Rentokil lifts cost savings from U.S. Terminix deal, shares leap

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  • Rentokil annual pretax profit beat market expectations
  • Lifts medium-term outlook, cost-savings from Terminix deal
  • Shares rise 7%

March 16 (Reuters) - Pest control company Rentokil Initial (RTO.L) lifted on Thursday its medium-term forecast for revenue and cost savings from its $6.7 billion purchase of U.S. rival Terminix, after posting better than expected annual profit, sending its shares 7% up.

The British company, which operates in more than 80 countries, said it saw strong demand for pest control services in the United States and other parts of the world as people returned to offices.

Chief Executive Andy Ransom said growth was also coming from a rising middle class in emerging markets and also due to changes in climate.

"The increasing warming of the planet means the breeding season of insects is shortened so we're getting more insects, particularly in the hotter more humid parts of the world," Ransom said.

Shares of the London-listed company rose as much as 7% in early trade on Thursday, making it the top gainer on London's benchmark index (.FTSE).

Rentokil raised its organic revenue growth forecast in the medium term to at least 5% from about 4-5% before and lifted its annual pre-tax cost savings projections from the Terminix deal to about $200 million from $150 million by 2025.

Ransom plans to achieve the cost savings by reducing overhead costs and cutting the number of branches in the United States to 400 from 600, over the next three years.

"Though the quantum is not a surprise, the timing is earlier than expected and suggests (Terminix) integration is off to a very strong start," Barclays analysts said in a note.

Rentokil agreed to buy Terminix in 2021, helping the British company build scale and create a global pest control services giant serving both offices and homes. It completed the deal in October last year.

The company posted adjusted pretax profit of 515 million pounds ($642.1 million) at constant exchange rates for the year ended Dec. 31, compared with analysts' average estimate of 473.4 million pounds.

It reported adjusted pretax profit of 416 million pounds for the prior year.

Reporting by Shreyaa Narayanan in Bengaluru; Editing by Rashmi Aich, Dhanya Ann Thoppil and Emelia Sithole-Matarise

Our Standards: The Thomson Reuters Trust Principles.

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