Rentokil still planning February dividend after bumper third quarter

Rentokil Initial said it performed “very well” in the third quarter on Thursday, growing group ongoing revenue by 9.8% to £764.7m, due to “exceptional growth” in hygiene from continued high demand for disinfection services, and a return to growth in pest control.

Ongoing Revenue in pest control was ahead 1.3% in the third quarter, compared to a decline of 5.9% in the second quarter, while hygiene grew by 53.3%, compared to 16.3% in the second quarter.

Excluding revenue from disinfection, Rentokil’s core hygiene operations delivered a “significant improvement” on the prior quarter, declining by 1.0% versus a decline of 19.7% in the second quarter.

Rentokil said that, while ongoing revenue in its protect and enhance category declined by 11.7% in the quarter, that was a marked improvement on a decline of 27.3% in the second quarter.

The overall improvement in category performance was partly attributed to a 20% reduction from April in the number of customer premises that were suspended during the crisis, and unable to receive regular service provision.

Its France workwear, Ambius and property care businesses remained more significantly impacted than pest control and hygiene due to continuing disruption to workwear customers, in particular those in the hotels, restaurants and catering sector, and the more discretionary nature of Ambius services.

Since restarting its merger and acquisition activities at the beginning of third quarter, the company has completed six acquisitions - five in pest control - in North America, Latin America, Pacific and the rest of world geographies, with combined annualised revenues of around £27m in the year prior to purchase.

Rentokil said it has built a “substantial” pipeline for the fourth quarter and into 2021, and remained confident in its target spend of at least £100m in the second half.

In its interim results, Rentokil said the momentum it had seen in the second quarter, and the continued progress it hoped to make in the second half, meant that it expected to announce a dividend payment in relation to 2020 at the preliminary results in February.

Given the strength of its performance in the third quarter and its confidence for the fourth quarter, Rentokil reiterated that guidance on Thursday.

“The company performed very strongly in the third quarter and today's results further demonstrate the resilience of our pest control and hygiene businesses across the world,” said chief executive officer Andy Ransom.

“We have consistently delivered year-on-year revenue growth each month since the declines in April and May during the peak of the crisis.

“This performance has been achieved through a combination of a return to more regular levels of service provision across our categories, continued high demand for one-time disinfection services and the benefit of acquisitions made in 2019.”

Ransom said it remained “impossible” to predict the future development of the Covid-19 pandemic, saying it could have a direct impact on its trading performance, including resurgence of global cases of, new and continued coronavirus restrictions, potential customer insolvencies and bad debt, as well as indirectly, depending how demand for services was impacted by the economic consequences of the pandemic.

“In addition, we anticipate demand for disinfection services will reduce as businesses return to more normal trading conditions and as service frequencies potentially decrease.

“Notwithstanding the above, we are hopeful that the momentum in our core customer base will be maintained through the fourth quarter and this, together with our performance in the third quarter, means we currently expect the outcome for the full year to be at least in line with expectations.”

At 0855 BST, shares in Rentokil Initial were up 2.51% at 530p.