Rat catcher is still on the scent of growth – corporate profile of Rentokil Initial
RENTOKIL, rat catcher to the Queen, has a new boss. James Wilde has the difficult task of taking over the reins from Sir Clive Thompson, the famous “Mr 20 per cent” who delivered unprecedented growth levels at the company for most of his 20 years in charge.
Wilde’s task is not easy: Rentokil is the number one pest control business in the world and cleans more washrooms than any other group in the world. It also provides more education and training centres around the world than anyone else and supplies more tropical plants to the world’s workplaces than any other company. Some might say there is only one direction for the company to go from here.
Purley-born Wilde has been with Rentokil Initial for ten years, since his previous company was snapped up by Sir Clive’s acquisition wagon. He says his old boss is “just Clive” to him and no more daunting a predecessor than any other. To prove his point he has leapt straight into the job with both feet. He has arrived with a bang, sacking seven members of his senior management team and demoting his chief operating officer within two months of taking over.
In truth, he has effectively been running the show since he became chief executive-designate a year ago and the changes that have stamped his authority on the place were long planned. “When you’re not in charge you have opinions about how a place should be run. Now I can put those into practice,” he says.
As a result of his initial moves the company’s cumbersome seven divisions are now grouped into four more comprehensible sectors: hygiene, which includes pest control; security; facilities management, which includes tropical plants and conferencing; and parcels delivery.
Hygiene and security, he highlights. In a post-9/11 world, where governments and corporations are afraid of covert attack rather than outright warfare, Rentokil’s huge guarding and electronic security operations and hygiene services should be an easy sell.
Since the beginning of the year the group has been managed according to the type of work being done, rather than to geographical location, and the aim is to drive organic growth in these four main segments. However, some bolt-on acquisitions will occur, particularly in the hygiene and security sectors.
Wilde also promises a renewed focus on customer service and improved sales and service productivity from greater targeting. He believes the business needs to be more outward facing.
There is little that is radical here, and that seems appropriate for a company that has evolved from being a groundbreaking innovator, in the range of services it provides, to a name as familiar as some of the UK’s best retail brands.
The company’s strategy is to provide specialised services to small companies and bundled facility services to large firms through its two main brands Rentokil and Initial.
But will Wilde be able to win over the fund managers and analysts in the way that his predecessor did? The days of 20 per cent growth have long gone. Wilde watched them disappear in 1998, when Rentokil missed its target for only the second time in 17 years.
“Our aim is to grow broadly in line or to outperform the support services market, which is growing at 5 per cent a year,” Wilde says. That has been the company’s strategy since 1999, when the shares crashed and Wilde as business development director devised a strategy that saw 13 of Rentokil’s businesses sold and 48,000 employees cut from the payroll.
But margins in the sector are still under pressure, as competitors attack the blue-collar jobs in Rentokil’s portfolio. Wilde boasts that his operating margins are very strong and certainly the group operating margin — at nearly 19 per cent — is evidence that Rentokil knows its business. Behind that figure, however, there is a disparity in margins between sectors. If, as Wilde says, pest control is making 37 per cent, hygiene 28.3 per cent and conferencing 34.5 per cent, then some divisions are making single-digit returns. Not surprisingly, it is the most cyclical businesses — conferences and tropical plants — that have seen the most slippage in margins.
Another plank of the Rentokil strategy is its share buyback policy, started in 2000, which has seen the company buy one billion of its shares, 35 per cent of its share capital, for £1.8 billion. In the last calendar year Rentokil has spent £237 million on 92 million shares.
Rentokil will continue with these two strategies, using its strong cashflows to acquire suitable companies at the right price and buying its own shares in the market when the share price hits a trough.
Wilde says he will beef up the acquisitions team, for which he once worked, and hopes that he can pull off some deals. But natural acquisition targets are thin on the ground, so good a job of vacuuming them up has Sir Clive done. Certainly there are not likely to be any more deals on the scale of BET, which Rentokil bought in 1996 and which brought in the Initial brand.
Last year the company bought 12 companies, but this cost a total of just £34.5 million. Small beer for a company that generated free cashflows of £255 million last year. Nevertheless Wilde has his eye on a few companies he would love to own — at the right price.
Whether Wilde will be forced to make disposals remains to be seen. Analysts would like to see the most cyclical divisions sold, but Wilde is not yet convinced. While divisions such as tropical plants continue to generate cash, on good margins, he will stick with them. Rentokil is now a mature business — some would say a conglomerate — yet as long as it delivers growth at least in line with the market, it can probably retain its unfashionable status. But if those margins begin to slip significantly, Wilde may have to unpick what his old boss has sewn together.
