Rentokil Initial (RTO) Trading Update summary

Financial performance and outlook

• Full-year adjusted PBTA is forecast at about £700 million, with a group adjusted operating margin of approximately 15.5%.

• North America organic revenue growth in H2 is expected to be around 1%, below expectations, with FY24 North America adjusted operating profit margin anticipated at 17.2%.

• Cost overruns in North America, including higher labor, overtime, and materials, plus a £10 million FX headwind from a stronger sterling, are expected to reduce FY24 group adjusted operating profit by about £50 million.

• Cash conversion guidance remains at 80-90%, with leverage expected to be only slightly higher than last year and a deleveraging target for 2024 at about 2.8x.

• The rest of the group continues to perform well, offsetting some North America challenges.

Operational actions and cost management

• Decisive actions are underway to improve revenue growth, including increased lead flow, better sales conversion, and customer retention, as part of the Right Way 2 plan.

• Cost mitigation measures include managing inventory, technician workload, overtime, and rightsizing sales resources.

• Adjustments to sales force size are routine and managed through natural attrition, minimizing one-off costs.

• Working capital is performing as expected, with a bounce back in July and no change to outlook.

• North America saw lower than expected trading in July and August, partly due to modest disruption from branch integration.

Integration and transformation progress

• Significant progress in integrating Terminix branches and IT systems, with most issues resolved quickly.

• No major changes to integration cadence; exploring opportunities to accelerate systems migration.

• Unified compensation plans for sales and service are being piloted in Q4, with phased rollout planned.

• Integration challenges are mainly due to time pressure, not unexpected disruption.