Rentokil Initial plc Q2 FY2024 earnings call

• The group had an overall encouraging performance with revenue up 4%, adjusted operating profit up 4.7%, and a margin of 16.5%. • In North America, the Pest Control business saw organic growth increase from 1% in Q1 to 1.5% in Q2 due to the Terminix It marketing campaign and RIGHT WAY 2 growth plan. • Around $21 million of the $25 million committed for North America growth initiatives was invested in brand marketing, lead generation, etc. • The termite integration made strong progress with the first branch integrations underway and $22 million of net cost synergies delivered in the first half. • The bolt-on M&A continued, with 23 acquisitions in the first half generating annualized revenues of GBP 81 million. • The group margin was underpinned by strategic initiatives such as densification, overhead optimization, etc.

Group revenue increased by 4% to GBP 2.8 billion, with organic growth of 2.8%. Europe, U.K., Asia, and Pacific regions all achieved organic growth ranging from 4% to 6%. North America business grew by 1.1%, with 1.3% organic growth in pest control services. Europe's revenue rose by 7% with 5.8% organic growth. Asia and MENAT regional revenues increased by 7.5% with 4.7% organic growth. The Pacific region's revenue grew by 10.4% with 4.1% organic growth. Group adjusted operating profit grew by 4.7% to GBP 455 million. The bolt-on M&A program created value, with 23 acquisitions in the first half generating annualized revenues of GBP 81 million. The leverage ratio of 2.8x was on track for deleveraging towards the target range of 2 - 2.5x.

• Terminix integration cost was expected to come in approximately GBP 10 million lower than previously guided. • The adjusted effective tax rate was expected to be in the range of 24% - 25%. • Anticipated spend on M&A was revised to between GBP 200 million and GBP 250 million. • FX guidance reflected the strengthening of the pound against the dollar, with a headwind of between GBP 30 million to GBP 40 million. • There was an expected net $15 million or about GBP 12 million revision to group adjusted operating profit in the full year due to additional growth investment in the second half.

• Rebuilding the growth engine in North America would take time, with potential volatility during the integration process. • Dependence on the continued success of marketing and lead generation initiatives, which might not always proceed as planned. • FX headwinds could impact performance if not offset by operational progress.

Q: Suhasini Varanasi from Goldman Sachs asked about why North America growth was lowered to the lower end of the 2% - 4% range and customer retention.

A: Andrew Ransom stated that growth was a math issue with progress expected in the second half, and on customer retention, aiming to reach 82% - 84% over time.

Q: Annelies Vermeulen from Morgan Stanley asked about marketing spend effectiveness and the product distribution business.

A: Andrew Ransom said there was a need to be smarter in spending, and the product distribution business was strong with no current plan to dispose of it.

Q: Allen Wells from Jefferies asked about confidence in the $25 million investment and pricing in the U.S. pest.

A: Andrew Ransom said confidence stemmed from seen progress, and pricing was holding up.

Q: Simona Sarli from Bank of America asked about Terminix challenges and Q2 performance.

A: Andrew Ransom discussed Terminix challenges and commercial performance.

Q: James Beard from Deutsche Bank asked about working capital and sales commission.

A: Stuart Ingall-Tombs and Andrew Ransom answered on working capital being a one-off issue and the proportion of sales colleagues on 100% commission contracts.

Q: Christopher Bamberry from Peel Hunt asked about M&A and pricing.

A: Andrew Ransom talked about the M&A range and pricing stability.

Q: Nicole Manion from UBS asked about colleague retention volatility and the branch strategy.

A: Andrew Ransom discussed colleague retention volatility and the branch strategy.

Q: Sylvia Barker from JPMorgan asked about organic dis-synergy, free cash flow, and Hygiene integration.

A: Andrew Ransom and Stuart Ingall-Tombs answered on organic dis-synergy, free cash flow, and Hygiene integration.

Q: James Rosenthal from Barclays asked about sales conversion and pricing review.

A: Stuart Ingall-Tombs and Andrew Ransom answered on sales conversion and pricing review.

Q: Online questions regarding the disposal of French Workwear, refi of the EUR 400 million notes, etc.

A: Andrew Ransom and Stuart Ingall-Tombs answered on related matters.