Rentokil Initial Plc · LSE:RTO
Rentokil Initial — FY2008 Earnings Presentation
56 slides from Rentokil Initial's earnings presentation, Feb 20, 2009
Slide 1: Preliminary Results 2008
. Preliminary Results 2008 20 February 2009 1
Slide 2: Agenda
Agenda Introduction John McAdam Financial Performance 2008 Michael Murray Strategy and 2009 priorities Alan Brown Q&A 2
Slide 3: Introduction
Introduction John McAdam Chairman 3
Slide 4: Alan Brown, Chief Executive
&> Rentokil Initial Alan Brown Chief Executive
Slide 5: Summary for 2008, Outlook for 2009
Summary for 2008, Outlook for 2009 Extremely challenging year for RTO, driven primarily by implementation failures – APBITA reduction of £137m, predominantly in Turnaround businesses • City Link £88m • UK Washrooms £14m • UK Pest, Australia, Other £35m – Customer Service breakdown in Turnaround busi
Slide 6: Financial Performance 2008
Financial Performance 2008 Michael Murray Chief Financial Officer 6
Slide 7: Financial Highlights
Financial Highlights Constant exchange rates Q4 FULL YEAR 2008 2007 2008 2007 £m £m £m £m £m £m Revenue 569.9 572.2 (2.3) 2,252.9 2,203.4 49.5 % change (0.4) 2.2 PBITA 31.9 62.5 (30.6) 123.6 251.1 (127.5) Add back one-off items 16.1 18.1 (2.0) 19.3 28.4 (9.1) Adjusted PBITA 48.0 80.6 (32.6) 142.9 27
Slide 8: Adjusted PBITA
Adjusted PBITA Constant exchange rates Q4 FULL YEAR 2008 2007 2008 2007 £m £m £m £m £m £m City Link (4.0) 6.3 (10.3) (43.5) 44.8 (88.3) Textiles & Washrooms 24.7 27.0 (2.3) 85.9 108.5 (22.6) Pest Control 12.2 17.7 (5.5) 59.7 65.5 (5.8) Facilities Services 12.9 11.5 1.4 40.8 38.9 1.9 Asia Pacific 5.6
Slide 9: City Link
City Link Q1 Q2 Q3 Q4 FULL FULL YEAR YEAR 2008 2007 £m £m £m £m £m £m Revenue 95.2 96.1 93.4 97.2 381.9 417.1 Recurring costs (101.5) (106.4) (105.0) (101.2) (414.1) (372.3) Non-recurring costs 1 (9.1) (2.2) - - (11.3) - Total costs (110.6) (108.6) (105.0) (101.2) (425.4) (372.3) Adjusted PBITA (15.
Slide 10: Initial Textiles & Washroom Services
Initial Textiles & Washroom Services Constant exchange rates Portfolio YOY ave. price change in Revenue £m Increase adjusted 2008 2007 % % PBITA Change £m France 235.6 222.4 5.9 +1.0% Netherlands 76.0 75.8 0.3 +2.1% Belgium 72.3 68.2 6.0 +4.8% Germany 1 69.4 68.3 1.6 +0.7% Other businesses 91.4 88.5
Slide 11: UK Washrooms
UK Washrooms Q1 Q2 Q3 Q4 FULL FULL YEAR YEAR 2008 2007 £m £m £m £m £m £m Revenue 1 18.2 17.0 16.5 15.9 67.6 82.3 Costs 16.2 17.7 17.9 15.0 66.8 73.3 Additional bad debt - - 6.0 - 6.0 - provision Total cost 16.2 17.7 23.9 15.0 72.8 73.3 Adjusted PBITA 1 2.0 (0.7) (7.4) 0.9 (5.2) 9.0 Movement in portf
Slide 12: Rentokil Pest Control
Rentokil Pest Control Year on Constant exchange rates Revenue Retention Year change in rates adj. PBITA 2008 2007 % 2008 2007 £m £m % % USA 108.8 92.1 18.1 78.6 82.1 Europe 142.2 126.6 12.3 87.0 87.0 UK 64.0 65.3 (2.0) 76.6 81.8 Other businesses 20.8 18.7 11.2 90.9 91.2 335.8 302.7 10.9 82.3 84.5 (5
Slide 13: UK Pest Control
UK Pest Control 2007 2008 H1 £m H2 £m H1 £m H2 £m Revenue 31.2 34.1 32.7 31.3 Year on year change in adjusted PBITA (2.1) (1.3) (2.2) (5.0) Portfolio net gain / (loss) 0.3 1.0 (0.2) (2.9) Contract retention rate (%) 84.3% 79.6% 81.9% 71.2% 13
Slide 14: Initial Facilities Services
Initial Facilities Services Constant exchange rates Year on year change Revenue Retention in adj. PBITA 2008 2007 % 2008 2007 £m £m % % Cleaning 1 383.5 377.0 1.7 89.2 85.7 ↓ Catering 59.5 59.7 (0.3) n/a n/a ↑ Hospitals 65.0 62.8 3.5 83.3 93.4 ↑ Other businesses 97.1 86.7 12.0 86.3 82.8 605.1 586.2
Slide 15: Rentokil Initial Asia Pacific
Rentokil Initial Asia Pacific Constant exchange rates Revenue Retention Year on year change in adj. PBITA 2008 2007 % 2008 2007 £m £m % % Asia 82.2 66.5 23.6 85.6 80.8 ↓ Pacific 1 97.7 91.5 6.8 87.2 89.1 ↓↓ 179.9 158.0 13.9 86.5 86.1 (9.3) 1 Australia, NZ, Fiji 15
Slide 16: Interest
Interest Actual exchange rates 2008 2008 2007 H1 Q3 Q4 FY FY £m £m £m £m £m Net interest on bank/bond/finance lease (29.9) (16.8) (19.4) (66.1) (69.5) debt (after hedging) Expected return on pension scheme 30.1 15.3 16.3 61.7 52.3 assets Interest on pension scheme liabilities (27.0) (13.5) (13.6) (5
Slide 17: Interest Rate Fixings for 2009
Interest Rate Fixings for 2009 (a)100% fixed. Bond and syndicated facility interest for Jan & Feb = £9.9m in total (b)60% fixed bond interest for Mar to Sept incl. = £23.4m (NB 2016 bond swapped to floating at time of issue) (a) (c)30% fixed bond interest for Oct to Dec incl. = £5.2m (NB: all intere
Slide 18: Taxation
Taxation At actual exchange rates 2008 2007 £ % £ % Profit before tax (continuing ops) 22.8 100.0 142.0 1 00.0 Explanation of tax charge Expected charge1 7.2 31.6 42.6 30.0 Recurring factors affecting tax charge (0.2) (0.9) (4.3) (3.1) 7.0 30.7 38.3 26.9 Deferred tax on unremitted profits - - 0.7 0.
Slide 19: Operating Cash Flow
Operating Cash Flow Actual exchange rates £ million 2008 2007 Adjusted PBITA – continuing businesses 167.2 279.5 Adjusted PBITA – discontinued business 1 5.0 25.5 One-off items (19.6) (28.4) Depreciation 190.8 156.6 Non-cash items 2 4.9 (6.2) EBITDA 348.3 427.0 Working Capital-divisions 15.5 (18.4)
Slide 20: Free Cash Flow and Movement in Net Debt
Free Cash Flow and Movement in Net Debt Actual exchange rates £ million 2008 2007 Operating cash flow 129.5 188.1 Cash interest (67.3) (58.9) Cash tax (27.3) (27.1) Free cash flow 34.9 102.1 Dividend (106.7) (133.4) Acquisitions 1 (40.9) (197.4) Disposals (2.1) 596.8 Pension deficit reduction paymen
Slide 21: Net Debt
Net Debt At 31/12/08 1 £m Underlying debt currency split Committed bank facility drawings (436.2) (Total facilities £625m) Net cash (incl. finance leases) 26.6 34% € £50m FRN (L+3.25%) 2013 (49.8) £ 66% £75m reset bond (L+3.98%) 2013-33 (75.5) €500m 4.625% bond 2014 (487.7) Synthetic currency mix of
Slide 22: Financing
Financing Headroom: – £500m RCF, expires Oct 2012, drawn margin between LIBOR +37.5 bps and LIBOR +100 bps - £436m drawn at year end – £125m RCF, extendable at our sole option to 30 September 2010, drawn margin at current credit rating LIBOR +300 bps. Replaces previous £252m facility which would hav
Slide 23: Finally…. Changes to reporting segments
Finally…. We will be making some changes to our reporting segments with effect from 1Q 2009 due to the introduction of IFRS 8. This will align our internal and external reporting structures. Comparative figures will be restated. Main changes are: – Transfer of UK washrooms from Textiles and Washroom
Slide 24: Group Strategy and 2009 Priorities
Group Strategy and 2009 Priorities Alan Brown Chief Executive 24
Slide 25: Our Mission
Our Mission To deliver added value services to our customers in Pest Control, Washrooms, Textiles, Facilities, Plants and Parcels through our network of over 1000 branches Quality of Service Excellence Relationship Management Highest Standard Global Reach and of Professional Category Advice Leadersh
Slide 26: Vision & Values
Vision & Values We want to be the Best at What we Do by doing what’s right for our customers and colleagues We keep WeWe We support our promises communicate communicate our colleagues 26
Slide 27: Goals
Goals Group Goals 2008 Colleague engagement (Rentokil & Ambius) [73%] COLLEAGUES Sales colleagues retention [63%] Service colleague retention [66%] H&S LTA rate [1.8] Gross sales % of opening portfolio 18.9% Customer retention % 80.9% Net gain % of opening portfolio 2.9% Job sales % of total revenue
Slide 28: Goals
Goals Group Goals 2008 Colleague engagement (Rentokil & Ambius) [73%] COLLEAGUES Sales colleagues retention [63%] Service colleague retention [66%] H&S LTA rate [1.8] Gross sales % of opening portfolio 18.9% Customer retention % 80.9% Net gain % of opening portfolio 2.9% Job sales % of total revenue
Slide 29: Strategic Thrusts
Strategic Thrusts 1. Delivering 2. Developing the 3. Delivering Outstanding Capability of our Operational Customer Service Organisation and Excellence in all People our processes and functions 4. Operating at 5. Delivering lowest possible Profitable cost consistent Growth through with our service or
Slide 30: Strategic Thrust: Delivering Outstanding Customer Service
Strategic Thrust 1 Delivering Outstanding • Drive customer service across all our businesses Customer Service • Ensure personal accountability for customer relationships • Instilling Values & Behaviours - Service, Relationships & Teamwork 30
Slide 31: Customer Service – City Link
Customer Service – City Link City Link - State of Service 100% 99% 98% 97% Average Service Level % 96% 95% 94% 93% 92% 91% 90% 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Week All Service Timed Service Service Standard 31
Slide 32: Customer Service – UK Washrooms
Customer Service – UK Washrooms UK Washrooms - State of Service Monthly Service Performance 2008 100% 95% 90% % 85% 80% 75% 70% Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Months 32
Slide 33: Customer Service – UK Pest Control
Customer Service – UK Pest Control UK Pest Control - State of Service 100.0% 98.0% 96.0% 94.0% 92.0% % 90.0% 88.0% 86.0% 84.0% 82.0% Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Month 33
Slide 34: Customer Relationships in City Link
Customer Relationships in City Link Avg. no. of Annualised Revenue per week customers revenue % 19,239 No. Rev. £382m >£5k TIER 1 197 1% 40% £152m Directors or Regional TIER 2 £1-5k DGM Responsibility 989 5% 24% £92m TIER 3 £250-1k Sales (Field) Responsibility 2851 15% 18% £69m TIER 4 <£250 Sales (I
Slide 35: Strategic Thrust: Developing Capability of Organisation and People
Strategic Thrust 2 Developing the Capability of our • Establish Category Capability - Pest Control, Organisation and Washrooms, Ambius People • Develop common information systems & processes • Drive Performance Management, Global Grading & HRIS • Upgrade functional & operational management 35
Slide 36: Developing Capability
Developing Capability 2009 P&L investment c. £20m Service - £5m – Delivering World Class Customer Service programme in pest control – Improving customer care offering in City Link Capability - £3m – Improving sales capability, particularly in pest control – Improving service systems and processes Op
Slide 37: Strategic Thrust: Delivering Operational Excellence
Strategic Thrust 3 Delivering Operational • Consistent KPIs across and down the organisation Excellence in all our processes • Consistent Operating Framework and functions • Common systems across our businesses • Fix City Link • Fix UK Pest & Washrooms • Fix Australia Pest & Washrooms 37
Slide 38: Objectives for City Link
Objectives for City Link Deliver £30m cost savings – Pallet cage & curtain side trailer investment H1 2008 – Depot rationalisation – from 100 to 86 in 2009/10 – Massive reduction in credits and ‘DMB’ guarantees – Full year benefit of reduction in people (1000) and vehicles (400) – Additional reducti
Slide 39: Objectives for UK Pest Control
Objectives for UK Pest Control Reverse decline in revenue – Establish tier contact model to improve customer relationships – Capitalise on major improvement in service – Complete competitiveness study – Fix poorly performing branches – Drive sales performance agenda Continue improvement in Accounts
Slide 40: Objectives for UK Washrooms
Objectives for UK Washrooms Reverse decline in revenue – Establish tier contact model to improve customer relationships – Capitalise on major improvement in service – Drive sales performance agenda Continue improvement in Accounts Receivable collection Generate major improvement in service productiv
Slide 41: Strategic Thrust: Operating at Lowest Possible Cost
Strategic Thrust 4 Operating at lowest possible cost consistent with our service • Driving down administration costs objectives • Reducing Days Sales Outstanding and delivering maximum cash • Increasing service agent productivity • Delivering procurement savings • Increasing European textile process
Slide 42: Driving Down Administration Costs
Driving Down Administration Costs Administration costs £500m, 20% of revenue Significant opportunity to improve service and reduce cost Design principles: – Branch accountability for customer facing activities – Country back office administration centres (by division in large RTO countries) – Global
Slide 43: Reducing Days Sales Outstanding
Reducing Days Sales Outstanding Target to reduce DSO from 65 to 59 by end 2009 – All management bonus linked to cash conversion – Cash collection the responsibility of front line management, not just credit controllers – Upgrade quality of credit management – Introduce best practice processes includ
Slide 44: Increasing Textiles Processing Productivity
Increasing Textiles Processing Productivity Initial A T Kearney / RTO management report on modern Lokeren facility indicates: – On-site savings of 12.5% of processing & distribution costs, which account for 45% of revenue, with payback of 1.5 years – Capacity utilisation of 45% on a two-shift basis
Slide 45: Strategic Thrust: Delivering Profitable Growth
Strategic Thrust 5 Delivering Profitable Growth through organic and • Sales productivity: acquisitive • improve targeting of new customers actions • increase focus on selling to existing customers • better people selection & training • Marketing: • improve competitiveness in UK Pest • continued prod
Slide 46: Group Priorities for 2009
Group Priorities for 2009 Service – Build on the improvements in state of service – Develop customer relationships, using tier tool to define the level of the relationship Capability – Invest in systems, people and the operating framework – Drive the functional agendas Operational excellence – World
Slide 47: Summary for 2008, Outlook for 2009
Summary for 2008, Outlook for 2009 Extremely challenging year for RTO, driven primarily by implementation failures – APBITA reduction of £137m, predominantly in Turnaround businesses • City Link £88m • UK Washrooms £14m • UK Pest, Australia, Other £35m – Customer Service breakdown in Turnaround busi
Slide 48: Questions
&> Rentokil Initial Questions 48
Slide 49: Appendices
APPENDICES 2008 Preliminary Results 49
Slide 50: 2008 Gross Capex
2008 Gross Capex Equipment Land and Plant and Actual ROE for Rental Buildings Equipment Vehicles Other Total £m £m £m £m £m £m Washrooms & Textiles 114.2 7.9 17.6 12.0 3.1 154.8 Pest Control 1.7 0.4 0.7 8.1 1.9 12.8 Ambius 9.0 0.9 0.3 2.3 0.5 13.0 City Link - 2.6 2.1 - 5.1 9.8 Facilities Services 0.
Slide 51: Restated 2008 segmental results at AER
Restated 2008 segmental results at AER 3 months to 31 6 months to 9 months to 12 months to March 30 June 30 September 31 December 2008 2008 2008 2008 (2008 actual exchange rates) £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) Revenue Textiles & Washroom Services 168.2 343.1 519.9 711.1
Slide 52: City Link Combined Weekly Network Revenue
City Link - Combined Weekly Network Revenue 13 week Moving Average: Combined 13 week MA: Network Combined Network Revenue -Revenue – 2006, 2007 & 2008 2006, 2007 & 2008 9.0 8.5 8.0 Revenue £ M 7.5 7.0 6.5 8 8 8 8 8 08 8 8 8 8 8 8 08 8 8 8 8 8 08 08 /0 /0 /0 /0 /0 /0 /0 /0 /0 0 0 0 0 0 0 0 4/ 5/ 6/ 6
Slide 53: City Link Combined Weekly Network Revenue
Revenue £ M 04 / 01 / 5.5 6.5 7.5 8.5 9.5 08 18 /0 1/ 08 01 /0 2/ 0 8 15 / 02 /0 8 Q1 29 / 02 / 08 14 /0 3/ 08 28 /0 3/ Easter 08 11 /0 4/ 08 25 /0 4/ 08 09 /0 5/ 08 23 /0 5/ Q2 08 06 /0 6/ 08 20 /0 May Bank Holiday 6/ 08 2006 04 /0 7/ 08 18 /0 7/ 08 2007 Combined Weekly Network Revenue 01 /0 8/ 08
Slide 54: Initial Textiles & Washroom Services Portfolio Organic Net Gain
Initial Textiles & Washroom Services Portfolio Organic Net Gain (Moving Annual Totals) 30 25 20 15 £m 10 5 0 -5 -10 Q1 06 Q2 Q3 Q4 Q1 07 Q2 Q3 Q4 Q1 08 Q2 Q3 Q4 Continental Europe UK 54
Slide 55: Ambius
Ambius Constant exchange rates Year on year change Revenue Retention in adj. PBITA 2008 2007 % 2008 2007 £m £m % % Europe 47.4 44.6 6.3 86.8 88.8 North America 61.3 62.8 (2.4) 86.3 86.7 108.7 107.4 1.2 86.5 87.7 (1.1) 55
Slide 56: Foreign Exchange Impact: 2008 APBITA and Net Assets
Foreign Exchange Impact : 2008 APBITA and Net Assets 2008 adj. PBITA Net Assets Euro US $ £ Euro US $ £ rate Rate m rate Rate m Constant 2007 1.46 2.00 142.9 - - - Reported 2008 1.26 1.85 167.2 1.04 1.46 (61.9) 56