Shares in pest-control and hygiene firm Rentokil (RTO) provided a rare ray of light amid the gloom in the UK stock market after it reported its highest revenue growth in 15 years and an increase in the final dividend.
For the year to 31 December, ongoing revenues were up 8.6% on a constant currency basis to £2.68bn while operating profits were up 10.5% to £368.1m. Thanks to strong cash-flow growth, the total dividend for 2019 was increased by 15.2% to 5.15p per share. Investors bid the stock up 3.2% to 511p on the update.
HEALTHY ORGANIC GROWTH
Of the 8.6% increase in ongoing revenues, 4.5% or more than half came from organic growth, in other words from higher volumes and prices rather than acquisitions.
Chief executive Andy Ransom put the company’s success in growing turnover organically down to its ‘increasing presence in growth markets, higher levels of customer retention and a strong innovation programme.’
In pest control, which accounts for 64% of ongoing revenues and 68% of operating profits, revenues grew by 10.8% with 4.9% or slightly less than half coming from organic growth.
As Rentokil is the global leader in pest control, a market worth an estimated $20bn a year, it is able to leverage its strong brand to attract new customers while at the same time rolling out new, value-added services like remote monitoring to its existing customers.
In hygiene, which accounts for 21% or revenues and 22% of operating profits, Rentokil is also the global leader through its Initial brand, and more than three quarters of the 5.8% increase in ongoing revenues was thanks to organic growth.
The need for governments and corporations to prevent the spread of diseases, germs and bacteria has never been greater, as shown by the rapid spread of Covid-19.
TARGETED ACQUISITIONS
To supplement its organic growth, Rentokil is always on the look-out for attractive bolt-on acquisitions which can deliver new customers or take the company into new areas where there are cross-selling opportunities.
Andy Ransom described 2019 as an ‘excellent year for M&A’ with more than 40 businesses acquired, principally in pest control in growth and emerging markets.
As well as entering new markets such as Sri Lanka and Uruguay, the firm increased its presence in a dozen more emerging markets while at the same time adding substantially to its US operations.
Total M&A spend last year was £316m, including final payments for deals done in the previous financial year. However this spending was more than offset by the inflow of €430m in cash for the sale of the group’s remaining share in its joint venture with Germany’s Haniel.
