News on 23 November 2000
In a statement which appears to stand conventional FM thinking on its head, Rentokil Initial says that what it calls 'bundled' services are under more price pressure than its 'focus' or specialised services.
The company says this is because the specialised and 'niche specialised services', which make up its Focus range are bought predominantly for quality rather than price. Bundled services are "high volume, commodity purchases where price is the primary consideration leading to the wide usage of competitive tendering."
The comments come in its update for the second half of this year which reports trading in line with market expectations. The company says that the rate of growth of turnover in core activities will improve, with profits from these core activities comparable to the second half of last year representing a strong improvement in profits over the first half.
Rentokil says that its two business streams – Focus and Bundling – can co-exist at opposite ends of the business services markets: "Focus services are primarily purchased by small and medium sized enterprises (SMEs) and typically represent 85% of the business services market. Facilities management services are usually purchased by large organisations and represent some 15% of the business services market.
Focus services represented some 77% of Rentokil Initial's core turnover and 91% of core profits for the half year.
Comparisons of FM turnover for the second half of this year with 1999 continue to be adversely affected by the loss of three large contracts towards the end of last year. However, says the company, contracts with a value in excess of £117m and an annualised value of £34m have been won, including those for Railtrack, Littlewoods, Gala Clubs and education catering for six local authorities.
Rentokil says that its facilities management business, building on strong UK cleaning, catering and hospital service contracts, will provide a solid foundation for the development of a new multi-service proposition.
However, margins remain under pressure in the facilities management sector in general and the company anticipates that as turnover increases margins will reduce in line with this trend.
