Rentokil Initial Plc · LSE:RTO
Rentokil Initial — H1 2023 Earnings Presentation
56 slides from Rentokil Initial's earnings presentation, Jul 27, 2023
Slide 1: Excellent Operational and Financial Performance in H1
Interim Financial Results Excellent Operational and Financial Performance in H1 27 July 2023 PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET
Slide 2: Information Regarding Forward-Looking Statements
Information Regarding Forward-Looking Statements In order to utilise the ‘safe harbour ’ provisions of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”) and the general doctrine of cautionary statements, Rentokil Initial plc (“the Company”) is providing the following cautionary
Slide 3: Excellent Operational and Financial Performance in H1
Excellent Operational and Financial Performance in H1 Andy Ransom Chief Executive PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET 3
Slide 4: Agenda
Agenda Highlights of H1 2023 Andy Ransom, CEO Financial Results for H1 2023 Stuart Ingall-Tombs, CFO Businesses, Bolt-on M&A and Terminix Update Andy Ransom, CEO Summary Q&A 4 PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET 4
Slide 5: H1 2023 Group Highlights
H1 2023 | Group Highlights Strong Profitable Growth and M&A Execution in H1 +65.3% £2.7bn +5.9% +81.7% £434m 16.3% +150bps REVENUE GROWTH ORGANIC REVENUE GROWTH ADJUSTED OPERATING PROFIT ADJUSTED OPERATING MARGIN +72.0% £434m £602m £79m +XX.X% 83.0% +20.7% 11.41p ACQUIRED BOLT-ON DILUTED ADJUSTED EP
Slide 6: H1 2023 Revenue by Regions and Categories
H1 2023 | Revenue by Regions and Categories 7% 7% XX% 16% 20% Regions Categories 62% H1 2023 80% Percentage of Group Revenue at CER by Regions and Categories XX% XX% H1 2023 YoY H1 Revenue % Growth % Organic* H1 2023 YoY H1 Revenue % Growth % Organic North America £1,646 +127.3% +4.1% Europe & LatAm
Slide 7: H1 2023 NA Pest Control Integration On Track
H1 2023 | NA Pest Control Integration On Track Strong delivery against plan in H1 ✓ Co-location phase on track: ✓ 44 properties exited in total in H1 - as part of integration of heritage Rentokil network. ✓ 64 properties in total exited since October. ✓ Two pilot area integrations undertaken in H1:
Slide 8: Financial & Regional Review
Financial & Regional Review Interim Results 2023 Stuart Ingall-Tombs Chief Financial Officer PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET 8
Slide 9: Financial highlights
Financial highlights Revenue +5.9% Organic Revenue, H1 23 £2,666m plus 24 bolt-on acquisitions Δ Δ £ million AER CER AER CER Profit +81.7%. Continued price progression £434m offsetting inflation. Margin up 150bps Revenue 2,671 2,666 69.9% 65.3% Adjusted Operating Profit 437 434 88.0% 81.7% Cash Repr
Slide 10: North America
North America Organic Revenue* +4.1%, delivered alongside Terminix integration H1 23 Δ pilots and underpinned by effective price progression ➢ Demand in the products distribution business rebounded in June and is Revenue £1,646m +127.3% expected to normalise in H2 Organic Revenue +4.1% Organic Reven
Slide 11: Terminix Synergies
Terminix Synergies ➢ $37m pre-tax net P&L cost synergies achieved in H1 23 ➢ In H1, synergies contributed 1.9% to North America margin, 1.4% to Pest Control margin and 1.1% to Group margin ➢ On track to deliver synergies in FY 23 of $60m year over year and $73m in total by the end of 2023 Year over
Slide 12: Europe (inc. LATAM)
Europe (inc. LATAM) 18.7% growth in Revenue, of which 11.1% organic*, driven by pricing and resilient demand H1 23 Δ ➢ Pest Control Revenue +30%, with a strong contribution from larger Revenue £522m +18.7% markets (France and Benelux) ➢ Hygiene & Wellbeing Revenue +6.2%, with continued momentum Orga
Slide 13: UK & Sub-Saharan Africa
UK & Sub-Saharan Africa Revenue +6.7% with Organic Revenue* +3.9%, despite the H1 23 Δ challenging macro backdrop Revenue* £192m +6.7% ➢ Pest Control Revenue +10.4% ➢ Hygiene & Wellbeing Revenue +3.2%, despite lapping COVID Organic Revenue +3.9% boosted comparators in the medical waste business Adju
Slide 14: Asia & MENAT
Asia & MENAT H1 23 Δ Revenue +11.9% with Organic Revenue* +11.3%, led by the Pest Revenue* £173m +11.9% Control business and the region’s largest markets, including Indonesia, Malaysia and Singapore Organic Revenue +11.3% Adjusted Operating Profit £24m 6.4% Adjusted Operating Profit +6.4% Group Reve
Slide 15: Pacific
Pacific H1 23 Δ Revenue +16.5% with Organic Revenue* +7.4% Revenue* £128m +16.5% ➢ Pest Control Revenue +30.4%, driven by commercial services ➢ Hygiene & Wellbeing Revenue +5.2%, with good demand for Organic Revenue +7.4% Ambius services Adjusted Operating Profit £29m +22.3% Adjusted Operating Profi
Slide 16: Margin Development – Hygiene & Wellbeing
Margin Development – Hygiene & Wellbeing Hygiene Margin Bridge H1 2023 vs H1 2022m and H2 2023 expected margin Adjusted operating margin % 1.6% 0.8% ➢ The H2 impact of these headwinds to 0.5% 0.2% Hygiene & Wellbeing margin is expected to be c.100bps or one-third of the H1 impact. This is anticipate
Slide 17: Adjusted Cash Flow
Adjusted Cash Flow @AER £ million H1 23 H1 22 Adjusted Operating Profit 437 233 Higher trading profits from organic and Depreciation 147 114 acquisitive growth resulted in Adjusted EBITDA up >70% to £602m. Other 18 3 One-off and adjusting items totalled Adjusted EBITDA 602 350 £78m, reflecting P&L i
Slide 18: Adjusted Cash Flow cont’d
Adjusted Cash Flow cont’d £ million H1 23 H1 22 Adjusted Cash Flow 401 202 Cash interest (114) (19) Cash interest payments of £114m were Cash tax (58) (32) £95m higher than in the prior year, reflecting the payment in arrears of Free Cash Flow 229 151 coupon interest on 2022 bonds issued Acquisition
Slide 19: Net Debt
Net Debt £ million H1 23 H1 22 Net (decrease)/increase @AER in cash and cash equivalents Foreign exchange translation and (159) 1,523 other items of £136m primarily Debt related cash flows 3 (1,607) due to the weakening of the IFRS 16 liability movement (7) 1 Dollar against Sterling Debt acquired 18
Slide 20: Technical guidance update for FY 23
Technical guidance update for FY 23 P&L Cash Flow • Restructuring costs ex Terminix: c.£10m (previously c.£7m) • Overall exceptional items: c.£135m-£145m*** • Deal related costs and costs to achieve*: c.£80-£100m (previously c.£75m-£90m) due to the 24 deals in H1 • Working Capital: c.-£60m (previous
Slide 21: Strong overall financial performance
Strong overall financial performance ✓ Organic Revenue growth of 5.9%, reflecting growth across all regions 4.1% organic growth in North America, achieved alongside the integration programme. H2 North America organic growth expected to be broadly in line with H1 ✓ Increase in Group margin by 150bps
Slide 22: Excellent Operational and Financial Performance in H1
Interim Financial Results Excellent Operational and Financial Performance in H1 Andy Ransom CEO PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET
Slide 23: ESG: Record Safety Performance
ESG: Record Safety Performance H1 safety performance across the Group at world class levels 2008 Relentless focus on all aspects of 50.8 WDL The rate of working days lost due to health and safety safety, particularly safe driving injuries, per 100,000 hours worked, has fallen from 50.8 in 2008 and 1
Slide 24: ESG: Employer of Choice - Relentless Focus
ESG: Employer of Choice - Relentless Focus 6 consecutive months of improvement in colleague retention Colleague retention, recruitment and management development making good progress. Group Colleague Retention up by 2.6% points in H1 to 82.0% (2022: 79.5%) Note: Data includes Terminix. Careers Plus
Slide 25: ESG: Focus on Reducing our Environmental Impacts
ESG: Focus on Reducing our Environmental Impacts H1 progress against plan with actions underway in all Regions Reducing our climate impacts through our operations and services. Lower carbon emission operations 1,600 ultra-low emission vehicle (ULEV) in operations including 100% electric and plug-in
Slide 26: H1 2023 Pest Control
H1 2023 | Pest Control 5.6% Organic Growth in H1 (target of 4.5% - 6.5% over the medium term) 91.5% Revenue growth vs H1 2022 91% revenues in Growth markets: +100.8%. 9% in Emerging markets: +28.1%. 8 Year 8 Year CAGR 22.0% CAGR 23.9% 5.6% Organic Growth In line with medium term target. 4.1% in NA (
Slide 27: Pest Control: Digital Leaders
Pest Control: Digital Leaders PestConnect: Premium IoT service for commercial customers 350,000 PestConnect unit growth of over 20% year on year to c. 319,000 in 18,000 sites. 300,000 250,000 PestConnect Products: RADAR, DualAutogate and Rat Riddance. 200,000 150,000 Scale: Six countries with Connec
Slide 28: New: World’s Smartest Mousetrap
New: World’s Smartest Mousetrap PESTCONNECT RADAR X • New propritary PestConnect solution to protect businesses from mice. • Integrated multi-mouse detection, capture and alert solution. • Continuous 24/7, 365 days protection & monitoring against pests. • More sustainable – long battery life, less p
Slide 29: Pest Control: Investment in Innovation and Training
Pest Control: Investment in Innovation and Training New North American Innovation Centre in Dallas New pest control innovation centre in line with commitment made at the time of Terminix announcement. Innovation Centre focuses on residential, termite, vector control and sustainable fumigation. • Com
Slide 30: H1 2023 Hygiene and Wellbeing
H1 2023 | Hygiene and Wellbeing 5.2% Organic Growth in H1 (target of 4% - 6% over the medium term) Revenue up 7.2% vs H1 2022 Incl. COVID Disinfection services: +3.8% vs H1 2022. Organic Growth of 5.2% 8 Year 8 Year Core Washrooms: 6.1%; Enhanced Environments: 5.8%; CAGR 6.3% CAGR 7.6% Premises Hygi
Slide 31: H1 2023 Hygiene and Wellbeing
H1 2023 | Hygiene and Wellbeing High quality products inside the washroom Two washroom ranges with no-touch and Colour options. 21 products in Signature and 26 in Reflection to support up-sell including in-cubicle, out-of-cubicle and hand-hygiene solutions. Signature Range of 21 products Addresses a
Slide 32: H1 2023 Hygiene and Wellbeing
H1 2023 | Hygiene and Wellbeing Enhanced Environments – H1 Organic Growth of 5.8% Interior and exterior services to improve the customer experience through plants, premium scenting, air quality monitoring and green walls. Ambius in H1: Revenue up 12.4% and adjusted operating profits up by 5.8%. Prem
Slide 33: H1 2023 Workwear
H1 2023 | Workwear Strong performance in H1 2023 8 Year 8 Year Revenue growth of 16.3%, all Organic growth. CAGR 1.9% CAGR 0.9% Adjusted Operating Profit growth of 34.1%. Adjusted Operating Margin: 16.9% (+220bps). Strong new business sales performance (including Key Account gains) and upselling in
Slide 34: H1 2023 M&A: Value creating acquisitions
H1 2023 | M&A 24 deals with acquired revenues of £79m for a spend of £202m Value creating acquisitions in Growth and Emerging markets Pest Control: 19 deals with acquired annualised revenues of c.£54m. Hygiene and Wellbeing: 5 deals with annualised revenues of c.£24m (medium term target of £25m+ p.a
Slide 35: North America Pest Control
North America Pest Control Creating a power house business in the world’s largest pest control market 27 July 2023 PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET 35
Slide 36: The Leaders in Pest Control
The Leaders in Pest Control Terminix adds scale, expertise and attractive financial opportunities to our model Non-cyclical, Growth Market Pest Control medium-term growth drivers include demographics, regulation increase, economic activity and increasing pest burden / climate. US accounts for over 5
Slide 37: Terminix Delivers Significant Net Cost Synergies
Terminix Delivers Significant Net Cost Synergies Incremental P&L Impact by year Cumulative Achieved H1 2023 2023 2024-25 2022-25 2022 On Track Selling, General and Admin Expenses: $15m $78m $55m $148m Sales productivity / Procurement / support functions Field Operations: - $12m $115m $127m Branch Co
Slide 38: Selling, General and Administrative expenses (SG&A)
Selling, General and Administrative expenses (SG&A) Key initiatives to drive efficiency, cost and scale – selling, procurement and support functions Best Practice Up-Sell On Track: $40m gross cost synergies delivered in H1 ‘23 Sales Productivity Sharing & Lead Share • Procurement plan on track: Sing
Slide 39: Field Operations
Field Operations Key initiatives to drive density, operational / branch excellence Before After H1 2023: Co-Location Project On Track • 64 properties exited to date, 100+ in total by the end of 2023 Two pilot branch integrations undertaken in H1 • 44 in H1 as part of branch co-location within Rentok
Slide 40: Field Operations: Preparing for 2024 Integration
Field Operations: Preparing for 2024 Integration Two branch integration pilots undertaken – people, customers, technology, properties and brands Pilots Pilot One Pilot Two ● Two heritage Rentokil areas with c.$65m / c.$97m revenue, Pest Brands 4 ▶ 1 5 ▶ 1 which have grown through local acquisition a
Slide 41: Field Operations: Preparing for 2024 Integration
Field Operations: Preparing for 2024 Integration Series of pilots and parallel running of systems in H2 ahead of first full integration in Q1 ‘24 Key projects to be tested and piloted in H2 To minimise risk, critical projects such as the people management system and single pay plan pilot will be del
Slide 42: Field Operations: Preparing for 2024 Integration
Field Operations: Preparing for 2024 Integration Analysis of branch size optimisation undertaken Before After Detailed analysis of North America branch network shows a clear link between branch size/density and net operating margins. Branches analysis: Across our network of +600 branches, we have +1
Slide 43: Investments
Investments Investments – alignment and marketing & innovation to enable successful integration Investment of $9m in H1 2023 Management Benefits PPE H1 investments included: Pay • Harmonisation of management pay • Safety policy and operational PPE alignment • Sales colleague investments • Investment
Slide 44: Termite Control
Termite Control Improved trends – continued focus and operational improvements Total filed warranty claims reduced: 12% reduction on H1 2022 3500 and by 47% since 2019. 3000 Open warranty claims reduced: 24% reduction on H1 2022 and by 2500 48% since 2019. 2000 Total filed warranty claims in the For
Slide 45: North America Employer of Choice Key Enablers
North America Key Enablers Employer of Choice HR Project Senior org design & Project Summary Completion Completed. Organisation design finalised and leadership positions appointed. talent Significant progress against Benefits Harmonised benefits eg 401 (K). Consistent approach for holidays, sick pay
Slide 46: North America Employer of Choice
North America Employer of Choice Best of Breed Significant improvement in 45% Overall 55% retention from close and in H1 Terminix H1 2023: 3.9 ppts improvement vs FY22. 62% Upper 38% 6 consecutive months of improvement in service technician retention. Terminix since close: 47% Middle 53% 5.3 ppts in
Slide 47: North American IT and Technology
North American IT and Technology Good progress has been made across all 24 IT workstreams during H1 2023. IT enablement to support the branch co-location has been successfully completed according to plan. The migration of all 12.5k Terminix colleagues to Google Workspace has been successfully comple
Slide 48: North America Growth drivers and enablers
North America Growth drivers and enablers 1. Customer 4. Customer 5. Customer 2. Pricing 3. Innovation Retention Penetration Acquisition • World Class • Segmentation • NA innovation • Up-sell core services • Residential customer experience • Market-based centre • Inside / outside marketing • Rentoki
Slide 49: H1 2023 Summary
H1 2023 | Summary Excellent Financial and Operational Performance Strong organic revenue growth and margin expansion ✓ +65.3% growth in Revenue and +5.9% Organic growth (5.6% in Pest; 5.2% in H&W; and 16.3% in Workwear) ✓ +81.7% increase in Adjusted Operating Profit ✓ 16.3% Adjusted Operating Margin
Slide 50: Clear strategy to deliver growth and margin expansion
Clear strategy to deliver growth and margin expansion Annualised net cost synergies of at least $200m by end 2025 Group Organic Growth of 5.0%+ Organic growth in our US Pest Control business of 1.5x US industry post integration Group Adjusted Operating Margin greater than 19.0% in 2025 90%+ cash con
Slide 51: Appendix
Appendix PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET
Slide 52: Alternative Performance Measure Reconciliation
Alternative Performance Measure Reconciliation Revenue and Adjusted Operating Profit - AER vs CER PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET 52
Slide 53: Alternative Performance Measure Reconciliation
Alternative Performance Measure Reconciliation Operating Profit to Adjusted Profit Before Tax PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET 53
Slide 54: Alternative Performance Measure Reconciliation
Alternative Performance Measure Reconciliation Adjusted Free Cash flow Conversion % PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET 54
Slide 55: H1 2023 M&A: Building rural pest management expertise in New Zealand
H1 2023 | M&A Building rural pest management expertise in New Zealand Predator Free 2050 is a national goal to rid New Zealand of the most damaging introduced predators that impact on the environment. Encompasses large scale pest control projects: On private and public estate for environmental and e
Slide 56: PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET
PROTECTING PEOPLE ENHANCING LIVES PRESERVING OUR PLANET