Rentokil to Focus on Cash Generation as Restructuring Nears End

Rentokil Initial Plc, the British provider of pest control and hygiene services, said it will focus on improved profitability and cash generation after a restructuring and investment program comes to an end.

“Our overheads are coming down, our businesses are becoming more efficient and during next year our restructuring costs and capex will also reduce,” Chief Executive Officer Andy Ransom said in a statement.

Rentokil has been selling European assets and expanding in Asia to make up for sluggish demand in its home region. The company bought six pest control businesses in Brazil, French Guyana, Portugal, Canada and the U.S. in the first half and disposed of City Link, a loss-making parcel delivery service.

Savings from the restructuring program are estimated at about 10 million pounds ($16 million) a year from 2014, with an associated one-time cash cost of about 3 million pounds, Rentokil said. The company will limit deployment of a number of centrally developed human resources and other systems, leading to a non-cash write off of about 7 million pounds in the fourth quarter.

Rentokil shares fell as much as 1.7 percent and were down 1.2 percent to 103.50 pence at 9.53 a.m. in London, valuing the company at 1.9 billion pounds.

Coming Detail

Rentokil revised its estimates for the cost of the restructuring for 2013 to 60 million pounds from a figure of about 50 million pounds, given by Chief Financial Officer Jeremy Townsend in August. The services provider will continue to seek acquisitions, focusing on small bolt-on and greenfield purchases in emerging markets, including Latin America and the Middle East, Ransom said on a conference call. He promised to give further details on his plans for growth in revenue, profit and free cash flow next year.

Third-quarter revenue grew 3.8 percent at constant exchange rates to 585.1 million pounds, driven by a 46 percent increase in sales in North America, the company said today. Trading conditions in the quarter remained “difficult” in Europe and the Netherlands. In the Benelux region, revenue fell 8.3 percent at constant exchange rates to 187.7 million pounds in the first nine months of the year. Third-quarter adjusted operating profit rose 3 percent by that measure to 70.8 million pounds.

Ransom took over last month from Alan Brown, who announced his plans to step down in August. Both Ransom and Brown joined the company from Imperial Chemical Industries Plc in 2008.