Rentokil Initial plc ($RTO)

Good morning, everyone, and thank you for joining us on today's Rentokil Q1 Trading Update. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Paul Edgecliffe-Johnson to begin. Please go ahead when you're ready.

Thanks, Drew. Good morning, everyone, and welcome to our first quarter conference call. Before we begin, I'd like to draw your attention to the usual cautionary statement contained in our trading update, which also applies to this call. I'll start by making some brief remarks on trading, and then I'll be happy to take your questions. As we only reported on performance and strategy last month, today's announcement is a short update on revenue performance in the first quarter. As a reminder, all commentary is on a constant currency basis, unless otherwise stated. So we made a good start to the year with group revenue of $1.7 billion, representing organic growth of 3.4%. This is driven by continued momentum in North America, which delivered 3.9% organic growth and a solid performance for international, which saw 2.8% organic growth. Looking in more detail now at North America, where revenue grew 4.5% to $995 million. Pest Control Services delivered revenue growth of 3.5%, including 6.1% from one-off job revenue and 3.0% from contract revenue, an improvement from the previous quarter's 2.4% contract revenue growth. Pest Control Services organic revenue growth of 2.8% continued the steady quarter-by-quarter improvements we've seen over the past year as we execute our strategy to optimize the ROI from our marketing spend, invest behind our strong national and regional brands and improve our sales execution. The pricing environment remains robust with continued above inflationary increases. Overall, as we flagged back in March, our teams across the U.S. worked hard in February, delivering excellent customer service to recover workdays lost due to January's extreme weather. Business Services delivered strong organic growth, up 12.7%, helped by pre-spring demand in product distribution, new customer wins in brand standards and some large contract wins in lake management. Colleague retention of 82.6% increased 40 basis points compared to the position at the end of December. Customer retention was broadly flat on last year at 80.4%. Moving to our international business. Revenue was $682 million for the first quarter, up 4.1%. Contract revenue grew 5.5% and one-off job revenue was broadly flat. Organic growth of 2.8% was supported by good growth in Europe, Latin America, the U.K. and Sub-Saharan Africa, benefiting from strong pricing and volume growth. This was offset by a 60 basis point headwind from organic revenue declines in Asia Pacific due to tough comparatives in our job-based rural and Trackspray business and Middle East, North Africa, impacted by the Middle East conflict. So in summary, we've delivered a good start to the year during our seasonally quieter first quarter, driven by continued momentum in North America and solid progress across our international business. We remain on track to deliver a full year performance in line with market expectations. I'll also take this opportunity to welcome Thérèse Esperdy as Rentokil's new Chair effective from the 1st of September this year. For more details on Thérèse and her appointment, please see the announcement released yesterday. Finally, as you all know, last month, we welcomed Mike Duffy as our new CEO. Mike will be leading the half year results presentation in July when we will be giving you a more detailed update on the progress we're making executing against the plans we set out in March. And with that, I will now hand back through to you for Q&A.

[Operator Instructions] Our first question today comes from Suhasini Varanasi from Goldman Sachs.

Just a couple from me, please. On the core pest services growth in North America, we've obviously seen a very steady improvement in recent quarters. Just wanted to help us understand how you expect the improvement for the next few quarters, please? Are there anything -- is there anything on comps, et cetera, that we should be worried about over 2Q, 3Q? And the second question is on Business Services. It's been pretty strong in the last 3 quarters. Can you help us understand the drivers behind this and whether this can continue into the rest of the year?

Thanks, Suhasini. So look, I mean, in terms of the growth that we're seeing on the [indiscernible] side first, this is a combination of all the efforts that we've been putting into the business really over the last 12 months or so. So the strategic pivots that I talked about my first call near 15 months back. And driving up the number of leads that we've got, improving our conversion, improving our marketing ROI, et cetera, et cetera, is all helping us grow. But it is a grind-up story. We are improving our pricing capabilities, and that's the driver of all the growth that we're seeing at the moment. Volumes are still negative, in line with what we saw in second half of last year. So the strategy for 2026 is to try and improve our volume performance, keep more customers, increase retention and still hold on to that pricing. There's no big things that I would call out in the quarters to come in terms of lapping tougher comparatives. There's always a few puts and takes, but there's nothing that is that material. In terms of the Business Services segment, yes, I mean, 12.7% is stronger growth than I expected to see in the first quarter. And we had a very strong second half as well. But I do think that this is an aberration rather than the norm. I don't expect to see this level of growth from that business segment. I think we've just seen some particularly strong demand in chemicals and distribution. And in the first quarter, as I mentioned, we had some brand standards win in our Steritech business and a large job in light management. So those have all driven it. But I think it will revert back to a normal level of growth as we go through the year.

Our next question comes from Annelies Vermeulen from Morgan Stanley.

I have 2 questions, please. So firstly, you've made comments about the focus on volumes and so on. In previous quarters, you've given some color on lead generation. So could you perhaps comment on how that trended in Q1 relative to Q4 and the second half of last year? And then secondly, just a follow-up on pricing. I appreciate it's early days, but given what oil prices are doing, concerns on inflation going up and so on, are you already beginning to push higher price increases with customers? And would you expect pricing to accelerate through the rest of this year relative to the levels that you've seen in Q1 '26? And perhaps if you could talk about how that ties into this focus on retention, how you'll balance that with continuing to want to improve volumes?

Thanks, Annelies. So in terms of lead generation, I'm not going to every quarter put out the numbers. We'll continue to pull it out at the interims and the full year. But I think it's just a bit too [indiscernible] in every single quarter. No change there. We're still pleased with what we're seeing. All the work that we've done to improve our marketing capabilities and to improve both the number of leads and the quality of leads is continuing to drive business for us. So we're pleased with that, but nothing has changed in the last sort of 42 days since I talked about the full year. In terms of pricing, as I've spoken about before, our pricing capabilities are much better now. The fact that inflation is going to be driven up by oil price increases. It doesn't really change our pricing strategy for the residential business. On the commercial business, we'll have to see what happens there, whether there's any scope in markets around the world for price surcharges. That would be something we would consider, but there's no decisions on and it's subject to the contracts that we have with customers around the world. So we will continue to do as we always do, making sure that we offer excellent service and excellent value, and we'll look at the competitive environment, what everybody else is doing and what's sort of fair in the circumstances. But nothing that I expect to have a big impact on the numbers this year. And so yes, I think that's the main message. Nothing is going to have a big impact on the numbers this year.

Our next question today comes from Andy Grobler from BNP Paribas.

Two for me as well, if I may. Firstly, just kind of following up on fuel price increases and the potential for some inventory shortages. How much inventory do you have in the system? And are you seeing any signs of stress resulting from the conflict in the Middle East? And then secondly, a bit [indiscernible], I'm afraid, but just in terms of exit rate in March and to what extent all of that was impacted by the weather?

Thanks, Andy. So yes, I mean, clearly, we do spend a reasonable amount on fuel in the business, but it is only 2% of our cost base. And as I've spoken about before, there's a lot that we are doing to the cost base around the world in terms of offshoring and restructuring and driving improvements in efficiency. So we have got quite a few levers to pull there. So we'll have to see how long the fuel price increase remains with us. I don't expect it to be a material number for us in the context of 72% of our cost base. And in terms of inventory, we do actually have quite a lot of inventory in the supply chain and the majority of our supplies were not coming through the [indiscernible] though coming other routes. So we're not as impacted as perhaps some businesses might be. So that's not something that currently is a concern to me. In terms of exit rate, so January obviously was impacted, and we had a lot of work to do by our technicians to get around to our customers in February and March to recover that work, and they worked fantastically hard as they always do. And we're able to get back and get all the jobs covered and that's how we delivered the numbers that we have delivered today. So it's a little difficult to look through that and look at the March exit rate. So there's nothing that I can see in the numbers that tells me anything different in March from the earlier months. But if there was, it would be quite hard to see through the noise, but we're pleased with the quarter.

Our next question comes from Nicole Manion from UBS.

Just 2 questions from me, please. Firstly, just on the customer retention side, progress there perhaps a bit more muted than you've seen for the colleague retention. Can you talk through some of the drivers of that, maybe on the commercial side compared to in resi in the U.S.? And then secondly, just on any branch openings year-to-date, I think it's 70 or so smaller branches you're aiming to open through the year. Have there been any more open through sort of Q1? Kind of where are you tracking towards that target?

Thank you, Nicole. So yes, I mean, we were pleased with the -- with both customer retention and colleague retention actually. Colleague retention is clearly a fair bit up from where it was at quarter 1 of last year, and that's progressed through. So it's all the efforts that we're making to look after our colleagues is paying off, and that's a super important part of our business model. And so we're pleased with that. In terms of customer retention, I mean, it's basically flat on where it was last year. And remember, these are -- we report on a 12-month rolling basis. So no real differences there. We spoke previously about the rationalization that we're doing on some of our commercial customers to take out customers that aren't as profitable -- commercial customers that aren't as profitable. And that is a little bit of a headwind. And you're seeing that coming through in the slight decrease from the quarter 4 number that we reported there. So it's not on the residential side, it's driven by that commercial side, which was deliberate. And in terms of branch opening, yes, as you know, we've got another 70 branches that we are opening during the course of this year and making good progress with that. So I'm not going to give a quarter-by-quarter rundown of the branch count and I don't think that's particularly helpful, but it's all on track. We're pleased with the progress. And so yes, overall, we're continuing to do exactly what we said we would.

[Operator Instructions] Our next question comes from Allen Wells from Jefferies.

Two quick ones from me, if I may. Firstly, you talked a little bit about the job in versus recurring activity within North America Pest Control the full year numbers. I think the job in activity was a bit stronger. I just wondered if you could provide a bit of an update in terms of how Q1 played out and the progress you made on recurring revenue improvement there? That's my first question. And then secondly, I appreciate it's only been 40-odd days since the last update. But just in terms of the branch integration that was paused last year and restarting, maybe you could just provide a kind of update and reminder on how to think about the kind of timing and shape of progress here as we move through 2026.

Thanks, Allen. So yes, I mean, as I said, in terms of the pest control services growth that we saw overall that 3.5% that was 6.1% from one-off job revenue and 3% from contract revenue, which is an improvement from the previous quarter's 2.4% contract revenue growth. So that's important. If you look at how we're growing that, it's still all price. So we're seeing the same sort of volume declines that we saw in the second half of last year. That's a continued focus for us and an area of opportunity, but we're pleased with the pricing that we're getting. And job revenue does move around a bit quarter-by-quarter, but we're pleased with the 6.1% increase that we saw there. In terms of what we're doing around integration, I think I spoke about that quite extensively 42 days ago and no change from that. We're rolling out our branch 360 data layer, which allows all our branch managers to see data more simply. And that's been very well received. That's out and a lot of branches now and pleased with the progress on that. And really nothing further to say. I wouldn't anticipate that we'll be saying a lot more about integration per se. Our focus is on driving the performance of the business. And that's sort of a new chapter for us, if you like, as we put the integration chapter behind us. But thanks very much Allen.

With that we have no further questions in the queue at this time. So that does conclude the Q&A portion of today's call. I'll now hand back over to Paul for some closing remarks.

Thank you very much, Drew, and thank you, everyone, for dialing in and listening. And as I said when I started at Rentokil that my ambition was to make Rentokil a nice safe boring stock where we do what we said we're going to do. And hopefully, this morning's results show that we are on track. And we look forward to talking with you again for the half year in July. So we'll speak to you then. Thanks very much, everybody. Bye for now.

Thank you for joining. That concludes today's call. You may now disconnect your lines.