Rentokil Initial plc (LON:RTO) has provided the following update on current trading and the outlook for FY 24.
· North America Organic Revenue growth now anticipated to be c.1% in H2 24
· North America operating profit also being impacted by higher sales, service and other costs
· FY 24 North America Adjusted Operating Profit margin* now anticipated to be c.17.2% and Group Adjusted Operating Profit margin* to be c.15.5%
· Rest of Group continues to perform well
· At current exchange rates, additional FY 24 currency headwind of c.£10m
· FY 24 Group Adjusted PBTA now expected to be c.£700m
*Presented at constant exchange rates
North America organic growth
While we saw some positive momentum in North America sales activity at the end of the second quarter, the trading performance in July and August was lower than anticipated. There has also been some modest disruption to organic growth from branch integration. We now expect H2 24 Organic Revenue growth in North America of c.1%.
The estimated drop through impact of the revised North America growth expectation on FY 24 Adjusted Operating Profit is c.£20m.
North America operations
To position Rentokil to deliver our planned growth through the peak season, both sales and service resource was expanded. As a result of lower than expected lead flow and sales growth, the operation was over-resourced in both sales and service. Increased weekend working to drive additional revenue also resulted in an increase in overtime expenditure. In addition, spend on materials and consumables is higher than expected.
The aggregate impact of these cost items on FY 24 Group Adjusted Operating Profit is anticipated to be c.£50m.
Foreign currency
Since the Interim Results, Sterling has strengthened against the US Dollar, and hyper-inflation has eased in a number of markets. If rates remain at current levels to year end, this will result in an additional headwind of c.£10m to FY 24 Adjusted PBTA.
Right Way 2 Plan
Our immediate focus is on the Right Way 2 plan to improve revenue growth, through increased lead flow, sales conversion and customer retention. We are taking decisive action to mitigate the cost over-runs as we exit the peak season, managing inventory more effectively, managing technician workload and overtime, and will right-size labour resources for the volume opportunity.
We continue to believe in the fundamental strength of the North America business. The substantial structural growth opportunities, enhanced by the benefits of the Terminix transaction, means the value creation opportunity remains intact, albeit taking longer to realise than anticipated.
Conference Call details
Today, 11 September at 8:00 am BST, Rentokil Initial Chief Executive, Andy Ransom and Chief Financial Officer, Stuart Ingall-Tombs will host a 30‐minute conference call for analysts and investors. There will be an additional conference call for US audiences at 1:00 pm BST. A replay will be made available on the Company website.
For the 8:00 am call
To join via teleconference use conference ID 82879 with one of the dial-in options below. An audio webcast will be accessible at https://events.q4inc.com/attendee/377474167.
For the 1:00 pm call
To join via teleconference use conference ID 43099 with one of the dial-in options below. An audio webcast will be accessible at https://events.q4inc.com/attendee/749955350.
UK: +44 20 3481 4247
France: +33 1 73 02 31 36
Germany: +49 69 589964217
Sweden: +46 8 505 246 90
Singapore: +65 3159 1234
USA: +1 (646) 307 1963
Additional international access conference numbers can be found at https://registrations.events/directory/international/itfs.html
Rentokil Initial will announce third quarter results for the period ended 30 September 2024 on 17 October 2024.
