Rentokil Initial’s Share Price Gapped 16.6% on Its FY 2023 Results

The Rentokil Initial plc (LON: RTO) share price gapped 16.63% on its 2023 financial results release. The Group's revenue saw a significant increase of 45.8%, with Statutory Revenue rising by 44.7%. The Organic Revenue experienced a 4.9% uplift, propelled by robust performances across Europe, Asia, the Pacific, the UK, and LATAM.

The facilities management business reported that Organic Revenue rose 3.1% in North America, with a 3.5% increase in Pest Control services despite a drop in new business lead generation. Strong organic revenue growth was observed in all service categories: Pest Control at 4.5%, Hygiene and Wellbeing at 4.8%, and a notable 13.2% in France's Workwear segment.

Adjusted Operating Profit surged by 57.0%, with Statutory Operating Profit escalating by 96.9%. The Group's Adjusted Operating Margin improved by 120 basis points to 16.6%. The full year saw margin expansion in the Pest Control and France Workwear segments, with the Hygiene & Wellbeing margin exceeding 19.0% in the second half, aligning with projections.

The Adjusted Operating Margin in North America increased 160 basis points to 18.7%. Across all regions, the company maintained strong pricing progression alongside high customer retention rates.

Diluted Adjusted EPS grew by 8.8% to 23.08p, with EPS experiencing a 30.8% increase to 15.14p. The Diluted Adjusted EPS at constant exchange rates rose by 12.9%. The company generated a Free Cash Flow of £500 million, translating to an 89.4% Adjusted Free Cash Flow conversion.

The net debt to EBITDA ratio was reduced to 2.8x as of 31 December 2023, achieving this target a year in advance. A final dividend recommendation of 5.93p has been made for a total FY23 dividend of 8.68p per share, marking a 15.0% increase in line with the company's progressive dividend policy.

The launch of the RIGHT WAY 2 initiative aims to rejuvenate organic growth in North America. Following a comprehensive review of regional performance, an action plan has been set in motion. Terminix's increased synergy benefits facilitate an additional c.$25 million investment in sales and marketing.

The gross synergy target for Terminix has been uplifted by $50 million, with the completion of integration now anticipated in 2026. The company surpassed its synergy guidance in FY23, achieving $69 million in pre-tax net cost synergies (against a guidance of $60 million). It anticipates realising an additional c.$40 million in net cost synergies in FY24.

Rentokil share price. 

The Rentokil Initial share price gapped 16.63% to trade at 498.85p from Wednesday’s closing price of 427.70p.