Rentokil Q1 2026 Earnings Call - Pricing-Led North America Momentum, Volumes Remain the Constraint

Operator: Good morning, everyone, and thank you for joining us on today’s Rentokil Q1 trading update. My name is Drew, and I’ll be your operator on the call today. After the prepared remarks, we will have a Q&A session. If you would like to ask a question during that time, please press star followed by one on your telephone keypad, and to withdraw your question, it’s star followed by two. With that, if I can have the handover to Paul Edgecliffe-Johnson to begin. Please go ahead when you’re ready.

Paul Edgecliffe-Johnson, Chief Financial Officer / Interim Leadership, Rentokil: 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. 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 said 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 a 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 is offset by a 60 basis point headwind from organic revenue found in Greater Pacific due to tough comparatives in our job-based rural and track-based business and Middle East North Africa impacted by the Middle East conflict. 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 first of September this year. For more details on Thérèse and her appointment, please hear 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 plan we set out in March. With that, I will now hand back through to you for Q&A.

Operator: Thank you. We’ll now start today’s Q&A session. If you would like to ask a question on today’s call, please press star followed by one on your telephone keypad. To withdraw your question, it’s star followed by two. Our first question today comes from Suhasini Varanasi at Goldman Sachs. Your line is now open. Please go ahead.

Suhasini Varanasi, Analyst, Goldman Sachs: Hi, morning. Thank you for taking my questions. Just a couple for me, please. On the Pest Control 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. Is there anything on comps, et cetera, that we should be worried about over 2Q, 3Q? 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? Thank you.

Paul Edgecliffe-Johnson, Chief Financial Officer / Interim Leadership, Rentokil: Thanks, Suhasini Varanasi. Look, in terms of the growth that we’re seeing, on the Pest Control side first, this is the culmination of all the efforts that we’ve been putting into the business really over the last 12 months or so. The strategic pivots that I talked about in my first call 15 months back, and driving up the number of leads that we’ve got, improving our conversion, improving our marketing ROI, et cetera. It’s 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 in negative, in line with what we saw in the same half of last year. The strategy for 2026 is to try to 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 your lapping type of 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, 12.7% is stronger growth than I expected to see in the first quarter. We had a very strong second half as well. 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. In the first quarter, as I mentioned, we’ve had some brand standards win in our Steritech business and a large job in Lake Management.

Those have all driven it, but I think it will revert back to a normal level of growth as we go through the year. Thanks, Suhasini Varanasi.

Operator: Thank you.

Our next question comes from Annelies Vermeulen from Morgan Stanley. Your line is now open. Please proceed.

Annelies Vermeulen, Analyst, Morgan Stanley: Hi, good morning. Thank you. I have two questions, please. Firstly, Jimmy, you’ve commented all about focus on volumes and so on. In previous quarters, you’ve given some color on lead generation. Could you perhaps comment on how that’s trended in Q1 relative to Q4 in the second half of last year? Then secondly, just to 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? Would you expect pricing to accelerate through the rest of this year relative to the levels that you’ve seen in Q1 2026? Perhaps if you could talk about how that ties into this focus on retention, how you’ll balance that with continuing to improve volumes. Thank you.

Paul Edgecliffe-Johnson, Chief Financial Officer / Interim Leadership, Rentokil: Thanks, Annelies. In terms of lead generation, I’m not going to, every quarter, put out the numbers here. We’ll continue to pull it out at the interims and the full year, but I think it’s a bit superfluous to do it 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. We’re pleased with that. 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 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 escalating markets around the world for price surcharges. That would be something we would consider, but there’s no decision on, and it’s subject to the contracts that we have with customers around the world. We will continue to do as we always do, making sure that we offer excellent service and excellent value. We’ll look at the competitive environment, what everybody else is doing and what’s sort of fair in the circumstances. Nothing that I expect to have a big impact on the numbers this year. Yeah, I think that’s the main message. Nothing is going to have a big impact on the numbers this year. Thanks, Annelies.

Operator: Thank you. Bye.

Our next question today comes from Andrew Gubler from BNP Paribas. Your line is now open. Please go ahead.

Andrew Gubler, Analyst, BNP Paribas: Hi. Good morning. Two from 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? Secondly, a bit micro on them, I’m afraid, but just in terms of exit rates in March, to what extent all of that was impacted by the weather? Thank you very much.

Paul Edgecliffe-Johnson, Chief Financial Officer / Interim Leadership, Rentokil: Thanks, Andy. Yes, so clearly, we do spend a reasonable amount on fuel in the business, but it is only 2% of our cost base. 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. We have got quite a few levers to pull there. 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 it’s only 2% of our cost base. In terms of inventory, we do actually have quite a lot of inventory in the supply chain, and the majority of our supplies are not coming through the Strait of Hormuz. They’re coming other routes.

We’re not as impacted as perhaps some businesses might be. That’s not something that currently is a concern to me. In terms of the 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. They worked fantastically hard, as they always do, they were able to get back and get all the jobs covered. That’s how we delivered the numbers that we have delivered today. It’s a little difficult to look through that and look at the March exit rate. There’s nothing that I can see in the numbers that tells me anything different in March from the earlier months. If there was, it would be quite hard to see through the noise. We’re pleased with the quarter.

Thanks very much, Andy.

Andrew Gubler, Analyst, BNP Paribas: Thank you.

Operator: Our next question comes from Nicole Manion from UBS. Your line’s now open. Please go ahead.

Nicole Manion, Analyst, UBS: Hi. Morning. Thanks, Jimmy. Just two questions from me, please. Firstly, just on the customer retention side, progress there perhaps a bit more muted than we’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.? 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 to Q1, kind of where are you tracking towards that target? Thank you.

Paul Edgecliffe-Johnson, Chief Financial Officer / Interim Leadership, Rentokil: Thank you, Nicole. Yes, we were pleased with both customer retention and colleague retention actually. Colleague retention is clearly a fair bit up from where it was at quarter one of last year, and that’s progressed through. 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. We’re pleased with that. In terms of customer retention, we’ve basically sat on where it was last year. Remember, we report on a 12-month rolling basis. 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. That is a little bit of a headwind.

You’re seeing that coming through in the slight decrease from the quarter four number that we reported there. It’s not on the residential side, it’s driven by that commercial side, which was deliberate. 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. I’m not going to give a quarter by quarter rundown of the branch count. I don’t think that’s particularly helpful, but it’s all on track. We’re pleased with the progress. Yeah, overall, we’re continuing to do exactly what we said we would. Thank you, Nicole.

Nicole Manion, Analyst, UBS: Got it. Thanks, Paul.

Operator: Thank you. As a reminder, if you would like to ask a question on today’s call, please press star followed by one on your telephone keypad. Our next question comes from Alan Wells from Jefferies. Your line’s now open. Please go ahead.

Alan Wells, Analyst, Jefferies: Hey, good morning, Paul. Two quick ones from me, for me. Firstly, you talked a little bit about the jobbing versus recurring activity within North America Pest Control full year numbers. I think the jobbing 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. Secondly, I appreciate, as I say, it’s only been 40 odd days since the last update. Just in terms of the branch integration that was paused last year and restarting, maybe you could 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. Thank you.

Paul Edgecliffe-Johnson, Chief Financial Officer / Interim Leadership, Rentokil: Thanks, Alan. Yes, as I said, in terms of the Pest Control Services growth that we saw overall, that 3.5%, that was included 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. That’s important. If you look at how we’re growing that it’s still all price. 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. 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. That’s been very well received. That’s out in a lot of branches now, and so pleased with the progress on that. 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. That’s a sort of a new chapter for us, if you like, and hopefully put the integration chapter behind us. Thanks very much, Alan.

Alan Wells, Analyst, Jefferies: Thank you.

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

Paul Edgecliffe-Johnson, Chief Financial Officer / Interim Leadership, Rentokil: Thank you very much, Drew, and thank you everyone for dialing in and listening. 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 gonna do. Hopefully this morning’s results show that we are on to that. We look forward to talking with you again for the half year in July. We’ll speak to you then. Thanks very much, everybody. Bye for now.

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