TIDMRTO
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
GBPm GBPm GBPm GBPm
--------- -------- -------- ------- -------- -------- -------
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.GBP86m. In the third quarter we completed 7 deals - 6 in Pest
Control and 1 in Hygiene & Wellbeing, with annualised revenues
of c.GBP7m. 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
Peter Russell, Rentokil
Investors / Analysts: Initial plc +44 7795 166506
Malcolm Padley, Rentokil
Media: 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 Organic
Revenue Revenue
growth growth
excluding including
Revenue disinfection disinfection
----------------------- ------------------------- -------------- --------------
Q3 Q3 Q3 Q3
2023 2022
GBPm GBPm
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 Organic
Revenue Revenue
growth growth
excluding including
Revenue disinfection disinfection
--------------------- ------------------------- -------------- --------------
Q3 Q3 Q3 Q3
2023 2022
GBPm GBPm
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 Q3
2023 2022 Change
GBPm GBPm %
----------------------- ------ ------ ---------
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 Q3
2023 2022 Change
GBPm GBPm %
--------------------- ------ ------ ---------
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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