Pest Control
Principal Geographies
- UK
- USA
- Germany
- Netherlands
- France
Principal Activities
- Pest control for commercial, industrial and residential customers
Our Objective:
To create the world’s finest and most profitable specialist pest control company, establishing leadership positions in mostly fragmented markets
Strategic Priorities:
- Organic growth through improved retention and new sales
- Ensure strong and sustainable platform through service and operational excellence
- Return UK to profit growth
Global warming, more international travel, demand for higher modern living standards, fewer collections of household waste... there are many reasons given for the increase in demand for pest control services around the world. In 2007, Rentokil UK saw increases in the number of call outs for services to remove or prevent bed bugs, moths and rodents, while termites, a pest traditionally associated with warmer climates, appear to be moving across Europe. Rentokil’s unrivalled international expertise means that it can share expertise and develop the right services to best support its customers.
As part of the reorganisation of the UK pest control business, Rentokil launched a dedicated “high dependency” service team focused on the “zero tolerance” needs of customers in the food and pharmaceutical industry. This specialist team is delivering great results. According to Steve Edwards, Director of Operational Standards for Trading Law and Technical of Tesco, the UK’s leading food retailer, “Providing an effective barrier against pests is of vital importance to us in order to meet the expectations of our customers and the new Rentokil team has set the highest performance standards and provides a professional risk management reporting process.”
Key Performance Indicators
| £m | Change vs 2006 | |
|---|---|---|
| Revenue | 310.4 | + 11.5% |
| Organic revenue | +5.7% | |
| Operating profit | 65.4 | + 6.5% |
| Adjusted operating profit | 66.1 | -3.1% |
| Net adjusted margin | 21.3% | -3.2% |
| Contract portfolio gain | 33.4 | -37.3% |
| New business wins | 35.1 | + 12.5% |
| Net additions/reductions | 9.3 | + 34.8% |
| Acquisitions | 22.2 | -52.9% |
| Terminations | (33.2) | +4.1% |
| Retention rate | 84.5% | +4.3% |
Market Conditions
Market conditions during 2007 have not changed significantly on 2006 with overall market growth still perceived to be approximately 1.5 times GDP. The slowdown in retail markets has not impacted appreciably demand for pest control services. Across Europe, the UK and North America competition remains fragmented – a combination of small local operators competing for small and medium sized enterprises (SMEs) and large integrated competitors competing for major retailers, multiples and processing facilities.
2007 Review
Overall, 2007 was a year of strong performance in Pest Control with results accelerating as anticipated in the last three months of the year. Fourth quarter adjusted operating profit increased by 15.6% on revenue up 15.7% year-on-year. The major drivers of improvement in Q4 were the tighter management of off-season productivity in North America, contributions from Presto-X in line with the acquisition business case and strong growth, both organic and acquired, in Europe. Full year revenue increased by 11.5% and adjusted operating profit was down 3.1% on 2006. However, had it not been for the impact of the inclusion of a full first quarter of seasonal losses in the US business acquired on 1 March 2006, profit would have shown an improvement year on year. In addition, comparisons with 2006 reflect the transfer of R&D costs previously borne centrally to the division which took place at the end of 2006 and which amounted to some £3.0 million per annum. Divisional margin performance improved as the year progressed, beginning the year 9.5 percentage points down on Q1 2006 and closing at the same levels as Q4 2006.
The new Rentokil.com website was successfully rolled out to Rentokil branded businesses representing 91% of divisional revenue. By December we were experiencing a fourfold increase in the number of visitors to the site over the previous year and web-based enquiries are now higher than enquiries sourced from the Yellow Pages in both the UK and Spain.
During 2007 we launched new residential propositions in the UK, Belgium, Ireland and Portugal and, whilst outside North America the overall contribution from these customers is still small, we believe we now have the makings of a residential service offering which will make a useful contribution in the medium term.
Divisional spend on acquisitions in the year was £42.3 million. The major acquisitions were Presto-X in North America and a further six in Spain including Ambigest, which together made Rentokil Spain’s leading pest control operation.
Continental Europe continued to build on the progress delivered in 2005 and 2006 and demonstrated a strong performance throughout the year. Revenue grew by 10% driving profit growth of £2.9 million. Overall organic growth was 5.7% and was particularly good in the important markets of Spain (10.6%), Italy (7.6%), Ireland (9.3%) and the Netherlands (7.3%). In addition, good progress was made in gaining market share through acquisitions in Spain, Italy, Germany and France. During the year we also took our first step into the Baltic States, entering Estonia through the acquisition of two small businesses.
During the year we completed the extensive reorganisation of our UK pest control business. Its new management team has focused on growing the business by driving sales and improving customer retention through higher quality service delivery. Against 2006, Q4 revenue grew by 5.8% (against a decline of 9.6% in Q1). Retention levels strengthened further during the quarter to an annualised rate of 81.8% and the contract portfolio has now grown by 2.5% since the beginning of 2007. Q4 profit, however, still lagged 2006 by £0.6 million as the business adjusted to its new operating model, but represents a significant improvement on the £1.2 million decline posted in Q1. Returning this business to profit growth in 2008 is a priority for the Pest Control division.
North America recovered from a weak start to finish strongly. The cool weather and a late start to the season adversely impacted profit in the first half, but actions to improve J C Ehrlich’s off-season productivity in Q4 have been partly responsible for improving profit by 12.0% on like-for-like revenue up by 6.2% on 2006. Although still early days since acquisition, Presto-X is delivering to expectations and we are confident that we have acquired a high-quality business that expands our national footprint in the United States into an additional 16 states. This is a continuation of our strategy to build market share through regional anchors delivering both residential and commercial pest control.
Copesan, a US organisation of independent pest control companies has recently taken steps to exclude J C Ehrlich and Presto-X from membership. This matter is under negotiation but represents a small risk to the division’s US revenue base in the short term.
The recent indications of economic slowdown have not yet impacted demand for pest control services and at this stage we anticipate largely unchanged market conditions for 2008. We will continue to focus on growing organically through improved sales and marketing capability, better and more integrated systems and high levels of customer service.
2008 Preview
The recent indications of economic slowdown have not yet impacted demand for pest control services and at this stage we anticipate largely unchanged market conditions for 2008. We will continue to focus on growing organically through improved sales and marketing capability, better and more integrated systems and high levels of customer service. In the UK we will be working hard to turn our revenue growth into profitable growth by focusing on key measures of service and sales productivity and by growing our share in the SME segment of our commercial customer base. In Europe we will continue to grow both organically and through acquisition, reaping the benefits of our investment in sales, marketing and systems in 2007 and extracting value from our 2007 acquisitions. In North America we are hopeful of an earlier start to the season than in 2007. We will also continue our strategy of growth by acquisitions of smaller regional players.