Q3 2024 Rentokil Initial PLC Trading Statement Call (Morning Session) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Simona Sarli - BofA Global Research - Analyst : Yes, good morning and thanks for taking my questions. So a couple of them. You are talking about weaker than expected July and August. But then if I look at your H1 results, we were pretty much already at the end of July. So I would have thought there was already a little bit of visibility on how July was panning specifically in pest control in North America. So what has been happening since then? What has changed in terms of inbound digital flow and overall performance for the business? What has been surprising on the downside specifically? And also, in light of the new expectations in terms of organic growth and also margin for the year, what should we keep in mind in terms of cash conversion and expected leverage? Thank you.

Question: Simona Sarli - BofA Global Research - Analyst : Thank you. And if I may just squeeze a quick one in. It's regarding the progress that you're making with the combining branches because this is something else that you have flagged today in the press release. I saw a little bit of disruptions and so on. Is there any update how also now --? Have you proceeded with combining branches adjusting that in the first state in North America, or where do we stand? Thank you.

Question: Simona Sarli - BofA Global Research - Analyst : Thanks.

Question: Annelies Vermeulen - Morgan Stanley - Analyst : Hi, good morning, Andy and Stuart. I hope you can hear me. Again, I'm at the airport subsequently to the noise. So just two questions, please. Firstly, given you've announced additional investment in marketing spend, et cetera. And clearly, it's not yet bearing fruit and your Right Way 2 Plan. Do you still have the confidence in the plan and in its ability to turnaround the organic growth? Or actually, are there things that you've put into place over the summer that haven't worked then you're having to rethink it? That's the first one. And then secondly, these are some fairly chunky numbers that we're talking about around the additional costs for overtime and consumables, et cetera. So I suppose my question is, why wasn't this budgeted better? I appreciate the things that have been out of your control. But I think, yes, how --? Why was that not factored into the full-year guidance as a possibility at the interims? Thank you.

Question: Annelies Vermeulen - Morgan Stanley - Analyst : Understood. Thank you, guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 7:00AM, RTO.L - Q3 2024 Rentokil Initial PLC Trading Statement Call (Morning Session)

Question: Sylvia Barker - JPMorgan - Analyst : Thank you. Hi. Good morning, everyone. A few from me as well, please. Firstly, just coming back to the last point. Obviously, the issue is one of the volume of leads rather than the costs. So how do you think about then the rest of H2 and into full year '25? Would you keep a lot of this cost on and just work on improving the volume of leads? And how will you get about doing that? And what's the impact being of that second $25 million spend on marketing and growth? Will you put any more behind that? So first question just around driving that volume of leads up and what's the plan. Second question, the full year '25 PBT impact. Maybe, Stuart, can you comment on how much of that --? Because, obviously, nearly 20% cut to the second half PBT versus consensus. So how much of that should we be carrying forward into next year with you identified some items that might reverse, et cetera? And then finally, on the integration of branches, we were meant to start this rerouting from October. What's happening to the timing around that? Thank you.

Question: Sylvia Barker - JPMorgan - Analyst : Thank you very much. Could I just do a quick follow up just on the volume of leads? Can you actually just comment on that trend? Because you commented a little bit around some of these softer metrics around leads and technician leads, et cetera. Could you maybe just update the system how they're trending now?

Question: Sylvia Barker - JPMorgan - Analyst : Thank you both.

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Hi, good morning. Thank you for taking my questions. My first question is on the incremental weakness that you saw. Was that mainly from Brazil termite, or was that broad based including commercial? The second and relating to that, customer retention is something that you mentioned on the call. Has that gotten worse compared to the end of last year? And was there a specific risk element that got worse? And if true, do you need to add more for the expertise in senior roles in North America? The second question is on the medium-term targets. Given you've seen in three, four quarter three more than that of the organic trends, is this something that needs to be revisited as well on the medium-term margin targets? Thank you.

Question: Suhasini Varanasi - Goldman Sachs - Analyst : Understood. Thank you.

Question: James Rose - Barclays - Analyst : Hi, good morning. I've got three, please, if I may. Firstly, going back to price disruption that you've called out. Within the second half assumptions as you've got, can you sort of detail what impact from disruption, from integration disruption you have in there? And have you had to revise your own assumptions down within the budget to get there? What precisely you're seeing there? Secondly, sorry, in the first half, we talked about the contract base, the sort of subscription base building ahead of revenue recognition from leads. Is that still the case over the last few months? And then lastly, again, looking to FY25, a question on how you think about prioritizing growth versus margin into next year. Because, obviously, this is a trade-off between volume ambitions and resourcing, lifting quarter in Q3 last year and peak season this year. So for FY25, does the business become more margin orientated rather than volume growth orientated? Thank you.

Question: Andrew Grobler - BNP Paribas Exane - Analyst : Hi, good morning. Just two from me as well, if I may. Firstly, just to clarify, the weakness in growth relative to expectations in the second half is a Rentokil issue, not a market issue. Is that the case? And secondly, just going back to the visibility. How quickly does this news flow be through to you guys? Because I guess a lot of those costs were set at the beginning of the period in terms of your sales headcounts. You would have known what you were going to do. And as Stuart mentioned, the consumables were already acquired. So at what point did you see that the plan just wasn't quite coming together, and the growth wasn't coming through? What is that feedback loop? And could it be improved now that they across an enlarged business. Thanks very much.

Question: Andrew Grobler - BNP Paribas Exane - Analyst : So just following up on that, because there seems to be a slight disconnect I guess between having reasonably good visibility and then having a quite a big profit warning again in Q3. Can you give a bit more detail about that? In terms of the timing of that visibility, at what point did you say, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 7:00AM, RTO.L - Q3 2024 Rentokil Initial PLC Trading Statement Call (Morning Session) right, we needed to grow at 3% also to get to the targets for the year and said, right, we're not -- this not going to happen? Was that just something that happens very recently, or was that becoming apparent through July and August?

Question: Andrew Grobler - BNP Paribas Exane - Analyst : Okay.

Question: Andrew Grobler - BNP Paribas Exane - Analyst : Okay. Thanks very much.

Question: Oliver Davies - Redburn Atlantic - Analyst : Yes, good morning, guys. Just a couple from me. Firstly, on customer retention, you're already seeing much improvement here despite employee retention continuing to rise. So I guess, is there a reason for this? Or is the lag between the two just a lot longer than you expected? And then secondly, given your comments about the sales force productivity and I guess the issues that you've had here in terms of lead conversion, is rightsizing the sales force not going to prevent any possible improvements in growth into FY25? Thanks.

Question: Oliver Davies - Redburn Atlantic - Analyst : It was just about the sales force productivity. And I guess that the issues you've had on lead conversion and sort of rightsizing that with salesforce now and I guess the balance.

Question: Oliver Davies - Redburn Atlantic - Analyst : Okay. Thanks, Andy.

Question: Allen Wells - Jefferies - Analyst : Hi. Good morning, Andy and Stuart. A couple from me, please. You obviously talked a lot about the converting of leads as being part of this year. But is there anything that we need to know about servicing release? Anything on the technician side? I guess this kind of comes a little bit from the disruption from the branches but maybe you can just comment on the ability to service the leads that you do have and if that's having an effect at all? And secondly, just on the commercial versus where you flagged termite. It has been particularly disappointing. But I guess as part of this whole process has slightly disappointed growth, I've always slightly struggle with exactly what's going on in your commercial business. I know it wasn't outperforming the market, predetermined it still, but it was always growing reasonably strongly. So I just wondering if you can maybe talk a little bit about what's going on in the commercial side of the business? To what extent is your customers being impacted there? Why would lead and lead flow be changing on the commercial side to drive such a weak performance in that business as well if indeed as weak as the rest of the group? Thank you.

Question: Allen Wells - Jefferies - Analyst : Cheers. Thank you.