Rentokil Initial Plc · LSE:RTO
Rentokil Initial — H1 2016 Earnings Presentation
45 slides from Rentokil Initial's earnings presentation, Jul 27, 2016
Slide 1: Interim Results 2016
Interim Results 2016 Welcome.
Slide 2: Forward-looking statements disclaimer
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: 2016 Interim Results: Introduction
2016 Interim Results: Introduction Andy Ransom Chief Executive Officer
Slide 4: Strong overall performance in H1 2016
Strong overall performance in H1 2016 On track to achieve our 2016 revenue, profit and cash expectations.
Slide 5: 2016 Interim Results: Financial Review
2016 Interim Results: Financial Review Jeremy Townsend Chief Financial Officer
Slide 6: Financial Highlights (Continuing Operations)
Financial Highlights (Continuing Operations) H1 2016 £ million CER AER Δ CER Δ AER Revenue – ongoing1 928.4 979.5 11.5% 16.3% Adjusted2 PBITA – ongoing1 107.1 114.3 11.0% 16.2% Adjusted2 PBTA 91.7 98.3 16.9% 22.5% PBT 74.9 80.4 9.2% 14.4% Adjusted2 EPS 3.90p 4.20p 17.1% 23.5% Free cash flow 57.1 Div
Slide 7: Progress Against Medium-Term Targets
Progress Against Medium-Term Targets Building a track record of delivery against targets Strong and sustainable Mid-single digit High-single digit delivery of free cash revenue growth profit growth flow (£110m+ pa) Revenue1 Growth Profit1,2 Growth Free Cash Flow3 £m £m £m 1900 Revenue (£m) Organic G
Slide 8: North America
Group revenue Group operating profit North America 29% 22% At constant exchange rates S t r o n g p e r fo r m a n c e i n H 1 2 0 1 6 suppor ted by acquisitions Reve n u e u p 3 9 . 9 % ( + 4 . 0 % o r g a n i c ) , o p e r at i n g p r o f i t u p 6 4 . 8 % H1 2016 Growth +4.7% organic growth from
Slide 9: Europe
Group revenue Group operating profit Europe 40% 42% At constant exchange rates Reve n u e f l at , g o o d g r ow t h i n central Europe O ve r a l l p e r fo r m a n c e h e l d b a ck p r i m a r i l y b y Fr a n c e Good revenue growth in Germany (+2.9%), Latin America – H1 2016 Growth managed ou
Slide 10: UK and Rest of World
Group revenue Group operating profit UK and Rest of World 18% 23% At constant exchange rates Reve n u e + 4 . 1 % ( + 3 . 7 % o r g a n i c ) i n H 1 O p e r at i n g p r o f i t + 7 . 7 % r e f l e c t i n g l eve r a g e f r o m h i g h e r r eve n u e H1 2016 Growth Continuation of growth trend i
Slide 11: Asia
Group revenue Group operating profit Asia 6% 4% At constant exchange rates Reve n u e + 1 1 . 9 % ( + 7 . 9 % o r g a n i c g r ow t h ) i n H 1 O p e r at i n g p r o f i t + 3 4 . 3 % r e f l e c t i n g l eve r a g e f r o m h i g h e r r eve n u e H1 2016 Growth Good performances from both pest
Slide 12: Pacific
Group revenue Group operating profit Pacific 7% 9% At constant exchange rates Reve n u e + 9 . 4 % ( + 3 . 6 % o r g a n i c g r ow t h ) i n H 1 O p e r at i n g p r o f i t + 1 0 . 8 % r e f l e c t i n g l eve r a g e f r o m r eve n u e H1 2016 Growth Revenue driven by additional contract revenu
Slide 13: Opportunity to Build Margins in our Growth and Emerging Markets
Opportunity to Build Margins in our Growth and Emerging Markets N o r t h A m e r i c a Pe s t C o n t r o l Asia £m £m 500 16.0% 120 13.0% 115 12.0% 450 15.0% CAGR 110 CAGR 11.0% 400 23.5% 14.0% 105 9.9% 10.0% 350 13.0% 100 9.0% 95 8.0% 300 12.0% 90 7.0% 250 11.0% 85 6.0% 200 10.0% 80 5.0% Yr to De
Slide 14: Operating Cash Flow
Operating Cash Flow £ million H1 2016 H1 2015 Adjusted PBITA 114.0 97.4 One-off items (2.1) 0.9 Depreciation 93.8 85.4 Non-cash items1 1.6 7.9 EBITDA 207.3 191.6 Working capital (2.9) (8.0) Movement on provisions (5.4) (5.1) Capex (104.6) (88.5) Fixed asset disposal proceeds2 3.3 3.6 Operating cash
Slide 15: Free Cash Flow and Movement in Net Debt
Free Cash Flow and Movement in Net Debt £ million H1 2016 H1 2015 Operating cash flow – continuing 97.7 93.6 Cash interest (22.8) (23.5) Cash tax (17.8) (14.7) Free cash flow – continuing 57.1 55.4 Free cash flow – discontinued - (0.6) Free cash flow 57.1 54.8 Acquisitions (34.9) (32.7) Disposals 0.
Slide 16: Capital Allocation
Capital Allocation Continued a pplication of ca pital allocation model with thr ee cor e priorities: 1. Value-enhancing M&A 2. Maintain progressive dividend policy 3. Pay down net debt We are committed to maintaining a BBB credit rating Impr oved fr ee cash flow deliver y over last two and a half ye
Slide 17: Net Debt Bridge
Net Debt Bridge H1 2015 – H1 2016 £million 180 1,184 Bolt-on acquisitions funded 272 from Free Cash Flow 730 149 53 732 98 H1 2015 FCF Acquistions/ Dividends Steritech FX/Other H1 2016 Closing Net Debt disposals Closing Net Debt 17
Slide 18: Net Debt Bridge
Net Debt Bridge H1 2013 – H1 2016 £million Bolt-on acquisitions and dividends funded from Free Cash Flow 74 1,184 1,122 392 33 142 1,077 205 H1 2013 FCF Acquistions/ Dividends Steritech / IFS FX/Other H1 2016 Closing Net Debt disposals net impact Closing Net Debt 18
Slide 19: Balance Sheet
Balance Sheet Strong balance sheet supported by credit rating revision to BBB Stable Outlook • Net debt to EBITDA 2.5x1 (FY 2015: 2.5x) • Company’s BBB credit rating reconfirmed by S&P and outlook revised from Negative to Stable reflecting progress with Steritech integration • Free cash flow target
Slide 20: Delivering Shareholder Value
Delivering Shareholder Value Transparent reporting on our performance 2016 Reporting Framework • With the exception of integration costs for significant acquisitions, restructuring costs are now reported above the line: – First half restructuring costs of £3.8m (H1 2015: £1.8m) - primarily redundanc
Slide 21: Summary and Guidance for 2016
Summary and Guidance for 2016 H1 2016 Financial Summary Guidance for 2016 Ongoing revenue increase of +11.5% • Central & regional overheads c. £3m higher than the prior year reflecting impact of increased Long-Term Incentive Plan costs • Above the line restructuring costs c.£7m Improvement in or
Slide 22: 2016 Interim Results: Strategy Update
2016 Interim Results: Strategy Update Andy Ransom Chief Executive Officer
Slide 23: Consistent strategy
Consistent strategy Strong Regional Businesses Lean, Multi-Business Operations • North America • Europe • UK & Rest of World Branch • Asia • Pacific Leadership in our Business Lines Our colleagues as Experts Pest Control: Hygiene: Workwear: Accelerate Operational execution Quality focus Levers to dr
Slide 24: Accelerating Growth in Pest Control
Accelerating Growth in Pest Control Strong H1: Building on market-leading positions Rentokil: Global Leader in Pest Control H1: Strong Performance Revenue: £454.4m +25.1% Profit: £80.4m +28.1% At CER Market Number of Rentokil Markets H1: +5.5% organic growth (+4.6% FY 2015) Position Established Emer
Slide 25: Accelerating Growth in Pest Control
Accelerating Growth in Pest Control Consistent delivery in attractive and growing market Str uctur al mar ket g r owth driver s: Population expansion and urbanisation especially in Emerging markets Growing middle classes with rising expectations in hygiene standards at home and at work Economic acti
Slide 26: Accelerating Growth in Pest Control
Accelerating Growth in Pest Control Rentokil: Multiple organic growth levers £m 3-year Multiple oppor tunities to drive 900 REVENUE CAGR £877m 7.0 or ganic g r owth in pest contr ol: 14.7% 850 £786m 6.0 13.5 Global and National commercial accounts – 800 coordinated global sales organisation and now
Slide 27: Accelerating Growth in Pest Control
Accelerating Growth in Pest Control Opportunity to develop Global and NA National Accounts Focused on most attr active sector s such as food pr ocessing, hospitality and healthcar e: International Sales Global sales organisation in place across our five Regions. First major contract signed with a gl
Slide 28: Integrated Mosquito Management in USA
Accelerating Growth in Pest Control Integrated Mosquito Management in USA C D C h a s ch o s e n Re n t o ki l i n U S A fo r t h e m o n i t o r i n g , c o n t r o l a n d p r eve n t i o n o f t h e Zika vir us: Rentokil has been awarded a contract by the U.S. Centers for Disease Control and Prev
Slide 29: Mosquito control – protecting people across the globe
Accelerating Growth in Pest Control Mosquito control – protecting people across the globe Rentokil has a strong overlap between its leading market positions and those geographies such as the Americas (eg Zika & Dengue) and Asia (eg Dengue) where West Nile Virus mosquito-borne disease is Dengue Chiku
Slide 30: Digital Pest Control
Digital Pest Control Rentokil is leading in Internet of Things (IoT) services "We are really excited to be partnering with Rentokil Initial… on a truly unique digital offering… a fantastic demonstration of how IoT can bring tangible business value …" Preston Holmes, Head of IoT Solutions, Google Dig
Slide 31: Internet of Things
Internet of Things Rentokil has the digital know-how to enable our experts, enhance our service and boost productivity. Web presence – 10m+ visits p.a. and ‘double digit’ traffic growth in key markets Customer portals – myRentokil, myInitial, myAmbius – 60,000 registered customers Smartphone and tab
Slide 32: Executing Now in Hygiene
Executing Now in Hygiene World’s leading hygiene services business Hygiene: Leading Market Positions H1 2016: Continuing revenue growth Revenue: £219.8m +4.2% Profit: £39.9m +0.5% At CER H1: +2.5% organic growth (+2.3% FY 2015). Market Number of Initial Markets - France + 4.8% Position Established E
Slide 33: Executing Now in Hygiene
Executing Now in Hygiene Key revenue KPIs moving in the right direction Hygiene: Organic revenue Revenue CAGR of 2.8% over the last 3 years. Organic revenue growth in H1 2016 of +2.5% Signature (2.3% full year 2015). Colour Hygiene: Leading Market Positions launched All revenue KPIs in H1 moving in
Slide 34: Executing Now in Hygiene
Executing Now in Hygiene Operational execution to drive growth and margin expansion Multiple services Enabled by Digital Significant leverage in Hygiene Leadership in digital – with sales & through selling multiple services. service tools, web and connected Product High quality ranges now in place.
Slide 35: Focusing on Quality in Workwear
Focusing on Quality in Workwear Delivering differentiation through product and service quality Workwear: Scale across Europe H1: Operational improvements against KPIs Revenue: £171.0m (1.8%) Profit: £18.6m (14.3%) At CER No. 2 in Europe and the only company with scale Workwear: Continues to be under
Slide 36: Focusing on Quality in Workwear
Focusing on Quality in Workwear Quality agenda making progress Q u a l i t y a g e n d a – m a k i n g p r o g r es s a g a i n s t o p e r at i o n a l ‘ q u a l i t y ’ K P I s : Safety performance: Best recorded result for 5 years Laundry OTIF: Best ever recorded results - France in particular Wa
Slide 37: Focusing on Quality in Workwear
Focusing on Quality in Workwear Underpinned by strong, rigorous processes Performance monitoring Innovation Process Product development Processing KPI scorecards: RFID: Reduction in SKUs: – Country Undertaken pilots across all markets and Combined local and European ranges; – Service line – Processi
Slide 38: Profitable Growth Enhanced by Acquisitions
Profitable Growth Enhanced by Acquisitions 20 acquisitions in H1; c.£100m annualised revenues inc. Residex* Strong pipeline in place Pest Control Hygiene Plants 1 1 11 10 1 Edmonton, Alberta, Canada 89 2 3 4 2 Idaho, USA 5 7 12 3 Michigan, USA 4 Chambersburg, USA 1 13 5 Elizabeth City, North Carolin
Slide 39: Quadrant Strategy
Quadrant Strategy Capital allocation model working well H1 2016 EMERGING GROWTH Strong performance in higher Revenue +17.4% to £78.3m Revenue +18.8% to £552.9m GDP growth markets – Growth Operating profit +29.4% to £9.4m Operating profit +20.5% to £92.5m (+18.8%) and Emerging (+17.4%). 4 acquisition
Slide 40: Strong Performance in First Half
Strong Performance in First Half Strong overall performance in H1 with ongoing revenue +11.5% and profit +11.0% (CER). Pest Control revenues +25.1% with organic growth of +5.5%: Steritech integration on track. Following acquisition of Residex, Pest Control now > 50% of group revenue and prof
Slide 41: We are on track to achieve our 2016 expectations
Rentokil Initial We are on track to achieve our 2016 revenue, profit and cash expectations Andy Ransom, CEO Rentokil Initial pic STRONG FINANCIAL PERFORMANCE* “All figures at constant currency Strong overall performance in H1 2016 THE RIGHT WAY + STRONG GROWTH IN PEST CONTROL ull ~GROWTH AND EMERGIN
Slide 42: Proud to Support
Rentokil sou to Initial sno Protecting People. Enhancing Lives.
Slide 43: Business Lines in H1 2016
Business Lines in H1 2016 Global leadership in Pest Control and Hygiene Pest Control: 49% Group Revenue, 55% Group Operating Profit, 18.8% Operating Margin (12-month average) +5.5% organic growth (+4.6% in FY 2015). Revenue: £454.4m +25.1% Strong digital and innovation pipeline – Connect, AutoGate.
Slide 44: Group Revenues by Quadrant
Group Revenues by Quadrant Changing shape of group revenues, as at 1 July 2016 4% 3% 4% 8% Strategy into Action: Moving revenues into higher 32% 27% growth quadrants. 35% 35% 2013 32% 2016 70% of group revenues: H1 acquisitions and Residex (1/7/2016). 62% 29% 29% Emerging Growth Protect & Enhance 70
Slide 45: Capital allocation
Capital allocation Continued application of capital allocation model, with three core priorities: 1. Value-enhancing M&A, 2. Maintain progressive dividend policy, 3. Pay down net debt £369m £97m 180.0 £171m £68m 160.0 £150m £148m £35m 140.0 £124m £12m 120.0 £110m+ 2013 2014 2015 HY 2016 100.0 Bolt-o