Shares in pest control and hygiene firm Rentokil (RTO) bounced 3.5% to 406p after it reported steady progress in the three months to March 31 with ongoing revenues up 7.2% at constant exchange rates.
Operating profits grew slightly faster than revenues and cash collections were ‘broadly in line with first quarter norms.’
However, in the second half of March the group saw a ‘marked impact’ on growth with ongoing revenues for the month up just 4.4%. Growth at the hygiene business slowed sharply and the smaller Protect & Enhance division saw a fall in turnover with France particularly badly affected.
WORSE TO COME
While pest control and hygiene are designated as essential services, both are being negatively affected by business closures. According to chief executive Andy Ransom, ‘the impact in the second quarter will be greater than in the last two weeks of March as more of our countries are impacted by lockdowns.’
In Italy, revenues were down 5.7% during the quarter but in March alone they were down 15.3% as the lockdown took effect. In India, revenues for the quarter were down 5.4% while in March they were down over 20%.
In North America, one of Rentokil’s biggest markets, revenues grew 10.4% in the quarter and only slowed to 8.5% in March, but as the chief executive admits the region is two weeks behind Europe in dealing with the virus.
In Hong Kong, which experienced the crisis earlier and where restrictions are already being lifted in part, hygiene revenues have recovered sharply as businesses re-opened.
On top of the cost reduction measures announced previously, the firm has taken funds from the government’s Covid Financing Facility and drawn down £550m of its revolving credit facility to give it further liquidity.
SHIFTING THE GOALPOSTS
One aspect of the update which needs flagging is the abandonment of the separate reporting of organic revenue growth and growth from acquisitions.
Instead the firm has reported ongoing revenues which represent the performance of ongoing operations including acquisitions but excluding the effect of closed or disposed businesses.
Acquisitions have been a not insignificant part of Rentokil’s top line growth over the past decade but due to the crisis it has decided to suspend its M&A programme.
Not separating out organic growth makes it harder to measure the firm’s sustainable growth rate, which is probably not an accident.
Also the use of constant currency comparisons is useful but misleading as sales and earnings are based on actual exchange rates not year-ago levels.
