Rentokil makes strong start to acquisition-filled year

Pest control and hygiene group Rentokil Initial posted its first quarter trading update on Wednesday, with ongoing revenue rising 23.8% - or 10% at constant exchange rates - to £579m.

The FTSE 100 company said total revenue stood at £580m - an improvement of 22.9%, or 9.2% at constant exchange rates.

Of its ongoing revenue figure, Rentokil said 3.1% was organic revenue growth - improving from 2.8% year-on-year, and 6.9% was from acquisitions.

The company had announced a proposed transfer of its workwear and hygiene businesses in Germany and the Benelux to a joint venture with Haniel in December, and on WEdnesday it said it remained “on track” to complete by mid-year, subject to competition clearance.

Excluding those businesses transferring to the JV the organic revenue growth rate was 3.5%.

Pest Control grew by 19.1% - 5.6% organic revenue growth - while Hygiene revenues rose by 3.7% - 3.1% organic revenue growth.

Ongoing revenue growth in the company’s “emerging” and “growth” markets was described as “strong”, increasing by 24.5% and 12.6% respectively.

The company’s businesses in so-called “manage for value” markets delivered ongoing revenue growth of 2.5%, while those in the “protect and enhance” markets delivered in line with last year.

The board said there had been continuing strong performance in Asia, Pacific, Latin America, the UK and in Rentokil’s largest market, North America.

Europe delivered improved ongoing revenue growth in Q1, with revenues in France broadly flat year-on-year.

On the mergers and acquisitions side, Rentokil acquired 12 businesses in the year to date - 10 in Pest Control, one in Hygiene and one in Property Care, principally in “emerging” and “growth” markets.

Combined annualised revenues of the businesses acquired totalled £101.7m in the 12 months immediately prior to acquisition.

In February, the firm announced the acquisition of Atlanta-based pest control company Allgood Pest Solutions.

The business generated annualised revenues for the 12 months prior to acquisition of $26.6m.

Also, as previously announced, in March Rentokil completed the transaction to create a joint venture with PCI Pest Control, India's largest pest control company, which reportedly offers a “comprehensive” range of pest control services and products through its countrywide network.

Rentokil, which has management control of the JV, was integrating its Indian operations into the JV and the combined business has revenues of INR 4.5bn, will operate from around 250 locations and employ about 6,900 people.

On 11 April the company’s JV in the Kingdom of Saudi Arabia acquired Sames, the market leader in the commercial pest control sector in KSA with around 2,500 customers covering most major cities, making it the number one pest control company in KSA and the Gulf Cooperation Council countries.

The business generated revenues of £9m in the last 12 months prior to acquisition.

“We have made a good start to 2017,” said chief executive Andy Ransom.

“Pest Control has performed well across the regions and we remain encouraged by the progress we are continuing to deliver in Hygiene.

“We have been very active in M&A in the first three months of the year, reinforcing our strategy of acquiring high quality pest control and hygiene businesses in Emerging and Growth markets.”

Ransom said the board was “particularly pleased” with its JV with PCI in India, which was an “outstanding business” in a country with significant growth potential for commercial and residential pest control services.

“We are confident that the company will deliver a performance in line with expectations for 2017.”