Rentokil Initial posts strong start to year

The FTSE 250 business services group reported revenue from ongoing operations growth of 11.,8% during the quarter, of which 2.8% was organic and 9% was from acquisitions.

Its pest control division performed “strongly” during the period, growing 6.4%, while the hygiene business showed a continuation of the prior year’s trend, growing organically by 2.3%.

Growth in emerging markets and growth markets was particularly strong, the board noted, at 17.8% and 19.6% respectively, with the rate of revenue decline in the ‘manage for value’ and ‘protect and enhance’ markets lower than a year ago at 1%.

Rentokil Initial said the majority of its regions had a strong start to 2016, in particular North America Pest Control which grew by 54% - 6.4% of that organic - and the UK, Asia, Pacific and Latin America.

Conditions remained tough in Europe, and especially in France, with the region delivering “modest revenue growth” in the first quarter.

It was a busy three months for mergers and acquisitions, with the group acquiring 12 businesses in the quarter - nine in pest control and three in hygiene - all in emerging and growth markets.

Combined annual revenues of the businesses acquired totalled £13m in the 12 months immediately prior to acquisition.

"I am encouraged by our performance in the first three months of this year, in particular by the rate of organic growth in our North America Pest Control operations and the ongoing Steritech integration,” said Rentokil Initial chief executive Andy Ransom.

“We remain confident that the business will deliver a performance in line with our expectations for 2016."

Analysts at Peel Hunt were quick to comment on the results, pointing to the room for further potential growth that remains.

"There is potential to increase the organic rate of revenue growth from the 1.8% delivered in 2015 (as demonstrated by the 2.8% delivered in Q1) and to materially increase the margin (both on an underlying basis & through the cost synergies at the acquired Steritech)," it said.

"This should be further enhanced by the continued execution of Rentokil's M&A plans.