Rentokil: Ratcatcher poisoned by contract losses

Rentokil's facilities management arm is following the wrong growth strategy, say critics

Pest control group Rentokil Initial is facing fresh concerns over the future of its facilities business, adding to longstanding issues at its troubled parcel delivery arm.

Sources within its facilities management operation, which ranges from fixing office lifts to hotel laundry, have raised questions about its strategy of buying up smaller businesses and merging them within the Rentokil Initial brand.

One insider said a number of contracts are at risk, and cited the potential loss of residential and office contracts with the property agent Knight Frank and lucrative work with the law firm CMS Cameron McKenna. One of the Knight Frank contracts is already known to have been terminated.

This side of the business, known as Initial, will have to re-pitch to work for CMS – a contract which is said to be valued at around £3m – while a contract with the health group UK Specialist Hospitals was raised as one where "relationships are strained".

Last month, an HSBC analyst Matthew Lloyd raised Rentokil's facilities business as a concern alongside its loss-making parcels business, City Link, in a note to clients. He said: "Rentokil has persistent problems elsewhere in the business, which consensus implicitly glosses over … It still loses too many textile and washroom contracts and suffers bouts of pricing pressure in contrast to more stable peers."

Mr Lloyd added: "High contract losses have been, and remain, our core concern. Rentokil is losing about 15 per cent of its contracted revenue portfolio on a third-quarter 2012 annualised basis.

"Such a high level of contract churn is not consistent with a turnaround story. Improvement in contract churn would be the single most important driver to margin improvement."

Rentokil has been growing its facilities management arm through a series of acquisitions, and last year bought Modus FM from Modus Group for around £5m. But sources have questioned the viability of merging such different businesses, and warned that some clients have been unhappy with services since the takeover.

The group, which is best known for pest control and was even hired to trap rats at the Beijing Olympics, also bought Coventry-based Phoenix Fire Services last May.

City Link has long been its worst-performing unit, and Rentokil had planned to offload it. But a proposed management buyout has run into financing difficulties.

With the growth of online shopping, Rentokil's chief executive, Alan Brown, had hoped the City Link parcels delivery business would break even by this year. Last year, the £90m-turnover business had begun to improve, and the City expected management to get backing to take it off Rentokil's hands this year.

Rentokil is expected to maintain at its results in March that its facilities business continues to grow. It reported sales up 5 per cent for the third quarter. But insiders warned that in spite of its profitability cracks are beginning to appear.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Life and Style
tech

Apple has been hit by complaints about the 1.1GB download

Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

PROMOTED VIDEO
Arts and Entertainment
Actor and director Zach Braff
tv

News
i100
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Arts and Entertainment
tv

News
i100
Arts and Entertainment
The former Doctor Who actor is to play a vicar is search of a wife
film

Matt Smith is set to join cast of the Jane Austen classic - with a twist

News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Lionel Messi in action for Barcelona
filmWhat makes the little man tick?
Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
Life and Style
i100

Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Property Underwriter

£70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week