Global pest exterminator Rentokil Initial’s ongoing merger and acquisition strategy is a mixed bag, the company’s 2018 interim results reveal.
While ongoing profits and revenue were up, actual profits and revenue dipped and earnings per share were down significantly. This comes after a string of 23 acquisitions, part of an ongoing strategy to buy up business in growing markets.
Ongoing revenue was at £1.16 billion, increasing by 10.5 percent at actual exchange rates (AER). Total revenue was down 4.7 percent to £1.17 billion, due to the sale of eight French laundries as well as disposal of businesses due to completion of a previous deal with Haniel to spin off a joint hygiene venture.
Ongoing operating profits—which includes acquisitions but excludes disposed businesses— were at £134.5 million, increasing by 10.7 percent. Operating profit alone was £108 million, less than a quarter of what it was in 2017, which Rentokil also attributed to the Haniel deal and restructuring.
Diluted earnings per share were at 4.66p, down significantly from the previous year’s price of 31.49p. Interim dividends of 1.311p will be paid out in September—growing 15 percent annually. Rentokil’s stock dipped 3 percent following the results.
Rentokil Chief Executive Andy Ransom said he was “pleased,” given revenue and profit were still beating medium-term targets. M&A will continue to play a large role in the company’s bottom line, he noted.
“We continue to see a full pipeline of value-enhancing acquisition opportunities going forward,” said Ransom.
The company, which operates in 70 countries, plans to use M&A to drive growth in North America and build density in target cities in years ahead according to a strategy presentation released in May. In 2017, Rentokil spent £281 million on 41 businesses across 24 countries. In the first six months of 2018, the company spent over £164 million on acquisitions and is on track to spend up to £250m by year’s end.
There are challenges ahead. Rentokil’s January acquisition of Canon Hygiene is currently under regulatory scrutiny amidst competition concerns.
While the guidance for the rest of the year remained unchanged, movements on exchange rates are still expected to hurt profits and free cash flow by up to £10 million. Overhead was up £2 million from last year, and the company expects higher fuel prices will increase costs.
Note: Story received top marks in Reporting Business course as part of my MA in Financial Journalism program at City, University of London.
Image credit: Pexels