REG - Rentokil Initial PLC - 2022 Interim Results
28/07/2022 07:17
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RNS Number : 9955T Rentokil Initial PLC 28 July 2022
2022 Interim Results
Excellent momentum continued in first half with strong revenue growth and
pricing fully offsetting inflation.
Performance supported by proven and resilient business model.
Key milestones reached in Terminix transaction.
Financial Results* H1 2022 Growth
£m AER AER CER
Ongoing Revenue¹ 1,571.2 8.1% 5.6%
Ongoing Revenue excluding disinfection¹ 1,557.4 14.7% 12.0%
Ongoing Operating Profit 232.5 11.5% 9.6%
Adjusted profit before tax 225.4 16.2% 14.7%
Free Cash Flow 136.3
Adjusted EPS 9.49p 14.1% 7.8%
Statutory Results
Revenue 1,572.1 8.1% 5.5%
Operating Profit 169.7 5.6% 3.9%
Profit before tax 161.9 8.8% 7.8%
EPS 6.67p 4.0%
Dividend per share 2.4p 15.0%
2022 Interim Highlights (Unless otherwise stated, all figures are presented at
constant exchange rates and revenue growth figures exclude the disinfection
business).
● Strong topline momentum continues: Ongoing Revenue excluding disinfection up
12.0%, Organic Revenue2 up 7.3%, driven by strong demand for our business
services and demonstrable price progression. Total Revenue up 8.1% to
£1,572.1m at AER
- Ongoing Revenue including disinfection up 5.6%. £13.6m revenues from
disinfection, with substantial reduction in the period as anticipated (H1 21:
£95.3m)
- In North America Organic Revenue up 6.4% and Ongoing Revenue excluding
disinfection up 12.5%
● Broad-based growth across business categories
- 12.1% Ongoing Revenue growth in Pest Control (5.6% Organic)
- 10.8% Ongoing Revenue (excluding disinfection) growth in Hygiene &
Wellbeing (10.0% Organic)
- 16.0% Ongoing Revenue growth in France Workwear (16.0% Organic)
● 9.6% growth in Ongoing Operating Profit including disinfection; 16.2% growth
in Adjusted PBT (at AER)
- Continued strong price progression, accompanied by improved customer retention
of 85.4% (H1 21: 84.3%), fully offsetting increased cost inflation
- Group Net Operating Margin up 60 bps year on year to 14.9%, despite the
anticipated reduction of disinfection business. North American Net Operating
Margin up 40 bps year on year to 16.0%
- No material contribution from the release of Covid-related prior year
provisions
- Statutory profit before tax up 8.8% to £161.9m at AER
● Free Cash Flow of £136.3m in H1 including £14.9m of one off cashflows
relating largely to Terminix transaction (88% conversion)
● Net debt to EBITDA ratio 2.2x (at 30 June 2022) largely due to acquisition
spend
● Significant progress achieved towards closing of Terminix transaction:
- US anti-trust condition satisfied; draft circular and prospectus filed with
the FCA; initial F-4 filed with the SEC including completion of PCAOB audit
uplift; and Terminix's UK and Norway pest management businesses divested
- Successful issue in June of bonds totalling c.£1.6bn and $700m term loan
underpins transaction funding
● Excellent ongoing M&A programme:
- 31 acquisitions in 17 countries in H1 2022 - 26 Pest, 5 Hygiene, including new
market entry in Argentina
- Total annualised revenues in the year prior to purchase of £68.4m for
consideration of £159.6m
- Good pipeline of high-quality M&A. Guidance on targeted spend (not
including Terminix) in 2022 maintained at c.£250m
● Leadership in innovation and technology sustained, including an additional
25,000 digital PestConnect systems deployed notwithstanding supply challenges
in chip supply, and new product launches to expand the core washroom and air
care portfolios
● Declared interim dividend up 15% at 2.4p per share, in line with our
progressive dividend policy
Andy Ransom, CEO of Rentokil Initial plc, said:
"The business has evidenced excellent momentum in the first half of the year
with strong growth in Ongoing Revenue excluding disinfection of 12.0% and
Organic growth of 7.3%, driven by momentum across our Pest Control and Hygiene
& Wellbeing businesses. We're delivering on our priorities: continued
outstanding customer service and investment in innovation and digital,
sustained high levels of customer and colleague retention, excellent progress
on integration planning for the Terminix transaction, as well as strong
delivery on our pipeline of other quality M&A opportunities.
Significant progress was achieved toward closing of the Terminix transaction.
Deal completion remains on track for the second half of 2022, with a target
completion date at or around the end of the third quarter, depending on the
timing of completion of the reviews of the circular and prospectus and the
Form F-4 by the FCA and the SEC respectively.
The nature of our business model remains a key determinant of the strength and
resilience of our performance. As a global operation that benefits from highly
defensive product and service lines, the company is well placed to navigate
macro-economic and geopolitical volatility. In the first half, the topline has
sustained strong momentum. We've been successful in proactively managing cost
inflation through pricing to protect margin, while continuing to drive margin
improvements through delivery on our strategy. In addition to delivering
increased scale and density in North America and leadership in the global pest
control market, the Terminix acquisition provides a significant opportunity to
achieve additional structural cost savings across the combined organisation.
We look forward to delivering further good progress in the second half of the
year."
Enquiries:
Investors / Analysts: Peter Russell Rentokil Initial plc 07795 166506
Media: Malcolm Padley Rentokil Initial plc 07788 978199
A presentation for investors and analysts will be held today, 28 July at
9.15am in the Bartholomew Suite Conference Room, The Leonardo Royal Hotel, 45
Prescot Street, London E1 8GP. This will be available via a live audio webcast
at www.rentokil-initial.com (http://www.rentokil-initial.com) .
1. Ongoing Revenue excluding disinfection removes revenues from disinfection,
a short term revenue stream created in response to the pandemic which has
tapered as we exit the pandemic is used to allow users of the statements to
understand the trajectory of the strategic segments of the Group without the
distortion of this short pandemic related revenue stream.
2. Organic Revenue growth represents the growth in Ongoing Revenue excluding
the effect of businesses acquired during the year.
AER - actual exchange rates; CER - constant 2021 exchange rates
This announcement 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 number
of factors which might cause actual results and performance to differ
materially from those expressed or implied by such statements. Forward-looking
statements speak only as of the date they are made and no representation or
warranty, whether expressed or implied, is given in relation to them,
including as to their completeness or accuracy or the basis on which they were
prepared. Other than in accordance with the Company's legal or regulatory
obligations (including under the Listing Rules and the Disclosure Guidance and
Transparency Rules), the Company does not undertake any obligation to update
or revise publicly any forward-looking statement, whether as a result of new
information, future events or otherwise. Information contained in this
announcement relating to the Company or its share price, or the yield on its
shares, should not be relied upon as an indicator of future performance.
Nothing in this announcement should be construed as a profit forecast.
*Non-GAAP measures - This statement includes certain financial performance
measures which are not GAAP measures as defined under International Financial
Reporting Standards (IFRS). These include Ongoing Revenue (including and
excluding impact of Covid related disinfection sales), Ongoing Operating
Profit, Adjusted profit before tax, Free Cash Flow and Adjusted Earnings per
Share (EPS). Management believes these measures provide valuable additional
information for users of the financial statements in order to understand the
underlying trading performance. Ongoing Revenue and Ongoing Operating Profit
represent the performance of the continuing operations of the Group (including
acquisitions) after removing the effect of disposed or closed businesses and
enable the users of the accounts to focus on the performance of the businesses
retained by the Group, and that will therefore contribute to future
performance. Ongoing Operating Profit and Adjusted profit before tax exclude
certain items that could distort the underlying trading performance. Ongoing
Revenue and Ongoing Operating Profit are presented at CER unless otherwise
stated. An explanation of the measures used along with reconciliation to the
nearest IFRS measures is provided in Note 14 on page 25.
Joint ventures: the term 'joint venture' is used to describe the Company's 57%
ownership of Rentokil PCI, however our interest in PCI has been consolidated
in our Financial Statements.
Summary of financial performance (at CER)
Regional analysis of Ongoing Revenue performance
(Includes disinfection business)
H1 2022 H1 2021 H1
£m
£m
% change
North America 656.1 642.7 2.1
France 162.9 147.3 10.6
Benelux 49.6 45.9 8.2
Germany 55.7 58.1 (4.1)
Southern Europe 75.2 72.8 3.4
Nordics 41.1 34.6 18.7
Latin America & Caribbean 55.4 45.4 21.9
Total Europe 439.9 404.1 8.9
UK, Ireland & Baltics 160.8 155.7 3.3
Sub Saharan Africa 20.3 20.1 0.6
UK & Sub-Saharan Africa 181.1 175.8 3.0
Asia & MENAT 147.1 129.6 13.5
Pacific 107.7 98.6 9.3
Central & regional overheads 2.5 2.1 15.2
Ongoing operations 1,534.4 1,452.9 5.6
Category analysis of Ongoing Revenue performance
H1 2022 H1 2021 H1
£m
£m
% change
Pest Control 1,049.0 935.7 12.1
- Growth 912.6 822.0 11.0
- Emerging 136.4 113.7 19.9
Hygiene & Wellbeing 391.3 436.1 (10.3)
- Core Hygiene & Wellbeing 377.7 340.8 10.8
- Disinfection 13.6 95.3 (85.7)
France Workwear 91.6 79.0 16.0
Central & regional overheads 2.5 2.1 15.2
Ongoing operations 1,534.4 1,452.9 5.6
In order to help understand the underlying trading performance, unless
otherwise stated, figures below are presented at constant exchange rates and
revenue growth figures exclude the disinfection business.
The Group delivered strong momentum in revenue in H1, with Ongoing Revenue
excluding disinfection rising 12.0% (Q1: 12.2%, Q2: 11.9%) to £1,520.8m.
Ongoing Revenue including disinfection increased 5.6% to £1,534.4m with Total
Revenue growing by 8.1% to £1,572.1m at AER (up 5.5% at CER). Our North
America, Europe and Asia & MENAT businesses delivered double-digit growth
in Ongoing Revenue excluding disinfection. H1 growth in Ongoing Revenue
excluding disinfection was up 12.5% in North America, up 13.6% in Europe and
up 15.5% in Asia & MENAT, despite some impact from reintroduced lockdowns
across parts of the region.
H1 revenues from one-time disinfection services amounted to £13.6m, £8.8m of
which was generated in Q1 and £4.8m in Q2 (a reduction of around 86% on H1
2021). Sales of disinfection have trended fully in line with our expectations
and market guidance. The impact of the anticipated reduction in disinfection
was most pronounced in the period in North America and Europe, where Ongoing
Revenue growth including disinfection was 2.1% and 8.9% respectively. Full
year Group revenues from disinfection are anticipated to be in the region of
£20m, in line with previous guidance.
Our Pest Control category grew Ongoing Revenue by 12.1% (5.6% Organic) to
£1,049.0m, driven by strong price progression and with good work volumes.
Hygiene & Wellbeing Ongoing Revenue excluding disinfection grew by 10.8%
(10.0% Organic) to £377.7m in H1 supported by strong demand for critical
services. Ongoing Revenue including disinfection was £391.3m. Improving
market conditions were reflected in the stronger contribution from our France
Workwear business, which overall is back to pre-Covid levels. Ongoing Revenue
in France Workwear rose by 16.0% to £91.6m.
Profit (at CER)
Ongoing Operating Profit rose by 9.6% during the first half to £228.1m,
reflecting business growth across all major reporting countries, regions and
categories. This has resulted in a 60 basis points increase year on year in
Net Operating Margins to 14.9% through our strategy of organic growth driving
density improvements and M&A integration delivering synergies. In managing
pricing, we have communicated input cost challenges carefully to our
customers, and there has been clear recognition of the need for the financial
effects to be passed through into customer prices. As a consequence of good
execution on strategy, Net Operating Margin for Pest Control increased 40
basis points year on year to 18.1%. Hygiene & Wellbeing Net Operating
Margin was broadly flat at 19.7% (H1 2021: 19.8%). H1 restructuring costs of
£4.6m at CER (£4.8m at AER) were up £0.7m on the prior year (H1 21: £3.9m
at CER and AER) consisting mainly of costs in respect of initiatives focused
on our North America transformation programme.
Adjusted profit before tax (at AER) of £225.4m, which excludes the impact of
one-off items and amortisation and impairment of intangible assets (excluding
computer software), increased by 16.2% at AER, and reflects growth in all
regions and categories. Adjusted interest of £11.8m at actual exchange rates
was significantly lower year on year, due to a financing credit caused by the
IAS29 hyperinflation restatement in Lebanon of £6.4m. One-off items
(operating) of £23.1m in H1 includes £19.0m related to the Terminix
acquisition and c.£4.0m related to other acquisitions.
Statutory profit before tax from continuing operations at AER was £161.9m, an
increase of 8.8% (2021: £148.8m) on the prior year.
Cash (at AER)
EBITDA was £17.3m higher in H1 22 at £326.7m. Operating cash flow (£187.1m
for continuing operations) was £72.9m lower than in H1 2021. This reflects an
elevated prior year performance, which had a strong cleardown of the
receivables ledger as we exited the pandemic alongside the non-repeat of
disinfection revenues in 2021 and an increase in working capital and capex
during 2022. The Group incurred a net working capital outflow of £15.1m in H1
2022. Whilst we remain tightly focused on working capital management, in the
current macro-economic environment, the Group is working hard with customers
and suppliers to manage supply chain challenges. As such, we invested in
higher inventories, with cash outflows up c.£22m relative to H1 2021 to
provide confidence in our ability to maintain supply to customers. In the
first six months of the year, the trend of collection of receivables has been
strong, with our collection rate by the end of June 2022 up 1.5% on the prior
year. Capital expenditure of £128.4m was incurred in the period (H1 21:
£112.7m), reflecting a more normal pattern of spend as we exit the pandemic.
Interest payments of £18.6m are £4.3m higher than in the prior year. Cash
tax payments for the period were £32.2m, an increase of £7.2m compared with
the corresponding period last year. Free Cash Flow was £136.3m (H1 21:
£220.7m), with Free Cash Flow Conversion of 88% for the half year. Cash spend
on current and prior year acquisitions in H1 totalled £127.4m.
On 25 February 2022, Rentokil Initial replaced its $2.7bn bridge facility
provided by Barclays with a $700m three-year term loan facility provided by 15
banks and a $2bn bridge facility provided by eight banks. Subsequently, during
June 2022, in order to convert the bridge facility into long-term debt, the
Group successfully priced three bonds: €850m 5-year at 3.875%; €600m
8-year at 4.375%; and £400m 10-year at 5.0%. At 30 June 2022, the proceeds of
the bond were held on deposit pending completion of the Terminix transaction.
Acquisition of Terminix Global Holdings, Inc
Significant progress was achieved toward closing of the Terminix transaction:
US anti-trust condition was satisfied; Rentokil Initial's draft circular and
prospectus was filed with the Financial Conduct Authority (FCA); the initial
F-4 (and first amendment to the F-4) was filed with the US Securities and
Exchange Commission (SEC) including completion of the PCAOB audit uplift; and
Terminix's UK and Norway pest management businesses were successfully
divested. In addition, integration planning was substantially advanced by the
two companies. Now that documentation required to be presented to Rentokil
Initial and Terminix shareholders has been submitted to the FCA and the SEC
respectively, review by these regulators is underway. Once the requisite
regulatory reviews have been completed and the F-4 has been declared effective
by the SEC, Rentokil Initial and Terminix will be in a position to put the
transaction to their respective shareholders. Deal completion remains on track
for the second half of 2022, with a target completion date at or around the
end of the third quarter, depending on the timing of completion of the reviews
of the circular and prospectus and the Form F-4 by the FCA and the SEC
respectively.
Financing for the transaction was further underpinned when on 27 June 2022,
Rentokil Initial successfully priced three bonds raising c.£1.6bn, converting
its bridge facility into long term debt. These bonds fully cover the $1.3bn
cash element of the transaction consideration. The balance of the bonds
alongside the $700m three year loan facility will cover the refinancing of
Terminix debt and transaction costs.
Regional performance review
Due to the international nature of the Group, foreign exchange movements can
have a significant impact on regional performance. Unless otherwise stated,
percentage movements in Ongoing Revenue and Ongoing Operating Profit are
presented at constant exchange rates.
North America
In North America Ongoing Revenue excluding disinfection grew by 12.5% of which
6.4% was organic. As highlighted in our Preliminary results in March, we are
lapping strong disinfection revenues of £60.8m from H1 2021. These
considerably reduced in the first half of the current year to just £1.2m, as
Covid related market conditions improved across the region. As such, Ongoing
Revenue including disinfection grew by 2.1%.
Ongoing Revenue in Pest Control grew by 12.0% (5.5% Organic), underpinned by
further improved price realisation. There was a modest headwind in the period
from unseasonably cold weather in certain parts of the country in April which
delayed the start of the pest season. Our distribution business delivered good
growth in the half year despite ongoing supply chain challenges, which we've
taken steps to effectively mitigate by managing inventory levels to maintain
supply to customers.
Ongoing Operating Profit growth of 4.8% reflects the combined impact from
higher revenues and acquisitions, and the anticipated reduction in
disinfection business. Strong price realisation across all channels has
successfully offset expected inflationary pressures. We continue to monitor
fuel, labour and direct cost inflation to adjust our pricing strategy on a
regular basis. Net Operating Margins in North America were up 40 basis points
year on year to 16.0%, despite the anticipated reduction in disinfection
business. We remain on track to deliver a 18% margin in North America by the
end of FY 2022.
As previously noted, in addition to operational leverage from increased
density, the re-platforming of our IT infrastructure is a key factor for
margin progression. We have now effectively completed the migration of our
core markets onto the new system with the remainder being acquisitions that
continue to be brought over per the normal course of business. This
consolidation delivers cost benefits and allows us to deploy our Group
applications more effectively in the key areas of service, sales and customer
engagement.
Despite labour market pressures we maintained a good level of colleague
retention at more than 80%. We continued to make investments in being an
employer of choice as we readied our workforce for peak season. We are seeing
ongoing success with our virtual recruiting events, with applicants per
vacancy holding steady or slightly improving.
Our North American M&A programme continued with the purchase of 6
businesses with combined annualised revenues of around £13.0m in the year
prior to purchase. While suitably focused on the Terminix transaction as we
near close, we also look forward to continued bolt-on M&A activity in the
region in H2.
Europe (including Latin America & Caribbean)
The region overall have enjoyed strengthened performance, underpinned by both
pricing and volumes. Pest Control, which led the early post-Covid recovery,
sustained good growth. The strength is notwithstanding some pockets of
continued supply chain disruption such as our German fumigation business that
is still impacted at port. In Hygiene & Wellbeing there has been increased
stabilisation of relationships across sectors, with tourism, notably in
southern Europe, catching up more incrementally as the year proceeds. After an
extended period of service suspensions due to Covid, Hygiene & Wellbeing
is back to providing full contractual service terms in the majority of markets
in which it operates. Ambius, particularly in northern Europe, has benefited
from good sales of green products, partly offset by slower recovery ramp ups
in the hospitality market affecting Specialist Hygiene and in our dental
recycling business where the lag from reduced dental visits during Covid is
still affecting collection volumes.
Improving market conditions were reflected in the stronger contribution from
our France Workwear business, which overall is back to pre-Covid levels. A lag
in recovery of the 'as-used' business in the Paris region has been balanced
elsewhere including in regions where it had not previously been established.
Regional Ongoing Revenue grew by 13.6% (excluding disinfection) in the first
half of the year (9.6% organic). Including disinfection, growth was 8.9% (5.1%
organic). Ongoing Revenue Growth in Pest Control was 14.4%. Our Hygiene &
Wellbeing operations grew Ongoing Revenue by 11.6% (excluding disinfection) in
the period. France Workwear Ongoing Revenue was up 16.0%.
While labour markets throughout the region remain tight, colleague retention
rates remain very high across the region at mid-90% levels, with both service
and sales colleagues trending well. The business has had continued good
results on senior hiring and a renewed emphasis on regional recruitment.
Temporary Covid absences, which are on an improving trend, and a competitive
recruitment market have modestly impacted service and sales capacity
respectively in some markets. While there have been rising inflationary
pressures throughout the period, including on wages rates, fuel and paper, we
have been successful at protecting margins with pass-through pricing covering
the in-year cost inflation in all categories.
Ongoing Operating Profit in the region grew by 16.3% to £85.0m, supported by
61.2% growth in France, 28.3% growth in Latin America & Caribbean and
16.0% growth in Benelux. Net Operating Margins increased by 120 basis points
to 19.3%. M&A has continued strongly in the region, with targets delivered
and a strong ongoing pipeline balanced between Pest Control and Hygiene &
Wellbeing. The region completed 13 business acquisitions in the first half of
the year (equalling the number of deals in FY 2021) with annualised revenues
of £41.5m in the year prior to purchase. These acquisitions helped the
business become the market leader in Spain and Poland.
UK & Sub-Saharan Africa
The region delivered a resilient trading performance against strong
comparators in the prior year, which provided strong growth opportunities in
both the medical waste and disinfection business streams. The universal
lifting of restrictions and end of the mass testing regime have meant these
lines of business have slowed significantly, as anticipated, into Q2.
Ongoing Revenue excluding disinfection for the region increased by 5.6% (5.6%
Organic). Pest Control grew by 4.5%, while Hygiene & Wellbeing (excluding
disinfection) grew by 8.4%. Regional Ongoing Operating Profit decreased by
0.5% to £46.4m in H1 driven by the non repeat of bad debt provision release
in the previous year, causing Net Operating Margins to fall by 90 basis points
to 25.6%. Regional cash performance has been strong in H1, with debtor days
outstanding at pre-pandemic levels and with no significant escalation in bad
debt or customer insolvencies.
Hygiene operations (including Washrooms, Medical and Specialist Hygiene)
delivered good revenue growth despite the roll back of Medical Testing
programmes. Our UK Property Care business also posted a solid performance in
H1, benefiting from recovery in the commercial property market, though
slightly dampened by domestic property services, where growth has slowed in
recent months in line with the housing market. Our Ambius business has
delivered an improving performance reflecting ongoing easing of restrictions
in hospitality, office and travel sectors.
The UK labour market has faced well publicised labour shortages with knock-on
service challenges across the economy. Our sustained investment in colleagues
and services mean that these have stood up well despite the challenging
environment. Colleague retention has strengthened significantly on the second
half of last year up by 400 basis points to 82%, while the state of service -
our core input service indicator - is now back in excess of pre pandemic
levels. Customer Voice Counts (CVC) - our key service satisfaction output
measure - has returned to its pre pandemic level. The net result of this
colleague and service focus is that customer retention at 86.5% is now above
pre pandemic levels leading to strong portfolio growth in the period.
Inflationary pressures have been significant but the region's long-established
pricing and margin management systems, process and controls have delivered a
price performance that mitigates these cost increases, and in H1 has not been
margin dilutive. The region paid an above UK wage average increase for front
line colleagues, but this was underpinned by further changes in working
practices and processes to link this payment to efficiency and productivity as
well as offering significant working flexibility.
Asia and MENAT
Regional Ongoing Revenue excluding disinfection rose by 15.5% in H1, of which
8.3% was Organic. Ongoing Operating Profit increased by 17.2%.
In general, the Asia region has delivered an improving performance during H1,
with an overall uplift in revenue performance from Q4 2021 into the current
year. Sectors hardest hit from the pandemic such as hospitality, retail and
offices, have been resuming operations leading to a gradual recovery in demand
for service provision in Pest Control and Hygiene. Sales of our air
purification solutions are also getting traction in key markets of Indonesia
and Malaysia. Due to new strict Covid lockdowns in the period, China and Hong
Kong have countered the trend, with operations in these markets severely
curtailed driving a spike in temporary customer suspensions. In addition, as
expected, after an ongoing good contribution into Q1, disinfection sales
unwound markedly across most of the region from the beginning of Q2.
Key markets opening up has supported improved contract conversion and price
increases flowing to margin. Net Operating Margins for the Asia and MENAT
region was up 40 basis points to 14.0%. We have made good progress on price
increases, with notably strong execution in Indonesia serving as a model for
other countries. Price realisation is more challenged in some other markets
and for customers experiencing ongoing problems from the pandemic.
Service colleague retention has improved on the prior year, with sales
colleague retention at pre-Covid levels, improving on a monthly basis. Asia
acquired 7 businesses in H1 with annualised revenues in the year prior to
purchase of £9.8m.
Pacific
Performance in the Pacific continues to strengthen. In general, there has been
increased demand for our services throughout the region with the progressive
reopening of markets, international travel and return to offices. In Hygiene
& Wellbeing, there has been momentum in portfolio growth due to robust
gross sales and strong customer retention. The region has seen sustained
demand for our range of air hygiene solutions, including Viruskiller that was
launched in Australia and New Zealand in the second half of last year. In Pest
Control, the continued strong demand in commercial has been supported by a
rebound in residential. The performance has been despite some adverse impact
from the inclement weather along Australia's eastern seaboard as well as some
reduced capacity from tightness in the labour market and enforced isolation
due to Covid.
Ongoing Revenue excluding disinfection in the Pacific grew by 9.8% (5.3%
organic growth), with growth in Hygiene & Wellbeing (excluding
disinfection) of 11.1% and Pest Control growth of 8.2%. Regional Ongoing
Operating Profit grew by 15.8% to £23.5m and Net Operating Margins rose by
120 basis points to 21.8%. The region acquired 4 Pest Control businesses in
the period, one in New Zealand and three in Australia, with annualised
revenues in the year prior to purchase of £4.0m.
Overall customer retention for the region remained ahead of expectations.
Labour markets remain tight with restricted supply exerting some pressure on
retention in Pest Control. However, we remain focused on attracting and
retaining the right people across all categories to enable us to maintain
service excellence. The region continues to mitigate input cost inflation
through our normal pricing policy and ability to pass on costs to existing and
new customers.
Category performance review
Pest Control
Our Pest Control business overall has delivered good growth in the first six
months of the year, underpinned by the critical nature of its services.
Ongoing Revenue was up by 12.1% (5.6% Organic) to £1,049.0m. Ongoing Revenue
in Growth markets was up 11.0% to £912.6m and in Emerging markets was up
19.9% to £136.4m. Ongoing Operating Profit was up by 14.8% to £189.8m.
Ongoing Operating Profit in Growth markets was up 14.1% to £172.5m and in
Emerging markets was up 22.8% to £17.3m. Performance has been supported by
both pricing and volumes, led by the Commercial Pest Control business.
Strength in the Pest Control category is notwithstanding some pockets of
disruption that have been impacted by supply chain limitations, protracted
lockdown and other Covid-related constraints.
M&A has continued to be strong this year, and we have acquired 26 pest
control businesses for the half year to 30 June, with annualised revenues in
the year prior to acquisition of c.£64.9m.
Innovation and Technology
The Company's investment in innovation and technology continue to drive
profitable growth in the business. It strengthens our brand and cements our
leadership position in the pest control industry, differentiating us from our
competitors, particularly in the area of digital technology. It also enables
us to provide enhanced service to customers, target key growth sectors,
enhance our ability to up-sell additional products and service lines and
support customer retention, while lowering our operating costs and enhancing
our sustainability credentials. To the broader backdrop of a current
investment pipeline of 50+ projects across major pest sectors, we've driven
more initiatives in recent months:
● Building on last year's growing demand for PestConnect, the first half of 2022
has seen further roll-out of the PestConnect system notwithstanding supply
challenges in chip supply. This provides a real-time, early warning digital
system for monitoring and controlling rodents. There are now more than 262,000
devices in operation (up 25,000 in six months) across nearly 15,000 sites.
● The Company's Lumnia range of commercial fly control products continue to gain
in popularity. Lumnia's innovative LED insect light traps (ILTs) are the
modern solution to an age-old problem, attracting and containing flying
insects quickly and securely and keeping them out of sight. In the last 12
months more than 100,000 Lumnia units were sold. Partnering with Vodafone,
Google, our North America and Asia colleagues we are now developing a partner
app for Lumnia, to improve the accuracy and efficiency of counting flies and
identifying trends using machine learning.
● As part of its bird proofing, the Company introduced its latest intelligent
bird scare device, launching in 8 markets. The device has an intelligent
built-in system that recognises different bird species and identifies the best
scare tool from a broad range to deter each of them. It can detect birds
inside a radius of 250 metres.
● Helping drive efficiency and opening new channels for US residential
customers, our pest control self-service portal now has more than 20,000
customers signed up. The 24/7 customer portal enables scheduling of service
visits, online payment of bills and viewing of documents. We've taken this
technology from concept to launch in the US in 5 months, already saving more
than 2200 call centre hours.
● Working with Vodafone and Google we have conducted effective field trials of
our innovative connected cameras, which monitor premises and identify pests
with the use of AI technology. At 18 customer sites, 4,500 photos have been
taken across 34,000 hours of monitoring. The technology heralds faster control
of pest problems and the removal of unnecessary visits where no activity has
taken place.
● From the second half of the year, we plan to roll out globally our Flexi
Armour Rodent Proofing Range, which applies impenetrable barriers to reduce
the risk of rodent infestations to premises, while lessening the need to use
rodenticides and thus lowering the impact on wildlife.
Hygiene & Wellbeing
We previously announced the expansion of Hygiene into a larger Hygiene &
Wellbeing category from the start of the current year, reflecting the growing
significance of this market. To meet enhanced expectations, Rentokil Initial
offers a wide range of services. In addition to core washroom hygiene, we're
focused on leveraging our expertise outside the washroom with specialist
hygiene services in air care and clinical waste management. We're also
improving the occupant experience throughout with premium scenting, plants,
air quality monitoring and green walls.
Hygiene & Wellbeing Ongoing Revenue excluding disinfection grew by 10.8%
(10.0% Organic) to £377.7m. Ongoing Revenue in Hygiene Washrooms grew by
11.0% and Ongoing Revenue in Premises/Enhanced Environments grew by 10.5%.
Ongoing Revenue including disinfection was £391.3m. Ongoing Operating Profit
was £77.1m. Our focus in 2022 is on protecting the existing customer base
whilst targeting new growth opportunities. A ramp up in activity across
service sectors such as offices, shops, schools and hospitality has provided a
tailwind to performance. As with Pest Control, operations in parts of Asia
were interrupted by lockdowns into the current year. We have acquired 5
hygiene companies this year with annualised revenues of c.£3.5m in the year
prior to purchase.
Last year's rapid deployment of disinfection services across 60 countries
enabled us to generate £117.8m of revenues and provided a hedge to lower
revenues caused from disruption to core hygiene service provision across our
operations. Customers who used our services did so typically to remain open
during lockdown. As expected, as these conditions significantly eased around
the world, there has been a large reduction in customers' need for these
one-time services.
Innovation and Technology
We see the main opportunities for growth in our Hygiene & Wellbeing
category as being core washrooms, premises hygiene, including air care, and
enhanced environments. Ongoing Revenue growth in these core streams was 11.0%,
while growth in premises and enhanced environments was 10.5%. Helping execute
on these priorities and growth, another set of initiatives were implemented,
and milestones reached in the first half of the year:
Core Washroom Hygiene: Our Hygiene services for inside the washroom provide a
range of innovative products for creating safer washrooms, including hand
hygiene (soaps and driers), air care (purification and scenting), in-cubicle
(feminine hygiene units), No-touch products and digital hygiene services.
Customer sectors range from public sector (schools, government buildings) and
facilities management through to hotels, bars & restaurants, industrials
and retail.
● In the first half of the year, we successfully launched Luna Dry and Luna Mini
Dry products in Europe with strong initial product penetration. This precedes
a planned global rollout scheduled for H2. These feature the very latest
brushless motor technology, a hygienic HEPA 13 filter and long-life
performance to deliver a high-quality customer experience.
● We have also continued to invest in our high-quality dispenser ranges to add
differentiation and build upsell. In H1 we significantly increased usage of
our Signature suite of units, with the Company installing another c.150,000
units.
Premises Hygiene: In multiple environments, including offices, kitchens and
reception areas, the Company is able to provide products such as air
purification, hand sanitiser, surface hygiene and specialist clinical waste
management.
● The Group has sustained its focus in the current year on the high-growth air
care market, already with a product range that features air purification, air
sterilisation and air scenting products. Over 11,000 air purification units,
including Viruskiller, have been installed over the last 12 months, with a 35%
increase year on year in H1.
● In the first half, we added a new air filtration product, Aeramax Pro 3, which
was introduced in Europe. A wall-mounted or floor-standing HEPA and carbon
filter air purifier with allergy-friendly accreditation the Aeramax Pro 3 is
suitable for in and out of washrooms.
Rentokil Initial is extending its clean air and wellbeing portfolio into air
quality monitoring with data analysis and actionable insights. Pilots have
begun in Asia to assess and benchmark the quality of air in customer premises
and partnership opportunities with third party solutions are being explored.
We plan to offer a 'total building approach' and add value through healthy
building assessments and associated service model.
MyInitial, Rentokil Initial's customer portal with 24/7 access to service data
continues to gain traction with more users, features and enhanced security.
Total registered users have now reached over 100,000. In the period there has
been a back-end development focus to further strengthen the platform's
security, reliability and performance. New country-led features developed
include floor plans and recommendations, and waste management services.
France Workwear
Improving market conditions were also reflected in the stronger contribution
from our France Workwear business, which overall is back to pre-Covid levels.
Ongoing Revenue rose by 16.0% to £91.6m with Organic Revenue growth of 16.0%.
Ongoing Operating Profit was up by 122.5% to £13.4m. A lag in recovery of the
'as-used' business in the Paris region (which is c.90% of 2019 levels in
Hotels, Restaurants and Catering 'HORECA') has been balanced elsewhere
including in regions where it had not previously been established. France
Workwear's state of service, a measure of contracted performance, increased to
99.1%, while the average for new customer implementation improved to 16 weeks
in H1 2022 (H1 21: 21 weeks).
Continued strength of M&A
We have delivered further strong execution of M&A in the first half, with
31 deals in H1, comprised of 26 in Pest Control and 5 in Hygiene &
Wellbeing. A total consideration of £159.6 m was paid for these acquired
businesses with total annualised revenues of £68.4m in the year prior to
purchase. We have added 6 new businesses in North America during the period
with the region continuing to present good opportunities to build density in
the market. There was a good performance in Europe with 13 deals and £41.5m
revenues acquired. 7 acquisitions were made in Asia and MENAT, which help
double the size of our business in the Philippines, with Manila being one of
our 'cities of the future'. 4 acquisitions were made in the Pacific region.
Based on our most recent analysis, the Group's M&A programme continues to
perform at or above our required hurdle rates.
M&A remains central to our strategy for growth. We will continue to seek
attractive bolt-on deals, both in Pest Control and with an increased focus on
Hygiene, to build density in existing markets, pursue acquisitions in new
markets and the major cities of the future. Our pipeline of prospects remains
strong and we reiterate our guidance on spend on M&A for FY 2022 at
c.£250m.
Employer of Choice (EOC)
Rentokil Initial is committed to being a world-class Employer of Choice, with
colleague safety and the attraction, recruitment and retention of the best
people from the widest possible pool of talent, being key business objectives
globally. As a company, we strongly believe that creating a diverse and
inclusive workforce which reflects the business environment in which we
operate, will increase colleague engagement and customer satisfaction, as well
as drive increased innovation, enhance our reputation and therefore boost our
financial performance.
We are seeing good results from our ongoing recruitment programme with more
people than ever before applying to work for the company. We continue to drive
hiring activity, filling roles due to turnover and growth, as well as filling
seasonal roles.
The global labour market is very competitive, fuelled by candidate shortages.
Nevertheless, in H1 we have maintained our overall Group colleague retention
rate in the mid-eighties percent range, although down by 1% on 2021, on a
rolling 12-month basis. We have seen a small increase in Service colleague
turnover in the 12 months to June 2022, particularly with colleagues who have
less than six months service, while Sales colleague retention has been
unchanged. Total colleague retention in H1 remained stable. Our performance on
retention will be further supported in H2 with our largest ever training and
development 'Festival' for colleagues in September this year.
Rentokil Initial has been recognised with the credential of a top 25 UK
apprenticeship employer 2022.
Financial review
Central and regional overheads
Central and regional overheads of £47.6m at CER (£48.4m at AER) were up
£2.1m on the prior year (H1 21: £45.5m at CER and £45.3m at AER).
Restructuring costs
With the exception of integration costs for significant acquisitions, the
Company reports restructuring costs within adjusted operating profit. Costs
associated with significant acquisitions are reported as one-off items and
excluded from adjusted operating profit.
H1 restructuring costs of £4.6m at CER (£4.8m at AER) were up £0.7m on the
prior year (H1 21: £3.9m at CER and AER) consisted mainly of costs in respect
of initiatives focused on our North America transformation programme, together
with integration costs of smaller acquisitions.
Interest (at AER)
Adjusted interest of £11.8m is lower year on year, due to a financing credit
caused by the IAS29 hyperinflation restatement in Lebanon of £6.4m. Cash
interest was £18.6m (H1 21: £14.3m).
Tax
The income tax charge for the period at actual exchange rates was £37.7m on
the reported profit before tax of £161.9m. After adjusting the reported
profit before tax for the amortisation and impairment of intangible assets
(excluding computer software), one-off items and net interest adjustments, the
Adjusted Effective Tax Rate for H1 2022 at AER was 21.8% (2021: 20.4%). This
compares with a blended rate of tax, which is calculated on Adjusted Profit
before Tax, of 24% (2021: 24%).
Net debt and cash flow
£m at actual exchange rates Year to Date
H1 2022 H1 2021 Change
£m
£m
£m
Adjusted Operating Profit 232.5 208.6 23.9
One-off items - operating (23.1) (10.9) (12.2)
Depreciation 113.7 108.1 5.6
Other 3.6 3.6 -
EBITDA 326.7 309.4 17.3
Working capital (15.1) 63.6 (78.7)
Movement on provisions 0.7 (1.9) 2.6
Capex - additions (83.1) (71.6) (11.5)
Capex - disposals 3.2 1.6 1.6
Capital element of lease payments and initial direct costs incurred (45.3) (41.1) (4.2)
Operating cash flow 187.1 260.0 (72.9)
Interest (18.6) (14.3) (4.3)
Tax (32.2) (25.0) (7.2)
Free Cash Flow 136.3 220.7 (84.4)
Acquisitions (127.4) (254.7) 127.3
Disposal of companies and businesses 0.4 - 0.4
Dividends (79.6) (100.0) 20.4
Cost of issuing new shares (13.0) - (13.0)
Other - (1.1) 1.1
Debt related cash flows
Acquisition of shares from non-controlling interest - (9.4) 9.4
Cash outflow on settlement of debt related foreign exchange forward contracts 0.9 (1.8) 2.7
Net investment in term deposits (2.1) 0.1 (2.2)
Proceeds from new debt 1,743.8 1.5 1,742.3
Debt repayments (136.2) (9.1) (127.1)
Net debt related cash flows 1,606.4 (18.7) 1,625.1
Net increase/(decrease) in cash and cash equivalents 1,523.1 (153.8) 1,676.9
Cash and cash equivalents at beginning of the year 241.9 550.8 (308.9)
Exchange gains/(losses) on cash and cash equivalents 22.8 (9.1) 31.9
Cash and cash equivalents at end of the financial year 1,787.8 387.9 1,399.9
Net increase/(decrease) in cash and cash equivalents 1,523.1 (153.8) 1,676.9
Net debt related cash flows (1,606.4) 18.7 (1,625.1)
IFRS 16 lease liability movement 0.8 1.3 (0.5)
Net debt acquired (0.7) (6.4) 5.7
Foreign exchange translation and other items (77.7) 23.2 (100.9)
Increase in net debt (160.9) (117.0) (43.9)
Opening net debt (1,284.7) (1,015.3) (269.4)
Closing net debt (1,445.6) (1,132.3) (313.3)
Operating cash flow (£187.1m for continuing operations) was £72.9m lower
than in H1 2021. This reflects an elevated prior year performance, alongside
an increase in working capital and increased capex partially offset by higher
EBITDA. The Group incurred a net working capital outflow of £15.1m. In the
current macro-economic environment, the Group is working hard with customers
and suppliers to manage supply chain challenges. As such, we invested in
higher inventories, with cash outflows up £22m relative to H1 2021 to provide
confidence in our ability to maintain supply to customers. Capital expenditure
of £128.4m was incurred in the period (H1 21: £112.7m), reflecting a more
normal pattern of spend as we exit the pandemic. Within free cash flow, one
off cash flows of £14.9m were incurred, mostly related to the Terminix
transaction. These cash flows are excluded from the longstanding definition
for cash flow conversion calculations.
Interest payments of £18.6m are £4.3m higher than in the prior year. Cash
tax payments for the period were £32.2m, an increase of £7.2m compared with
the corresponding period last year. Free Cash Flow was £136.3m (H1 21:
£220.7m), with Free Cash Flow Conversion of 88% for the half.
Cash spend on current and prior year acquisitions in H1 of £127.4m, dividend
payments of £79.6m and the cost of issuing new shares of £13.0m have
contributed to an underlying change in net debt of £83.2m. Foreign exchange
translation and other items of £77.7m is primarily due to the strengthening
of the Dollar against sterling. Overall, this led to a change in net debt of
£160.9m and closing net debt of £1,445.6m.
Going Concern
The Board continues to adopt the going concern basis in preparing the accounts
on the basis that the Group's strong liquidity position and its demonstrated
ability to manage the level of capital expenditure, or dividends or
expenditure on bolt-on acquisitions are sufficient to meet the Group's
forecast funding needs, including those modelled in a severe but plausible
downside case. Please see note 2 to the supporting financial statements for
further information.
Funding
On 25 February 2022, Rentokil Initial replaced its $2.7bn bridge facility
provided by Barclays with a $700m three-year term loan facility provided by 15
banks and a $2bn bridge facility provided by eight banks. Subsequently, during
June 2022, in order to convert the bridge facility into long-term debt, the
Group successfully priced three bonds: €850m 5-year at 3.875%; €600m
8-year at 4.375%; and £400m 10-year at 5.0%. These bonds fully cover the
$1.3bn cash element of the transaction consideration. The balance of the bonds
alongside the $700m three year loan facility will cover the refinancing of
Terminix debt and transaction costs.
In addition, the Group entered into a £120m uncommitted RCF facility with ING
Bank N.V. which was drawn down in full and repaid during the period. This
facility was cancelled on 30 June 2022
As at 30 June, the Group had liquidity headroom in excess of £2,328m,
including both the bond funding raised for the Terminix transaction and the
£550m of undrawn RCF, with a maturity date of August 2025. The net debt to
EBITDA ratio was 2.2x at 30 June 2022. We remain committed to maintaining a
BBB investment grade credit rating and are confident of doing so.
Dividend
In view of our performance in the first half of 2022 and our confidence for
H2, the Board is declaring an interim dividend payment of 2.4p, a 15.0%
increase on H1 2021, payable to shareholders on the register at the close of
business on 5 August 2022 and to be paid on 12 September 2022. The last day
for DRIP elections is 19 August 2022.
Outlook
The nature of our business model remains a key determinant of the strength and
resilience of our performance. As a global operation that benefits from highly
defensive product and service lines, the company is well placed to navigate
macro-economic and geopolitical volatility. In the first half, the topline has
sustained excellent momentum. We've been successful in proactively managing
cost inflation through pricing to protect margin, while continuing to drive
margin improvements through delivery on our strategy. In addition to
delivering increased scale and density in North America and leadership in the
global pest control market, the Terminix acquisition provides a significant
opportunity to achieve additional structural cost savings across the combined
organisation.
We look forward to delivering further good progress in the second half of the
year.
Consolidated statement of profit or loss and other comprehensive income
(unaudited)
For the period ended 30 June
Notes 6 months to 6 months to
30 June 2022
30 June 2021(1)
£m
£m
Revenue(1) 4 1,572.1 1,454.7
Operating expenses(1) (1,402.4) (1,294.1)
Operating profit 169.7 160.6
Finance income 7.0 1.7
Finance cost (19.5) (18.0)
Share of profit from associates, net of tax of £2.1m (2021: £1.9m) 4.7 4.5
Profit before income tax 161.9 148.8
Income tax expense(2) (37.7) (29.6)
Profit for the period attributable to the Company's equity holders (including 124.2 119.2
non-controlling interests of £nil (2021: £nil))
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Re-measurement of net defined benefit asset (1.9) 1.1
Tax related to items taken to other comprehensive income (2.7) (0.3)
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves 214.1 (37.9)
Net (loss)/gain on net investment hedge (66.0) 25.2
Cost of hedging 4.4 (2.0)
Effective portion of changes in fair value of cash flow hedge (6.6) 4.6
Other comprehensive income for the period 141.3 (9.3)
Total comprehensive income for the period (including non-controlling interests 265.5 109.9
of £nil (2021: £nil))
Earnings per share attributable to the Company's equity holders:
Basic 6.67p 6.42p
Diluted 6.65p 6.39p
1. Revenue and operating expenses have been restated in 2021 to reflect a
correction in presentation in relation to certain sales contracts where the
Group acts as agent. Both revenue and operating expenses have been restated by
£8.0m. For these contracts, revenue is presented on a net basis.
2. Taxation includes £26.5m (HY 2021: £28.5m) in respect of overseas
taxation.
The weighted average number of ordinary shares in issue is 1,860m (HY 2021:
1,857m). For the diluted EPS calculation the adjustment for share options and
LTIPs is 6.1m (HY 2021: 6.2m).
Consolidated balance sheet (unaudited)
Notes At 30 June At 31 December 2021
2022
£m
£m
Assets
Non-current assets
Intangible assets 2,499.0 2,164.3
Property, plant and equipment 428.6 398.1
Right-of-use assets 242.8 227.5
Investments in associated undertakings 32.2 29.7
Other investments 0.3 0.2
Deferred tax assets 43.7 41.6
Contract costs 82.6 75.0
Retirement benefit assets 9 2.6 19.0
Other receivables 15.6 14.3
Derivative financial instruments 12 6.2 9.8
3,353.6 2,979.5
Current assets
Retirement benefit assets 9 18.2 -
Other investments 3.7 1.6
Inventories 172.4 135.7
Trade and other receivables 609.9 526.9
Current tax assets 9.3 8.5
Derivative financial instruments 12 2.0 2.5
Cash and cash equivalents 2,371.1 668.4
3,186.6 1,343.6
Liabilities
Current liabilities
Trade and other payables (905.3) (764.0)
Current tax liabilities (78.0) (60.5)
Provisions for liabilities and charges (27.3) (27.0)
Bank and other short-term borrowings 10 (607.2) (459.3)
Lease liabilities (80.3) (77.8)
Derivative financial instruments 12 (0.2) (1.0)
(1,698.3) (1,389.6)
Net current assets/(liabilities) 1,488.3 (46.0)
Non-current liabilities
Other payables(1) (64.4) (71.5)
Bank and other long-term borrowings 10 (2,918.2) (1,256.1)
Lease liabilities (149.7) (139.2)
Deferred tax liabilities (128.0) (108.1)
Retirement benefit obligations 9 (31.6) (27.3)
Provisions for liabilities and charges (38.8) (33.9)
Derivative financial instruments 12 (73.0) (33.5)
(3,403.7) (1,669.6)
Net assets 1,438.2 1,263.9
Equity
Capital and reserves attributable to the company's equity holders
Share capital 18.6 18.6
Share premium 6.8 6.8
Other reserves (1,781.7) (1,927.6)
Retained profits 3,195.0 3,166.6
1,438.7 1,264.4
Non-controlling interests (0.5) (0.5)
Total equity 1,438.2 1,263.9
1. Non-current other payables includes £42.8m put option liability related to
the PCI India acquisition (2021: £41.8m).
Consolidated statement of changes in equity (unaudited)
Called up share capital Share premium account Other reserves Retained earnings Non-controlling interests Total
£m
equity
£m £m £m £m
£m
At 1 January 2021 18.5 6.8 (1,926.2) 3,030.6 0.9 1,130.6
Profit for the period - - - 119.2 - 119.2
Other comprehensive income:
Net exchange adjustments offset in reserves - - (37.9) - - (37.9)
Net gain on net investment hedge - - 25.2 - - 25.2
Cost of hedging - - (2.0) - - (2.0)
Remeasurement of net defined benefit asset - - - 1.1 - 1.1
Net gain on cash flow hedge(1) - - 4.6 - - 4.6
Tax related to items taken directly to other comprehensive income - - - (0.3) - (0.3)
Total comprehensive income for the period - - (10.1) 120.0 - 109.9
Transactions with owners:
Shares issued in the period 0.1 - - (0.1) - -
Dividends paid to equity shareholders - - - (100.0) - (100.0)
Acquisition of non-controlling interests _ _ _ (8.1) (1.3) (9.4)
Cost of equity-settled share-based payment plans - - - 3.5 - 3.5
Tax related to items taken directly to equity - - - 1.2 - 1.2
Movement in the carrying value of put options - - - (0.4) - (0.4)
At 30 June 2021 18.6 6.8 (1,936.3) 3,046.7 (0.4) 1,135.4
At 1 January 2022 18.6 6.8 (1,927.6) 3,166.6 (0.5) 1,263.9
Profit for the period - - - 124.2 - 124.2
Other comprehensive income:
Net exchange adjustments offset in reserves - - 214.1 - - 214.1
Net loss on net investment hedge - - (66.0) - - (66.0)
Cost of hedging - - 4.4 - - 4.4
Remeasurement of net defined benefit asset - - - (1.9) - (1.9)
Net loss on cash flow hedge(1) - - (6.6) - - (6.6)
Tax related to items taken directly to other comprehensive income - - - (2.7) - (2.7)
Total comprehensive income for the period - - 145.9 119.6 - 265.5
Transactions with owners:
Cost of issuing new shares - - - (13.0) - (13.0)
Dividends paid to equity shareholders - - - (79.6) - (79.6)
Cost of equity-settled share-based payment plans - - - 4.7 - 4.7
Tax related to items taken directly to equity - - - (4.3) - (4.3)
Movement in the carrying value of put options - - - 1.0 - 1.0
At 30 June 2022 18.6 6.8 (1,781.7) 3,195.0 (0.5) 1,438.2
1. £6.6m net loss on cash flow hedge includes £7.2m gain (2021: £13.0m
loss) from the effective portion of changes in fair value offset by
reclassification to the income statement of £13.8m gain (2021: £17.6m loss)
due to changes in foreign exchange rates.
Shares of £0.1m (2020: £0.1m) have been netted against retained earnings.
This represents 12.3m (HY 2021: 10.3m) shares held by the Rentokil Initial
Employee Share Trust. The market value of these shares at 30 June 2022 was
£58.4m (HY 2021: £51.0m). Dividend income from, and voting rights on, the
shares held by the Trust have been waived.
Analysis of other reserves (unaudited)
Capital reduction reserve Legal reserve Cash flow hedge reserve Translation reserve Cost of hedging Total
£m
£m
£m
£m
£m
£m
At 1 January 2021 (1,722.7) 10.4 (4.4) (208.5) (1.0) (1,926.2)
Net exchange adjustments offset in reserves - - - (37.9) - (37.9)
Net gain on net investment hedge - - - 25.2 - 25.2
Net gain on cash flow hedge(1) - - 4.6 - - 4.6
Cost of hedging - - - - (2.0) (2.0)
Total comprehensive income for the period - - 4.6 (12.7) (2.0) (10.1)
At 30 June 2021 (1,722.7) 10.4 0.2 (221.2) (3.0) (1,936.3)
At 1 January 2022 (1,722.7) - 8.8 (211.2) (2.5) (1,927.6)
Net exchange adjustments offset in reserves - - - 214.1 - 214.1
Net loss on net investment hedge - - - (66.0) - (66.0)
Net loss on cash flow hedge(1) - - (6.6) - - (6.6)
Cost of hedging - - - - 4.4 4.4
Total comprehensive income for the period - - (6.6) 148.1 4.4 145.9
At 30 June 2022 (1,722.7) - 2.2 (63.1) 1.9 (1,781.7)
1. £6.6m net loss on cash flow hedge includes £7.2m gain (2021: £13.0m
loss) from the effective portion of changes in fair value offset by
reclassification to the income statement of £13.8m gain (2021: £17.6m loss)
due to changes in foreign exchange rates.
Consolidated cash flow statement (unaudited)
Notes 6 months to 6 months to
30 June 2022
30 June 2021
£m
£m
Profit for the period 124.2 119.2
Adjustments for:
- Tax 37.7 29.6
- Share of profit from associates (4.7) (4.5)
- Interest income (7.0) (1.7)
- Interest expense 19.5 18.0
Reversal of non-cash items:
- Depreciation and impairment of property, plant and equipment 105.1 100.6
- Amortisation and impairment of intangible assets(1) 39.7 37.1
- Amortisation of computer software 8.6 7.5
- Other non-cash items 3.2 3.6
Changes in working capital (excluding the effects of acquisitions and exchange
differences on consolidation):
- Inventories (21.7) (1.4)
- Contract costs (2.5) 0.2
- Trade and other receivables (57.1) 22.6
- Contract assets 7.1 6.6
- Trade and other payables and provisions 46.8 24.5
- Contract liabilities 13.0 9.2
Cash generated from operating activities 311.9 371.1
Interest received 2.3 1.8
Interest paid(2) (20.9) (16.1)
Income tax paid (32.2) (25.0)
Net cash generated from operating activities 261.1 331.8
Cash flows from investing activities
Purchase of property, plant and equipment (67.9) (59.1)
Purchase of intangible fixed assets (15.2) (12.5)
Proceeds from sale of property, plant and equipment 3.2 1.6
Acquisition of companies and businesses, net of cash acquired 6 (127.4) (254.7)
Disposal of companies and businesses 0.4 -
Dividends received from associates 0.4 -
Net change to cash flow from investment in term deposits (2.1) 0.1
Net cash flows from investing activities (208.6) (324.6)
Cash flows from financing activities
Dividends paid to equity shareholders (79.6) (100.0)
Acquisition of shares from non-controlling interest - (9.4)
Capital element of lease payments (45.3) (42.2)
Cost of issuing new shares (13.0) -
Cash inflow/(outflow) on settlement of debt related foreign exchange forward 0.9 (1.8)
contracts
Proceeds from new debt 1,743.8 1.5
Debt repayments (136.2) (9.1)
Net cash flows from financing activities 1,470.6 (161.0)
Net increase/(decrease) in cash and cash equivalents 1,523.1 (153.8)
Cash and cash equivalents at beginning of year 241.9 550.8
Exchange gains/(losses) on cash and cash equivalents 22.8 (9.1)
Cash and cash equivalents at end of the financial period 1,787.8 387.9
1. Excluding computer software.
2. Interest paid includes interest on lease payments of £3.3m (2021: £3.1m).
Explanatory notes to the interim financial statements (unaudited)
1. General information
The Company is a public limited company incorporated in England and Wales and
domiciled in the UK with a listing on the London Stock Exchange. The address
of its registered office is Rentokil Initial plc, Compass House, Manor Royal,
Crawley, West Sussex, RH10 9PY.
The consolidated half-yearly financial information for the half-year to 30
June 2022 was approved on 27 July 2022 for issue on 28 July 2022.
On page 108 of the Annual Report 2021 we set out the Group's approach to risk
management and on pages 73 to 79 we define the principal risks that are most
relevant to the Group. These risks are described in detail and have mitigating
actions assigned to each of them. In our view the principal risks remain
unchanged from those indicated in the Annual Report 2021. A summary of the
risks is laid out in the table below:
Principal risk Summary of risk
Failure to integrate acquisitions and execute disposals from continuing The Company has a strategy that includes growth by acquisition, and has
business acquired 31 businesses in H1 2022. These companies need to be integrated
quickly and efficiently to minimise potential impact on the acquired business
and the existing business.
Failure to develop products and services that are tailored and relevant to The Company operates across markets that are at different stages in the
local markets and market conditions economic cycle, at varying stages of market development and have different
levels of market attractiveness. We must be sufficiently agile to develop and
deliver products and services that meet local market needs.
Failure to grow our business profitably in a changing The Company's two core categories (Pest Control and Hygiene & Wellbeing
since January 2022) operate in a global macro-economic environment that is
macro-economic environment subject to uncertainty and volatility.
Failure to mitigate against financial market risks Our business is exposed to foreign exchange risk, interest rate risk,
liquidity risk, counterparty risk and settlement risk.
Breaches of laws or regulations (including tax, competition and anti-trust As a responsible company we aim to comply with all laws and regulations that
laws) apply to our businesses across the globe.
Failure to ensure business continuity in case of a material incident The business needs to have resilience to ensure business can continue if
impacted by external events, e.g. cyber attack, hurricane or terrorism.
Fraud, financial crime and loss or unintended release of personal data Collusion between individuals, both internal and external, could result in
fraud if internal controls are not in place and working effectively. The
business holds personal data on colleagues, some customers and suppliers:
unintended loss or release of such data may result in criminal sanctions.
Safety, health and the environment (SHE) The Company has an obligation to ensure that colleagues, customers and other
stakeholders remain safe, that the working environment is not detrimental to
health and that we are aware of and minimise any adverse impact on the
environment.
Failure to deliver consistently high levels of service to the satisfaction of Our business model depends on servicing the needs of our customers in line
our customers with internal high standards and to levels agreed in contracts.
These interim financial results do not comprise statutory accounts within the
meaning of Section 435 of the Companies Act 2006, and should be read in
conjunction with the Annual Report 2021. Those accounts have been audited and
delivered to the registrar of companies. The report of the auditor was
unqualified, did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report and did not
contain statements under section 498(2) or (3) of the Companies Act 2006.
For all information relating to 2021 results please refer to the Annual Report
2021 which can be accessed here:
https://www.rentokil-initial.com/investors/annual-reports.aspx
2. Basis of preparation
The condensed consolidated financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority and in accordance with IAS 34 Interim Financial Reporting as
contained in UK-adopted international accounting standards. The condensed
consolidated financial statements should be read in conjunction with the
annual financial statements for the year ended 31 December 2021 which have
been prepared in accordance with UK-adopted International Accounting Standards
and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
Going concern
The Directors have prepared cash flow forecasts that demonstrate that the
Group has sufficient liquidity to meet its obligations as they fall due for a
period of at least 12 months from the date of approval of these Financial
Statements.
Additionally the Directors have assessed severe but plausible downside
scenarios, including the impact of further lockdowns. The most severe downside
scenario assumes a revenue decline of 30% against base budget for a period of
eighteen months in the next 24 months, which is considerably worse than the
Group's actual performance in 2020 which saw a downturn of <30% for one
month only.
In addition the Directors have considered the incremental impacts of a failed
Terminix transaction. This would potentially include the payment of committed
deal costs and a break fee.
Consequently, the directors are confident that the Group will have sufficient
funds to continue to meet its liabilities as they fall due for at least 12
months from the date of approval of the financial statements and therefore
have prepared the financial statements on a going concern basis.
3. Accounting policies
The preparation of the interim financial information for the half-year ended
30 June 2022 requires management to make estimates and assumptions that affect
the reported amounts of revenues, expenses, assets, liabilities and disclosure
of contingent liabilities at the date of the statement. If in the future such
estimates and assumptions, which are based on management's best judgement at
the date of the statement, deviate from the actual circumstances, the original
estimates and assumptions will be modified as appropriate in the year in which
the circumstances change.
There are no significant judgements or key sources of estimation uncertainty
made by management in applying the Group's accounting policies.
Significant seasonal or cyclical variations in the Group's total revenues are
not experienced during the financial year.
Changes in accounting policies
Except as described below, the accounting policies applied in these interim
financial statements are the same as those applied in the Group's consolidated
financial statements as at and for the year ended 31 December 2021. The
changes in accounting policies are also expected to be reflected in the
Group's consolidated financial statements as at and for the year ending 31
December 2022.
A number of new standards are effective from 1 January 2022 but they do not
have a material effect on the Group's financial statements.
The Group has adopted the following amendments to standards with effect from 1
January 2022:
- Property, Plant and Equipment: Proceeds before Intended Use - Amendments to
IAS 16
- Onerous Contracts - Cost of Fulfilling a Contract - Amendments to IAS 37
- Annual Improvements to IFRS Standards 2018-2020
- Reference to the Conceptual Framework - Amendments to IFRS 3.
These standards have had no impact on the financial position or performance of
the Group. Consequently, no adjustment has been made to the comparative
financial information as at 31 December 2021 or 30 June 2021. The Group has
not early adopted any standard, interpretation or amendment that was issued
but is not yet effective.
4. Segmental information
Segmental information has been presented in accordance with IFRS 8 Operating
Segments. Reporting segments reflect the internal management organisation and
reporting structures. Each segment is headed by a Regional Managing Director
who reports directly to the Chief Executive and is a member of the Group's
Executive Leadership Team responsible for the review of Group performance. The
operating businesses within each segment report to the Regional Managing
Directors.
From 1 January 2022 there has been a change to the regional and category
reporting structure. This updated reporting structure is reflected in the
tables below.
Disaggregated revenue under IFRS 15 is the same as the segmental analysis
below. Restructuring costs and central and regional overheads are also
presented centrally as they are not targeted or managed at reportable segment
level. The basis of presentation is consistent with the information reviewed
by internal management. Revenue and profit are from Ongoing operations which
is defined and reconciled to the nearest equivalent GAAP measure in Note 14.
Revenue Revenue Operating Operating
30 June 2022 30 June 2021(1) profit profit
£m £m 30 June 2022 30 June 2021
£m
£m
North America(1) 693.9 637.7 110.9 99.3
France 159.6 148.7 22.8 14.6
Benelux 48.6 46.3 14.5 12.9
Germany 54.9 58.5 16.4 18.3
Southern Europe 73.8 73.5 12.8 13.2
Nordics 40.4 34.9 6.7 6.5
Latin America & Caribbean 56.6 46.0 10.3 8.3
Europe 433.9 407.9 83.5 73.8
UK, Ireland & Baltics 160.5 155.8 42.0 42.0
Sub-Saharan Africa 20.5 20.3 4.3 4.6
UK & Sub-Saharan Africa 181.0 176.1 46.3 46.6
Asia & MENAT 151.3 129.5 21.3 17.6
Pacific 108.6 99.7 23.7 20.5
Central and regional overheads 2.5 2.1 (48.4) (45.3)
Restructuring costs - - (4.8) (3.9)
Ongoing operations at actual exchange rates 1,571.2 1,453.0 232.5 208.6
Disposed businesses(2) 0.9 1.7 - -
Continuing operations at actual exchange rates 1,572.1 1,454.7 232.5 208.6
One-off items - operating (23.1) (10.9)
Amortisation of intangible assets(3) (39.8) (37.1)
Operating profit 169.6 160.6
1. Revenue has been restated by £8.0m in 2021 to reflect a correction in
presentation in relation to certain sales contracts where the Group acts as
agent.
2. Includes revenue of £0.9m (2021: £1.5m) from product sales by the Group
to CWS-boco International GmbH.
3. Excluding computer software.
One-off items
One-off items - operating is a charge of £23.1m (2021: £10.9m) which mainly
relates to acquisition and integration costs, £19.0m of which relates to the
Terminix acquisition.
Analysis of revenue by business category
Revenue Revenue
30 June 2022
30 June 2021¹
£m
£m
Pest Control 1,086.4 933.4
Hygiene & Wellbeing 392.5 437.8
France Workwear 89.8 79.7
Central & regional overheads 2.5 2.1
Disposed businesses 0.9 1.7
Total 1,572.1 1,454.7
1. Revenue has been restated by £8.0m in 2021 to reflect a correction in
presentation in relation to certain sales contracts where the Group acts as
agent.
Analysis of revenue by type
Revenue Revenue
30 June 2022
30 June 2021¹
£m
£m
Recognised over time
Contract service revenue 1,110.2 973.6
Recognised at a point in time
Job work 288.5 330.1
Sale of goods 173.4 151.0
Total 1,572.1 1,454.7
1. Revenue has been restated by £8.0m in 2021 to reflect a correction in
presentation in relation to certain sales contracts where the Group acts as
agent.
Amortisation and impairment of intangible assets
Amortisation and impairment of intangibles(1) Amortisation and impairment of intangibles(1)
30 June 2022 30 June 2021
£m £m
North America 19.9 16.7
Europe 7.2 6.7
UK & Sub-Saharan Africa 3.8 4.3
Asia & MENAT 4.6 3.7
Pacific 1.9 1.9
Central and regional 2.4 3.8
Total 39.8 37.1
1. Excluding computer software.
5. Income tax expense
The analysis of the tax charge in the period is as follows:
6 months to 6 months to
30 June 2022
30 June 2021
£m £m
UK corporation tax at 19.0% (2021: 19.0%) 9.4 8.1
Overseas taxation 40.1 28.5
Adjustments in respect of prior periods (2.0) (3.6)
Total current tax 47.5 33.0
Deferred tax (credit)/expense (9.7) 0.9
Adjustments from change in tax rates - (3.8)
Adjustments in respect of prior periods - (0.5)
Total deferred tax (9.7) (3.4)
Total income tax expense 37.8 29.6
The tax charge for the period has been calculated by applying the effective
tax rate which is expected to apply to the Group for the year ended 31
December 2022 using rates substantively enacted by 30 June 2022. A separate
effective income tax rate has been calculated for each jurisdiction in which
the Group operates applied to the pre-tax profits for the interim period.
The reported tax rate for the period was 23.2% (H1 2021: 19.9%). The Group's
Effective Tax Rate (ETR) before amortisation of intangible assets (excluding
computer software), one-off items and the net interest adjustments for the
period was 21.8% (H1 2021: 20.4%). This compares with a blended rate of tax
for the countries in which the Group operates of 24% (H1 2021: 24%).
Legislation has been enacted to increase the standard rate of UK corporation
tax from 19% to 25% from 1 April 2023. As a result deferred tax balances have
been calculated at 19% or 25% depending upon when the balance is expected to
unwind.
On 20 July 2022, HM Treasury released draft Pillar 2 legislation that would
commence from 1 January 2024. We are reviewing this draft legislation to
understand the potential impact on the Group.
The Group's ETR is expected to remain above the UK tax rate due to the
proportion of overseas profits which are taxed at a higher rate than UK
profits. In the medium term the Group's Adjusted ETR is likely to increase
towards the blended tax rate. The blended tax rate is expected to increase to
25% in 2023 when the UK tax rate increases to 25%.
Total uncertain tax positions (including interest thereon) amounted to £56.7m
as at 30 June 2022 (December 2021: £57.2m). Included within this amount is
£11.3m (December 2021: £11.5m) in respect of interest arising on tax
provisions which is included in other payables.
Total tax payments for the period amounted to £32.2m (2021: £25.0m), an
increase of £7.2m.
The movement on the deferred income tax account is as follows:
6 months to 6 months to
30 June 2022
30 June 2021
£m £m
At 1 January (66.5) (57.0)
Exchange differences (7.3) 2.1
Acquisition of companies and businesses (15.6) (3.5)
Credited to the income statement 9.7 3.4
Charged to other comprehensive income (0.3) (0.3)
(Charged)/credited to equity (4.3) 1.2
At 30 June (84.3) (54.1)
Deferred taxation has been presented on the balance sheet as follows:
Deferred tax asset within non-current assets 43.7 36.5
Deferred tax liability within non-current liabilities (128.0) (90.6)
(84.3) (54.1)
A deferred tax asset of £8.2m has been recognised in respect of UK losses
(December 2021: £12.4m) carried forward at 30 June 2022. This amount has been
calculated by estimating the future UK taxable profits, against which the UK
tax losses will be utilised, and applying the tax rates (substantively enacted
as at the balance sheet date) applicable for each year. Remaining UK tax
losses of £34.6m have not been recognised as at 30 June 2022 as it is not
considered probable that future taxable profits will be available against
which the tax losses can be offset.
At the balance sheet date the Group had tax losses of £67.0m (December 2021:
£81.6m) on which no deferred tax asset is recognised because it is not
considered probable that future taxable profits will be available in certain
jurisdictions to be able to benefit from those tax losses.
6. Business combinations
The Group purchased 100% of either the share capital or the trade and assets
of 31 companies and businesses in the period. An overview of the acquisitions
in the year can be found on page 8 under the 'Continued strength of M&A'
heading. The Group acquires companies and businesses as part of its growth
strategy.
The total consideration in respect of acquisitions in the current year was
£159.6m. Details of goodwill and the fair value of net assets acquired are as
follows:
6 months to 6 months to
30 June 2022
30 June 2021
£m £m
Purchase consideration:
- Cash paid 115.5 69.2
- Deferred and contingent consideration 44.1 18.8
Total purchase consideration 159.6 88.0
Fair value of net assets acquired (72.9) (30.8)
Goodwill from current period acquisitions 86.7 57.2
Goodwill represents the synergies, workforce and other benefits expected as a
result of combining the respective businesses.
Deferred consideration of £17.2m and contingent consideration of £26.9m is
payable in respect of the above acquisitions. Contingent consideration is
payable based on a variety of conditions including revenue and profit targets
being met.
The provisional fair value of assets and liabilities arising from acquisitions
in the period are shown below. The provisional fair values will be materially
finalised in the 2022 financial statements. The fair values are provisional as
the acquisition accounting has not yet been finalised, primarily due to the
proximity of the acquisitions to the period end.
6 months to 6 months to
30 June 2022
30 June 2021
£m £m
Non-current assets
- Intangible assets(1) 70.4 29.3
- Property, plant and equipment 6.9 3.0
Current assets 17.3 5.6
Current liabilities (5.7) (3.2)
Non-current liabilities (16.0) (3.9)
Net assets acquired 72.9 30.8
1. Includes £68.1m (2021: £29.2m) of customer lists and £2.3m (2021:
£0.1m) of other intangibles.
Acquired receivables are disclosed at fair value and represent the best
estimate of the contractual cash flows expected to be collected.
From the dates of acquisition to 30 June 2022, these acquisitions contributed
£13.6m to revenue and £2.6m to operating profit. If the acquisitions had
occurred on 1 January 2022, the revenue and operating profit of the combined
entity would have amounted to £1,589.7m and £171.9m respectively.
In relation to prior period acquisitions, there has been an adjustment to the
provisional fair values resulting in an increase to goodwill of £2.3m.
The Group paid £18.8m in respect of deferred and contingent consideration for
current and prior year acquisitions, resulting in the total cash outflow in
the period from current and past period acquisitions, net of £6.9m cash
acquired, of £127.4m. In addition the Group acquired £0.5m of lease
liabilities and £0.2m of loans bringing the movement on net debt from
acquisitions to £128.1m.
7. Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net identifiable assets of the acquired
business at the date of acquisition. It is recognised as an intangible asset.
Goodwill arising on the acquisition of an associate is included in investments
in associates.
Goodwill is carried at cost less accumulated impairment losses and is tested
annually for impairment. For the purpose of impairment testing, goodwill is
allocated to CGUs identified according to country of operation and reportable
business unit. The way in which CGUs are identified has not changed from prior
periods. Newly acquired entities might be a single CGU until such time that
they can be integrated. Gains and losses on the disposal of an entity include
the carrying amount of goodwill relating to the entity sold.
The recoverable amount of a CGU is determined based on the higher of
value-in-use calculations using cash flow projections and fair value less
costs to sell if appropriate. The cash flow projections in year one are based
on financial budgets approved by management, which are prepared as part of the
Group's normal planning process. Cash flows for years two to five use
management's expectation of sales growth, operating costs and margin, based on
past experience and expectations regarding future performance and
profitability for each CGU. Cash flows beyond the five-year period are
extrapolated using estimated long-term growth rates (LTGR). The effect of
climate change has been considered in the cash flows.
An assessment has been performed for all material CGUs at the half year to
identify any possible indicators of impairment. The assessment included a
review of internal and external factors that have the potential to
significantly reduce the CGU value. No indicators of possible impairment have
been identified as a result of this assessment.
8. Dividends
6 months to 6 months to Year to
30 June 2022 30 June 2021 31 December 2021 £m
£m
£m
2020 final dividend paid - 5.41p per share - 100.0 100.0
2021 interim dividend paid - 2.09p per share - - 38.7
2021 final dividend paid - 4.30 per share 79.1 - -
79.1 100.0 138.7
The directors have declared an interim dividend of 2.40p per share amounting
to £44.7m payable on 12 September 2022 to shareholders on the register at
close of business on 5 August 2022. The last day for DRIP elections is
19 August 2022. The Company has a progressive dividend policy and will
consider the level of growth for 2022 based on the year-end results. These
interim financial statements do not reflect this dividend payable.
9. Retirement benefit obligations
Apart from the legally required social security state schemes, the Group
operates a number of pension schemes around the world covering many of its
employees.
Buy-out of the Group's principal scheme (the Rentokil Initial 2015 Pension
Scheme in the United Kingdom ("the Scheme")) completed on 24 February 2022,
extinguishing a retirement benefit obligation of £1,152.1m and the related
insurance policy asset. At 30 June 2022 a retirement benefit asset relating to
the Scheme remains on the balance sheet amounting to £18.2m (December 2021:
£18.2m). This represents the surplus assets remaining in the Scheme that will
be distributed to the Group on wind up of the Scheme. It remains subject to
certain estimates and assumptions made at the balance sheet date which could
lead the overall surplus available to change.
Schemes currently in an accounting surplus position total £20.8m (December
2021: £19.0m) and schemes currently in an accounting deficit position total
£31.6m (December 2021: £27.3m).
10. Net debt
At 30 June At 31 December 2021
2022 £m
£m
Current
Cash and cash equivalents in the Consolidated Balance Sheet(1) 2,371.1 668.4
Other investments 3.7 1.6
Fair value of debt-related derivatives(2) 1.8 1.5
Bank and other short-term borrowings: (607.2) (459.3)
Lease liabilities (80.3) (77.8)
1,689.1 134.4
Non-current
Fair value of debt-related derivatives(3) (66.8) (23.7)
Bank and other long-term borrowings: (2,918.2) (1,256.2)
Lease liabilities (149.7) (139.2)
(3,134.7) (1,419.1)
Total net debt (1,445.6) (1,284.7)
1. Cash and cash equivalents in the Consolidated Cash Flow Statement consists
of cash and cash equivalents in the Consolidated Balance Sheet and bank
overdraft.
2. Current fair value of debt-related derivatives is the net amount of current
derivative financial assets and liabilities included in the Consolidated
Balance Sheet.
3. Non-current fair value of debt-related derivatives is the net amount of
non-current derivative financial assets and liabilities included in the
Consolidated Balance Sheet.
Fair value is equal to carrying value for all elements of net debt with the
exception of bond debt which has a carrying value of £2,915.8m (December
2021: £1,253.7m) and a fair value of £2,842.3m (December 2021: £1,272.1m).
No further disclosures are required by IFRS 7.29(a).
Cash at bank and in hand includes £8.6m (December 2021: £6.6m) of restricted
cash. This cash is held in respect of specific contracts and can only be
utilised in line with terms under the contractual arrangements.
11. Bank and other borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are classified as current liabilities unless the Group
has a continuing right to defer settlement of the liability for at least 12
months after the balance sheet date.
The Group's bank debt comprises:
Facility Drawn at Headroom Interest rate at
amount
£m 30 June 2022 £m 30 June 2022
£m %
Non-current
£550m RCF due August 2025 550.0 - 550.0 0.14%
Average cost of bank debt at period end rates 0.14%
The Group has a committed £550m revolving credit facility (RCF) which is
available for cash drawings up to £550m. The maturity date is August 2025. As
at 30 June 2022 the facility was undrawn (2021: £nil).
In addition the Group entered into a £120m uncommitted RCF facility with ING
Bank N.V. which was drawn down in full and repaid during the period. This
facility was cancelled on 30 June 2022.
During June 2022, the Group issued new bonds, denominated in EUR and GBP, in
three tranches to fund the cash settlement of the acquisition price of
Rentokil's takeover of Terminix Global Holdings, Inc. ('Terminix').
The bonds contain call options that allow them to be redeemed early by the
Group. Management has performed analysis and concluded that separation of the
embedded derivatives within each bond is not required (nor permissible). Each
bond is required to be classified in full at amortised cost.
Further information on the new financing arrangements can be found on page 10
under the 'Funding' heading.
The Group's medium-term notes and bond debt comprises:
Bond interest coupon Effective hedged interest rate
Non-current
€400m bond due November 2024 Fixed 0.950% Fixed 2.973%
€500m bond due May 2026 Fixed 0.875% Fixed 1.505%
€850m bond due June 2027(1) Fixed 3.875% Fixed 3.963%
€600m bond due October 2028 Fixed 0.500% Fixed 1.030%
€600m bond due June 2030(1) Fixed 4.375% Fixed 4.375%
£400m bond due June 2032(1) Fixed 5.000% Fixed 5.250%
Average cost of bond debt at period end rates 2.559%
1. Bond issued in June 2022.
The effective interest rate reflects the interest rate after the impact of
cross currency interest rate swaps.
12. Derivative financial instruments
The Group uses derivative financial instruments in support of its hedging
strategy which is to hold debt in proportion to the Group profit and cash flow
which are mainly EUR and USD.
For all financial instruments held by the Group, those that are held at fair
value are to be classified by reference to the source of inputs used to derive
the fair value. The following hierarchy is used:
Level 1 - unadjusted quoted prices in active markets for identical assets or
liabilities;
Level 2 - inputs other than quoted prices that are observable for the asset or
liability either directly as prices or
indirectly through modelling based on prices; and
Level 3 - inputs for the asset or liability that are not based on observable
market data.
No financial instruments have moved between levels in the period.
Financial instrument Hierarchy level Valuation method
Financial assets traded in active markets 1 Current bid price
Financial liabilities traded in active markets 1 Current ask price
Listed bonds 1 Quoted market prices
Money market funds 1 Quoted market prices or dealer quotes for similar instruments
Interest rate/currency swaps 2 Discounted cash flow based on market swap rates
Forward foreign exchange contracts 2 Forward exchange market rates
Metal hedging options and non-deliverable 2 Discounted cash flow using quoted market prices and forward interest rates
forwards
Borrowings not traded in active markets 2 Nominal value
(term loans and uncommitted facilities)
Money market deposits 2 Nominal value
Trade payables and receivables 2 Nominal value less estimated credit adjustments
Contingent consideration (including put 3 Discounted cash flow using WACC
option liability)
The Group entered into deal-contingent cross-currency swaps in relation to the
Terminix acquisition. These instruments were executed on-market on 30 June
2022 and had an immaterial valuation at the balance sheet date.
Fair value assets Fair value assets Fair value liabilities Fair value liabilities
30 June 2022
31 December 2021
30 June 2022
31 December 2021
£m
£m
£m
£m
Interest rate swaps (level 2):
- non-hedge 0.2 - - (0.6)
- cash flow hedge - - (14.8) (25.3)
- net investment hedge 7.7 11.0 (58.2) (8.2)
Foreign exchange swaps (level 2):
- non-hedge 0.2 1.3 (0.1) (0.4)
Metal hedging options and non-deliverable forwards (level 2):
- non-hedge 0.1 - (0.1) -
8.2 12.3 (73.2) (34.5)
Analysed as follows:
Current portion 2.0 2.5 (0.2) (1.0)
Non-current portion 6.2 9.8 (73.0) (33.5)
Derivative financial instruments 8.2 12.3 (73.2) (34.5)
Contingent consideration (including put option liability) (level 3) - - (90.2) (75.0)
Analysed as follows:
Current portion - - (46.8) (22.8)
Non-current portion - - (43.4) (52.2)
Other payables (non-current) - - (90.2) (75.0)
The assumptions that are made in estimating the value of the put option
liability are option price and discount rate. A 5% reduction in the estimated
option price would result in a £2.1m decrease in the liability, and a 100
basis point decrease in the discount rate would result in a £1.2m increase in
the liability. All gains and losses relating to the put option are recognised
in OCI.
Given the volume of acquisitions and the variety of inputs to the valuation of
contingent consideration (depending on each transaction) there is not
considered to be any change in input that would have a material impact on the
contingent consideration liability.
Contingent Contingent
consideration consideration
30 June 2022 30 June 2021
£m £m
At 1 January 75.0 62.8
Exchange differences 1.5 (0.3)
Acquisitions 27.3 11.6
Payments (12.6) (6.4)
Revaluation of put option through equity (1.0) 0.4
90.2 68.1
Fair value is equal to carrying value for all other trade and other payables.
13. Events occurring after the balance sheet date
There were no significant events occurring after the balance sheet date.
14. Alternative performance measures
Definitions and reconciliation of non-GAAP measures to GAAP measures
The Group uses a number of measures to present the financial performance of
the business that are not GAAP measures as defined under IFRS. Management
believes these measures provide valuable additional information for users of
the financial statements in order to understand the underlying trading
performance. The Group's internal strategic planning process is also based on
these measures and they are used for incentive purposes. They should be viewed
as complements to, and not replacements for, the comparable GAAP measures.
Constant exchange rates (CER)
Given the international nature of the Group's operations, foreign exchange
movements can have a significant impact on the reported results of the Group
when they are translated into sterling (the functional reporting currency of
the Group). In order to help understand the underlying trading performance of
the business, often revenue and profit measures are presented at CER. CER is
calculated by translating current year reported numbers at the full year
average exchange rates for the prior year, in order to give management and
other users of the accounts better visibility of underlying trading
performance against the prior period. The major exchange rates used are £/$
FY 2021 1.3739 and £/€ FY 2021 1.1617. Comparisons are to the six months
ended 30 June 2021 (H1 2021) unless otherwise stated.
Ongoing Revenue and Ongoing Operating Profit
Ongoing Revenue and Ongoing Operating Profit represent the performance of the
continuing operations of the Group (including acquisitions) after removing the
effect of disposed or closed businesses. Ongoing Operating Profit is an
adjusted measure and is presented before items including amortisation and
impairment of intangible assets (excluding computer software), one-off items
and net profit on disposal of businesses (see below for full details).
Ongoing measures enable the users of the accounts to focus on the performance
of the businesses retained by the Group and that will therefore contribute to
the future performance. Ongoing Revenue and Ongoing Operating Profit are
presented at CER unless otherwise stated. A reconciliation of Ongoing Revenue
and Ongoing Operating Profit measures to the equivalent GAAP measure is
provided in the table below and in the segmental analysis in Note 4.
Adjusted profit and earnings per share measures
Adjusted profit measures are used to give management and other users of the
accounts a clear understanding of the underlying profitability of the business
over time. Adjusted profit measures are calculated by adding the following
items back to the equivalent GAAP profit measure:
● Amortisation and impairment of intangible assets (excluding computer
software);
● One-off items (operating and associates); and
● Net interest adjustments.
Intangible assets (excluding computer software) are recognised on the
acquisition of businesses which, by their nature, can vary by size and amount
each year. As a result, amortisation of intangibles is added back to assist
with the understanding of the underlying trading performance of the business
and to allow comparability across regions and categories.
One-off items are significant expenses or income that will have a distortive
impact on the underlying profitability of the Group. Typical examples are
costs related to the acquisition of businesses (including aborted
acquisitions), gain or loss on disposal or closure of a business, material
gains or losses on disposal of fixed assets, adjustments to legacy
property-related provisions (vacant property and environmental liabilities),
and payments or receipts as a result of legal disputes.
Net interest adjustments are other non-cash gains and losses that can cause
material fluctuations and distort understanding of the performance of the
business such as net interest on pension schemes and interest fair value
adjustments. These adjustments are made to aid year-on-year comparability.
Adjusted earnings per share is calculated by dividing adjusted profit after
tax from continuing operations attributable to equity holders of the Company
by the weighted average number of ordinary shares in issue.
A reconciliation of non-GAAP measures to the comparable GAAP equivalents is
provided below at both AER and CER:
H1 2022 H1 2022 H1 2021 H1 2021 % change
AER
CER
AER
CER
£m
£m
£m
£m
AER CER
Ongoing Revenue 1,571.2 1,534.4 1,453.0 1,452.9 8.1 5.6
Revenue - disposed and closed businesses 0.9 0.9 1.7 1.7 (47.3) (47.4)
Revenue 1,572.1 1,535.3 1,454.7 1,454.6 8.1 5.5
Ongoing Operating Profit 232.5 228.1 208.6 208.2 11.5 9.6
Operating Profit - disposed and closed businesses - - - - - -
Adjusted Operating Profit 232.5 228.1 208.6 208.2 11.5 9.6
One-off items - operating (23.1) (22.9) (10.9) (10.9) (111.8) (110.5)
Amortisation and impairment of intangible assets(1) (39.7) (38.7) (37.1) (37.1) (7.4) (4.3)
Operating profit 169.7 166.5 160.6 160.2 5.6 3.9
Share of profit from associates (net of tax) 4.7 4.9 4.5 4.5 3.6 9.9
Net adjusted interest payable (11.8) (11.0) (19.1) (19.1) 38.4 42.5
Net interest adjustments (0.7) (0.5) 2.8 2.8 (123.0) (118.8)
Profit before tax 161.9 159.9 148.8 148.4 8.8 7.8
Net interest adjustments 0.7 0.5 (2.8) (2.8) 123.0 118.8
One-off items - operating 23.1 22.9 10.9 10.9 111.8 110.5
Amortisation and impairment of intangible assets(1) 39.7 38.7 37.1 37.1 7.4 4.3
Adjusted profit before tax 225.4 222.0 194.0 193.6 16.2 14.7
Basic earnings per share 6.67p 6.57p 6.42p 6.69p
Basic adjusted earnings per share 10.69p 10.49p 8.31p 8.66p
1. Excluding computer software.
Organic Revenue Measures
Acquisitions are a core part of the Group's growth strategy. Organic Revenue
growth measures are used to help understand the underlying performance of the
Group. Organic Revenue growth represents the growth in Ongoing Revenue
excluding the effect of businesses acquired during the year. Acquired
businesses are included in organic measures in the year following acquisition,
and the comparative period is adjusted to include an estimated full year
performance for growth calculations (pro forma revenue).
2021 Ongoing Revenue Pro forma revenue Organic Revenue growth 2022 Ongoing Revenue
from 2021 and 2022 acquisitions
£m £m % £m % £m %
North America 642.7 35.5 5.5 (22.1) (3.4) 656.1 2.1
Europe 404.1 15.1 3.8 20.7 5.1 439.9 8.9
UK & Sub-Saharan Africa 175.8 - - 5.3 3.0 181.1 3.0
Asia & MENAT 129.6 10.1 7.8 7.4 5.7 147.1 13.5
Pacific 98.6 4.4 4.5 4.7 4.8 107.7 9.3
Central & regional OH 2.1 - - 0.4 15.2 2.5 15.2
Total 1,452.9 65.1 4.5 16.4 1.1 1,534.4 5.6
2021 Ongoing Revenue Pro forma revenue Organic Revenue growth 2022 Ongoing Revenue
from 2021 and 2022 acquisitions
£m £m % £m % £m %
Pest Control 935.7 61.1 6.5 52.2 5.6 1,049.0 12.1
Hygiene & Wellbeing 436.1 4.0 0.9 (48.8) (11.2) 391.3 (10.3)
France Workwear 79.0 - - 12.6 16.0 91.6 16.0
Central & regional OH 2.1 - - 0.4 15.2 2.5 15.2
Total 1,452.9 65.1 4.5 16.4 1.1 1,534.4 5.6
Regional Analysis
Ongoing Revenue Ongoing Operating Profit
H1 2022 Change from H1 2022 Change from
HY 2021
HY 2021
AER CER AER CER AER CER AER CER
£m
£m
%
%
£m
£m
%
%
North America 693.9 656.1 8.8 2.1 110.9 104.8 11.7 4.8
France 159.6 162.9 7.3 10.6 22.8 23.3 56.4 61.2
Benelux 48.6 49.6 5.1 8.2 14.5 14.8 12.6 16.0
Germany 54.9 55.7 (6.2) (4.1) 16.4 16.6 (10.5) (8.7)
Southern Europe 73.8 75.2 0.3 3.4 12.8 13.1 (3.1) (0.2)
Nordics 40.4 41.1 15.6 18.7 6.7 6.8 2.4 5.1
Latin America & Caribbean 56.6 55.4 23.1 21.9 10.3 10.4 25.4 28.3
Total Europe 433.9 439.9 6.4 8.9 83.5 85.0 13.3 16.3
UK, Ireland & Baltics 160.5 160.8 3.0 3.3 42.0 42.1 (0.2) 0.1
Sub-Saharan Africa 20.5 20.3 1.0 0.6 4.3 4.3 (5.4) (5.7)
UK & Sub-Saharan Africa 181.0 181.1 2.8 3.0 46.3 46.4 (0.7) (0.5)
Asia & MENAT 151.3 147.1 16.9 13.5 21.3 20.6 21.1 17.2
Pacific 108.6 107.7 8.9 9.3 23.7 23.5 15.3 15.8
Central and regional overheads 2.5 2.5 15.7 15.2 (48.4) (47.6) (6.7) (4.6)
Restructuring costs - - - - (4.8) (4.6) (25.1) (19.1)
Ongoing operations 1,571.2 1,534.4 8.1 5.6 232.5 228.1 11.5 9.6
Disposed businesses 0.9 0.9 (47.3) (47.4) - - - -
Continuing operations 1,572.1 1,535.3 8.1 5.5 232.5 228.1 11.5 9.6
Category Analysis
Ongoing Revenue Ongoing Operating Profit
H1 2022 Change from H1 2022 Change from
HY 2021
HY 2021
AER CER AER CER AER CER AER CER
£m
£m
%
%
£m
£m
%
%
Pest Control 1,086.4 1,049.0 16.4 12.1 195.3 189.8 18.3 14.8
- Growth(1) 946.0 912.6 15.4 11.0 177.5 172.5 17.6 14.1
- Emerging(2) 140.4 136.4 23.3 19.9 17.8 17.3 25.5 22.8
Hygiene & Wellbeing 392.5 391.3 (10.3) (10.3) 77.2 77.1 (10.8) (10.7)
- Core Hygiene & Wellbeing 378.7 377.7 10.5 10.8
- Disinfection 13.8 13.6 (85.4) (85.7)
France Workwear 89.8 91.6 12.6 16.0 13.2 13.4 115.8 122.5
Central and regional overheads 2.5 2.5 15.7 15.2 (48.4) (47.6) (6.7) (4.6)
Restructuring costs - - - - (4.8) (4.6) (25.1) (19.1)
Ongoing operations 1,571.2 1,534.4 8.1 5.6 232.5 228.1 11.5 9.6
Disposed businesses 0.9 0.9 (47.3) (47.4) - - - -
Continuing operations 1,572.1 1,535.3 8.1 5.5 232.5 228.1 11.5 9.6
1. Growth markets include North America, the UK and Ireland, Pacific, Germany,
Benelux and the Caribbean.
2. Emerging markets include Asia & MENAT, Latin America and Central
America.
Operating Margin
Operating Margin is calculated by dividing Ongoing Operating Profit by Ongoing
Revenue, expressed as a percentage. Net Operating Margin by region and
category is shown in the tables below:
H1 2022 H1 2021 Variance
% % % points
North America 16.0 15.6 0.4
France 14.3 9.8 4.5
Benelux 29.9 27.9 2.0
Germany 29.8 31.3 (1.5)
Southern Europe 17.3 18.0 (0.7)
Nordics 16.6 18.7 (2.1)
Latin America & Caribbean 18.8 17.8 1.0
Total Europe 19.3 18.1 1.2
UK, Ireland & Baltics 26.1 27.0 (0.9)
Sub-Saharan Africa 21.3 22.7 (1.4)
UK & Sub-Saharan Africa 25.6 26.5 (0.9)
Asia & MENAT 14.0 13.6 0.4
Pacific 21.8 20.6 1.2
Ongoing operations(1) 14.9 14.3 0.6
Disposed businesses - 1.5 (1.5)
Continuing operations(1) 14.9 14.3 0.6
H1 2022 H1 2021 Variance
% % % points
Pest Control 18.1 17.7 0.4
- Growth 18.9 18.4 0.5
- Emerging 12.7 12.4 0.3
Hygiene & Wellbeing 19.7 19.8 (0.1)
France Workwear 14.7 7.6 7.1
Ongoing operations(1) 14.9 14.3 0.6
Disposed businesses - 1.5 (1.5)
Continuing operations(1) 14.9 14.3 0.6
1. Operating Margin for ongoing operations and continuing operations is
calculated after central and regional overheads and restructuring costs.
Adjusted Interest
Adjusted interest is calculated by adjusting the reported finance income and
costs by the net interest on pensions and interest fair value adjustments.
H1 2022 H1 2021
AER
AER
£m
£m
Net finance costs (12.5) (16.3)
Net interest credit from pensions 0.1 0.1
Interest fair value adjustments 0.6 (2.9)
Adjusted interest (11.8) (19.1)
Free Cash Flow
The Group aims to generate sustainable cash flows (Free Cash Flow) in order to
support its acquisition programme and to fund dividend payments to
shareholders. Free cash flow is measured as net cash from operating
activities, adjusted for cash flows related to the purchase and sale of
property, plant and equipment and intangible fixed assets, cash flows related
to leased assets and dividends received from associates. These items are
considered by management to be non-discretionary as continued investment in
these assets is required to support the day-to-day operations of the business.
A reconciliation of Free Cash Flow from net cash from operating activities is
provided in the table below:
H1 2022 H1 2021
AER
AER
£m
£m
Net cash from operating activities 261.1 331.8
Purchase of property, plant, equipment and intangible fixed assets (83.1) (71.6)
Capital element of lease payments and initial direct costs incurred (45.3) (41.1)
Proceeds from sale of property, plant, equipment and software 3.2 1.6
Dividends received from associates 0.4 -
Free Cash Flow 136.3 220.7
Free Cash Flow Conversion
Free Cash Flow Conversion is calculated by dividing Adjusted Profit from
continuing operations attributable to equity holders of the Company by
Adjusted Free Cash Flow, expressed as a percentage. Adjusted Free Cash Flow is
measured as Free Cash Flow adjusted for one-off items - operating and product
development additions.
H1 2022 H1 2021
AER
AER
£m
£m
Adjusted profit before tax 225.4 194.0
Adjusted tax expense (49.2) (39.6)
Adjusted profit after tax from continuing operations attributable to equity 176.2 154.4
holders of the Company
Free Cash Flow from continuing operations 136.3 220.7
One-off items - operating 14.9 9.0
Product development additions 3.4 2.7
154.6 232.4
Free Cash Flow Conversion 87.7% 150.5%
Effective Tax Rate
Effective Tax Rate is calculated by dividing adjusted income tax expense by
adjusted profit before income tax, expressed as a percentage. The measure is
used by management to assess the rate of tax applied to the Group's adjusted
profit before tax from continuing operations.
H1 2022 H1 2021
AER
AER
£m
£m
Income tax expense 37.7 29.6
Tax adjustments on:
Amortisation and impairment of intangible assets (excluding computer software) 9.9 9.1
One-off items - operating 1.4 1.4
Net interest adjustments 0.2 (0.5)
Adjusted income tax expense (a) 49.2 39.6
Adjusted profit before income tax (b) 225.4 194.0
Effective Tax Rate (a/b) 21.8% 20.4%
Responsibility statement of the directors in respect of the 2022 interim
statement
We confirm that to the best of our knowledge:
- the condensed set of financial statements prepared in accordance with IAS 34,
'Internal Financial Reporting', as adopted in the UK (IAS 34), gives a true
and fair view of the assets, liabilities, financial position and profit or
loss of the Company and its subsidiaries included in the consolidation as a
whole as required by DTR 4.2.4R; and
- the interim management report includes a fair review of the information
required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year.
We have reviewed, and found that we have nothing to report in relation to the
requirements of DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first six months
of the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
By Order of the Board
Andy Ransom
Chief Executive
27 July 2022
The directors of Rentokil Initial plc are listed in the Rentokil Initial plc
Annual Report for 31 December 2021. A list of the current directors is
maintained on the Rentokil Initial website: rentokil-initial.com
Independent review report to Rentokil Initial plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Rentokil Initial plc's condensed consolidated interim
financial statements (the "interim financial statements") in the 2022 interim
statement of Rentokil Initial plc for the 6 month period ended 30 June 2022
(the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
● the consolidated balance sheet as at 30 June 2022;
● the consolidated statement of profit or loss and other comprehensive income
for the period then ended;
● the consolidated cash flow statement for the period then ended;
● the consolidated statement of changes in equity for the period then ended; and
● the explanatory notes to the interim financial statements.
The interim financial statements included in the 2022 interim statement of
Rentokil Initial plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the 2022 interim statement and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The 2022 interim statement, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the 2022 interim statement in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the 2022 interim statement,
including the interim financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the 2022 interim statement based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 July 2022
Additional Information About The Proposed Transaction And Where To Find It
In connection with the proposed transaction between Rentokil Initial plc
("Rentokil Initial") and Terminix Global Holdings, Inc. ("Terminix"), Rentokil
Initial has filed with the U.S. Securities and Exchange Commission (the "SEC")
a preliminary registration statement on Form F-4, which includes a preliminary
proxy statement of Terminix that also constitutes a preliminary prospectus of
Rentokil Initial. Each of Rentokil Initial and Terminix will also file other
relevant documents in connection with the proposed transaction. The definitive
proxy statement/prospectus will be sent to the shareholders of Terminix.
Rentokil Initial will also file a shareholder proxy circular in connection
with the proposed transaction with applicable securities regulators in the
United Kingdom and the shareholder proxy circular will be sent to Rentokil
Initial's shareholders. This communication is not a substitute for any
registration statement, proxy statement/prospectus or other documents Rentokil
Initial and/or Terminix may file with the SEC in connection with the proposed
transaction. BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS, INVESTORS,
STOCKHOLDERS AND SHAREHOLDERS OF TERMINIX AND RENTOKIL INITIAL ARE URGED TO
READ CAREFULLY AND IN THEIR ENTIRETY THE PROXY STATEMENT/PROSPECTUS AND
SHAREHOLDER PROXY CIRCULAR, AS APPLICABLE, AND ANY OTHER RELEVANT DOCUMENTS
THAT ARE FILED OR WILL BE FILED WITH THE SEC OR APPLICABLE SECURITIES
REGULATORS IN THE UNITED KINGDOM, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO
THESE DOCUMENTS, IN CONNECTION WITH THE PROPOSED TRANSACTION WHEN THEY BECOME
AVAILABLE, AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT
TERMINIX, RENTOKIL INITIAL, THE PROPOSED TRANSACTION AND RELATED MATTERS. The
registration statement and proxy statement/prospectus and other documents
filed by Rentokil Initial and Terminix with the SEC, when filed, will be
available free of charge at the SEC's website at www.sec.gov. In addition,
investors and shareholders will be able to obtain free copies of the proxy
statement/prospectus and other documents filed with the SEC by Terminix online
at investors.terminix.com, upon written request delivered to Terminix at 150
Peabody Pl., Memphis, TN 38103, USA, Attention: Corporate Secretary, or by
calling Terminix's Corporate Secretary's Office by telephone at +1
901-597-1400 or by email at deidre.richardson@terminix.com, and will be able
to obtain free copies of the registration statement, proxy
statement/prospectus, shareholder proxy circular and other documents which
will be filed with the SEC and applicable securities regulators in the United
Kingdom by Rentokil Initial online at https://www.rentokil-initial.com, upon
written request delivered to Rentokil Initial at Compass House, Manor Royal,
Crawley, West Sussex, RH10 9PY, England, Attention: Peter Russell, or by
calling Rentokil Initial by telephone at +44 (0) 7811 270734 or by email at
investor@rentokil-initial.com. The information included on, or accessible
through, Rentokil Initial's or Terminix's website is not incorporated by
reference into this communication.
This communication is for informational purposes only and is not intended to,
and shall not, constitute an offer to sell or buy or the solicitation of an
offer to sell or buy any securities, nor shall there be any sale of securities
in any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to appropriate registration or qualification under the
securities laws of any such jurisdiction. No offering of securities shall be
made except by means of a prospectus meeting the requirements of Section 10 of
the U.S. Securities Act of 1933, as amended.
Participants in the Solicitation of Proxies
This communication is not a solicitation of proxies in connection with the
proposed transaction. However, under SEC rules, Terminix, Rentokil Initial,
and certain of their respective directors, executive officers and other
members of the management and employees may be deemed to be participants in
the solicitation of proxies in connection with the proposed transaction.
Information about Terminix's directors and executive officers may be found on
its website at corporate.terminix.com/responsibility/corporate-governance and
in its 2021 Annual Report on Form 10-K filed with the SEC on March 1, 2022,
available at investors.terminix.com and www.sec.gov. Information about
Rentokil Initial's directors and executive officers may be found on its
website at https://www.rentokil-initial.com and in its 2021 Annual Report
filed with applicable securities regulators in the United Kingdom on March 30,
2022, available on its website at https://www.rentokil-initial.com. The
information included on, or accessible through, Rentokil Initial's or
Terminix's website is not incorporated by reference into this communication.
These documents can be obtained free of charge from the sources indicated
above. Additional information regarding the interests of such potential
participants in the solicitation of proxies in connection with the proposed
transaction will be included in the proxy statement/prospectus and shareholder
proxy circular and other relevant materials filed with the SEC and applicable
securities regulators in the United Kingdom when they become available.
Information Regarding Forward-Looking Statements
This communication contains forward-looking statements as that term is defined
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can sometimes be
identified by the use of forward-looking terms such as "believes," "expects,"
"may," "will," "shall," "should," "would," "could," "potential," "seeks,"
"aims," "projects," "predicts," "is optimistic," "intends," "plans,"
"estimates," "targets," "anticipates," "continues" or other comparable terms
or negatives of these terms, but not all forward-looking statements include
such identifying words. Forward-looking statements are based upon current
plans, estimates and expectations that are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those indicated or anticipated by such forward-looking
statements. We can give no assurance that such plans, estimates or
expectations will be achieved and therefore, actual results may differ
materially from any plans, estimates or expectations in such forward-looking
statements. Important factors that could cause actual results to differ
materially from such plans, estimates or expectations include: a condition to
the closing of the proposed transaction may not be satisfied; the occurrence
of any event that can give rise to termination of the proposed transaction;
Rentokil Initial is unable to achieve the synergies and value creation
contemplated by the proposed transaction; Rentokil Initial is unable to
promptly and effectively integrate Terminix's businesses; management's time
and attention is diverted on transaction related issues; disruption from the
proposed transaction makes it more difficult to maintain business, contractual
and operational relationships; the credit ratings of Rentokil Initial declines
following the proposed transaction; legal proceedings are instituted against
Terminix or Rentokil Initial; Terminix or Rentokil Initial is unable to retain
or hire key personnel; the announcement or the consummation of the proposed
acquisition has a negative effect on the market price of the capital stock of
Terminix or Rentokil Initial or on Terminix's or Rentokil Initial's operating
results; evolving legal, regulatory and tax regimes; changes in economic,
financial, political and regulatory conditions, in the United Kingdom, the
United States and elsewhere, and other factors that contribute to uncertainty
and volatility, natural and man-made disasters, civil unrest, pandemics (e.g.,
the coronavirus (COVID-19) pandemic (the "COVID-19 pandemic")), geopolitical
uncertainty, and conditions that may result from legislative, regulatory,
trade and policy changes associated with the current or subsequent U.S. or
U.K. administration; the ability of Rentokil Initial or Terminix to
successfully recover from a disaster or other business continuity problem due
to a hurricane, flood, earthquake, terrorist attack, war, conflict, pandemic,
security breach, cyber-attack, power loss, telecommunications failure or other
natural or man-made event, including the ability to function remotely during
long-term disruptions such as the COVID-19 pandemic; the impact of public
health crises, such as pandemics (including the COVID-19 pandemic) and
epidemics and any related company or governmental policies and actions to
protect the health and safety of individuals or governmental policies or
actions to maintain the functioning of national or global economies and
markets, including any quarantine, "shelter in place," "stay at home,"
workforce reduction, social distancing, shut down or similar actions and
policies; actions by third parties, including government agencies; the risk
that disruptions from the proposed transaction will harm Rentokil Initial's or
Terminix's business, including current plans and operations; certain
restrictions during the pendency of the acquisition that may impact Rentokil
Initial's or Terminix's ability to pursue certain business opportunities or
strategic transactions; Rentokil Initial's or Terminix's ability to meet
expectations regarding the accounting and tax treatments of the proposed
transaction ; the risks and uncertainties discussed in the "Risks and
Uncertainties" section in Rentokil Initial's reports available on the National
Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
and on its website at https://www.rentokil-initial.com (information included
on or accessible through Rentokil Initial's website is not incorporated by
reference into this communication); and the risks and uncertainties discussed
in the "Risk Factors" and "Information Regarding Forward-Looking Statements"
sections in Terminix's reports filed with the SEC. These risks, as well as
other risks associated with the proposed transaction, will be more fully
discussed in the proxy statement/prospectus and shareholder proxy circular.
While the list of factors presented here is, and the list of factors to be
presented in proxy statement/prospectus and shareholder proxy circular will
be, considered representative, no such list should be considered to be a
complete statement of all potential risks and uncertainties. Unlisted factors
may present significant additional obstacles to the realization of
forward-looking statements. We caution you not to place undue reliance on any
of these forward-looking statements as they are not guarantees of future
performance or outcomes and that actual performance and outcomes, including,
without limitation, our actual results of operations, financial condition and
liquidity, and the development of new markets or market segments in which we
operate, may differ materially from those made in or suggested by the
forward-looking statements contained in this communication. Except as required
by law, neither Rentokil Initial nor Terminix assumes any obligation to update
or revise the information contained herein, which speaks only as of the date
hereof.
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