REG - Rentokil Initial PLC - Q3 Trading Update

Rentokil InitialAnnouncement

17/10/2024 07:00

For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20241017:nRSQ5046Ia&default-theme=true

RNS Number : 5046I  Rentokil Initial PLC  17 October 2024

 

 

17 October 2024

 

RENTOKIL INITIAL PLC - THIRD QUARTER TRADING UPDATE

 

Rentokil Initial plc ("the Group"), today issues a Trading Update for the
three months of the 2024 financial year covering the period 1 July 2024 to 30
September 2024.

 

 

           AER(1)                    CER
           Q3 2024  Q3 2023  Change  Q3 2024  Q3 2023  Change

           £m       £m               £m       £m

 Revenue   1,382    1,382    0.0%    1,444    1,394    3.6%

 

Unless otherwise stated, financials relate to Q3 2024 and are stated at
constant exchange rates.

 

·    Group Revenue growth of 3.6% with Organic Revenue growth of 2.6%,
including continued strength in Europe, UK and Asia

·    North America Organic Revenue growth of 1.4% and North America Pest
Control Organic Revenue growth of 1.4%

·    Action plans to increase North America organic growth and rebalance
the cost base have been strengthened since the September Trading Update

·    The Terminix integration continues to go well. After a busy period in
Q4 when we will be piloting new pay plans and new satellite branches, there
will be a review early in the New Year to assess elements of the programme,
delaying the timing of synergy delivery by about 2 to 3 months while the
review is completed

·    FY 24 revenue and margin guidance unchanged

·    BBB (stable) rating reaffirmed by Fitch Ratings. Year-end leverage
expected to be unchanged at 2.8x

 

Andy Ransom, Chief Executive of Rentokil Initial plc, said:

 "The Group delivered Organic Revenue growth of 2.6% in Q3, with strength in
the International business(2). In North America, we recognise the business has
underperformed and we are focused on delivering the operational improvements
required. We are expanding our initiatives to increase organic growth and we
are taking action to mitigate cost overruns.

 

"The Terminix integration continues to progress well and we have a full
programme of activity for the remainder of 2024. In the New Year, we will
review the early results of new Q4 integration activities, including the
piloting of new satellite branches, and new technician and sales pay plans, in
addition to assessing the effectiveness of our expanded growth initiatives.
Post integration, we remain strongly optimistic that our business will lead a
highly resilient, growing market."

 

North America Business

Q3 Performance

·    Organic Revenue growth was 1.4% (1.3% year to date). Both Pest
Control and Pest Control Services for residential, termite and commercial
customers were up 1.4%.

·    North America customer retention slightly increased in the period to
79.9%. Our pricing activities continued to be successful in passing cost
inflation to our customers.

·    After disappointing inbound digital lead flow in July and August,
lead volume markedly improved in the second half of September. This was offset
throughout Q3 by a slightly lower sales close rate and average dollar value
for these leads.

·    North America colleague retention increased further to 78.5% (30 June
2024: 77.8%), with improvement in both sales roles (up 0.4ppts to 70.6%) and
service roles (up 1ppt to 75.3%).

·    The North American leadership team has been strengthened, with a new
Chief Marketing Officer and Chief Operating Officer appointed. The North
America Chief Financial Officer left the business and the role is being
covered on an interim basis by a senior finance colleague from within the
Group, pending the appointment of a full time successor.

 

Growth Initiatives

We are implementing our Right Way 2 plan to increase organic growth. We
continue to enhance our sales and marketing approach, and are giving greater
focus to customer retention as another important element to unlocking growth.

·    Organic search leads. Whilst we have seen a recent positive
improvement in digital inbound lead flow, this is coming from our paid search
activities supporting the Terminix brand in particular. In Q4, we are looking
to deliver improved leads for a number of our other important brands, while
also increasing lead generation from our organic search initiatives.

·    Satellite branches. From Q4 2024, we will be piloting the opening of
at least 10 new satellite branches in key metro areas, to assess the value of
a physical presence to the visibility and digital presence of our brands and
services.

·    High performance culture. There will be increased focus and
accountability on executing the selling "basics": speeding up response times
to the leads that we generate ("speed to lead"), improving the likelihood of
conversion; increasing the average number of sales proposals per day;
increasing managers' engagement with sellers; and driving increased sales
forecast accountability.

·    Customer experience and retention. We're driving continued
improvements at all phases of the customer experience, from onboarding to
renewal, supported by an analytics upgrade to gain better insights into
behavioural data. We are adding three senior leaders in the customer
experience space, in addition to the 40 team members that have been added to
the dedicated Customer Saves team.

 

Cost Base

 

As stated at our September Trading Update, we expanded resources in the North
America business ahead of the peak season to deliver our planned growth. With
lower volumes than planned, the business has been faced with the challenge of
lower density that will continue until organic growth improves. Given our
elevated workforce costs this year, we have more tightly managed overtime and
labour as we entered the off season. Since the September Trading Update there
has been a reduction in our sales, service and G&A headcount of c.250
(c.$22m of annualised cost), in addition to normal ongoing seasonal headcount
adjustments.

 

Material and consumable costs in the North America business have been higher
than expected, partly due to inflation. There was also an impact from a new
ordering process for Terminix branches and a weaker termite season that
resulted in elevated inventory. To help mitigate some of these effects, strict
ordering controls at Branch Manager and Regional Director levels have now been
implemented. Some additional cost due to inflation is expected to persist
(c.$7m on an annualised basis). C.$10m of material and consumable costs are
expected to unwind during Q4 2024 and next year.

 

Terminix Integration

The integration programme proceeded to plan in Q3. Systems and data were
migrated for another 28 branches with combined revenues of $136m (a total to
the end of Q3 of 36 branches with revenue of $172m). At these locations, there
was minimal disruption to operations, with customer retention stable and
colleague retention remaining strong. We also migrated Terminix National
Account customers to the common systems platform, ensuring consistent service
delivery and streamlined account management for our key customers. Lessons
learned from migrations have been incorporated into our Integration Playbook,
designed to ensure continuous improvement and efficient execution of future
migrations.

We are now in a very busy and important period for the integration. Systems
migration will continue for approximately 23 more branches with a total
revenue of c.$130m. For the first time we also commence rerouting and piloting
of our new sales and service pay plans, to initially cover 8 branches
encompassing over 250 technicians and about 40 sales colleagues. As we embark
on this phase, we take confidence from our rigorous planning and the Group's
extensive experience of branch integration.

 

This past year our company has experienced significant change activities as we
have implemented our integration and Right Way 2 Growth strategies. While we
remain confident that these strategies will lead to a stronger, faster growing
organisation, during Q1 2025 we will review our optimal branch network
footprint, which will be informed by the early results of the new satellite
branches that will be opened during Q4 2024. We will also review the
effectiveness of the new technician and sales pay plans. The review will
result in 2025 synergies being pushed out by approximately 2 to 3 months and
we will update the market on this review at the Preliminary Results in
March.

 

North American Pest Control Market

The North American pest control market, representing around half of the global
market for pest control services, remains an extremely important and exciting
market, which we estimate continues to grow at around 4.8% p.a. (CAGR 2024 -
2028)(3). Whilst focused on the integration of Terminix and Right Way 2 growth
plan, we remain strongly optimistic that post integration our business will
lead a highly resilient, growth market.

 

Regional and Category Performance

Good momentum in Organic Revenue growth was sustained in Q3 in the Group's
other regions:

International business (Group excluding North America): +4.4% (+5.0% year to
date)

·    Europe inc. LATAM: +4.7% (+5.4% year to date)

·    UK & Sub Saharan Africa: +4.2% (+4.8% year to date)

·    Asia & MENAT: +6.5%  (+5.4% year to date)

·    Pacific: +0.6% (+2.9% year to date). Our rural pest control was
impacted by adverse weather and there was deferral of jobs in track spray weed
control operations

Organic Revenue growth across all categories:

·    Pest Control +2.2% (+2.2% year to date)

·    Hygiene & Wellbeing +2.9% (+3.9% year to date). Good underlying
performance in the UK and Europe, held back by Australia, which lapped strong
prior year comparatives, and the non-repeat of credit note releases in the UK
in the prior-year

·    France Workwear +7.4% (+7.5% year to date), delivering another strong
quarter

 

M&A

·    The Group's bolt-on M&A programme continued to create value with
5 deals, delivering annualised revenue in the year before acquisition of
£39m. M&A spend for the full year is now expected to be c.£200m.

 

Balance Sheet

·    BBB (stable) rating reaffirmed by Fitch Ratings, which post-dates and
reflects the information provided in the September Trading Update. The Company
is also BBB (stable) rated by S&P Global.

 

Board

·    As previously announced, Mr Brian Baldwin, the Head of Research of
Trian Fund Management, L.P., has joined the Board as a Non-Executive Director.

·    The Board has also started the process to appoint at least one
further Non-Executive Director with specific experience in US network-based
services industries and/or business-to-consumer digital marketing.

 

Outlook

·    There is no change to the 2024 guidance provided at the September
Trading Update. Whilst we see opportunities for organic performance to improve
in H2 2024, our North America guidance for the period remains c.1%. FY 2024
North America Adjusted Operating Profit margin is anticipated to be c.17.2%
and Group Adjusted Operating Profit margin to be c.15.5%. FY 2024 Group
Adjusted PBTA is expected to be c.£700m.

·    The Group's Net Debt to EBITDA leverage is expected to be unchanged
at c.2.8x at year end.

·    FY 2025 profit and margin will be affected by the timing of synergy
delivery, expected to be pushed out by approximately 2 to 3 months as a result
of the Q1 2025 integration review period.

·    The Board remains confident in the Group's strategy and longer-term
growth prospects. Notwithstanding the near-term headwinds, the long-term
market opportunity remains attractive and we are confident that Rentokil
Initial is very well positioned to capture this growth.

 

Conference call details

Today, 17 October at 9:00 am BST, Rentokil Initial Chief Executive, Andy
Ransom and Chief Financial Officer, Stuart Ingall-Tombs will host a conference
call for analysts and investors. There will be an additional conference call
for US audiences at 1:00 pm BST. A replay will be made available on the
Company website.

 

For the 9:00 am call: To join via teleconference use conference ID 6018644
with one of the dial-in options below. An audio webcast is accessible at
https://events.q4inc.com/attendee/316615478
(https://events.q4inc.com/attendee/316615478) .

 

For the 1:00 pm call: To join via teleconference use conference ID 9089361
with one of the dial-in options below. An audio webcast is accessible
at https://events.q4inc.com/attendee/761600364
(https://events.q4inc.com/attendee/761600364) .

 

UK: +44 20 3481 4247

France: +33 1 73 02 31 36

Germany: +49 69 589964217

Sweden: +46 8 505 246 90

Singapore: +65 3159 1234

USA: +1 (646) 307 1963

 

Additional international access conference numbers can be found at
https://registrations.events/directory/international/itfs.html

 

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 2023 exchange rates

(2)Group excluding North America and centrally managed supply chain revenue

(3)Speciality Consultants, 2024

Summary of financial performance (at CER)

 

Regional Performance

                                                                  Organic Revenue growth

                               Revenue
                               Q3 2024 £m   Q3 2023 £m            Q3

                                                         Change   2024

                                                         %        %

 North America                 875          868          0.8%     1.4%
    Pest Control               851          846          0.6%     1.4%
    Hygiene & Wellbeing        24           22           7.9%     3.4%

 Europe (inc LATAM)            293          275          6.6%     4.7%
    Pest Control               141          134          5.8%     3.9%
    Hygiene & Wellbeing        91           85           7.4%     4.1%
    France Workwear            61           56           7.4%     7.4%

 UK & Sub Saharan Africa       112          99           12.6%    4.2%
    Pest Control               53           49           6.5%     6.5%
    Hygiene & Wellbeing        59           50           18.7%    2.0%

 Asia & MENAT                  95           86           9.9%     6.5%
    Pest Control               72           64           12.1%    7.6%
    Hygiene & Wellbeing        23           22           3.7%     3.6%

 Pacific                       66           63           6.1%     0.6%
    Pest Control               33           31           7.9%     0.7%
    Hygiene & Wellbeing        33           32           4.5%     0.4%

 International                 566          523          8.2%     4.4%
    Pest Control               299          278          7.6%     4.8%
    Hygiene & Wellbeing        206          189          9.4%     2.8%
    France Workwear            61           56           7.4%     7.4%

 Central                       3            3            18.5%    18.5%
 Total at CER                  1,444        1,394        3.6%     2.6%
 Total at AER                  1,382        1,382        0.0%

 

 

 

 

 

Category Performance

                                                             Organic Revenue growth

                          Revenue
                          Q3 2024 £m   Q3 2023 £m            Q3

                                                    Change   2024

                                                    %        %

 Pest Control             1,150        1,124        2.3%     2.2%
 Hygiene & Wellbeing      230          211          9.3%     2.9%
 France Workwear          61           56           7.4%     7.4%
 Central                  3            3            18.5%    18.5%
 Total at CER             1,444        1,394        3.6%     2.6%
 Total at AER             1,382        1,382        0.0%

 

 

 

 

 

Summary of financial performance (at AER)

 

Regional Performance

                               Revenue
                               Q3 2024 £m   Q3 2023 £m

                                                         Change

                                                         %

 North America                 834          861          (3.2%)
    Pest Control               811          839          (3.3%)
    Hygiene & Wellbeing        23           22           3.5%

 Europe (inc LATAM)            281          273          3.0%
    Pest Control               135          133          1.3%
    Hygiene & Wellbeing        87           84           4.3%
    France Workwear            59           56           4.9%

 UK & Sub Saharan Africa       111          99           12.4%
    Pest Control               52           49           6.2%
    Hygiene & Wellbeing        59           50           18.6%

 Asia & MENAT                  89           85           5.0%
    Pest Control               67           63           6.5%
    Hygiene & Wellbeing        22           22           0.6%

 Pacific                       64           61           4.3%
    Pest Control               32           30           6.0%
    Hygiene & Wellbeing        32           31           2.7%

 International                 545          518          5.3%
    Pest Control               286          275          3.9%
    Hygiene & Wellbeing        200          187          7.4%
    France Workwear            59           56           4.9%

 Central                       3            3            18.5%
 Total at AER                  1,382        1,382        0.0%

 

 

 

Category Performance

                          Revenue
                          Q3 2024 £m   Q3 2023 £m

                                                    Change

                                                    %

 Pest Control             1,097        1,114        (1.6%)
 Hygiene & Wellbeing      223          209          7.0%
 France Workwear          59           56           4.9%
 Central                  3            3            18.5%
 Total at AER             1,382        1,382        0.0%

 

 

Cautionary statement

 

In order, among other things, 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 Group's ability to
attract, retain and develop key personnel to lead the Group's business; the
availability of a suitably skilled and qualified labour force to maintain the
Group's business; cyber security breaches, attacks and other similar
incidents, as well as disruptions or failures in the Group's IT systems or
data security procedures and those of its third-party service providers;
inflationary pressures, such as increases in wages, fuel prices and other
operating costs; weakening general economic conditions, including changes in
the global job market, or decreased consumer confidence or spending levels
especially as they may affect demand from the Group's customers; 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; extraordinary events that impact the Group's ability to service
customers without interruption, including a loss of its third-party
distributors; 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; supply chain issues, which may result in product shortages
or other disruptions to the Group's business; 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; 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 and associated impacts on the termite provision; 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 in many jurisdictions, as well as contractual
obligations, including data privacy and security; the identification of a
material weakness in the Group's internal control over financial reporting
within the meaning of Section 404 of the Sarbanes-Oxley Act; 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.
Except as required by law, Rentokil Initial assumes no obligation to update or
revise the information contained herein, which speaks only as of the date
hereof. The Company makes no guarantee that trends in the management of
termite damage claims will continue. Additionally, the Company makes no
guarantee that its operational improvement plans will mitigate against or
reduce the number of termite damage claims (litigated and non-litigated)
against the Company nor that these plans will reduce the ongoing cost to
resolve such claims. Additional information concerning these and other factors
can be found in Rentokil Initial's filings with the U.S. Securities and
Exchange Commission ("SEC"), which may be obtained free of charge at the SEC's
website, http:// www.sec.gov, and Rentokil Initial's Annual Reports, which may
be obtained free of charge from the Rentokil Initial website,
https://www.rentokil-initial.com No statement in this announcement is intended
to be a profit forecast and no statement in this announcement should be
interpreted to mean that earnings per share of Rentokil Initial for the
current or future financial years would necessarily match or exceed the
historical published earnings per share of Rentokil Initial. This
communication presents certain non-IFRS 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 measures presented at
actual exchange rates ("AER" - IFRS) and constant full year 2023 exchange
rates ("CER" - Non-IFRS). Non-IFRS measures presented also include Organic
Revenue Growth, One-off and adjusting items, Adjusted Operating Profit and
Adjusted PBTA. The Group's internal strategic planning process is also based
on these measures, and they are used for incentive purposes. These measures
may not be calculated in the same way as similarly named measures reported by
other companies.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTMZMMGRVFGDZM