Rentokil Initial beats financial targets after record number of acquisitions
Rentokil Initial said its revenue, profit and cash was all in excess of medium-term financial targets in its final results on Thursday, with ongoing revenue up 13.2% to £2.455bn at constant currency, ongoing operating profit ahead 13.3% to £329.3m at constant exchange rates, and free cash flow standing at £192.0m with a 94% cash conversion rate.
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The FTSE 100 pest control and business services provider’s reported revenue was ahead 4.1% at constant currency, to £2.47bn, while its reported operating profit fell 15.1% at constant exchange rates to £245.5m.
Its adjusted profit before tax was 8.8% higher at £308m, although the firm made a reported loss before tax of £114.1m, thanks to the £341.6m non-cash cost of its pension settlement.
Adjusted earnings per share rose 8.6% to 13,07p, while reported losses per share were down 114.1% at losses of 5.35p.
The board confirmed a 15.2% rise in the full-year dividend per share, to 4.471p.
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Rentokil said it saw organic revenue growth of 3.7%, which was in line with its medium-term target of 3% to 4%, while ongoing revenue growth in pest control was 12.6%, reportedly driven by “strong innovation” and digital performance.
Ongoing revenue growth in Hygiene was 26.5%, which the board said reflected the acquisitions of CWS Italy and Cannon Hygiene.
Its operations in France returned to year-on-year profitable growth, up 2.9%.
Rentokil’s directors described 2018 as an “excellent year” for mergers and acquisitions, with 47 businesses acquired in ‘growth and emerging’ markets with combined annualised revenues of £170.0m, for cash spend of £298.4m.
Of those acquisitions, 42 were in pest control, four in hygiene and one was a small Ambius business.
Rentokil said the acquisitions continued to build density across its key markets, and deepen its expertise in new and high-growth areas, including vector control and fumigation.
On the subject of its pension settlement, Rentokil explained that a buy-in was secured on its UK pension scheme, in contemplation of a full buyout and wind-up of the scheme, which was expected to complete in 2020 with an estimated pre-tax cash surplus of between £20m and £40m.
The board recommended a final dividend of 3.16p, bringing the total dividend for 2018 to 4.471p, for the increase of 15.2%.
“We continue to execute our ‘Right Way’ plan to deliver revenue and profit growth and the business has performed very well in 2018,” said chief executive officer Andy Ransom.
“In pest control, our focus on innovation and digital technology to drive growth is working well and is a core strength of the business.
“Hygiene has performed strongly, not only aided by the very good acquisitions of CWS Italy and Cannon Hygiene but organically, with a delivery of 2.8% towards the top of our range of growth expectations.”
In addition, Ransom noted that 18 months ago the firm set itself the “ambitious objective” of returning its France business to year-on-year profitable growth, with it having achieved that in 2018.
“We have delivered a very strong year of mergers and acquisitions, with a record 47 high-quality acquisitions building scale and density and also enabling us to broaden our expertise in newer growth areas, such as vector control and fumigation.
“We have a very active pipeline of high quality prospects in place, so I am confident of another good year in 2019.”
Rentokil’s performance during the year was underpinned by “good progress” across its “people agenda”, which Ransom said had a particular focus on short-term retention.
“I am also delighted that we were able to secure a buy-in for our UK defined benefit pension scheme.
“This transaction is a fantastic outcome for our pensioners, the company and our shareholders.
“While many other companies will have to continue investing into their pension schemes for years to come, we can focus our future investments on delivering profitable growth.”
Ransom said 2018 was a “very good year” for Rentokil Initial, adding that he was “delighted” that it exceeded its medium-term financial targets for revenue, profit and cash.
“We are confident of delivering further progress in 2019 and anticipate a slight increase in market expectations for 2019.”