Outlook: Sir Clive's glory days may be over

SOMEHOW, Mr Ten Per Cent does not have quite the same ring to it. Moreover, it brackets Sir Clive Thompson with that breed of commission men who make their living off the talents of others, be they footballers, film stars or for that matter writers.

Sir Clive's famous pledge to grow earnings at a compound rate of 20 per cent has always been the sort of hurdle that Rentokil Initial would eventually knock over rather than vault gracefully. Twice in Sir Clive's 17 years at the helm his pest control business has failed to jump high enough, unlike the fleas that it famously zaps. The most recent occasion was 1998, when the strength of the pound and the Asian meltdown conspired to limit profit growth to 17.6 per cent.

Suddenly that sort of underperformance is beginning to look suspiciously like a trend. Sir Clive has taken a look at those pesky trading figures for the first quarter of this year and reckons that Rentokil's profits will only increase by 10-15 per cent at best. It is important to get this into perspective. There are plenty of chief executives who would sell their grannies for earnings growth of that magnitude in these days of low inflation or, in some markets, outright deflation.

The market treated yesterday's news savagely, which is hardly surprising for a stock that has traded for years on its record. In fairness to Sir Clive, he was the first to put his hands up and admit that Rentokil had failed miserably to manage expectations in the City.

Are we witnessing the first signs of a deeper rot within this finely tuned empire? The suspicion is that Rentokil has been masking a steady decline in its organic growth with a stream of acquisitions. Three years on from the pounds 2.2bn BET takeover, Rentokil has run out of cost-saving, the catalyst of earnings growth. Moreover, Sir Clive has discovered that leveraging sales can be a slow job. Just because a customer bought hand towels from BET, he is not necessarily going to buy potted plants or a damp course from Rentokil.

It may be that even Sir Clive's legendary management skills are not up to the task of generating further organic growth from the mature markets in which he operates. The obvious temptation in those circumstances is for Sir Clive to buy more time with another blockbuster deal. Rentokil's cash flow provides him with enough firepower. But then again, the market would see straight through any such ruse. It may be that Sir Clive's glory days are indeed behind him.

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