Sparkling interim results announced by Rentokil Initial

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31 July 2019 saw the announcement of Rentokil Initial’s 2019 interim results for the first half of the year. In short, they were as ever, excellent. Revenue, profit and cash were all in excess of their medium-term targets.
Whilst the stark figures of the results can be downloaded and read in the published interim results report, a press conference to present this information, and also to brief the financial community, was held in the City of London with about 70 attending. This was also broadcast live as a webcast and made interesting listening.

Rather than just wading through the facts and figures in the written report, the tone and emphasis given by the presenters (Chief Executive Andy Ransom with Jeremy Townsend, Chief Financial Officer) proved much more revealing. As did the Q&A session which followed after the presentations.

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Andy Ransom
Andy Ransom,
Rentokil Initial Chief Executive

The results are presented here, but a more detailed report on the items discussed at the press conference wil be included within Pest 64: August & September 2019.

No news on the Mitie Pest Control Ltd sale
Sadly, especially for UK readers, not one word was uttered, nor question asked, regarding the situation of the sale of Mitie Pest Control Ltd to Rentokil and quite what the future holds with the Competitions and Markets Authority.

Excellent results – ahead of forecast
As for the results, revenue rose to £1,289.9m. This consisted of ongoing revenue up 8.8% and organic revenue up 4.2%. Andy Ransom commented: “This strong organic revenue growth of 4.2% equals the company’s highest growth rate in the first half for over a decade, despite the wet weather in North America in April & May.”

Ongoing operating profit was up 11.6% to £152.1m.

Pest Control, the lead sector in the Rentokil stable accounting for 64% of its group revenues at £818m and £135m profit, clocked-up a rate of ongoing revenue growth of 11.4% (4.8% organic growth) driven, as Andy Ransom explained, by strong innovation and digital performance.

Acquisitions continue
During this first half, the company acquired 17 businesses in total, 12 in pest control and five in hygiene with combined annualised revenues of c. £55m. Of these 12 pest control acquisitions, seven were in North America.

Andy revealed that £250m was earmarked for the full year for acquisitions. He explained that the company had a team of seven to eight global staff working on mergers and acquisitions saying: “We have huge experience in acquisitions and we adopt a very disciplined financial approach. We have a templated and systemised process we work to.”

It emerged in the subsequent Q&A session that although £250m was earmarked for acquisitions this was not going to be spent simply to spend it, nor was it the limit should the right business come along. Rentokil certainly seems to know which type of business they are after.

Andy explained to his audience that pest control is a non-cyclical, sustainable growth market which he estimates to be worth c. $20bn by the end of 2019, growing at c. 5%. Yet it is a highly fragmented industry, with an estimated 40,000 companies, 50% of which are in North America.

Rentokil’s presence is quite astounding, as Rentokil estimates it is the number one pest control company in over 50 of the 80 markets it operates in. He proudly declared: “Our powerful Rentokil brand is one of the world’s top 50 most valuable and recognisable brands.” (as identified in the Brand Finance Report 2017).

Obviously what these financial analysts heard today must have been well recieved, as Rentokil Inital shares were the second highest risers in the FTSE today.

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