Rentokil Initial Plc · LSE:RTO
Rentokil Initial — FY2007 Earnings Presentation
59 slides from Rentokil Initial's earnings presentation, Feb 28, 2008
Slide 1: 2007 Preliminary Results
2007 Preliminary . Results 28 February 2008 1
Slide 2: Doug Flynn
Doug Flynn ntokil Initial
Slide 3: 2007 Group Overview
2007 Group Overview . Revenue up 20.3% to £2,216.7m Adjusted PBITA up 8.8% to £280.8m Adjusted PBTA up 1.1% to £211.4m • Profit before income tax from continuing operations of £142.0 million (2006: £165.4 million) • Total dividend maintained at 7.38p Performance from Textiles & Washroom, Pest Contro
Slide 4: City Link – What Happened
. (Overview) City Link – What Happened Not wholly a market issue – largely self inflicted problems New business dropped significantly Account losses increased Further decline in revenue per consignment Revenues fell well short of expectation Carried some excess cost in Q4, but anticipated pre-Christ
Slide 5: City Link – What Happened (Details)
. City Link – What Happened (Details) Foundation for integration not solid enough and trying to make too many changes concurrently: – City Link franchises not fully bedded down since acquisition – Inadequate account management of the former franchise customer base – Management stretch in taking on i
Slide 6: City Link – Why we didn't see it coming
. see it coming City Link – Why we didn’t Operational issues masked by strong revenue growth in first nine months Financial performance tracked budget until October November management accounts made it clear there was a year end problem KPIs, data capture and financial systems found wanting in provi
Slide 7: What happened: Profit Variance
What happened: Profit. Profit Variance Forecast Full Year Budget Full Year 8 60 50 3 40 Profit Variance £'m (2) Profit £'m 30 (7) 20 (12) 10 (17) 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Monthly Variance Forecast Budget Actual Profit Cum. Budget Cum 7
Slide 8: City Link - Actions & Solutions
. City Link - Actions & Solutions Go back to basics and ensure ongoing service quality Establish the right leadership team Deliver strong account management for customers Improve customer facing systems and processes Ensure information systems provide visibility and control New sales generation both
Slide 9: Actions – Account Management
. Actions – Account Management Roll out of new account management structure: – Customers managed at local, not regional level – Direct customer relationships at depot level – Recruitment of additional customer relationship managers – Training programmes underway 9
Slide 10: Actions – Sales
Actions – Sales . New senior leadership team in place Sales team restructured Pipeline development improved Conversion of pipeline into new account wins Recruitment continuing for field sales 10
Slide 11: Actions – Service
Actions – Service . Pausing and reviewing depot integration to ensure service continuity Hub sort times and last trunk arrivals on plan Roll-out of mechanical handling equipment improving depot sort Roll-out of hand-held, real-time PODs for C&D drivers continues: – Speed, transparency, quality of in
Slide 12: Integration – The Next Steps
Integration – The Next.Steps Ongoing: – Roll-out of Phase 1 integration programme: • mechanical handling equipment and hand held scanners – Systems harmonisation – finance and operations – Establishment of a strong and unified culture – Single customer proposition – Network wide “Platform for Growth
Slide 13: City Link – Summary
City Link – Summary . New measures to increase transparency on key business drivers Close ongoing scrutiny at plc level 2008 will be about: – Service – Account management – New business generation – Process & systems harmonisation Physical integration to follow later Significant impact on profitabil
Slide 14: Andrew Macfarlane
Andrew Macfarlane ntokil Initial 14
Slide 15: Basis of Preparation
Basis of Preparation . Electronic Security Discontinued UK/NL/US: sold for £533.4m on 2 July France: sold for £91.6m on 27 December Interest benefit £15m in 2H German hospital services Continuing up to sale at various dates during 2007 Proceeds £3.3m; loss on disposal £1.0m NL Cleaning Continuing up
Slide 16: Financial Highlights
Financial Highlights . Continuing operations Q4 FULL YEAR Constant Exchange Rates 2007 2006 % 2007 2006 % Revenue 576.0 517.8 11.2 2,216.7 1,843.2 20.3 EBITA 63.0 57.9 8.8 252.4 235.6 7.1 Interest (17.8) (16.4) (8.5) (71.6) (51.1) (40.1) Associates 0.4 0.4 - 2.2 2.0 10.0 PBTA 45.6 41.9 8.8 183.0 186
Slide 17: Adjusted PBTA
Adjusted PBTA . Constant Exchange Rates Q4 FULL YEAR £m % £m % City Link 6.3 (59.6) 44.8 24.1 Textiles & Washrooms 26.8 0.8 108.0 (0.4) Pest Control 17.8 15.6 66.1 (3.1) Facilities Services 11.5 42.0 38.9 24.7 Asia Pacific 10.2 27.5 31.0 31.4 Ambius 5.1 13.3 9.1 13.8 Other 3.3 (2.9) 11.4 - Central C
Slide 18: City Link
City Link . Q1 Q2 Q3 Q4 FULL FULL YEAR YEAR 2007 2006 £m £m £m £m £m £m Revenue 2007 Budget 93.1 112.5 102.9 127.9 436.4 181.3 2007 Actual 94.5 108.5 107.6 106.5 417.1 213.3 Variance 1.4 (4.0) 4.7 (21.4) (19.3) 32.0 Adjusted PBITA¹ 2007 Budget 10.0 13.8 13.1 22.9 59.8 31.4 2007 Actual 10.2 13.9 14.4
Slide 19: Combined Weekly Network Revenue
. Combined Weekly Network Revenue City Link & Target Express - Combined Weekly Network Revenue 10,500,000 Q1 Q2 Q3 Q4 10,000,000 9,500,000 9,000,000 8,500,000 £M 8,000,000 7,500,000 May Bank August 7,000,000 Holiday Bank Holiday 6,500,000 Easter 6,000,000 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
Slide 20: City Link – Year-on-year change in network revenue
City Link – Year-on-year. change in network revenue Caution: Some ambiguity between “new customer” and “uptrading” and between “lost business” and “downtrading” but trends are meaningful. Estimated YOY change in network revenue 25 ESTIMATED 20 15 10 £'m 5 0 (5) (10) 2006 Vs 2005 2007 Vs 2006 (15) Q1
Slide 21: Sector and B2B/B2C Revenue split
. Sector and B2B/B2C Revenue split 5% 2% FY 2007 Sector 2007 Total 55% ‘close 2% 3% Revenue Network to 4% B2C / B2B split consumer’ 4% 34% 31% 6% 12% 69% 15% 13% Industrial Goods & Services Personal & Household Goods B2C B2B Technology Retail Health Care Media Telecommunications Automobiles & Parts
Slide 22: Combined Network RPC: 2005 to 2007
. 2005 to 2007 Combined Network RPC: Combined Network: RPC 2005 to 2007 9.00 8.80 8.60 8.40 £ 8.20 8.00 7.80 7.60 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 22
Slide 23: City Link – 2007 Cost Base
. City Link – 2007 Cost Base Fixed & Variable Costs - Fixed & Variable Costs - % of total base Value 100% 400 Agency & Overtime 90% 350 I Sales & Sales Bonus n 80% c Other Variable r 300 e 70% a Subcontract Drivers s 250 i 60% n Fuel g £'m 50% l 200 y Employed Drivers 40% Fixed Employee 150 V a 30%
Slide 24: City Link – Effect on Q4 profits
City Link – Effect on Q4. profits £m Budget Profit 23 £25m revenue shortfall (down-trading, poor new (10) business) at 40% budgeted drop through 14m consignments at lower - than - expected RPC (4) 14m consignments at higher cost per delivery (3) Actual profits Q4 6 24
Slide 25: Integration
. Integration City Link/Target Express Synergies Interims estimate of 2007 in year benefit £2-3m : achieved Potential >£15m p.a. unchanged. Timing subject to depot integration programme. Interim Actual / Costs Estimate Revised 2007 9.0 25.4* 2008 12.0 5.0 21.0 30.4* * Includes £16.3m leasehold prope
Slide 26: City Link – 2008 Outlook
. City Link – 2008 Outlook Adverse trends continuing in January and February – Volumes between 2005 and 2006 levels – RPC at Q4 levels – Poor 2007 new business continues to hurt revenue – January loss-making - £4m worse than 2007 Recovery actions underway, but in-year benefit hard to assess at the m
Slide 27: Initial Textiles & Washroom Services
. Initial Textiles & Washroom Services Constant exchange rates % change versus prior year 2006 vs. 2005 2007 vs. 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue (%) 1.0 (1.2) (0.7) 3.5 1.8 2.0 2.0 (0.5) Organic revenue (%) (0.3) (1.4) (0.8) 3.5 2.3¹ 2.8¹ 3.21 1.01 Adjusted EBITA (%) (16.5) (21.0) (22.5) (14.4)
Slide 28: Initial Textiles & Washroom Services
. Initial Textiles & Washroom Services Constant exchange rates Portfolio ave. Change in Revenue £m price change adjusted EBITA % £m 2007 2006 2007 2006 2007 2006 Change v. v. v. v. 2006 2005 2006 2005 France 221.2 213.2 3.8% +0.6% +0.8% 3.1 (6.6) Netherlands 75.4 73.9 2.0% +0.7% +0.4% 2.0 (0.9) Belg
Slide 29: Initial Textiles & Washroom Services Portfolio Organic Net Gain
. Initial Textiles & Washroom Services Portfolio Organic Net Gain (MATs) 25 20 15 £m 10 5 0 -5 -10 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Continental Europe UK Ex garments ex GHS 29
Slide 30: Rentokil Pest Control
Rentokil Pest Control . Revenue Retention Change in adj. PBITA 2007 2006 2007 2006 2007 v. 2006 v. £m £m % % 2006 2005 USA 97.4 76.7 82.1 84.3 1.0 5.5 Europe 126.1 114.7 87.0 86.3 2.7 2.6 UK 65.3 65.8 81.5 81.5 (3.4) (4.5) Divisional 21.6 21.1 90.0 88.6 (2.4) (0.6) Costs/other 310.4 278.3 84.5 84.6
Slide 31: UK Pest Control
UK Pest Control . 2005 2006 2007 H1 H2 H1 H2 H1 H2 Revenue £m 34.1 34.4 33.0 32.8 31.2 34.1 Portfolio net gain £m 0.1 (0.4) (0.6) (0.5) 0.3 1.0 Adjusted EBITA change £m (2.1) (2.4) (2.1) (1.3) 31
Slide 32: Initial Facilities Services
. Initial Facilities Services Revenue Retention Change in adj. PBITA 2007 2006 2007 2006 2007 v. 2006 v. £m £m % % 2006 2005 Cleaning 376.7 318.7 85.4 92.3 1.5 (1.2) Catering 59.7 66.5 NA NA 1.5 (1.2) Hospitals 62.8 56.8 93.4 96.4 0.9 0.5 Other / Div. overheads 86.5 77.2 82.6 78.7 3.8 (2.5) 585.7 51
Slide 33: Rentokil Initial Asia Pacific
. Rentokil Initial Asia Pacific Revenue Retention Change in adj. PBITA 2007 2006 2007 2006 2007 v. 2006 v. £m £m % % 2006 2005 North Asia 25.4 10.4 78.5 80.6 1.4 0.1 South Asia 43.6 27.6 81.3 77.0 2.1 1.4 Pacific 89.4 64.1 89.1 88.2 5.2 0.6 Div. Overheads - - - - (1.3) (1.2) 158.3 102.1 86.0 84.6 7.
Slide 34: Central Costs
Central Costs . Adjusted PBITA 2007 2006 Q1 Q2 Q3 Q4 FY £m £m £m £m £m £m Central Costs (10.4) (10.2) (8.0) 0.1 (28.5) (28.9) ___________________________________________ Costs higher in 1H due to set up of UK Shared Service Centre Run-rate fell in Q3 – efficiency savings Q4 reflects bonus and proper
Slide 35: Interest
Interest . Actual exchange rates 2007 2007 2006 Continuing operations Q1 Q2 Q3 Q4 FY FY £m £m £m £m £m £m Net interest on bank/bond/finance (17.7) (20.0) (14.4) (17.4) (69.5) (48.6) lease debt* Expected return on pension scheme 12.7 12.7 13.4 13.5 52.3 47.4 assets Interest on pension scheme liabilit
Slide 36: Taxation
Taxation . At actual exchange rates 2007 2006 £ % £ % Profit before tax (continuing ops) 140.7 100.0 165.4 100.0 Explanation of tax charge Expected charge1 42.6 30.0 50.8 30.7 Recurring factors affecting tax charge (4.3) (3.1) (3.0) (1.8) 38.3 26.9 47.8 28.9 Deferred tax on unremitted profits 0.7 0.
Slide 37: Operating Cash Flow
Operating Cash Flow . Actual exchange rates 2006 2007 2006 Continuing Continuing Discontinued One-off Total Total activities activities activities items before before one- one-off off items items¹ EBIT 237.1 240.3 24.1 (28.4) 236.0 239.6 Amortisation2 21.1 39.2 1.4 - 40.6 27.5 Depreciation 153.4 155
Slide 38: Free Cash Flow and Movement in Net Debt
. Free Cash Flow and Movement in Net Debt Actual exchange rates £ million 2007 2006 Total operating cash flow 188.1 211.0 Interest1 (58.9) (43.9) Tax (27.1) (38.5) Free cash flow 102.1 128.6 Equity dividend (133.4) (133.3) Acquisitions2 (197.4) (417.8) Disposals 596.8 144.2 Pension contribution (80.
Slide 39: Net Debt and Liquidity
Net Debt and Liquidity . At 31/12/07 £m - £252m facility to February 2010 (inc 12 month term-out option) Cash / Bank 55.6 - £500m RCF to October 2012 €100m note (74.5) July 2008 £250m bond (250.1) November 2008 €500m bond (373.4) March 2014 £300m bond (304.7) March 2006 NET DEBT (947.1) 39
Slide 40: Doug Flynn
Doug Flynn ntokil Initial 40
Slide 41: The Rentokil Initial Journey
. The Rentokil Initial Journey Declining profitability Stabilisation Signs of growth Sustainable growth 2005 2006 2007 2008 2009 • Portfolio reshaping •Portfolio reshaping •Strengthened market • The need for positions change • Structure •Retention and sales •Sustainable growth in • Leadership team •
Slide 42: Group strategic objectives
. Group strategic objectives To return the company to sustainable profits growth thereby maximising shareholder value: 1. Restart revenue growth • Improve service increase retention • Improve sales and marketing effectiveness • Leverage power of brands 2. Reshape the portfolio • Dispose of businesse
Slide 43: 2007 actions
2007 actions . New structures in place within UK Pest Control and UK Washroom – Stable platform on which to build Exited unprofitable contracts (hospitals/catering) and business (wipers) – Although negative short term impact on retention rate Ongoing drive to deliver operational & financial efficien
Slide 44: Strategic Direction - Division
. Strategic Direction - Division Group strategic objectives: 1. Restart revenue growth 2. Reshape the portfolio 3. Improve efficiency and productivity Divisional strategic objectives: 1. Textiles & Washroom Services 2. Pest Control 3. City Link 4. Facilities Services 5. Ambius 6. Asia Pacific 44
Slide 45: Initial Textiles & Washroom Services – The objective
. Initial Textiles & Washroom Services The objective – To become Europe’s leading textiles and washroom operator, driving value through operational efficiencies and organic sales growth Strategic priorities – Operational efficiency improvements (processing, route logistics, supply chain) – Organic s
Slide 46: Textiles & Washroom – Progress against Plan
Textiles & Washroom –. Progress against Plan New seven-region divisional structure – Maximising efficiencies: across borders, people, facilities, logistics, supply chain Driving strong growth in higher margin segments – Medical, clean room, mats, safety equipment and high-visibility Considerable ope
Slide 47: Rentokil Pest Control – The objective
Rentokil Pest Control . The objective – To create the world’s finest & most profitable specialist pest control company, establishing leadership positions in mostly fragmented markets Strategic priorities – Organic growth through improved retention and new sales – Ensure strong and sustainable platfo
Slide 48: Rentokil Pest Control – Progress Against Plan
Rentokil Pest Control –. Progress Against Plan Establishing strong position in world’s largest market – Presto-X delivering to expectation; expands footprint into additional 16 states – JC Ehrlich – strong finish - improvements in off-season productivity & cost flexibility New sales driving European
Slide 49: Initial Facilities Services – The objective
. Initial Facilities Services The objective – To become the UK’s leading cleaning and facilities services company exploiting high quality client list to drive specialist & bundled cleaning and support services Strategic priorities – Drive organic sales in core cleaning disciplines – Single minded fo
Slide 50: Facilities Services – Progress Against Plan
. Facilities Services – Progress Against Plan Cleaning: increased contract turnover and portfolio growth – Greater use of “RAPID” and “SmartClean” initiatives – Expansion of group services into existing customers showing rewards – Streamlining operational structure Catering/Hospital Services: active
Slide 51: Ambius – The objective
Ambius . The objective – To leverage existing positions to become the premier creator of workplace ambience products & service Strategic priorities – Organic growth through new sales and sales productivity – Focus on increasing operating profit margins – Use Ambius brand to increase revenue per cust
Slide 52: Ambius – Progress Against Plan
. Ambius – Progress Against Plan Improved operating margins in larger businesses - US, Sweden and Netherlands – US top line growth up 6.4%; adjusted operating profit up 17% year on year – Leveraging scale to drive bottom line Record holiday season in US business – Sales up 8.4% to $12.4m – improved
Slide 53: Rentokil Initial Asia Pacific – The objective
. Rentokil Initial Asia Pacific The objective – To build and capitalise upon market leading positions in core group businesses in the world’s fastest growing markets Strategic priorities – Drive organic growth ahead of market – Deepen pest control market positions – Secure acquisition synergy benefi
Slide 54: Asia Pacific – Progress Against Plan
Asia Pacific – Progress.Against Plan Excellent growth in pest control – Particularly in Australia, New Zealand, Malaysia and Indonesia – Hong Kong contract (largest in group); redefining pest control standard in region Entered Chinese residential pest control market – Taiming: unique business model;
Slide 55: Asia Pacific – Revenue by Geography & business
Asia Pacific – Revenue .by Geography & business Revenue Analysis (pro forma)1 Other 2% Other 5% Electronic Security 7% G China 10% Plants 4% Australia S Korea 3% 45% Indonesia 3% Pest 42% Malaysia 7% Singapore 5% NZ 7% Washroom 45% Japan 15% 1 Includes full year of 2007 acquisitions plus our share o
Slide 56: Group Priorities for 2008
. Group Priorities for 2008 Restore City Link to profitability Whilst maintaining momentum across the rest of the group 56
Slide 57: Outlook for 2008
Outlook for 2008 . Expect a limited impact from softer global market conditions: – Spread of business activities, geographic reach and self-help measures offer resilience to economic downturn Modest growth expected from Textiles & Washroom, Pest Control, Asia Pacific, Facilities Services and Ambius
Slide 58: Appendices
2007 Preliminary . Results 28 February 2008 APPENDICES 58
Slide 59: 2007 Textiles & Washroom One-off Costs
2007 Textiles & Washroom One-off Costs (APPENDIX) . £m Benefit Plant closure cost - Belgium 2.9 Move to more efficient plants Disposal of Wipers business 2.5 Exit of loss making business UK Branch closures 4.0 Move to efficient branch/processing Reorganisation / redundancy 3.5 Move to more efficient