Expansion-hungry Rentokil Initial pleased with first half

The FTSE 100 pest control and hygiene firm said its ongoing operating profit was up 13.1% to £134.5m.

It said ongoing organic revenue growth of 3.0% was in line with its financial targets, but was impacted by continued disruption to its pest control services in Puerto Rico, and an unseasonably cold March and April in North America.

Adjusting for Puerto Rico, group organic growth was 3.4%.

Pest control revenue was up 13.0%, or 4.0% on an organic and 4.7% organically when excluding Puerto Rico, which was said to be driven by “strong innovation and digital performance, as the board noted was recognised by the Queen's Award for Enterprise in innovation.

Hygiene revenue was 30.8% higher, or 2.1% on an organic, which was reportedly reflective of the acquisitions of CWS Italy and Cannon Hygiene.

On a statutory basis, revenue was down 1.8% to £1.17bn, and profit before tax fell 81.3% to £109.5m.

Rentokil Initial said it saw an “encouraging” performance in France, which returned to profitable growth in the first half, and was “well placed” to deliver full-year profitable growth by the end of 2018.

Free cash flow was £73.0m at actual exchange rates, which was a £4.9m increase on the first half of 2017, representing 91% cash conversion over the last 12 months.

The company continued its “strong” execution of mergers and acquisitions, with 23 businesses acquired with combined annualised revenues of £117.3m.

Cash spend on current and prior year mergers and acquisitions was £164.9m, with the company making 20 pest control acquisitions and three in hygiene.

Eight of those pest control acquisitions were made in North America, with combined annualised revenues of around £27m, and 12 other pest control acquisitions made in emerging and growth markets including in Brazil and Costa Rica.

The acquisition of Cannon Hygiene was made in the first half, with annualised revenues of £77m across nine countries.

Rentokil Initial said all operations were performing well, with the Cannon UK business continuing to be run separately from the UK Initial business, pending an ongoing review by the Competition and Markets Authority.

The board said its mergers and acquisitions pipeline was “strong” for the second half, as it remained on track to spend £200m to £250m for the year, funded by cash held on the balance sheet.

Rentokil Initial declared a 15.0% increase in its interim dividend to 1.311p per share, and left its guidance for the full year unchanged.

“I am pleased with our performance in the first half, with revenue, profit and cash all in excess of our medium-term targets,” said chief executive officer Andy Ransom.

“Pest control has performed well, despite a late start to the pest season in North America.

“Encouragingly, our Europe region has continued to improve, with France returning to profitable growth after three years of decline.”

Ransom said merger and acquisition activity was again “strong” in the period, noting the 20 pest control companies acquired in growth and emerging markets, and the three “high quality” hygiene acquisitions.

“We continue to see a full pipeline of value-enhancing acquisition opportunities going forward.

“As a result of our performance in the first half, our guidance for the full year is unchanged.”