates as feared, it will come dangerously close to breaching the covenant, Mr Murphy said.

He described this breathing space, in light of weakening economies, as threadbare, and added that the chances of the company doing a rights issue were 50-50.

“There's an even chance of the company coming cap in hand to investors,” he said. “If economic conditions get tougher they'll be up against it and it'd be no surprise if in six months they need to ask investors for money.”

Mr Murphy predicted that if the company decided to hold a fundraising, it would seek to raise only about £200 million in order to shore up finances.

Analysts at Cazenove also believe the company will seek additional financing over the next 15 months - most likely through new banking facilities or a bond issue - and do not expect management to pursue an equity issue unless the situation gets much worse.

However, Mr Brown, who was appointed earlier this year to turn round the company, which is struggling with poor services levels and years of bad management, said he had not considered a cash call and that he felt it was an unlikely scenario.

“We should never say no [to a rights issue], but it has not been on my mind,” he said, noting that the company had ample headroom for the next few years.

Although the company had made a solid start with strong improvements in customer services over the past four months, he said that turning the group round was not an easy task and was likely to take up to five years.

Much hinges on the performance of City Link, its parcels business, which has struggled after the botched merger with Target Express, in the vital Christmas period. It hopes the bulk of any improvement in 2009 will come from the unit, which loses money.

Services levels across the group, which have cost the company business, have improved in recent months, but the deteriorating economic environment is hitting many of Rentokil's customers. This is particularly true in the parcels market, with City Link's sales 7 per cent below internal expectations over the past three months. The company also faces higher fuel and staffing costs.

Elsewhere, Rentokil said it was unlikely that profitability would improve this year in the UK in the textiles and washroom services business. The company also said it remained cautious about trading conditions across its central European operations.

This latest downbeat assessment of the company's fortunes, after four profit warnings since December, sent the shares down 4.5p to 69.25p.

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