Rentokil: Ratcatcher poisoned by contract losses
Rentokil's facilities management arm is following the wrong growth strategy, say critics
Sunday 10 February 2013
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.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...