Rentokil Initial plc Q4 FY2024 earnings call

Key operational highlights included progress in the North America branch systems integration, with 58 branches migrated in the second half of 2024, bringing the total number of North American branches on Best of Breed systems to over 250. The integration of Terminix is planned to be complete by the end of 2025. The company focused on improving colleague and customer retention, with colleague retention up 2.4% and customer retention up 50 basis points. Marketing efforts were accelerated with a focus on owned, earned, and paid execution. Satellite branches were opened, with 22 in operation and an expectation of over 500 locations in the end-state branch network. A multi-brand strategy was implemented, retaining 9 regional brands. Financially, the group had an adjusted operating profit of GBP 860 million, down 7.1%, and free cash flow of GBP 410 million.

In 2024, Rentokil Initial reported group revenue of GBP 5.6 billion, a 3.9% increase with organic growth at 2.8%. Statutory revenue was GBP 5.4 billion, up 1.1%. The International business saw strong growth with revenue up 8.2% and organic revenue at 4.7%, with Pest Control organic growth at 5.3%. The International Pest Control and Hygiene businesses had revenue of GBP 2 billion, an 8.3% increase with 86% customer retention. The North American business grew by 1.3%, including the disposal of the Paragon distribution business, with organic growth at 1.5%. Adjusted operating profit for the North American business was GBP 573 million, down 7%. For the Pest Control category, global revenue was GBP 4.4 billion, with total growth of 2.9% and organic growth of 2.5%. The Hygiene & Wellbeing category had revenue growth of 8.4% with organic growth at 3.1%, having acquired 13 companies with annualized revenues of GBP 34 million. The French Workwear business had revenue growth of 7.1%, all organic, with adjusted operating profit up 8.6% and a margin of 17.7%.

For 2025, the integration program is planned to restart early in the second half with core IT developments completed. The company aims to continue raising the bar on colleague and customer retention, Trusted Advisor program, and marketing efforts. It expects North America margins to be above 20% by 2027. Q1 organic growth in North America pest services is expected to be lighter than the same period last year, but the full-year financial performance is expected to be in line with market expectations.

Challenges include difficulties in increasing sales leads through paid and organic search. The integration process may cause periods of growth disruption. There is inflationary pressure on the cost base. Disaggregating investments and inflationary cost increases from synergistic cost savings over multiple years has become increasingly subjective, making it hard to separately report net synergy delivery.

Q: Good morning. This is Simona Sarli from Bank of America. So first of all, if we start from the digital leads and also the progress that you made with your new digital tools and IT systems...

A: Thanks, Simona. So I guess my first point would be that I don't really like putting out any targets...

Q: Hi. Good morning. I'm Annelies Vermeulen from Morgan Stanley. I have three as well, please. So just on the lead generation and performance of the regional brands given you've decided to keep more of those brands, I'd be interested to know if there's any data to suggest that those are performing better than the Terminix brand as part of your decision to keep them?...

A: Thanks. On lead generation, I mean, it may not be the answer that you're expecting. The organic search performance of the regional brands has been poor...

Q: Good morning. It's James Beard from Deutsche Bank. Two questions, please. You mentioned that some of the investments you made in 2024 you're effectively repurposing in 2025. Can you describe in a bit more detail which investments you made in 2024 didn't work?...

A: Yes. So in terms of the repurposing and what didn't work, I think there's a combination of factors in this, which is I've talked a little bit about the fact that we're building a more powerful engine here and everything that we're doing around the integration is creating that...