Pretax profit from continuing operations dropped to $98 million from $102 million a year earlier, the London-based company said in a statement. Sales advanced 12.5 percent to $983 million. The company didn't give a figure for net income.
Chief Executive Officer Doug Flynn, seeking to halt a four-year slide in profitability, cut forecasts for the washrooms division in August after European orders dropped. The unit is responsible for one-third of Rentokil's revenue and two-fifths of operating profit.
``Our performance in the third quarter reflects continued difficult markets in European textiles and washroom services,'' Flynn said in the statement. ``More encouragingly, our other large businesses - pest control, City Link and electronic security - have performed largely in line with plan.''
PEST CONTROL DIVISION. The pest control division recorded its best quarter for some time in terms of both revenue and profit growth. Revenue increased by 42.3% in the third quarter compared to last year. Excluding acquisitions - principally Ehrlich – revenue was 2.7% higher.
In continental Europe, all the major pest control markets produced higher revenue than the same quarter last year, most notably in France, the Netherlands, Belgium, Germany, Spain and Portugal. Organic growth rates were typically over 5%. Revenue again declined in the UK, falling by 2.7%, but the rate of decline slowed having been 3.2% in the first half. Revenue was significantly higher in the USA as a result of Ehrlich, which has performed well since its acquisition in March.
A 4.9% increase in operating profit was achieved by the division in the quarter and adjusted operating profit was 8.2% higher than the prior year. The major continental European markets all recorded operating profit ahead of last year. However, operating profit was lower year-on-year for UK pest control as a result of lower revenue and one-off costs.
Major changes to the structure of the UK business are now underway. The 26 existing branches will be replaced by 42 field based sales and service operations, 11 regional operations centres and 7 regional administration centres. Customer service functions will be moved to a new national call centre. A new specialist team to support high dependency customers, such as in the food industry, is also to be established. The business will be de-layered to improve responsiveness and some 25% of current posts are expected to be made redundant by the end of the year. The majority of the one-off costs for this programme are expected to be recognized in the fourth quarter and will amount to some $5.1 million –$6.39 million in total which we expect to be recovered in less than three years on cost savings alone.
The integration of Ehrlich is substantially complete. Integration costs – which are not treated as one-off - have totaled $770,000 and are expected to be $1.15 million for the full year. The cost synergies associated with combining Ehrlich with the existing U.S. pest control business are anticipated to be in the region of $1.02 million a year and these will start to come through in the first half of next year.