Rentokil Initial profits up for first half-year

30 July 2010

Rentokil Initial had a 39 per cent increase in adjusted profit before tax of £77m, a first half-year trading statement said.

Cost savings of £40m are running ahead of the £75m full-year target.

But there is a 2.3 per cent decline in revenue at AER, actual exchange rates, according to interim results for six months to 30 June, 2010.

Operating cash flow of stood at £69m (2009: £117m) representing 100 per cent cash conversion at AER.

Net debt was £1,044m (December 2009: £1,108m) while the pension fund deficit was £19m (December 2009: £64m).
 
“Customer retention is improving across the group, though much still to be done,” the statement said.

The speed of structural change across the group also was increased during the first six months.

“We have also announced the merger of our UK pest & washrooms businesses, building on the progress in turning around these operating units over the past 18 months,” Alan Brown, chief executive officer of Rentokil Initial, said.

“Significant progress is also being made on systems & process improvement. These changes are essential as trading conditions continue to be challenging in most of our markets, continental Europe in particular.”

Pricing pressures continued in a number of the markets but “our full-year expectations remain unchanged”, he said.

"We remain focused on our growth agenda, and whilst there is much still to do, we are making progress in laying the foundations for future profitable growth."

Central costs in the first half were nearly 15 per cent lower at £21.8m, a saving of £3.8m and “primarily due to lower premises costs following the exit of the London corporate head office last year and the non-repeat of central accruals made in the first half of 2009”.

Pest control revenue rose 1.1 per cent in the first half year, to £220m. “While East Africa and the Caribbean delivered good growth -- up 9.3 per cent -- more modest performances were recorded in North America, the UK, Europe and South Africa.”

Following excellent implementation of the six-point plan of recovery by management appointed in 2009, the turnaround of the UK pest control business continues. New contract sales rose 32.4 per cent and job work increased by 17.5 per cent.

Also in pest control, investment in service, systems and training of front line colleagues resulted in a 4.2 per cent year-on-year improvement in customer retention to 75.4 cent. Improving sales and retention combined with a focused cost saving agenda has delivered a 24.9 per cent improvement in profit on revenue up 2.8 cent.

In textiles and washroom services division, depressed market conditions impacted on growth, the statement said. “Sales of new contracts are taking longer to secure as customers exercise tighter control on cash and pricing pressure remains particularly sharp.” 
 
Revenue declined 1.7 per cent, held back by difficult trading conditions and competitive pressures in France and the Benelux. “The turnaround of the UK business continues and, while revenue fell, this was in line with plan and the rate of terminations is improving steadily.”   
 
But profit increased by 12.5 per cent, aided by strong performances from France, the UK, Spain, Italy and the Hygiene units and reflecting the impact of new management, robust cost control and delivery of restructuring plans.

 New business was 9.1 per cent down on the prior year reflecting tough pricing conditions and restructuring of our sales force in France. Customer retention fell from 75.1 per cent at June 2009 to 74.8 per cent, primarily due to France contract losses.   
 
Within express delivery and courier service City Link, the operating loss of £4.7m is £2.3m is lower than the corresponding loss of £7m in H1 2009 on revenue unchanged year on year. Second quarter revenue grew however by 1.8 per cent year on year.

“Though volumes rose 4 per cent, the market remains extremely competitive and price-cutting has continued across the industry in H1. Revenue per consignment weakened by 4.3 per cent on the prior year.”