Rentokil Initial Plc · LSE:RTO
Rentokil Initial — FY2013 Earnings Presentation
62 slides from Rentokil Initial's earnings presentation, Feb 28, 2014
Slide 1: 2013 Performance & Strategic Review
2013 Performance & Strategic Review Andy Ransom, Chief Executive Jeremy Townsend, Chief Financial Officer 28 February 2014 1
Slide 2: Forward-looking statements
This presentation contains statements that are, or may be, forward-looking regarding the group's financial position and results, business strategy, plans and objectives. Such statements involve risk and uncertainty because they relate to future events and circumstances and there are accordingly a nu
Slide 3: 2013 Operating & Financial Review
2013 Operating & Financial Review John McAdam, Chairman 3
Slide 4: 2013 Operating & Financial Review
2013 Operating & Financial Review Andy Ransom, Chief Executive 4
Slide 5: Agenda For Today
Agenda For Today 2013 Operating & Financial Review Initial Facilities The Right Way - A Differentiated Plan for Shareholder Value • Operational & Financial • Deal Rationale • Business Context Highlights • Key Facts & Figures • Our New Plan: The Right Way • Review of Regional Performance • Balance Sh
Slide 6: 2013 Financial Highlights
2013 Financial Highlights At constant exchange rates • 2013 revenue, profit and cash performance in line with expectations • Revenue £2.3bn (+3.2%), reflecting contribution from Western acquisition: − Quarter on quarter improvement in organic growth in core businesses: +1.1% in Q4, +0.5% for the yea
Slide 7: 2013 Operating & Financial Review
2013 Operating & Financial Review Jeremy Townsend, Chief Financial Officer 7
Slide 8: Financial Highlights (Continuing Operations)
Financial Highlights (Continuing Operations) Q4 £ million FY 2013 2012 2013 2012 £m £m £m £m Revenue at CER 579.6 570.6 1.6% 2,297.6 2,226.7 3.2% Adjusted PBITA at CER 78.9 76.2 3.5% 257.4 247.3 4.1% Adjusted PBTA at CER 63.8 63.5 0.5% 204.1 203.3 0.4% Adjusted PBTA at AER 62.6 62.9 (0.5%) 206.2 203
Slide 9: West Region
At constant exchange rates West Region • Revenue +17.9% (+0.9% organic), profit +14.8%: % Group Revenue % Adj. PBITA2 - Revenue and profit growth driven largely by North America through 2012 acquisition of Western Exterminator 31.4% 35.2% - UK & Ireland revenue adversely impacted by tough economic c
Slide 10: East Region
At constant exchange rates East Region % Group Revenue % Adj. PBITA2 • Revenue -2.1% (-0.4% organic), profit -2.1%: - Continuation of difficult trading conditions in Europe 40.8% 54.7% - Benelux impacted by significant pricing pressure - Steady performance in workwear and hygiene in France supported
Slide 11: Asia Region
At constant exchange rates Asia Region • Revenue +7.0% (+7.2% organic), profit +32.8%: - Good performances from pest and hygiene categories, % Group Revenue % Adj. PBITA2 reflecting ongoing market development - Combined revenue growth of 37% from India, China and Vietnam - Mid-single digit revenue g
Slide 12: Interest
At actual exchange rates Interest £ million FY 2013 FY 2012 Interest per Income Statement (60.0) (48.6) Net Debt 1,035 989 Average net debt 1,012 954 Average interest rate on bank/bond/finance/lease debt 5.9% 5.1% Interest on bonds/finance lease/RCF (61.6) (51.2) Gross debt 1,471 1,212 Average gross
Slide 13: Operating Cash Flow
At actual exchange rates Operating Cash Flow £ million FY 2013 FY 2012 Adjusted PBITA 261.9 247.3 1 Profit on sale of fixed assets, Reorganisation costs and one-off items (63.7) (48.0) IFRS 2 etc. 2 Property, plant, vehicles Depreciation 205.2 197.1 Non-cash items1 10.8 16.8 EBITDA 414.2 413.2 Worki
Slide 14: Free Cash Flow and Movement in Net Debt
At actual exchange rates Free Cash Flow and Movement in Net Debt £ million FY 2013 FY 2012 Operating cash flow 118.2 157.0 Cash interest (51.2) (44.2) One-off items – financing - (31.4) Special pension contributions (13.6) (12.5) Financing - other 1.2 2.1 Cash tax (37.2) (35.6) Free cash flow 17.4 3
Slide 15: 2014 Guidance
2014 Guidance • Central and divisional overheads below £70m in 2014 (£10m reduction on 2013 H1 run-rate) • Interest cost £50m – reflecting benefit of 2012 and 2013 refinancing • Exchange rate volatility - c.£15m adverse impact to P&L from strengthening of Sterling • P&L impact of restructuring costs
Slide 16: Outlook
Outlook • Trading conditions expected to remain challenging across Europe (particularly Benelux); cost efficiencies expected to offset margin pressure • Material improvement anticipated in free cash flow as restructuring and capex levels significantly reduced • Divestment of Initial Facilites, toget
Slide 17: The sale of Initial Facilities to Interserve Plc
The sale of Initial Facilities to Interserve Plc Andy Ransom, Chief Executive Jeremy Townsend, Chief Financial Officer 28 February 2014 17
Slide 18: Sale Rationale
Sale Rationale • Indicated in 2013 that Initial Facilities was non-core: site based, UK-centric and sub-scale • Disposal opportunity following market testing in late summer • Proceeds reflect a fair price for the business based on market multiples • Combined with 2013 sale of City Link, group can no
Slide 19: Profit on Disposal
At constant exchange rates Profit on Disposal £ million • Significant exceptional profit on disposal* Proceeds 250 Net Assets/deal costs (110) • No significant deal terms • 12 month transitional service agreement • Strong trading relationship to continue Profit on disposal 140 Net cash inflow 240 *
Slide 20: Key Financial Metrics – Profit
At constant exchange rates Key Financial Metrics – Profit 2013 IF Proforma 2013 £m £m £m Revenue 2,298 534 1,764 Organic Growth -1.2% -6.3% +0.5% Immediately improves group’s Net Operating Margin 11.2% 4.8% 13.1% financial metrics APBITA 257.4 25.8 231.6 although earnings dilutive in short Profit Be
Slide 21: Key Financial Metrics - Debt
Key Financial Metrics - Debt • Reduces net debt (immediate impact from £1.05bn to £0.80bn) • Impact on key credit metrics Covenant 2013 Proforma 2013 Net debt / EBITDA < 3.5 x 2.2 x 1.75 x Interest Cover >4x 8x 8x • Credit rating – investment rating ‘BBB- positive outlook’ prior to disposal – improv
Slide 22: Use of Sale Proceeds
Use of Sale Proceeds • Balance sheet flexibility for further M&A • Increased capacity for progressive dividend policy given reduced gearing combined with our plans for increase in underlying free cash flow • Debt reduction consistent with our medium-term intention to achieve BBB credit rating Delive
Slide 23: A Differentiated Plan for Shareholder Value
A Differentiated Plan for Shareholder Value Andy Ransom, CEO Jeremy Townsend, CFO 28 February 2014 23
Slide 24: Agenda
Agenda 1. Business Context 2. The New Plan:The RIGHT Way 3. Medium-Term Objectives • Last five years – significant • Building on the platform • Mid-single digit revenue growth, investment to address supported by M&A business challenges • Clear on how we will run the business to deliver profitable •
Slide 25: A platform to deliver profitable growth has been created
1. Business Context Business Context A platform to deliver profitable growth has been created 25
Slide 26: Significant Structural Change Over Last Five Years
Significant Structural Change Over Last Five Years Business Context Where We Were Action Taken Progress: 2008-2013 • Many businesses in decline • Intensive care businesses addressed • Core businesses returning to growth Business • Five businesses in intensive care • Disposals - City Link, Initial Fa
Slide 27: Building On This Platform To Deliver Profitable Growth
Building On This Platform To Deliver Profitable Growth Business Context • Operational challenges distracted from delivering the profitable growth agenda – Protracted period of change while addressing business challenges and culture – Had to be inwardly focused while fixing a broken system – Driving
Slide 28: Our plan to deliver profitable growth and shareholder value
2. The New Plan The New Plan Our plan to deliver profitable growth and shareholder value 28
Slide 29: Building On This Platform To Deliver Shareholder Value
Building On This Platform To Deliver Shareholder Value The New Plan Driving Higher Revenue Sustainable Profit Growth Increasing Cash Conversion • Focus on what we are good at: • Restructuring largely complete • Increase operating cash conversion - Our chosen categories • Significant reduction in cen
Slide 30: Bringing Focus Through Differential Strategies
Bringing Focus To What We Do Through Differential Strategies The New Plan High Emerging Growth Growth Potential Med Manage for Value Protect and Enhance Low Low Med High Profit Contribution 30
Slide 31: Business Profiling Matrix
Using our Business Profiling Matrix…. …to flex business strategies Emerging Growth High • Lower value/capita markets • Established markets • High GDP growth • Average or above GDP growth • High growth in pest & hygiene: Growth Potential - Growing middle class in • Often unconsolidated cities • Estab
Slide 32: The Rentokil Initial Model
The Rentokil Initial Model The New Plan Strong Regional Businesses • Europe Our Business • North America Organisation • Asia • Pacific • UK & Rest of World Category Leadership Our Colleagues As Experts Lean, Multi-Business Ops Our Core Competencies • Pest Control • Hygiene Branch Branch • Workwear S
Slide 33: Strong Regional Businesses
StrongRegional Strong RegionalBusinesses Businesses Strong Regional Businesses Logical Structure that Ends Period of Organisational Change Our Business Organisation… …Strong Regional Businesses 2013 Revenue (£m) • Five geographic regions run by experienced regional management teams. Europe 860 49% •
Slide 34: Building on Regional Strengths
StrongRegional Strong RegionalBusinesses Businesses Strong Regional Businesses Building on Regional Strengths Growth (3 yr CAGR to 2013) *Op Overview Revenue Op Profit Margin Highly profitable platform Europe +1.9% +2.0% 20% – Market Leadership in Pest and Number 2 in Hygiene and Workwear (& South A
Slide 35: Category Leadership
Category Leadership Category Category Leadership Focused On Three Core Categories Rentokil Pest Control Initial Hygiene Initial Workwear • Our Lead Category • Complementary to Pest • A good business to be in – Worldwide market leadership – Linked offer in Environmental Health – Leading player in Eur
Slide 36: Highly Trained & Motivated People
Highly Trained & Motivated People People Colleagues Key To Category Expertise and Outstanding Service Our Colleagues as Experts Our Managers as Entrepreneurs 0.1% • Our core strength is our ability to recruit, train • We recruit managers who are Commercial, and motivate our Front Line Colleagues Ent
Slide 37: Lean Operational Model
Lean Operational Model Lean Ops Lean Ops Single management team, integrated operations Standard technology for Standard sales model improving efficiency Standard marketing model Standard IT, admin Standard technical model support , integrated A structured innovation back office, one programme that r
Slide 38: Building On Our Core Competencies
Building On Our Core Competencies People Category Category Colleagues Leadership Lean Lean Ops Operations Delivering Best Practice Across The Group Core Operational Competencies Smaller Centre • Depth of insight in our chosen categories Category • Innovation and collective best practice Group Govern
Slide 39: Managing for Profitable Growth
Managing for Profitable Growth Back-to-Basics: From Capability Building to Execution Growth Growth Levers Levers Objective Examples of Value Potential The Right Offer for the Right Customers Signature: 17% increase in services per Our Offer Targeting 1. Where to Play Innovating to build our Future O
Slide 40: Managing the Portfolio for Growth
Managing the Portfolio for Growth Differential Differential Differentiated Plan for Driving Shareholder Value Strategies Strategies Emerging Growth 2013 Revenue • Categories: • Categories: Growth High - Pest - Pest Emerging 40% - Hygiene - Hygiene 7% • Geographies: - Cleanroom (Workwear) MfV Growth
Slide 41: Emerging: Build Leading Positions In Pest & Hygiene
Managing the Portfolio for Growth Differential Differential Emerging: Build Leading Positions In Pest & Hygiene Strategies Strategies Emerging • Categories: Rev: £117m Op Profit: £16.3m 2010-13 CAGR - Pest Op Margin: 13.9% 13.7% - Hygiene Other Other 9.1% • Geographies: Lat Am E Europe Lat Am E Euro
Slide 42: Manage for Value: Aggressive Cost Management
Managing the Portfolio for Growth Differential Differential Manage for Value: Aggressive Cost Management & Selective Divestments Strategies Strategies Manage for Value • Categories: Rev: £144m Op Profit: £20.7m 2010-13 CAGR - Ambius Op Margin: 14.3% Other Other 1.5% • Geographies: Ireland Ireland -
Slide 43: Growth: Deploy All Levers and Bulk Up With M&A
Managing the Portfolio for Growth Differential Differential Growth: Deploy All Levers and Bulk Up With M&A Strategies Strategies Growth • Categories: Rev: £697m Op Profit: £118.2m 2010-13 CAGR - Pest Op Margin: 17.0% 7.5% - Hygiene 6.3% 8.7% - Cleanroom (Workwear) Other Other Germany Germany • Geogr
Slide 44: Protect & Enhance: Building Profit and Cash
Managing the Portfolio for Growth Differential Differential Protect & Enhance: Building Profit and Cash Contribution Strategies Strategies Protect & Enhance • Categories: Rev: £806m Op Profit: £159.5m 2010-13 CAGR - Hygiene Op Margin: 19.8% 2.1% 2.2% - Workwear Other Other 1.1% Pacific Pacific Nordi
Slide 45: M&A: Putting Our Money Where Our Plan Is
Managing the Portfolio for Growth Differential Differential M&A: Putting Our Money Where Our Plan Is Strategies Strategies Emerging Growth Primary focus for M&A in Asia, Lat Am, MENAT US, UK, Germany, East Africa Caribbean, Clean Room High Growth Markets High • Pest Control £14.8m − Bliss Ex US £3.3
Slide 46: Medium-term objectives to deliver shareholder value
3. Medium-Term Objectives Medium-Term Objectives Medium-term objectives to deliver shareholder value 46
Slide 47: Medium Term Objectives
Medium Term Objectives Medium-Term Objectives Organic Revenue Growth Driven By Execution, Not Investment Revenue Growth Profit Growth • Mid-single digit revenue growth, supported • High-single digit profit growth, leveraging by M&A revenue ambitions • Management more externally focused on • Sales fo
Slide 48: Delivering Profitable Growth
Delivering Profitable Growth Medium-Term Objectives Examples of Applying Capability To Drive Profitable Growth Examples delivering revenue growth Examples supporting profitability Advantage to improve Productivity - win rate and route - customer value optimisation - pricing/margin New product ranges
Slide 49: Delivering Shareholder Value
Delivering Shareholder Value Medium-Term Objectives Transparent in Delivering Our Performance Consistent & Transparent Reporting Clear Investment Criteria • Organisational Structure Now Locked Down • Target post-tax IRR of 20% on acquisitions – Five core regions – Reduced for Growth/Emerging (but >1
Slide 50: New Reporting Structure
Delivering Shareholder Value Medium-Term Objectives New Reporting Structure (From Q1 2014) Previous Reporting Structure New Reporting Structure Rev (£m) APBITA (£m) Rev (£m) APBITA (£m) France 354.8 61.5 France 354.8 61.5 Germany 237.7 49.1 Germany 237.7 49.1 Benelux 195.0 44.5 Benelux 195.0 44.5 Pa
Slide 51: Improving Free Cash Flow
Delivering Shareholder Value Medium-Term Objectives Improving Free Cash Flow 2013 Adjustments Proforma 2013 Notes (£m) (£m) (£m) EBITDA Restructuring, City Link, 386 15 401 IFS, FX movements Working Capital (35) 15 (20) Lower outflows in 2014 Net Capex Capex closer to depreciation (232) 22 (210) Int
Slide 52: From Cash Flow To Balance Sheet
Delivering Shareholder Value Medium-Term Objectives From Cash Flow To Balance Sheet Balance Sheet is Strong… …and Getting Stronger • Net debt reduced by £330m since 2008 • £240m inflow from sale of Initial Facilities – £1,360m to £1,030m • We are through significant investment • Average cost of gros
Slide 53: In Summary
In Summary A Focused Plan Differentiated in its Delivery Driven for Shareholder Value • A clear organisation built around • Clear framework to drive performance • Restructuring largely complete: a low cost operating model through differential management a strong base for profitable growth • Tight fo
Slide 54: Appendices
Rentokil Initial Appendices
Slide 55: Region: Europe (and South America)
1% Latin America Germany 22% Growth Region: Europe (and South America) Austria, Switz Spain, Portugal, France Highly Profitable Platform 8% Italy, Greece Benelux 69% Profit Rev: £860m Op Profit: £167.3m 2010-13 CAGR Op Margin: 19.5% 1.9% 2.0% Other Other Germany 1.3% Germany Benelux Benelux 0.6% Fra
Slide 56: Region: North America
1% Mexico US 99% Growth Region: North America Canada Our engine for growth Profit Rev: £341m Op Profit: £36.7m 2010-13 CAGR Op Margin: 10.8% Mexico Mexico 16.6% Canada Canada 14.2% 14.3% US US US 2.4% Canada 19% 12% Mexico Category Mix Category Breakdown • Strengths – Half world’s pest control marke
Slide 57: Region: Asia
100% Asia Growth Region: Asia Investing to build market leading positions Profit Rev: £105m Op Profit: £8.1m 2010-13 CAGR Op Margin: 7.7% 14.2% Other Other HK Singapore 7.1% 7.1% Indonesia Singapore Malaysia Malaysia 0.0% 13 Asian 6% 3% Countries Category Mix Category Breakdown • Strengths – Strong
Slide 58: Region: Pacific
Growth Region: Pacific Australia, Building on our leading positions NZ, Fiji 100% Profit Rev: £150m Op Profit: £28.3m 2010-13 CAGR Op Margin: 18.9% 1.3% NZ NZ 0.8% 0.5% Aus Aus Australia 9% 9% New Zealand (0.8%) Fiji Category Mix Category Breakdown • Strengths Plants 11% – Leading national positions
Slide 59: Region: UK & Rest of World
59% Region: UK & Rest of World 4% Mid East, N Africa, UK Growth Turkey Caribbean Leading multi-business model: Ireland Denmark, Sweden, Norway, 5% Finland, S Africa 32% process innovation & brand leverage Profit Rev: £308m Op Profit: £68.4m 2010-13 CAGR Op Margin: 22.1% 4.6% Other Other S Africa S A
Slide 60: Category Leadership: Pest Control
11% Market Entry and Most Established 89% Growth Category Leadership: Pest Control Emerging Markets Markets Worldwide Leaders in Commercial Pest Control Profit Rev: £626m Op Profit: £125.2m 2010-13 CAGR Op Margin: 20.0% 8.4% Other Other 6.4% 5.7% Netherlands Germany Netherlands Australia Germany UK
Slide 61: Category Leadership: Hygiene
12% Emerging Markets Germany, Austria, 13% Growth Category Leadership: Hygiene Switzerland, Caribbean Southern Europe Other Established Catching Up In Hygiene and Building Position for Growth 7% Ireland Markets 68% Profit Rev: £488m Op Profit: £102m 2010-13 CAGR Op Margin: 20.9% 0.9% 0.6% Other Othe
Slide 62: Category Leadership: Workwear
Cleanroom 24% Germany, Austria, Switz Growth Category Leadership: Workwear Eastern Europe France Strong Regional Textiles Player Focused on Workwear Benelux 76% Profit Rev: £404m Op Profit: £64.4m 2010-13 CAGR Op Margin: 15.9% Other Other 9.8% Germany Germany Benelux Benelux France France 1.4% 0.7%