REG - Rentokil Initial PLC - Q3 Trading Update
19/10/2023 07:00
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RNS Number : 5926Q Rentokil Initial PLC 19 October 2023
19 October 2023
RENTOKIL INITIAL PLC - THIRD QUARTER TRADING UPDATE
Continued good progress on Group strategy and the integration of Terminix;
Softer consumer demand environment in North America, with broad-based strength
elsewhere
AER(1) CER
Q3 2023 Q3 2022 Change Q3 2023 Q3 2022 Change
£m £m £m £m
Revenue 1,382 901 53.3% 1,404 878 59.9%
Unless otherwise stated, financials relate to Q3 2023 and are stated at
constant exchange rates.
The Group delivered a good overall performance in the third quarter. Revenue
growth of 59.9% reflected the benefit of M&A including Terminix and
Organic Revenue(2) growth of 4.3%. We continued to successfully execute on our
pricing strategy to recover input cost inflation.
Regional Overview
In North America, Organic Revenue increased by 2.2%. Pest Control recorded
organic growth of 2.3% with the US products wholesale distribution business
down 2.5% in the quarter, reflecting lower demand for chemical products for
use in pest control and in turf and ornamental end markets. North America Pest
Control services for commercial, residential and termite customers delivered
organic growth of 2.7%. While customer retention rates remained resilient, new
residential customer acquisition was challenged by the macroeconomic backdrop
and a softer consumer demand environment. This was reflected in the
continuation of late Q2 trends in pest control digital search volumes
experienced that reduced lead flow. In the third quarter, our Employer of
Choice programme has delivered further improvement in North America colleague
retention, led by technician roles.
In other regions, which combine both growth and emerging markets, the Group
has driven a sustained strong performance, benefiting from its excellent
customer relationships, service quality and attractive structural growth
drivers, leading to Organic Revenue growth of:
● 9.5% in Europe (inc. Latin America), the Group's second largest region;
● 8.9% in Asia & MENAT;
● 7.6% in Pacific; and
● 5.2% in the UK and Sub-Saharan Africa, which despite persistent macro
headwinds strengthened on its H1 performance
Business Category Overview
At the business category level, Pest Control delivered a 3.8% increase in
Organic Revenue (Revenue +81.2%), with relative softness in North America
offset by broad-based strength elsewhere. Our Hygiene & Wellbeing
business, supported by continued good demand for washroom services, sustained
its momentum in the third quarter, with Organic Revenue up 5.7% (Revenue
+7.0%). France Workwear also enjoyed another strong period with Organic
Revenue up by 12.2% (Revenue +12.2%).
Terminix Integration and M&A
Delivery of the Terminix integration plan has progressed well in the third
quarter and the cost synergy programme is on track to meet full year guidance
of $60m of pre-tax net P&L synergies. In the period we completed several
important initiatives, including moving all of our 22,000 US colleagues onto
the same Human Capital Management and payroll system. We remain confident in
the significant benefits of the combination with Terminix and are on course
with our integration plans.
The Group has completed 31 bolt-on acquisitions in the nine months to the end
of September with annualised revenues of c.£86m. In the third quarter we
completed 7 deals - 6 in Pest Control and 1 in Hygiene & Wellbeing, with
annualised revenues of c.£7m. This includes highly targeted acquisitions to
support expansion in growth 'Cities of the Future', including those in
Indonesia, China and Brazil. We continue to execute on a substantial pipeline
of additional, high-quality opportunities.
Outlook
The Terminix integration programme continues apace and we remain firmly on
course to deliver our full year pre-tax net cost synergy guidance of $60m year
over year. In North America, we remain mindful of the macroeconomic backdrop.
Near-term market uncertainty means that the region's full year performance is
anticipated to be marginally below our previous expectations. Reflecting the
impact on revenue, we now anticipate regional Adjusted Operating Margin to be
in the range of 18.5%-19.0%.
Overall, we expect to achieve good growth in the Group in the remainder of
2023. We continue to believe that the benefit of our diversified portfolio and
strong H1 performance will enable us to deliver Group results broadly in line
with current expectations. Our sustained focus on managing inflationary
pressures means we remain on track to meet our full year guidance to grow
Group Adjusted Operating Margin to c.16.5%. This includes a H2 margin
performance in Hygiene & Wellbeing in excess of 19.0%, as set out at the
Interim announcement.
The Group remains strongly cash generative, supporting its effective reduction
in debt. We reiterate previous guidance to achieve c.3x net debt to EBITDA by
the end of the year.
Commenting on today's trading update, Andy Ransom, Chief Executive, said:
"The Group delivered a good overall performance in the third quarter. We have
a proven, effective strategy to deliver organic growth, focused on strong
customer relationships and service quality. In addition, the portfolio effect
of our global business operating in multiple markets enables us to weather
regional headwinds. The strong fundamentals of our operations are further
enhanced by our value-creating M&A programme, led by the integration of
Terminix. We are making good progress on the transformation journey and remain
confident about the significant value-enhancing benefits."
__________________________________________________________________________________
Enquiries
Investors / Analysts: Peter Russell, Rentokil Initial plc +44 7795 166506
Media: Malcolm Padley, Rentokil Initial plc +44 7788 978199
Notes
(1)AER - actual exchange rates; CER - constant 2022 exchange rates.
(2) Organic Revenue growth represents the growth in Revenue excluding the
effect of businesses acquired during the year and, unless stated otherwise,
excludes COVID disinfection. Acquired businesses are included in organic
measures in the year following acquisition, and the comparative period is
adjusted to include an estimated full year performance for growth calculations
(pro forma revenue). The Terminix acquisition is treated differently to other
acquisitions for Organic Revenue growth purposes. The full pre-acquisition
results of the Terminix business are included for the comparative period and
Organic Revenue growth is calculated as the growth in Revenue compared to the
comparative period. This differing treatment for Terminix will expire at the
end of 2023 when we will have full year Terminix comparatives. Organic growth
has no equivalent GAAP measure and is presented to help understand the element
of revenue growth that does not relate to acquisition activity.
This statement presents certain further non-GAAP measures, which should not be
viewed in isolation as alternatives to the equivalent IFRS measure, rather
they should be viewed as complements to, and read in conjunction with, the
equivalent IFRS measure. These include revenue and profit measures presented
at actual exchange rates ("AER" - GAAP) and constant full year 2022 exchange
rates ("CER" - Non-GAAP). Non-GAAP measures include Adjusted Operating Profit,
Adjusted Profit Before Tax, Adjusted Profit After Tax, Adjusted EBITDA,
Adjusted Interest, Free Cash Flow, Adjusted Free Cash Flow, Adjusted Cash Flow
(previously named Operating Cash Flow), and Diluted Adjusted Earnings Per
Share. Adjusted Operating Profit and Adjusted Profit Before Tax exclude
certain items that could distort the underlying trading performance. These
measures may not be calculated in the same way as similarly named measures
reported by other companies. Management believes that these measures provide
valuable additional information for users of Rentokil Initial's Financial
Statements in order to better understand the underlying trading performance in
the year from activities and businesses that will contribute to future
performance. Adjusted Operating Profit represents the performance of the
continuing operations of the Group (including acquisitions) and enables the
users of the accounts to focus on the performance of the businesses retained
by the Group, and that will therefore contribute to the future performance.
The Group's internal strategic planning process is also based on these
measures, and they are used for incentive purposes. Revenue and Adjusted
Operating Profit are presented at CER unless otherwise stated.
Summary of financial performance (at CER)
Regional Performance
Organic Revenue growth excluding disinfection Organic Revenue growth including disinfection
Revenue
Q3 2023 £m Q3 2022 £m Q3 Q3
Change 2023 2023
% % %
North America 870 402 116.5% 2.2% 2.2%
Pest Control 847 379 123.5% 2.3% 2.3%
Hygiene & Wellbeing 23 23 (0.7%) (0.1%) (0.7%)
Europe (inc LATAM) 274 241 13.9% 9.5% 8.8%
Pest Control 135 113 19.9% 9.2% 9.2%
Hygiene & Wellbeing 84 79 6.4% 8.2% 6.0%
France Workwear 55 49 12.2% 12.2% 12.2%
UK & Sub Saharan Africa 100 91 10.1% 5.2% 5.2%
Pest Control 50 47 6.5% 6.1% 6.1%
Hygiene & Wellbeing 50 44 13.8% 4.2% 4.2%
Asia & MENAT 91 82 10.2% 8.9% 6.9%
Pest Control 68 60 12.9% 10.4% 10.4%
Hygiene & Wellbeing 23 22 2.8% 4.5% (2.5%)
Pacific 66 57 14.6% 7.6% 7.6%
Pest Control 33 26 23.1% 8.6% 8.6%
Hygiene & Wellbeing 33 31 7.2% 6.8% 6.8%
Central 3 5 (44.4%) (44.4%) (44.4%)
Total at CER 1,404 878 59.9% 4.3% 4.0%
Total at AER 1,382 901 53.3%
Category Performance
Organic Revenue growth excluding disinfection Organic Revenue growth including disinfection
Revenue
Q3 2023 £m Q3 2022 £m Q3 Q3
Change 2023 2023
% % %
Pest Control 1,133 625 81.2% 3.8% 3.8%
Hygiene & Wellbeing 213 199 7.0% 5.7% 4.0%
France Workwear 55 49 12.2% 12.2% 12.2%
Central 3 5 (44.4%) (44.4%) (44.4%)
Total at CER 1,404 878 59.9% 4.3% 4.0%
Total at AER 1,382 901 53.3%
Summary of financial performance (at AER)
Regional Performance
Revenue
Q3 2023 £m Q3 2022 £m
Change
%
North America 861 418 105.6%
Pest Control 839 394 112.4%
Hygiene & Wellbeing 22 24 (6.4%)
Europe (inc LATAM) 273 243 12.3%
Pest Control 133 114 16.9%
Hygiene & Wellbeing 84 79 5.6%
France Workwear 56 50 12.6%
UK & Sub Saharan Africa 99 91 8.3%
Pest Control 49 47 4.7%
Hygiene & Wellbeing 50 44 12.1%
Asia & MENAT 85 86 (0.2%)
Pest Control 63 63 1.2%
Hygiene & Wellbeing 22 23 (4.0%)
Pacific 61 58 5.1%
Pest Control 30 27 12.9%
Hygiene & Wellbeing 31 31 (1.7%)
Central 3 5 (44.4%)
Total at CER 1,382 901 53.3%
Category Performance
Revenue
Q3 2023 £m Q3 2022 £m
Change
%
Pest Control 1,114 645 72.8%
Hygiene & Wellbeing 209 201 3.4%
France Workwear 56 50 12.6%
Central 3 5 (44.4%)
Total at CER 1,382 901 53.3%
Cautionary statement
In order to utilise the 'safe harbour' provisions of the U.S. Private
Securities Litigation Reform Act of 1995 (the "PSLRA") and the general
doctrine of cautionary statements, Rentokil Initial plc ("the Company") is
providing the following cautionary statement: This communication contains
forward-looking statements within the meaning of the PSLRA. Forward-looking
statements can sometimes, but not always, be identified by the use of
forward-looking terms such as "believes," "expects," "may," "will," "shall,"
"should," "would," "could," "potential," "seeks," "aims," "projects,"
"predicts," "is optimistic," "intends," "plans," "estimates," "targets,"
"anticipates," "continues" or other comparable terms or negatives of these
terms and include statements regarding Rentokil Initial's intentions, beliefs
or current expectations concerning, amongst other things, the results of
operations of the Company and its consolidated entities ("Rentokil Initial" or
"the Group"), financial condition, liquidity, prospects, growth, strategies
and the economic and business circumstances occurring from time to time in the
countries and markets in which Rentokil Initial operates. Forward-looking
statements are based upon current plans, estimates and expectations that are
subject to risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialise, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated or
anticipated by such forward-looking statements. The Company can give no
assurance that such plans, estimates or expectations will be achieved and
therefore, actual results may differ materially from any plans, estimates or
expectations in such forward-looking statements. Important factors that could
cause actual results to differ materially from such plans, estimates or
expectations include: the Group's ability to integrate acquisitions
successfully, or any unexpected costs or liabilities from the Group's
disposals; difficulties in integrating, streamlining and optimising the
Group's IT systems, processes and technologies; the availability of a suitably
skilled and qualified labour force to maintain the Group's business; the
Group's ability to attract, retain and develop key personnel to lead the
business; the impact of environmental, social and governance ("ESG") matters,
including those related to climate change and sustainability, on the Group's
business, reputation, results of operations, financial condition and/or
prospects; inflationary pressures, such as increases in wages, fuel prices and
other operating costs; supply chain issues, which may result in product
shortages or other disruptions to the Group's business; weakening general
economic conditions, including changes in the global job market or decreased
consumer confidence or spending levels; the Group's ability to implement its
business strategies successfully, including achieving its growth objectives;
the Group's ability to retain existing customers and attract new customers;
the highly competitive nature of the Group's industries; cybersecurity
breaches, attacks and other similar incidents; extraordinary events that
impact the Group's ability to service customers without interruption,
including a loss of its third-party distributors; the Group's ability to
protect its intellectual property and other proprietary rights that are
material to the Group's business; the Group's reliance on third parties,
including third-party vendors for business process outsourcing initiatives,
investment counterparties, and franchisees, and the risk of any termination or
disruption of such relationships or counterparty default or litigation;
failure to maintain effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act; any future impairment
charges, asset revaluations or downgrades; failure to comply with the many
laws and governmental regulations to which the Group is subject or the
implementation of any new or revised laws or regulations that alter the
environment in which the Group does business, as well as the costs to the
Group of complying with any such changes; termite damage claims and lawsuits
related thereto; the Group's ability to comply with safety, health and
environmental policies, laws and regulations, including laws pertaining to the
use of pesticides; any actual or perceived failure to comply with stringent,
complex and evolving laws, rules, regulations and standards, as well as
contractual obligations, relating to data privacy and security; changes in tax
laws and any unanticipated tax liabilities; adverse credit and financial
market events and conditions, which could, among other things, impede access
to or increase the cost of financing; the restrictions and limitations within
the agreements and instruments governing our indebtedness; a lowering or
withdrawal of the ratings, outlook or watch assigned to the Group's debt
securities by rating agencies; an increase in interest rates and the resulting
increase in the cost of servicing the Group's debt; and exchange rate
fluctuations and the impact on the Group's results or the foreign currency
value of the Company's ADSs and any dividends. The list of factors presented
here is representative and should not be considered to be a complete statement
of all potential risks and uncertainties. Unlisted factors may present
significant additional obstacles to the realisation of forward-looking
statements. The Company cautions you not to place undue reliance on any of
these forward-looking statements as they are not guarantees of future
performance or outcomes and that actual performance and outcomes, including,
without limitation, the Group's actual results of operations, financial
condition and liquidity, and the development of new markets or market segments
in which the Group operates, may differ materially from those made in or
suggested by the forward-looking statements contained in this communication.
Other than in accordance with the Company's legal or regulatory obligations
(including under the Listing Rules and the Disclosure Guidance and
Transparency Rules), the Company does not undertake any obligation to update
or revise publicly any forward-looking statement, whether as a result of new
information, future events or otherwise. Nothing in this announcement should
be construed as a profit forecast.
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