REG - Rentokil Initial PLC - Final Results
03/03/2022 07:00
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RNS Number : 4545D Rentokil Initial PLC 03 March 2022
2021 Preliminary Results
An excellent financial performance in 2021, with strong momentum in our core
businesses and outstanding M&A
Progressing our strategically compelling acquisition of Terminix Global
Holdings, Inc.
Financial Results* FY 2021 Growth
£m AER AER CER
Ongoing Revenue 2,953.9 5.9% 9.8%
Adjusted/Ongoing Operating Profit 441.5 15.0% 19.5%
Adjusted profit before tax 416.5 17.3% 22.1%
Free Cash Flow 326.5
Adjusted EPS 18.07p 17.6% 22.4%
Statutory Results
Revenue 2,956.6 5.5%
Operating Profit 346.5 17.9%
Profit before tax 325.1 41.5%
EPS 14.16p 41.2%
Dividend per share 6.39p 18.1%
2021 highlights (at CER unless otherwise stated)
● 9.8% growth in Ongoing Revenue- demonstrating strong momentum of our core
businesses despite challenges presented by COVID-19 in a number of our
markets. 5.5% growth in total Revenue to £2,956.6m at AER
● Core businesses organic growth of 7.5% (excluding disinfection)
- 18.6% growth in Pest Control, +8.1% organic, broad-based momentum evident
across all regions
- 8.2% growth in core Hygiene, +7.4% organic, aided by normalised levels of
regular service provision
- £117.8m revenues from disinfection (H1: £98.3m, H2: £19.5m), reflecting
expected tapering during the year. Group organic growth including disinfection
+3.2%
- 5.6% growth in Protect & Enhance, +4.9% organic, all four businesses
(France Workwear, Ambius, UK Property Care and Dental Hygiene Services)
returning to organic growth
● 19.5% growth in Ongoing Operating Profit, reflecting resumption of our
high-quality service model, in addition to associated revenue and bad debt
provision releases
● 17.3% increase in Adjusted profit before tax of £416.5m, statutory profit
before tax up 41.5% to £325.1m at AER
● Excellent Free Cash Flow of £326.5m (107.3% cash conversion)
- Customer collections remain strong, c.10% reduction in overall Group ledgers,
notwithstanding the impact of revenue growth on billing
- Overall cash and cash equivalents decreased by £295.0m as a result of our
excellent M&A programme and resumption of dividends in 2021
● Net debt to EBITDA ratio 1.96x (at 31 Dec), following spend on acquisitions
and dividend payments
● Continued roll-out of PestConnect - 58% increase in installed devices,
totalling c.235,000 units in approximately 13,000 sites
● Outstanding M&A delivery
- 52 acquisitions in 2021 - 48 Pest Control acquisitions and four in Hygiene
& Wellbeing in 25 countries, including 17 in North America
- Total annualised revenues in the year prior to purchase of £146.6m for
businesses acquired in 2021
- Actual cash spend in 2021 for current and prior year acquisitions of £463.1m
- Total consideration for acquisitions in 2021 of £495.5m
- Strong acquisition pipeline in place for 2022; anticipated spend on M&A
(not including the acquisition of Terminix) of around £250m
● Progressing the strategically compelling acquisition of Terminix Global
Holdings, Inc.
- Significantly increasing our scale and density, and enhancing our position in
the US, the world's largest pest control market
- Transaction expected to be mid-teens percent accretive to the Company's
earnings per share in the first full year post completion and, including at
least $150m of net cost synergies, returns expected to exceed our cost of
capital by the third full year following completion
- Excellent response from customers and colleagues to announcement. Joint
integration plan now in development. Expected to complete in H2, subject to
regulatory approval and satisfaction of closing conditions
● Recommended final dividend of 4.30p, to bring total dividend for 2021 to
6.39p, an increase of 18.1%
Andy Ransom, CEO of Rentokil Initial plc, said:
"In 2021 we delivered an excellent performance in revenue, profit and cash,
underlining the strength in our core businesses and markets. Pest Control had
a particularly strong year, with organic growth of 8.1% reflecting further
progress in the execution of our innovation and technology strategy. Our
proprietary, next generation pest control innovations continue to
differentiate Rentokil and set new standards of performance in support of our
customers. Our pipeline of innovations remains strong with over 50 projects
underway. We are also very pleased with the performance of our Hygiene
business, which showed particularly encouraging organic growth momentum of
7.4%.
"We have had an outstanding year for M&A in 2021 and have acquired 52 high
quality businesses in 25 countries - including 17 deals in our key North
America market. Our total cash consideration for acquisitions this year
amounts to £463.1m, in line with our up-weighted guidance given at the
interim results in July.
"In December we announced the acquisition of Terminix, which will deliver
multiple density-building opportunities in North America as well as cost
synergies of at least $150m. We have made a good start with the development of
our integration plan and the initial US antitrust regulatory process is
underway.
"2021 has been an outstanding year. We have demonstrated the core strength of
our businesses, growing revenue, profit and cash ahead of our new medium-term
growth targets. We have entered into a transaction with compelling strategic
logic which will make us the number one player in North America, the world's
largest pest control market, whilst delivering substantial value creation for
shareholders. The last two years have been challenging, but we have proved
that we can both adapt and grow the business. With the worst of the pandemic
hopefully behind us, and by building further on the momentum of 2021 in our
core businesses, we are confident of delivering further good progress in the
year ahead."
Enquiries:
Investors / Analysts: Katharine Rycroft Rentokil Initial plc 07811 270734
Media: Malcolm Padley Rentokil Initial plc 07788 978199
Richard Mountain FTI Consulting 07909 684466
A presentation for investors and analysts will be held on Thursday 3 March
2022 at 9.15am in the Sidney Suite Conference Room, 1st Floor, The Leonardo
Royal London Tower Bridge Hotel, 45 Prescot Street, London E1 8GP. This will
be available via a live audio web cast at www.rentokil-initial.com
(http://www.rentokil-initial.com) .
*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, Ongoing Operating Profit, Adjusted
profit before tax and Free Cash Flow. 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 the 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 21 on page 35.
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.
Unless otherwise stated: financial information relating to Rentokil Initial
has been extracted or derived from the audited results for the twelve months
ended 31 December 2021 (prepared in accordance with IFRS); and financial
information relating to Terminix has been extracted or derived from the
audited results for the twelve months ended 31 December 2021 (prepared in
accordance with US GAAP).
All Terminix financial information in this announcement is presented following
US GAAP and may be different in the Circular and Prospectus, which will be
prepared under IFRS and Rentokil Initial's accounting policies.
The unaudited combined pro forma financial information is based on Rentokil
Initial's IFRS audited results for the twelve months ended 31 December 2021
and Terminix's US GAAP audited results for the twelve months ended 31 December
2021 and may be different in the Circular and Prospectus, which will be based
on reconciled Terminix financial information prepared under IFRS and Rentokil
Initial's accounting policies. The unaudited combined pro forma financial
information is for information purposes only and is not intended to represent
or be indicative of Rentokil Initial's or Terminix's financial position or
results of operations that Rentokil Initial or Terminix would have reported
had the pro forma adjustments not been made and is not necessarily indicative
of Rentokil Initial's or Terminix's future financial position or results of
operations.
Summary of financial performance (at CER)
Revenue
The Group delivered an excellent revenue performance in 2021, demonstrating
strong momentum in our core businesses during the year. Ongoing Revenue rose
9.8% to £3,063.5m, up 3.2% organic. Total revenue grew by 5.5% to £2,956.6m
at AER (up 9.4% at CER). Excluding disinfection services, Organic growth in
our core business was 7.5%, in excess of our recently up-weighted organic
growth guidance of 4% to 5%. Our North America and UK & Rest of World
regions delivered double-digit revenue growth in 2021 (up 14.2% and 10.8%
respectively), aided by more favourable market conditions, as COVID-19 related
impacts on these markets eased and despite the significantly reduced
contribution from disinfection services. Our Pacific operations have also
recovered well, with revenue growth of 8.7% despite intermittent lockdowns in
Australia and New Zealand impacting performance in H2. Revenue growth in
Europe and Asia (at 3.9% and 5.0% respectively), while returning to
year-on-year growth, was also impacted to some extent by reintroduced
lockdowns in a number of countries.
Pest Control delivered a very strong performance overall during the year, with
Ongoing Revenue growth of 18.6% to £2,020m (8.1% organic) aided by an
excellent performance from our North America business, slightly offset by
weaker performances from our Australia, New Zealand, Malaysia and Indonesia
operations which were materially impacted by lockdowns in H2. Despite some
labour shortages in H2, due to a number of colleagues either off work with
COVID-19 or self-isolating, our Pest Control business in North America was our
best performing region, growing revenues by 24.3%, 8.9% organic. Ongoing
Revenue in our Growth and Emerging markets grew by 19.2% and 14.5%
respectively.
Our core Hygiene business, excluding disinfection, delivered an 8.2% increase
in Ongoing Revenue to £555.6m (7.4% organic), reflecting good performances in
the UK, Europe and Latin America. Overall Hygiene revenue declined by 8.4% to
£673.4m, reflecting the anticipated tapering of disinfection services, which
reduced by £103.6m to £117.8m. As with Pest Control, however, our operations
in Australia, New Zealand, Indonesia and Malaysia were held back by
significant challenges associated with ongoing lockdowns.
The rapid deployment of disinfection services across 60 countries enabled the
Company to generate £221.4m of revenues in the prior year. Customers who used
our services (such as offices, shops, schools, airports, emergency vehicles
and public transport) did so typically to remain open during lockdown
conditions. As lockdown conditions generally eased around the world and our
core services returned, customer requirements for emergency disinfection
services significantly decreased, and therefore revenue from disinfection
services has tapered in line with our expectations to £117.8m (H1: £98.3m,
H2: £19.5m), a decline of £103.6m on 2020. We anticipate disinfection
revenues in 2022 of around £10m to £20m, as services further unwind.
Ongoing Revenue in our Protect & Enhance category rose 5.6% to £365.6m
(4.9% organic), with all four businesses (France Workwear, Ambius, UK Property
Care and Dental Waste Services) returning to organic growth. Revenue at actual
exchange rates grew by 2.8% to £355.9m. In France, lockdowns began to ease in
May with fewer restrictions on restaurant operations and as a result, we have
seen an improving performance from our Workwear business. While this is
encouraging, as-used volumes (where the customer only pays for specific
garments laundered) are still behind pre-COVID-19 levels, impacted by ongoing
temporary customer suspensions in H1 and reduced tourism in France in H2.
Profit
Ongoing Operating Profit rose by 19.5% to £458.7m (£441.5m at AER),
reflecting revenue growth across all major reporting countries, regions and
categories and the execution of our high service and innovation and technology
strategy. This resulted in a 120 basis points increase in Net Operating
Margins to 15.0%. Ongoing Operating Profit includes restructuring costs of
£10.2m at CER (2020: £13.2m), which consisted mainly of costs in respect of
initiatives focused on our North America transformation programme, together
with integration costs of smaller acquisitions. During 2021, the return of our
core service provision allowed us to fully resume our high-quality service
model. As part of this, we have been able to catch up on service, debt and
customer satisfaction issues that had arisen during the early onset of the
pandemic in 2020, resulting in the release of £20.0m of revenue provisions
and £12.0m of bad debt provisions taken in 2020, and contributing a 100 basis
points improvement to Net Operating Margins.
Adjusted profit before tax (at AER) of £416.5m (£433.6 m at CER), which
excludes the impact of one-off items (set out below), increased by 17.3% and
reflects growth in all regions and categories. Adjusted profit before tax
includes a £3.9m benefit from IAS29 hyperinflation indexation from our newly
acquired Boecker subsidiary in Lebanon. Adjusted interest of £33.1m at actual
exchange rates was £4.0m lower than in the prior year, due to the pay down of
the €350m bond which matured in October 2021 but was paid in July 2021.
One-off items (operating) of £21.3m includes £13.8m of acquisition and
integration costs and £6.0m of professional fees relating to the Terminix
transaction.
Statutory profit before income tax from continuing operations at AER was
£325.1m, an increase of 41.5% (2020: £95.3m) on the prior year. In addition
to the margin improvements described above, the Group also received the
benefit of year-on-year gains in net finance costs due to the non-repeat of
the £28.4m cost of closing out an interest derivative linked to US interest
rates, and other fair value losses of £9.5m in 2020.
Cash (at AER)
The Company generated Free Cash Flow of £326.5m in 2021, representing Free
Cash Flow Conversion of 107.3%, well ahead of our target of 90%. The increase
was principally driven by a £57.5m increase in Adjusted Operating Profit
offset by higher capex and one-off items. Cash spend on current and prior year
acquisitions in 2021 totalled £463.1m, which contributed to the net decrease
in cash and cash equivalents of £295.0m.
We have continued to maintain a tight focus on working capital management and
have made significant progress in unwinding the increased ledgers that
resulted from the pandemic. Group ledgers at the end of 2021 were c.10% lower
than December 2020, despite organic and M&A revenue growth.
M&A
We have delivered further excellent execution of M&A in 2021, acquiring 52
new businesses in Pest Control, Hygiene and Protect & Enhance (Ambius).
While competition for high quality assets in North America has continued, the
region still presents good opportunities to build density and we have added 17
new businesses during the period. In addition to acquisitions in Canada and
the US, we have also made good progress in broadening our geographic presence
with pest control and hygiene purchases (including joint venture interests) in
Australia, Brazil, Canada, Chile, China, Colombia, France, Jordan, Italy,
Kuwait, Lebanon, Lithuania, Mexico, Nigeria, Norway, Poland, Qatar, Saudi
Arabia, Singapore, Spain, Sweden, Switzerland, Taiwan and UAE.
In July, we announced we had entered into a transaction with a leading
independent pest control provider in the Middle East, Boecker World Holding
SAL, operating (including with joint venture partners and associates) across
the UAE, Saudi Arabia, Jordan, Kuwait, Lebanon, Nigeria and Qatar. The
business, which generated revenues of c.£37m in the year prior to purchase,
is a leader in B2B environmental health services including Pest Management,
Food Safety and Germ Control services and products, and employs c.1,100
colleagues. The transaction doubles the scale of our operations in the Middle
East, where we are already the market leader in pest control. The business has
performed well since acquisition and integration is proceeding in line with
our expectations, with the Lebanon management team responding proactively to
the country's hyperinflationary challenges by addressing pricing, colleague
issues and customer relationships to deliver ongoing profitability and
sensible cash management actions.
In February 2022, we conducted our most recent half-yearly review of
post-investment performance, reviewing 48 acquisitions made between 1 April
2019 and 30 September 2020 and covering £318m of consideration. We are
pleased with performance, with deals delivering revenue and EBITA ahead of our
expectations and aggregate returns also ahead of our required IRR 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 & Wellbeing, to build density in existing markets, pursue
acquisitions in new markets and the major Cities of the Future, and seek
medium-sized transactions. Our pipeline of prospects remains strong, and we
anticipate expenditure on M&A in 2022 of around £250m (excluding the
acquisition of Terminix).
Acquisition of Terminix Global Holdings, Inc.
On 14 December 2021, we announced that Rentokil Initial plc and Terminix
Global Holdings, Inc. ("Terminix") had entered into a definitive agreement
under which Rentokil Initial will acquire Terminix for stock and cash (the
"Transaction"). The Transaction will bring together two complementary
businesses (the "Combined Group") to create the global leader in both Pest
Control and Hygiene & Wellbeing, and the leader in the pest control
business in North America, the world's largest pest control market.
The Transaction will combine two leading brands with a long cultural heritage,
outstanding talent and strong focus on people, customers and ESG. Upon
completion, the Combined Group will have c.57,700 colleagues serving c.4.9m
customers around the world from 790 locations. The enlarged business will have
a strong platform for growth, particularly in North America, and an attractive
financial profile to support future growth, including through acquisitions and
continued investment in innovation and technology. For the year ended 31
December 2021, the Combined Group's illustrative revenue would have amounted
to US$6.0bn¹ (£4.5bn), with EBITDA of US$1.3bn (£1.0bn) and Free Cash Flow
of US$0.7bn (£0.5bn).
The Transaction is expected to create significant value, enhance long-term
growth potential, be highly cash generative and present a compelling
industrial logic, supported by:
● increased scale and leadership in the global pest control market;
● substantially increased scale in North America, providing an enlarged platform
for profitable growth;
● a complementary and synergistic portfolio combination; and
● an attractive financial profile.
The Transaction is expected to generate material annual pre-tax net cost
synergies of at least US$150m (£113m) by the third full year post completion.
Run rate synergies are expected to accumulate c.30%, c.80% and 100% in the
first, second and third 12-month periods respectively, post completion. In
achieving these synergies, the Combined Group expects to incur aggregate cash
implementation costs of approximately US$150m, half of which will be incurred
in the first 12 months post completion. The Transaction is expected to be
mid-teens percent accretive2 to Rentokil Initial's earnings per share in the
first full year post completion and, including at least $150m of net cost
synergies, returns expected to exceed the Company's cost of capital by the
third full year following completion.
We believe the transaction has compelling industrial and financial logic and
the response from colleagues and customers in both companies has been
excellent. Good progress has been made to date with preparation and planning:
● The Rentokil Initial management team visited the Terminix HQ in January as
part of the planning and communication process.
● The regulatory process in the US is fully underway with the initial review
period due to expire in March.
● A governance structure for integration planning is in place with excellent
working relationships established between the two companies. This includes the
Integration Management Office, North America Integration Steering Committee,
Rentokil Global Steering Committee and Integration Investment Committee, which
are all in place.
● We have appointed a specialist third party to support the integration planning
process.
● We have a structured 'planning the plan' process in place focused on 15 areas
including the operational model, sales and marketing, HR, Finance and IT.
Standalone projects include procurement, fleet and property. Good progress in
all workstreams and projects.
● The first joint meetings have been held by IT and HR to support building the
plan in order to deliver the Best of Breed approach - and have underlined the
positive shared culture.
● There is significant focus on planning the cost and efficiency synergy levers
such as procurement and property.
● A major project to update our historical IFRS audited financials to be US
PCAOB compliant is underway.
● Revenue synergy opportunities, such as colleague retention, customer
retention, innovation and digital, have not been included at this stage.
Overall, we remain on track to close the transaction in the second half of
2022, subject to satisfaction of closing conditions and regulatory approval.
1. GBP/USD rate of 1.3273 as per 10 December 2021 used to form Combined Group
financials. Illustrative combined financials have been calculated using
Terminix's financial results in accordance with US GAAP and Rentokil Initial's
results in accordance with IFRS. The unaudited combined pro forma financial
information is for information purposes only and is not intended to represent
or be indicative of Rentokil Initial's or Terminix's financial position or
results of operations that Rentokil Initial or Terminix would have reported
had the pro forma adjustments not been made and is not necessarily indicative
of Rentokil Initial's or Terminix's future financial position or results of
operations.
2. Earnings accretion is not a profit forecast.
REGIONAL PERFORMANCE REVIEW
North America - Organic Revenue growth (ex. disinfection) 8.9%, total Organic
Revenue growth 1.6%
North America was our best performing region in 2021, with revenue growth
driven by broad-based momentum in all businesses and an incremental return to
more normalised trading patterns.
We have seen good growth in our residential Pest Control portfolio (which
represents 36% of our North America Pest Control business), from both 2020 and
2021 acquisitions and continued marketing and sales focus. Residential
revenues grew by 31% in 2021, aided by a continuation of the work from home
business environment. Our acquisition of Environmental Pest Service, which
completed on 1 January 2021, has performed strongly and we are benefiting from
the business's residential concentration in three important markets - Florida,
Georgia and North Carolina.
Our commercial Pest Control business (64% of our Pest Control business) grew
by 21% in 2021, aided by good volumes of work broadly across most markets, and
we are also seeing improvements in bird and mosquito work. We anticipate
continued improvement in the Hospitality sector as restrictions are expected
to ease further in 2022. Our distribution business performed strongly
throughout the year and reflects the general market recovery of the pest
services sector and the continued high demand for lawn, golf and turf
products.
As outlined in our interim statement in July, revenues in H1 were supported
(primarily in Q1) by ongoing disinfection sales and, as expected, these
significantly tapered throughout the remainder of the year as COVID-19 related
market conditions improved. Sales from disinfection amounted to £67.0m in
2021 (2020: £142.5m). Hygiene sales focus is now directed primarily towards
air disinfection, including our VIRUSKILLER™ product. Our overall
performance in 2021 has also been positively impacted by the recovery of our
other commercial businesses: Brand Standards (which was significantly impacted
in 2020 by temporary customer closures in the quick serve restaurant sector)
returned to more regular trading with c.95% of customers by the end of the
year and our Ambius operations returned to pre-pandemic trading levels,
delivering growth of 8.5% on the prior year.
Ongoing Revenue in North America grew by 14.2% to £1,375.0m (1.6% organic).
Revenues from total Pest Control (including Distribution and Lake Management)
increased by 24.3% to £1,224.4m (8.9% organic), with Pest Services revenue
increasing by 22.3% and reflecting good demand from both Commercial and
Residential customers. Total revenues from disinfection in 2021 amounted to
£67.0m (H1: £64.3m, H2: £2.7m). Ongoing Operating Profit growth of 8.7% to
£230.2m reflects the significantly lower contribution from disinfection
services. We acquired 17 businesses in 2021 with combined annualised revenues
of c.£72m in the year prior to purchase.
We continue to make progress towards our 18% margin target in North America
with a 16.7% margin delivery for the full year. This is a result of the
continued incremental return to more normal levels of growth from our core
North American operations as described above, together with ongoing cost
initiatives and the benefits from our IT enabled Best of Breed programme. The
margin benefitted by 20 basis points from a change in revenue recognition
policy in our Target distribution business. We remain on track to achieve our
18% margin target by the end of 2022.
Our IT re-platforming programme progressed well in 2021. We have now
successfully migrated our West, Central, Northeast and Southeast operating
regions from their respective legacy platforms to our new service planning and
customer management system. The consolidation to one operating platform will
enable significant improvement in process standardisation, as well as the
deployment of our digital products in sales productivity and pricing, field
service and scheduling optimisation, and an enhanced customer service
experience.
North America has experienced some inflationary pressures on its cost base
throughout the year but has substantially passed these increases on through
efficiencies and annual price increases (APIs) to customers, in line with
normal policy. The region has seen little change to customer termination
rates, which remain within normal ranges and in line with 2019. Although we
are seeing signs in the US economy of wage pressures, this has not had a broad
impact on wages across our operations. North America overall colleague
retention has trended down by c.5%, as new employees who joined the business
at the height of the pandemic in 2020 have left to seek alternative employment
as other sectors recovered, but remains above 80%. While overall 'time to
fill' vacancy rates for 2021 reduced by c.3 days on 2020, they trended upwards
in H2 reflecting a highly competitive labour market in certain cities. A more
targeted recruitment approach (by market, capacity and vacancy percentage) and
continued success with virtual hiring events are yielding results and will
help us navigate the challenges of the North American labour market.
Europe - Organic Revenue growth (ex. disinfection) 4.8%, total Organic Revenue
growth 2.0%
Our Europe region has continued to experience disruption from lockdowns and
intermittent restrictions throughout 2021. Despite these challenges our core
categories have performed well, with Pest Control largely back to normal and
experiencing good growth, and with Hygiene and France Workwear recovering
well. Throughout the year, we have seen the number of customers who have
either remained closed reducing from c.10% in H1 to less than 1% in H2, with
trading in most countries returning to more normal levels. While we continue
to experience some interruptions from restrictions imposed during the fourth
and fifth waves of the virus (notably the recent lockdown in the Netherlands),
the impact is more on COVID-19 infections in employees, affecting colleague
availability rather than on customer closures.
Ongoing Revenue Growth in Pest Control grew by 11.8% in 2021, impacted by
continued lockdowns across parts of Europe and Latin America and poor weather
in Europe in Q2 and Q3 which delayed the emergence of pests such as wasps and
mosquitoes.
Our Hygiene operations (excluding disinfection) grew by 4.4% in 2021 with most
growth generated in H1 as we lapped the impact from lockdowns in H1 2020.
Sales campaigns during the year have focused on customers returning to work,
school and venues and we have also expanded our product and service range to
include air hygiene. Full recovery of our Hygiene operations remains dependent
on employee return to the office and higher tourism, particularly in southern
Europe.
As expected, revenue from disinfection services in 2021 tapered significantly
throughout 2021, with a small run rate of disinfection work in the region due
to end in Q1 2022.
Lockdowns began to ease in H2 across all markets resulting in an improving
performance from our France Workwear business, which grew by 1.9% in 2021, but
which was nevertheless impacted by temporary customer suspensions of c.3.4%
throughout the year. By the end of the year, suspensions had fallen to near
zero. The pandemic has had different impacts on our France Workwear
operations, with Cleanrooms growing by 13%, Garments back to 2019 levels and
Flat Linen remaining some 32% behind 2019. Revenue has also been affected (to
a much lesser extent) by a small fire in a flat linen laundry in Les Clayes
(in the western suburbs of Paris) with no impact on overall profit as damages
have been fully covered by insurance.
Regional Ongoing Revenue, excluding disinfection, grew by 6.9% in 2021 to
£721.9m (4.8% organic). Including disinfection, growth was 3.9%, 2.0%
organic. Ongoing Operating Profit grew by 9.9% to £144.0m, reflecting 13.9%
growth in France and 41.2% improvement in southern Europe and 30.9% growth in
Latin America. Net Operating Margins for the Europe region increased by 100
basis points to 19.2%. The region acquired 12 businesses in 2021- seven in
Europe and five in Latin America - with annualised revenues of c.£29m in the
year prior to purchase.
We have not seen any evidence of increased customer insolvencies across Europe
and Latin America in 2021, which still remain at lower rates than in 2019. We
continue to monitor this situation as government support programmes have come
to an end in Q4 2021 and Q1 2022. We are experiencing higher cost inflation
than in previous years, mainly in fuel, paper products and emerging pressure
from inflation on wage rates. We are nevertheless continuing to pass on APIs
in line with normal pricing policy to our Pest Control and Workwear customers,
while Hygiene has lagged a little due to variable demand for consumables which
are often included within a Hygiene contract. Sales and service colleague
retention rates continue to be very high across the region at mid-90% levels,
with both service and sales colleagues trending slightly ahead of 2019.
UK & Rest of World - Organic Revenue growth (ex. disinfection) 10.7%,
total Organic Revenue growth 7.7%
Trading conditions in our UK businesses, which were impacted by lockdowns in
Q1, improved significantly from the second quarter and into H2 as a result of
continued progress with the UK's vaccination programme and subsequent easing
of restrictions. Recovery of our Irish operations is behind the UK, reflecting
continuing government restrictions, however the trajectory of improvement is
similar to that experienced in the UK, albeit at an earlier stage. In the Rest
of World region, our Nordic, Sub-Saharan Africa and MENAT regions delivered
robust performances despite ongoing pandemic related challenges, while our
Caribbean businesses continue to be negatively impacted by dampened tourist
demand. Despite ongoing macro-economic challenges in Lebanon, the Boecker
business, acquired in August, is performing well, with integration proceeding
to plan.
A number of key actions undertaken in 2020 have aided performance in the UK
this year. These include accelerating the pace of our service differentiation,
innovation and digital marketing programmes and implementing a number of
significant technology-enabled business and cost programmes. Building on last
year's success, roll-out of our PestConnect product and service has continued
at pace during 2021 as we install more units across more customer sites in the
UK. Our digital Connect strategy now covers around 11% of the UK portfolio.
Our UK Hygiene businesses performed strongly throughout the year, achieving
record levels of revenue growth in our Medical operations (up £21.3m) and
record levels of profitability in our Washroom Hygiene business (up £24.2m),
driven by strong organic performances and the full year performance of the
integrated Cannon Hygiene business.
Our Ambius business performed well, growing contract portfolio strongly in H2
as the challenge to make offices spaces suitably appealing for employee return
stimulated demand for our products and services. UK Property Care also
performed well, with revenues benefiting from strong domestic customer demand
in the UK residential housing market and signs of recovery in the commercial
property market, and with profits enhanced by a number of systems, process,
productivity and pricing initiatives implemented in 2020.
Ongoing Revenue for the UK & ROW region increased by 10.8% to £488.0m
(7.7% organic), with UK and Ireland Pest Control and Hygiene (excluding
disinfection) growing by 6.2% and 19.6% respectively, and ROW Pest Control and
Hygiene operations (excluding disinfection) growing by 19.1% and 7.5%
respectively. Regional Ongoing Operating Profit increased by 48.2% to £121.2m
in 2021, reflecting stronger trading and also supported by the release of
£14m of provisions for bad debt and revenue as a result of further
improvement in service and cash collections as it emerges from the pandemic.
Net Operating Margins rose by 620 basis points to 24.8%, 220 basis points of
which can be attributed to the provisions releases described above. The Region
continues to be very acquisitive, with nine M&A transactions completed in
the year, with combined annualised revenues of c.£49m.
Regional cash performance has been strong in 2021, with debtor days
outstanding now at pre-pandemic levels and with no significant escalation in
bad debt or customer insolvencies. Customer reviews of our UK businesses on
Trustpilot.com have returned to pre-pandemic "world class" levels and customer
retention reached a record high of 88.5% in H2 2021. In the UK, we have seen
some inflationary increases on both wages and certain products, both of which
have been largely mitigated through service restructures and customer price
increases. The UK employment market rebounded strongly in Q2, creating a
competitive employment environment. However the strength and diversity of our
recruitment model, together with our well-established award-winning internal
training model, has enabled the UK business to hire ahead of attrition, with
service levels above pre-COVID-19 levels.
Asia - Organic Revenue growth (ex. disinfection) 4.1%, total Organic Revenue
growth 4.7%
Our Asia region has delivered an improving performance in 2021 but real
recovery has been held back by difficult trading conditions in Malaysia,
Indonesia, Vietnam and Thailand as a result of very restrictive lockdowns from
late Q2 and into Q3. With fewer restrictions and a higher vaccination rate,
China has performed considerably better, delivering revenue growth of 18.2%.
Both Pest Control and Hygiene continued to feel the impact of the ongoing
pandemic and lockdowns in 2021, with temporary customer suspensions peaking at
7.9% in August but falling to 2.8% by the year end, as our markets recovered
and our ability to service customers improved. Emergency disinfection services
were broadly similar in H1 and H2, providing a hedge to disruption of regular
core service provision. Following the launch of VIRUSKILLER™ in H1, the
region has made good progress with its air hygiene service offering,
generating £1.6m in revenues in Malaysia, Hong Kong, Singapore and Indonesia.
Regional Ongoing Revenue rose by 5.0% to £254.0m (4.7% organic). Ongoing
Operating Profit was flat on 2020 at £26.8m, reflecting the impact of a
£2.0m reduction in government support provided across Asia markets in the
second half. Net Operating Margins for the Asia region declined by 50 basis
points to 10.6%. Asia acquired five pest control businesses during the year
with annualised revenues in the year prior to purchase of c.£3.0m.
Annual price increases have been achievable for those customers who are
trading well although more difficult to pass through for customers who are
still facing challenging conditions from the COVID-19 crisis. The region has
seen some impact of bad debts and customer insolvencies in Indonesia with an
associated impact on profit of £1.3m. Colleague retention has remained high,
with retention at 87%. Both service colleague retention and sales colleague
retention continue to trend ahead of pre-COVID 2019 levels.
Pacific - Organic Revenue growth (ex. disinfection) 6.7%, total Organic
Revenue growth 6.3%
Our core businesses in the Pacific have delivered a much improved performance
in 2021, despite intermittent lockdowns in both Australia and New Zealand
impacting revenue, primarily in New Zealand which has maintained a suppression
strategy towards the COVID-19 pandemic. Our Australian operations have been
more robust, reflecting the easing of government restrictions despite the
arrival of the Omicron variant in November.
Demand for Pest Control services has been strong throughout the year,
particularly in commercial pest control and with bird control work buoyant.
Residential work in the second half was slightly weaker than in H1, reflecting
customers deferring treatments during periods of lockdown. In Hygiene, core
service provision is recovering well, although H2 saw some weakening in
service levels due to temporary site closures. Portfolio growth has been
strong, however, with customers responding positively to our relaunched air
hygiene proposition (a major source of growth) and our hand sanitiser
portfolio has largely been maintained. Our Ambius business performed well in
2021, particularly in H2, with portfolio growth above 10% as businesses began
to prepare for a return to offices.
Ongoing Revenue in the Pacific grew by 8.7% to £192.8m (6.3% organic), with
growth in Pest Control of 10.3%, Hygiene (excluding disinfection) growth of
8.7% and Ambius growth of 4.0%. Regional Ongoing Operating Profit grew by 9.9%
to £38.0m and Net Operating Margins rose by 20 basis points to 19.7%. The
region acquired six small Pest Control businesses and three Hygiene businesses
in 2021 with annualised revenues in the year prior to purchase of c.£7.0m.
As with our other regions, bad debt from suspended portfolio customers has
been minimal to date, with no spikes in insolvencies despite government
subsidies scaling back. Overall customer retention for the region remained
ahead of our expectations. We are seeing some wage inflation pressure amid
rising demand for labour at all levels across the region, but are confident of
continuing to mitigate these through our normal pricing policy. Colleague
retention remained high at 80% for 2021, but was below our target for the
year. Attracting and retaining the right people across all categories to
enable us to maintain service excellence remains a key focus going forward.
Share of Profits from Associates
Our share of Profits from Associates (at AER) amounted to £8.1m (2020:
£8.3m) primarily relating to our 49% interest in our Japanese associate.
CATEGORY PERFORMANCE REVIEW
Pest Control
Pest Control is a largely non-discretionary service with long-term structural
growth drivers, including the growing middle classes, urbanisation, increasing
global convergence and transparency in global standards, and increasing
intolerance towards pests. The global market is worth around c.$22bn p.a.
(c.50% in North America, c.20% Europe, c.20% Asia) and continues to grow at
c.4.5% to c.5%+ per annum, with all key markets continue to grow per capita
spend on pest control.
Rentokil is the world's leading commercial pest control company with
operations in 87 countries and with 56 market leading positions. In 2021,
Rentokil Pest Control generated Ongoing Revenue growth of 18.6% to £2.0bn
(8.1% organic). M&A has continued to be strong this year, with the
acquisition of 48 pest control companies and our agreement to acquire Terminix
Global Holdings, Inc.
In H2 2021, we established a new Rentokil Pest Control organic growth target
of 4.5% - 6.5% over the medium term from 1 January 2022. Our Rentokil Property
Care business joins the category from Protect & Enhance at the same time.
Pest Control has delivered a seven-year CAGR of 14.4% and has a five-year
average Net Operating Margin of 17.9%.
Proprietary innovation delivering differentiation
Innovation strengthens our leadership position in the pest control industry,
setting new standards for customers, differentiating the business from our
competitors and enhancing our ability to up-sell additional products and
service lines and support customer retention.
Our innovation pipeline combines next generation pest control tools and
expertise in technology. This is driven through our UK-based innovation hub,
the Power Centre - no other pest control company offers this level of in-house
science and innovation capability. Since 2017, we have launched a significant
number of product innovations, including RapidPro rodenticide, RADAR and
Autogate rodent units, fluorescent rodent tracking gel, Entotherm heat
treatment for bed bugs, Lumnia LED electronic fly traps and Multi-Mouse
Riddance products. We were the first to deploy connected pest control, LED
Insect Light Traps and to use CO2 in rodent control. We have a strong pipeline
of innovations with around 50 projects and 17 patent applications underway.
In 2021 we continued to develop and deploy new innovations:
● delivering a 65% increase in installations of Lumnia LED Insect Light Traps -
taking the total to over 260,000 (2020: 168,850). The units reduce energy use
and carbon emissions by 62% compared to traditional units;
● launching Eradico - a new fully recyclable, single-solution rodent control
unit which addresses 57 different needs and market requirements;
● continuing to expand our range of connected device - unveiling Crawl Connect -
a new connected device for crawling insects - under development and set for
field trials in 2022; and RADAR X a multi-catch mouse control unit for better
efficacy and reduced servicing;
● becoming the first company to use data and proprietary analysis tools,
together with third party mapping, to assess resistance to rodenticide in
populations of rodents and therefore target alternative, effective solutions;
and
● opening our new Hygiene Technology Centre in the UK.
Post the completion of our acquisition of Terminix, the Combined Group intends
to invest in a new US-based science and innovation centre which will focus on
termite and pest control solutions.
Leading in digital and technology
Rentokil Initial has developed the world's leading technology 'ecosystem' for
pest control, providing an unmatched level of 24/7 monitoring, reporting and
insight for our commercial customers who face the risk of increased fines and
censure without effective pest management and reporting. We have also begun to
integrate our data automatically into customers' own internal reporting
platforms. We have made a long-term commitment to our digital ecosystem,
developing multiple generations of systems and software over the last decade.
Today, we have proven, robust, scalable and secure global infrastructure in
place.
PestConnect provides our customers with a complete remote pest detection
solution and full traceability. Building on last year's growing demand for the
product, 2021 has seen further roll-out with c.87,000 devices installed - a
58% increase year on year - taking the total to c.235,000 units in c.13,000
sites (2020: c.150,000 units in c.7,300 sites). Our UK business launched
PestConnect in 2019 and, since then, its connected portfolio has grown
four-fold and is now c.11% of portfolio. In H2 2021, the Company set a new
ambition for c.25% of its commercial customers to be PestConnect customers by
2026.
Our technology infrastructure features:
● connected pest control devices - regular 'pulse' of messages is sent/received
24/7 - some 15m+ messages per day. Large customers sites can have hundreds of
units;
● a proprietary secure network - we do not use our customer's own networks and,
in 2021, we achieved ISO27001:2013 for information security across digital
pest control (PestConnect and myRentokil);
● colleague and customer Apps - we visit over 7m individual locations each year
and so, for instance, providing a floorplan app adds efficiency and
effectiveness to the technician's site visit;
● myRentokil online customer portal - provides secure 24/7 access to real time
information that provides easy access to documentation required for pest
control, including reviewing service recommendations and responding to audits;
● Command Centre - our central information hub - hosted in Google Cloud
Platform. We have over 5,000 colleagues accessing global, regional and local
information. The Command Centre now connects over 200 internal systems to
provide frontline and management teams with the information they need securely
when and where they need it; and
● data mining and trend analysis - over 20bn records are already stored on our
system, such as pest activity, time of day, day of week, month of year. We are
now beginning to use data to improve service levels and ultimately for
converting recommendations into jobbing revenue.
M&A in Pest Control
Acquisitions are a core part of our Pest Control growth strategy - they enable
us to build further scale and density and increase our competitive
positioning. We have the in-house capability to identify, evaluate and execute
acquisitions at pace and have built a long track record of successful
delivery. Our model for value-creating M&A is structured around the
disciplined evaluation of targets, execution of detailed integration
programmes and careful stewardship of new businesses under our ownership.
In 2021, we acquired 48 pest control companies building on our track record of
delivery. As we explained at the 2021 Capital Markets Day:
● since 2016 we have successfully acquired c.200 businesses in Pest Control with
acquired revenues of nearly £800m;
● we have the network, know-how and proven acquisition model, and with a
fundamental understanding of density;
● the global pest control market is highly fragmented, and we remain the buyer
of choice - there are c. 40,000 pest control companies globally with c.50% in
North America;
● in North America there are c.100 companies with revenues of greater than
$5.0m, in line with 2016. Over the last five years, 43 companies in the top
100 have been sold with 42 new entrants (source: PCT100 List);
● we maintain our 'Cities of the Future' focus where we expect to grow at higher
levels in key urban areas around the world; and
● we target a 13%+ IRR in Growth markets (12%+ in North America) and a 15%+ IRR
in Emerging markets.
Our pipeline of opportunities in both Growth and Emerging markets remains
strong and we are confident of further delivery of high-quality acquisitions
in 2022.
The No.1 brand in Pest Control
Rentokil is the leading commercial pest control brand in the world. We
continue to focus on building this brand through our ongoing investment in
people, service, innovation, digital and sustainability, and to support our
customers across multiple sectors, including: high-dependency customers such
as food suppliers; employee locations such as offices and manufacturing
facilities; and guest locations such as leisure, hotels, education and food
and beverage. Our aim is to be recognised as the world's leading expert
provider of pest control - leading in innovation, digital and sustainability.
Hygiene
Initial Hygiene is a strong, complementary business to Pest Control. Both
businesses service the same types of customers and also share country
management, technology, infrastructure and back-office services. They are
route-based businesses where profit growth is driven by deep understanding of
the importance of density. The category has an unrivalled global position in
core Hygiene services - operating in 67 markets and with 22 market-leading
positions (top three in 38). In addition, we have entered into 20 new markets
over the last two years. Initial is the regional leader in Asia, Pacific and
the Caribbean and also in the UK. In 2021, our core Hygiene operations
generated Ongoing Revenue growth of 8.2% to £555.6m (7.4% organic). We have
acquired three small Hygiene businesses this year, with annualised revenues in
the year prior to acquisition of £2.0m.
Key growth drivers include: population growth - with people choosing to live
in urban environments; global GDP growth - more people continuing to move into
the middle class with more disposal income; regulations and standards -
getting stricter with increasing transparency and accreditation (e.g. air
quality); sustainability - more environmentally-friendly commercial spaces and
service provision; and new attitudes to health, hygiene and wellbeing - as a
result of the pandemic.
Margins are driven through post code density (the number of customers on a
route), product density (the number of products/service lines in each customer
premise), as well as shared overheads with Pest Control (infrastructure and
back office) and M&A (building further geographic density).
Over the past seven years our core Hygiene business has delivered a CAGR of
6.9%, established a strong product range, launched the myInitial customer
portal for enhanced customer insight and engagement and has begun to acquire
bolt-on businesses to build scale and density. Hygiene's five-year average Net
Operating Margin is 19.9%, including disinfection services.
The importance of hygiene
In 2021, Rentokil Initial commissioned new research in 20 markets with 20,000
respondents looking at the impact of COVID-19 on hygiene attitudes and
behaviours. The benchmark of 'good' hygiene is now far higher. Key findings
from the survey revealed that 84% of employees believe it is important that
their employer prioritises creating a safe and hygienic workplace and 47% of
respondents would leave a public venue if it did not appear to have good
hygiene measures.
Creating a new Hygiene & Wellbeing category
In response to the pandemic and increasing importance of hygiene and wellbeing
services, in H2 2021 we announced that we would expand the category, creating
a larger Hygiene & Wellbeing category from 1 January 2022 and offering a
wide range of services to meet the enhanced expectations for Hygiene. These
include:
1. Core Washroom Hygiene: using our scale, service expertise, brand, digital and
innovation inside the washroom.
2. Premises Hygiene: leveraging our hygiene expertise outside the washroom
including specialist hygiene services in air care and clinical waste
management.
3. Enhanced Environments: improving the occupant experience throughout a premise
including premium scenting, plants, air quality monitoring and green walls,
and bringing together Ambius plants and scenting, Dental Hygiene and Cleanroom
services.
At the same time, the Company up weighted its organic growth target for the
new category (excluding disinfection) to deliver medium-term organic growth of
4% - 6% from 2022. This compares to the 3% - 4% organic growth delivered
during 2018-2019.
1. Core Hygiene - inside washrooms
Washrooms are high risk areas for viruses: they are small spaces, with smooth
surfaces and high levels of traffic. 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.
'No-touch' washrooms are an effective way to avoid cross-contamination,
particularly within cubicle settings such as toilet paper dispensers that seal
away paper until use and 'no-touch' feminine hygiene units with auto-lift
lids. Our Signature Range of washrooms products also have an antimicrobial
surface which helps reduce cross contamination. Air care quality is also an
important indicator of washroom cleanliness, with air sterilisers providing an
ongoing method of removing potentially harmful pathogens from the air.
Customer demand for no-touch products continued to grow in 2021 with sales of
no-touch feminine hygiene units increasing by 18%, No-touch hand towels by
11.7%, no-touch foam hand wash by 41.6% and no-touch non-alcoholic hand
sanitiser by 39.7%.
At our Capital Markets Day in 2021 we stated that c.50% of our new 4% - 6%
medium-term organic growth target would be delivered through this 'Inside the
Washroom' sector and this would be achieved by:
● upselling additional solutions - to satisfy 'new' needs driven by the pandemic
and using our hygiene expertise;
● launching new services - for instance in air care, digital and no-touch, with
our higher value no-touch units increasingly available across all ranges;
● increasing demand for new and more sustainable services - such as saving water
and the use of sustainable soaps and paper; and
● cross-selling opportunities - the level of customers with both Pest Control
and Hygiene services ranges from c.10% in Italy and Australia to c.35% in
Malaysia.
The global 'smart washrooms' market is estimated to deliver an 11.5% CAGR to
2027, reaching a value of some $6.5bn (Grand View Research, August 2020). In
2021, we made further progress in the development of our Rapid Smart Hygiene
range to enhance cost effectiveness and scalability. Product manufacturing was
moved to Dudley Industries and components were changed, passing Wi-Fi security
and CE approval for Europe. We now have four solutions available including
taps, soap dispensers, toilet sanitisers and cubicle availability lights.
Deployment has been focused on one market to date as we test and develop the
integration of our smart hygiene products into our existing PestConnect
infrastructure (local network connectivity and reporting). We are now
approaching technical sign off to align with our PestConnect infrastructure
and pilot in 2022.
At our Capital Markets Day in 2021, we stated that the remaining c.50% of our
new 4% - 6% medium-term organic Growth target would be delivered by leveraging
our Hygiene expertise 'Outside the Washroom' through Premises Hygiene as well
as in Enhanced Environments, and the expansion into new markets.
2. Premises Hygiene
From a relatively low interest sector, hygiene has now become one of the
world's most important, presenting opportunities for the Company to expand
outside of the washroom into high growth areas including air care. We can
provide products in multiple environments, including offices, kitchens and
reception areas, including air purification, hand sanitiser, surface hygiene
and specialist clinical waste management. Air purification is a particular
focus for the Company and is increasingly recognised as a significant source
of transmission for COVID-19 and other viruses. Our current air care product
range features air purification, air sterilisation and air scenting products.
On 22 September 2021, the World Health Organisation launched new guidelines on
internal air quality, providing clear evidence of the damage air pollution
inflicts on human health and recommends new air quality levels to protect the
health of populations, by reducing levels of key air pollutants.
We have been actively marketing air purification across all regions in 2021
and are seeing rising levels of customer interest. VIRUSKILLER™ is now sold
to a range of customers including car showrooms, hotels, offices, venues and
UK embassies. When independently tested against Coronavirus DF2 (a surrogate
for Coronavirus) Adenovirus and Influenza, VIRUSKILLER™ was found to kill
99.9999% of viruses on a single air pass. InspireAir 72 is a mobile air
purifier using HEPA 13 filter materials to provide cleaner air to cost
sensitive customers, contributing to margin growth.
In 2021, we installed over 11,000 air purification units (now bringing the
total to 13,800 since 2020) into customer sites across 40 countries. This
includes the installation of 70+ units at the prestigious Hong Kong Jockey
Club to protect its dining, sport and recreation facilities. During the year,
we also launched an indoor air quality monitoring pilot in Asia, using
VIRUSKILLER™ and InspireAir 72 units together with reporting and on-site
monitors to provide assurance for customers and their guests and employees.
Initial Hygiene was appointed Specialist Hygiene Services Partner of the
Australian Open Tennis Tournament and London's The O2 arena in 2021.
3. Enhanced environments
The impact of the global pandemic has catalysed a shift in global mind set
where health is a priority - not just avoiding being sick, but proactively
being well in a holistic sense. The global corporate wellness market is set to
grow at 7% CAGR to 2028 as people search for a healthier lifestyle across
work, home and leisure. Our Enhanced Environments businesses improve the
occupant experience throughout a premise bringing together Ambius plants and
scenting, Dental Hygiene and Cleanroom services. Our services include interior
planting, biophilic design, premium scenting, air quality and green living
walls.
Our Ambius business operates in 17 countries: Australia, Belgium, Canada,
Finland, France, Germany, Ireland, Italy, Luxemburg, Netherlands, New Zealand,
Norway, South Africa, Spain, Sweden, UK and USA. It has delivered a
pre-pandemic CAGR of c.1.6% over the last five years with Ongoing Revenues of
£156m in 2019. In 2021, Ambius generated Ongoing Revenue growth of 7.3% to
£141.3m (5.4% organic).
Growth opportunities for Enhanced Environments include:
● increasing global awareness of the health impact of poor indoor air quality -
exploiting opportunities in air enhancement such as premium scenting;
● increasing regulation and focus on sustainable waste management - leveraging
our core expertise for fast deployment into new markets in response to the
waste management requirement created by the pandemic; and
● demand for healthy buildings - focusing on plants, biophilic design and large
projects expertise to enhance public spaces to capture growth associated with
this shift in commercial property.
Geographic expansion
From operating in 41 countries in 2018, our core Hygiene services today
operate in 67 countries. From 2022 onwards, our aim is to:
● increase the reach and density of our footprint in new markets - leveraging
our brand and expertise - starting with core Hygiene inside the washroom and
then extending into Premises Hygiene and Enhanced Environments;
● expand in five areas - North and South America, Europe, Middle East and North
Africa;
● build on our existing customer relationships and routes in Pest Control;
● target North America - using our existing Ambius and Pest Control businesses;
and
● deliver acquisitive growth - building density and adding further new markets.
Hygiene & Wellbeing growth through targeted M&A
Our M&A focus in Hygiene & Wellbeing is on building our density across
our cities and supporting extension areas that we have defined as part of our
growth plans, including air care, surface hygiene, safety and digital
monitoring. M&A in Hygiene & Wellbeing has similar characteristics and
the same disciplined approach as Pest Control and creates value through
city-based density building. The economics of hygiene M&A are generally
better, asset prices are cheaper than pest control and competition is less
fierce. We have the necessary expertise and systems in place and a proven
ability to drive margins through density building.
Momentum is growing as we build a significant global M&A pipeline, now
with c.80 attractive targets. We will also be open to the potential for larger
transactions, should these become available. From 2022, we will target £25m+
revenues each year over the next five years, targeting an IRR of between 15%
to 20%.
Protect & Enhance
Ongoing Revenue in our Protect & Enhance category rose by 5.6% to £365.6m
(4.9% organic), with all four businesses (France Workwear, Ambius, UK Property
Care and Dental Waste Services) returning to organic growth. Further details
on performance can be found in the Regional Business review on pages 4 to 7.
Following the formation of our new Hygiene & Wellbeing category from 1
January 2022, Protect & Enhance will no longer be managed or reported as a
category. France Workwear will remain as a standalone business and will be
reported separately. Category changes include Ambius and Dental Waste moving
to Hygiene & Wellbeing and Property Care moving into Pest Control.
Managing a responsible business
As a company, we are actively engaged in managing a responsible business - at
Board level and throughout our entire organisation. Our aim is to create a
safe, diverse and engaging workplace, deliver customer service responsibly and
support our communities and environment effectively.
Employer of Choice
Rentokil Initial is committed to being a world-class Employer of Choice.
Colleague safety and the attraction, recruitment and retention of the best
people from the widest possible pool of talent is a key business objective
globally. 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, drive increased innovation,
enhance our reputation and boost our financial performance. We report on a
number of key points below.
We have maintained our world-class safety record in 2021, with our lost time
accident rate of 0.38 and working days lost rate of 8.71 in line with the
prior year. Our headcount rose to c.46,000 (2020: c.44,500) across 88
countries and since 2017 we have added c.10,000 colleagues to our
organisation. While colleague retention remained high at 84.4% (on a rolling
12-month basis), it was 4.2% lower than last year as people who joined the
business in 2020 at the height of the pandemic and employment uncertainty,
left the Company to seek alternative employment as other sectors recovered.
68,900 job applications were received through our Careers Portal, an increase
of 52% on 2020, from which 12,200 vacancies were filled. 330 colleagues joined
our graduate scheme in 2021 and we also took part in the UK Government's
Kickstart scheme for young people. We also saw record U+ (our online
university) training usage, with colleagues undertaking 4.3m training content
views versus 3.2m in 2020. We also developed over 500 pieces of new training
content.
Rentokil Initial was placed 44th in the first FTSE Women Leaders Review (FTSE
100 Rankings 2021 Women on Boards and in Leadership, the successor phase to
the Hampton-Alexander Review). We have no material gender pay gap. Finally, in
our confidential all-colleague survey, Your Voice Counts, which was conducted
during the year, 91% of colleagues responded with scores for strategic
direction (+4% pts), collaboration (+3% pts), Line Manager Index (+3% pts) and
diversity and inclusion (+3% pts).
Our journey to net zero emissions
In 2020, the Board established an ambitious goal to achieve net zero carbon
emissions from our operations by 2040, as well as a new target to reduce our
emissions intensity index by 20% by the end of 2025. To achieve this, we have
a clear delivery plan based upon eight environmental work streams and
country-level action plans.
We have made good progress in 2021 and have begun to migrate our fleet with
177 ultra-low emission vehicles now in operation and also introduced renewable
energy contracts for our properties around the world, with Italy being our
first country operation to use 100% renewable electricity. We are pleased to
report that 100% of our innovation pipeline is non-tox or digital and during
the year we began to test and pilot new ways of providing more sustainable
fumigation services.
Independent analysis
We continue to engage with and support independent ESG analysis of the
Company. As at 31 December 2021, our ratings were as follows:
● Dow Jones Sustainability Index (DJSI): 4% improvement in our score to 69% in
2021. Rentokil Initial is now a member of the DJSI Europe and DJSI World
Indices;
● Sustainalytics: Maintained Low ESG Risk rating;
● MSCI: Maintained AA ESG rating;
● Vigeo Eiris: We were placed third out of 103 companies in our sector and 66th
in the overall assessment of all 4,963 companies;
● Carbon Disclosure Project: Improved positioning to C rating (2020: D);
● Open Corporation: Tenth in their 100 leading companies listing;
● ISS ESG: Maintained Prime rating (with a decile rank of 1 indicating a high
relative ESG performance); and
● FTSE4Good: Member since 2015.
Management Changes
Paul Cochrane, Managing Director, Asia, will retire at the end of March 2022
and Mark Gillespie, currently Managing Director, Rest of World, will succeed
him to become Managing Director, Asia and MENAT, and a member of the ELT. In
addition, Daragh Fagan will be retiring as Group General Counsel and Company
Secretary at the end of March 2022. Rachel Canham, currently General Counsel,
BT Enterprise, will join the ELT as Group General Counsel in April 2022 and
Catherine Stead will become Company Secretary from 1 April 2022.
Financial review (at CER unless otherwise stated)
Central and regional overheads
Central and regional overheads of £91.3m (£90.8m at AER) were £2.2m higher
than prior year (2020: £89.1m at CER, £88.8m at AER), due to the non-repeat
of cost savings taken in response to the pandemic in 2020, including salary
waivers and cancellations of bonus schemes.
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.
Restructuring costs of £10.2m (2020: £13.2m) consisted mainly of costs in
respect of initiatives focused on our North America transformation programme,
together with integration costs of smaller acquisitions. At AER, restructuring
costs were £9.7m.
Interest (at AER)
Adjusted interest of £33.1m was £4.0m lower than in the prior year, due to a
£2.2m saving from not drawing down on the RCF and commercial paper programme
and a £3.9m hyper inflation gain from the newly acquired Lebanon business,
offset by swap costs of £1.8m due to larger cash balances held in the period
between the raising of the 2028 €600m bond in October 2020 and the settling
of the 2021 bond in July 2021. Cash interest was c.£4.6m below 2020 at
£36.4m, mainly driven by the early repayment of the c.€175.7m outstanding
under the €350m bond, offset by fees paid for the bridge facility for the
acquisition of Terminix. Statutory interest was £29.5m, £42.8m lower than
2020, driven by the c.£26m cost of closing out an interest derivative linked
to US interest rates in 2020, c.£8m of ineffective hedges charged to the
P&L in 2020, £4m of additional fair value charges from the part repayment
of the €350m 2021 bond in 2020 and a £4.0m saving in adjusted interest.
The carrying value of derivative liabilities has decreased by c.£48.0m in the
year since June 2020, driven by the settlement of an interest derivative
linked to US interest rates in August 2020, settlement of interest accrued and
strengthening of sterling against the US dollar and euro.
Tax (at AER)
The income tax charge for the period at actual exchange rates was £61.9m on
the reported profit before tax of £325.1m, giving an effective tax rate of
19%. 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 the period
at AER was 19.4% (2020: 19.7%). This compares with the group's blended tax
rate of 24% (2020: 24%) which is calculated based on Adjusted profit before
tax. The effective tax rate for the year is lower due to prior year tax
credits of £16.2m arising as issues have become resolved, an increase in
deferred tax assets of £3.6m due to the upcoming increase in the UK corporate
tax rate and an increase in the deferred tax asset recognised on tax losses of
£2.8m.
In the medium term the Group's Adjusted Effective Tax Rate is likely to
increase towards the blended tax rate which is expected to increase to 25%
when the UK corporate tax rate increases to 25% in April 2023.
In December 2021 the OECD issued its interim report concerning the
implementation of the Global Anti-Base Erosion minimum tax of 15% which is
expected to apply from 2023. Nearly all of the Group's profits are already
taxed at a rate in excess of 15% and therefore this is not expected to have a
significant impact on the Group's Effective Tax Rate.
Net debt and cash flow
£m at actual exchange rates Year to Date
2021 FY 2020 FY Change
£m
£m
£m
Adjusted Operating Profit 441.5 384.0 57.5
One-off items - operating (20.7) (7.7) (13.0)
Depreciation 223.6 228.8 (5.2)
Other 9.7 11.1 (1.4)
EBITDA 654.1 616.2 37.9
Working capital 23.4 20.2 3.2
Movement on provisions (4.6) 4.6 (9.2)
Capex - additions (159.9) (152.5) (7.4)
Capex - disposals 7.4 6.3 1.1
Capital element of lease payments and initial direct costs incurred (88.1) (82.8) (5.3)
Operating cash flow 432.3 412.0 20.3
Interest (36.4) (41.0) 4.6
Tax (68.9) (64.4) (4.5)
Special pension contributions (0.5) (0.5) -
Free Cash Flow from continuing operations 326.5 306.1 20.4
Acquisitions (463.1) (194.7) (268.4)
Disposal of companies and businesses - 2.2 (2.2)
Dividends (138.7) - (138.7)
Other 0.1 (2.6) 2.7
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 (19.1) (23.7) 4.6
Net investment in term deposits 170.6 (170.5) 341.1
Proceeds from new debt 4.7 1,714.8 (1,710.1)
Debt repayments (166.6) (1,352.2) 1,185.6
Net debt related cash flows (19.8) 168.4 (188.2)
Net (decrease)/increase in cash and cash equivalents (295.0) 279.4 (574.4)
Cash and cash equivalents at beginning of the year 550.8 273.9 276.9
Exchange losses on cash and cash equivalents (13.9) (2.5) (11.4)
Cash and cash equivalents at end of the financial year 241.9 550.8 (308.9)
Net (decrease)/increase in cash and cash equivalents (295.0) 279.4 (574.4)
Net debt related cash flows 19.8 (168.4) 188.2
IFRS 16 liability movement (1.5) 9.9 (11.4)
Net debt acquired (12.2) (7.1) (5.1)
Underlying (increase)/decrease in net debt (288.9) 113.8 (402.7)
Foreign exchange translation and other items 19.5 (56.1) 75.6
(Increase)/decrease in net debt (269.4) 57.7 (327.1)
Opening net debt (1,015.3) (1,073.0) 57.7
Closing net debt (1,284.7) (1,015.3) (269.4)
Operating Cash Flow of £432.3m for continuing operations was driven by a
£57.5m increase in Adjusted Operating Profit, offset by higher capex and
one-off items. For 2021, we are making a change to the reporting of right of
use asset cash flows to report non-cash movements on right of use assets below
Free Cash Flow. This ensures that Operating Cash Flow and Free Cash Flow
(alternative performance measures) are not distorted by material asset
acquisitions, notably long life property leases where there is no immediate
cash impact. The overall impact on Operating Cash Flow and Free Cash Flow is
£1.5m favourable in 2021 (2020: £9.9m adverse). There is no impact on
overall changes in net debt in 2020 or 2021.
Cash interest payments of £36.4m are £4.6m lower than in the prior year.
Cash tax payments for the period were £68.9m, an increase of £4.5m compared
with the corresponding period last year reflecting the increase in the Group's
profits.
This resulted in Free Cash Flow delivery of £326.5m (2020: £306.1m). Cash
spend on acquisitions of £463.1m and dividend payments of £138.7m have
contributed to an underlying increase in net debt of £288.9m. Favourable
foreign exchange translation and other items of £19.5m is primarily due to
the strengthening of sterling against the euro and US dollar. Overall this led
to an increase in net debt of £269.4m and closing net debt of £1,284.7m.
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.
Funding
On 7 July 2021, the Company repaid the remaining €175.7m outstanding under
the €350m bond due 7 October 2021 using its par call option. This repayment
was funded using cash on the balance sheet following the €600m bond issuance
in October 2020. In September 2021 the Company updated its Revolving Credit
Facility (RCF) to replace LIBOR with risk free rates. At the same time,
financial covenants were removed from the RCF.
As at 31 December 2021, the Company had liquidity headroom in excess of
£780m, including £550m of undrawn RCF, with a maturity date of August 2025.
Pro forma net debt to EBITDA ratio was 1.96x at 31 December 2021 (30 June
2021: 1.67x). On 14 December 2021 the Group announced that it had entered into
a committed bridge facility for up to $2.7bn with Barclays to support the
acquisition of Terminix. This facility was replaced on 25 February 2022 with a
$700m three year term loan facility provided by 15 banks and a $2bn bridge
facility provided by eight banks. The Group has also amended, extended and
increased its RCF to $1bn. This amendment will take effect on or before the
acquisition of Terminix completes at which point the maturity of the RCF will
be 2027 plus two one-year extension options. At the time of announcement in
December 2021, S&P affirmed the Group's BBB rating. We remain committed to
maintaining a BBB investment grade rating and are confident of doing so.
UK defined benefit pension scheme buy-out
In December 2018, the Company reached agreement for a bulk annuity insurance
buy-in for its UK Defined Benefit Pension Scheme ("the Scheme") with Pensions
Insurance Corporation. The buy-out completed on 24 February 2022 and
individual policies are being issued to all members of the Scheme. A 2020 High
Court judgement ruled that trustees of defined benefit schemes that provided
Guaranteed Minimum Pensions should revisit and, where necessary, top-up
historic cash equivalent transfer values paid since 1990. The Trustee has
identified and will make payments to affected members in 2022. Once those
payments have been made, the balance of pre-tax surplus, anticipated to be
c.£18m, is expected to be paid in Q4 2022 to the Company. The Scheme will
then be wound up.
Dividend
Given the strength of our performance in 2021 and our confidence for 2022, the
Board is recommending a final dividend in respect of 2021 of 4.30p per share,
payable to shareholders on the register at the close of business on 8 April
2022, to be paid on 18 May 2022. This equates to a full year dividend of 6.39p
per share, an increase of 18.1% compared to 2020. The last day for DRIP
elections is 26 April 2022.
Climate change
As part of the Company's annual reporting for 2020 we disclosed our
governance, opportunities and strategies to manage climate-related risks and
the transition to a low-carbon future in line with the recommendations
published by the Task Force on Climate-related Financial Disclosures (TCFD).
We also report against the Sustainability Accounting Standards Board framework
for our sector. Climate-related risks are identified and analysed by our
operational and functional teams. For example, our country and regulatory
teams identify risks related to new laws and regulations, such as city-based
low emission zones and associated access charging for commercial vehicles as
well as local regulations on the use of pest control treatments in different
environments. Other risks relate to more extreme localised weather and
disruption. We also identify risks to the upside for example from increased
pest pressure and pest migration to new territories as temperatures increase.
Further information on this will be provided in the Company's 2021 Annual
Report, which will be published on 30 March 2022.
Prior year restatements
In 2021, we restated the presentation of our French virtual pooling facility
for balances that did not meet the grossing up requirements and should
therefore have been presented net. Trade and other receivables and bank and
other short term borrowings have also been restated to reflect the
reinstatement of a factoring arrangement in France which had previously been
considered to meet the requirements for de-recognition.
Over the last three years, our Target Specialty Products business in North
America has grown significantly and in 2021 we completed a review of the
revenue recognition policy within this revenue stream. The region has a
limited number of suppliers for whom we sell products to end customers on a
consignment stock basis and as a result of the review, we have revised our
judgement such that we consider ourselves to be agents of these suppliers
rather than principal and have therefore recognised only the commission
revenues earned rather than revenues charged to end customers. This has led to
a reduction in revenue recognition in 2021 (£22.8m at AER) and a restatement
which has reduced prior year revenues from our North America Target
distribution business by £20.2m (at AER). The changes in revenue have no
impact on reported profits in 2020 or in 2021 and therefore, improve the 2021
margin of the North America business by 20 basis points and the Group as a
whole by 10 basis points.
Two further corrections were made to prior year comparatives. In the
Consolidated Statement of Changes in Equity, the previous presentation of 'Net
exchange adjustments offset in reserves' has now been presented as separate
lines for 'Net exchange adjustments offset in reserves' and 'Net gain/loss on
net investment hedge'. Prior year comparatives have been restated to reflect
the new presentation.
In the Consolidated Cash Flow Statement the net change from investments in
term deposits of £170.5m was restated to correct the classification from
financing activities to investing activities.
Technical guidance for 2022*
P&L
● Medium-term growth targets unchanged: Ongoing Revenue growth target 6% to 9%
(4% to 5% organic), Ongoing Operating Profit growth of 10%+, Free Cash Flow
conversion c.90%;
● Restructuring costs c.£10m;
● Central and regional overheads £10m to £15m higher than 2021, principally
reflecting the transfer of supply chain costs from the Europe region to
central overheads and inflationary pressures in 2022;
● P&L interest costs c.£36m (at AER);
● Estimated Adjusted Effective Tax Rate of between 21% and 22%;
● Share of Profits from Associates in line with 2021, dividend from Japanese
associate of c.£3.6m; and
● Negative impact of FX within the range of £0m to £5m.
Cash Flow
● Working capital guidance expected to be neutral;
● Capex of £270m to £290m, a slight increase on 2021 and reflecting a more
normal pattern of spend as we exit the pandemic;
● Cash interest c.£33m;
● Cash tax payments of £75m to £85m;
● We now expect to receive the balance of the pre-tax surplus from the buy-out
of the UK pension scheme of c.£18m in Q4 2022 (£13m received in 2020); and
● Anticipated spend on M&A in 2022 (not including the acquisition of
Terminix) of around £250m.
*Restructuring costs, central and regional overheads, interest costs, foreign
exchange, capex, cash interest and cash tax do not include any impact of the
transaction with Terminix.
Outlook for 2022
The business is performing well and in line with our expectations resulting
from organic growth delivery and the flow through of revenues from our
excellent M&A performance in 2021. Although we will lap strong
disinfection revenues in H1 and will have to contend with ongoing
macro-economic uncertainty, we expect the Group to deliver good operational
and financial progress in the coming year.
Quarterly regional analysis of Ongoing Revenue performance in 2021 (at CER)
Ongoing Revenue at CER
Q1 Q2 Q3 Q4 FY2021 % YOY
£m
£m £m £m £m
France 74.4 76.8 80.4 83.0 314.6 3.8
Benelux 23.1 24.0 24.6 26.8 98.5 1.9
Germany 29.4 30.2 27.9 29.4 116.9 (3.1)
Southern Europe 36.9 37.9 38.3 39.7 152.8 6.9
Latin America 15.9 15.3 17.0 18.2 66.4 15.0
Total Europe 179.7 184.2 188.2 197.1 749.2 3.9
UK & Ireland 71.0 82.7 82.0 78.3 314.0 10.9
Rest of World 39.8 40.0 48.4 45.8 174.0 10.6
UK & Rest of World 110.8 122.7 130.4 124.1 488.0 10.8
Asia 63.1 61.9 64.2 64.8 254.0 5.0
North America 328.4 357.2 357.4 332.0 1,375.0 14.2
Pacific 48.3 48.4 45.0 51.1 192.8 8.7
Central/Reg Overheads 1.2 1.1 1.2 1.0 4.5 4.6
Ongoing operations 731.5 775.5 786.4 770.1 3,063.5 9.8
Quarterly category analysis of Ongoing Revenue performance in 2021 (at CER)
Ongoing Revenue at CER
Q1 Q2 Q3 Q4 FY2021 % YOY
£m
£m £m £m £m
Pest Control 442.9 524.5 542.0 510.6 2,020.0 18.6
- Growth 380.3 461.1 471.1 441.9 1,754.4 19.2
- Emerging 62.6 63.4 70.9 68.7 265.6 14.5
Hygiene 205.5 161.9 154.2 151.8 673.4 (8.4)
- Core Hygiene 129.8 139.3 142.8 143.7 555.6 8.2
- Disinfection 75.7 22.6 11.4 8.1 117.8 (46.8)
Protect & Enhance 81.9 88.0 89.0 106.7 365.6 5.6
Central/Reg OH 1.2 1.1 1.2 1.0 4.5 4.6
Ongoing operations 731.5 775.5 786.4 770.1 3,063.5 9.8
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December
Notes 2021 20201
£m
£m
Revenue1 2 2,956.6 2,803.3
Operating expenses1 7 (2,610.1) (2,509.5)
Operating Profit 346.5 293.8
Finance income 4 4.2 6.2
Finance cost 3 (33.7) (78.5)
Share of profit from associates, net of tax of £4.0m (2020: £4.8m) 8.1 8.3
Profit before income tax 325.1 229.8
Income tax expense2 5 (61.9) (43.5)
Profit for the year attributable to the Company's equity holders (including 263.2 186.3
non-controlling interests of £nil (2020: £0.4m))
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Re-measurement of net defined benefit liability 0.9 (13.1)
Tax related to items taken to other comprehensive income 2.0 3.9
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves3 (17.7) (35.4)
Net gain/(loss) on net investment hedge3 15.0 (17.2)
Cost of hedging (1.5) (1.0)
Effective portion of changes in fair value of cash flow hedge 13.2 (4.9)
Other comprehensive income for the year 11.9 (67.7)
Total comprehensive income for the year (including non-controlling interests 275.1 118.6
of £nil (2020: £0.4m))
Earnings per share attributable to the Company's equity holders:
Basic 6 14.16p 10.03p
Diluted 6 14.10p 9.98p
1. Revenue and Operating expenses have been restated in 2020 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
£20.2m. For these contracts, revenue is presented on a net basis.
2. Taxation includes £50.1m (2020: £40.0m) in respect of overseas taxation.
3. Both net exchange adjustments offset in reserves and net gain/(loss) on net
investment hedge have been restated in 2020 to reflect a correction to the
presentation in other comprehensive income. Previously this was presented as a
net £52.6m loss classified as net exchange adjustments offset in reserves.
All profit is from continuing operations.
Non-GAAP measures shown below are explained in further detail in Note 21
Alternative Performance Measures.
Non-GAAP measures
Operating Profit 346.5 293.8
Adjusted for:
Amortisation and impairment of intangible assets (excluding computer software) 2 74.3 82.5
One-off items 2 20.7 7.7
Adjusted Operating Profit 441.5 384.0
Finance income 4 4.2 6.2
Finance cost 3 (33.7) (78.5)
Net interest adjustments 4 (3.6) 35.2
Share of profit from associates, net of tax of £4.0m (2020: £4.8m) 8.1 8.3
Adjusted profit before income tax 416.5 355.2
Basic adjusted earnings per share attributable to the Company's equity holders 6 18.07p 15.37p
Diluted adjusted earnings per share attributable to the Company's equity 6 17.99p 15.29p
holders
Consolidated Balance Sheet
At 31 December
Notes 2021 20201 2
£m
£m
Assets
Non-current assets
Intangible assets 8 2,164.3 1,922.1
Property, plant and equipment 9 398.1 402.7
ROU assets 227.5 217.5
Investments in associated undertakings 29.7 27.2
Other investments 0.2 0.2
Deferred tax assets 41.6 37.7
Contract costs 2 75.0 67.8
Retirement benefit assets 13 19.0 19.0
Other receivables 14.3 13.1
Derivative financial instruments 9.8 37.0
2,979.5 2,744.3
Current assets
Other investments 1.6 172.2
Inventories 135.7 131.3
Trade and other receivables 526.9 569.6
Current tax assets 8.5 10.6
Derivative financial instruments 2.5 5.6
Cash and cash equivalents1 11 668.4 1,949.5
1,343.6 2,838.8
Liabilities
Current liabilities
Trade and other payables (764.0) (925.0)
Current tax liabilities (60.5) (80.0)
Provisions for other liabilities and charges 14 (27.0) (30.1)
Bank and other short-term borrowings1 (459.3) (1,591.5)
Current lease liabilities (77.8) (72.7)
Derivative financial instruments (1.0) (3.5)
(1,389.6) (2,702.8)
Net current (liabilities)/assets (46.0) 136.0
Non-current liabilities
Other payables (71.5) (70.4)
Bank and other long-term borrowings (1,256.1) (1,337.6)
Non-current lease liabilities (139.2) (141.8)
Deferred tax liabilities (108.1) (94.7)
Retirement benefit obligations 13 (27.3) (38.8)
Provisions for other liabilities and charges 14 (33.9) (34.1)
Derivative financial instruments (33.5) (32.3)
(1,669.6) (1,749.7)
Net assets 1,263.9 1,130.6
Equity
Capital and reserves attributable to the Company's equity holders
Share capital 15 18.6 18.5
Share premium account 6.8 6.8
Other reserves (1,927.6) (1,926.2)
Retained profits 3,166.6 3,030.6
1,264.4 1,129.7
Non-controlling interests (0.5) 0.9
Total equity 1,263.9 1,130.6
1. Both cash and cash equivalents and bank and other short term borrowings
have been restated in 2020 by reducing cash in hand and overdrafts by £276.1m
to reflect the netted position of the main and shadow bank accounts pool
arrangement which were previously grossed up.
2. Trade and other receivables and bank and other short term borrowings have
been restated in 2020 due to a correction of the recognition of an overseas
factoring arrangement. Both have been increased by £21.0m.
Consolidated Statement of Changes in Equity
For the year ended 31 December
Share Share premium account Other reserves1 Retained earnings Non- Total
capital £m £m £m controlling equity
£m interests £m
£m
At 1 January 2020 18.5 6.8 (1,867.7) 2,844.1 0.6 1,002.3
Profit for the year - - - 185.9 0.4 186.3
Other comprehensive income:
Net exchange adjustments offset in reserves1 - - (35.4) - - (35.4)
Net loss on net investment hedge1 - - (17.2) - - (17.2)
Net loss on cash flow hedge2 - - (4.9) - - (4.9)
Cost of hedging - - (1.0) - - (1.0)
Re-measurement of net defined benefit liability - - - (13.1) - (13.1)
Tax related to items taken directly to other comprehensive income - - - 3.9 - 3.9
Total comprehensive income for the year - - (58.5) 176.7 0.4 118.6
Transactions with owners:
Dividends paid to non-controlling interests - - - - (0.1) (0.1)
Cost of equity-settled share-based payment plans - - - 5.5 - 5.5
Tax related items taken directly to equity - - - 3.2 - 3.2
Movement in the carrying value of put options - - - 1.1 - 1.1
At 31 December 2020 18.5 6.8 (1,926.2) 3,030.6 0.9 1,130.6
Profit for the year - - - 263.2 - 263.2
Other comprehensive income:
Net exchange adjustments offset in reserves - - (17.7) - - (17.7)
Net gain on net investment hedge - - 15.0 - - 15.0
Net gain on cash flow hedge2 - - 13.2 - - 13.2
Cost of hedging - - (1.5) - - (1.5)
Re-measurement of net defined benefit liability - - - 0.9 - 0.9
Effective portion of changes in fair value of cash flow hedge - - (10.4) 10.4 - -
Tax related to items taken directly to other comprehensive income - - - 2.0 - 2.0
Total comprehensive income for the year - - (1.4) 276.5 - 275.1
Transactions with owners:
Shares issued in the year 0.1 - - (0.1) - -
Acquisition of non-controlling interests - - - (8.3) (1.3) (9.6)
Dividends paid to equity shareholders - - - (138.7) - (138.7)
Dividends paid to non-controlling interests - - - - (0.1) (0.1)
Cost of equity-settled share-based payment plans - - - 9.8 - 9.8
Tax related items taken directly to equity - - - 4.6 - 4.6
Movement in the carrying value of put options - - - (7.8) - (7.8)
At 31 December 2021 18.6 6.8 (1,927.6) 3,166.6 (0.5) 1,263.9
1. Both net exchange adjustments offset in reserves and net loss on net
investment hedge have been restated in 2020 to reflect a correction to the
presentation in other comprehensive income. Previously this was presented as a
net loss of £52.6m classified as net exchange adjustments offset in reserves.
2. £13.2m net gain on cash flow hedge includes £14.4m loss (2020: £15.1m
gain) from the effective portion of changes in fair value offset by
reclassification to the income statement of £27.6m loss (2020: £20.0m gain)
due to changes in foreign exchange rates.
Shares of £0.1m (2020: £0.1m) have been netted against retained earnings.
This represents 9.4m (2020: 7.7m) shares held by the Rentokil Initial Employee
Share Trust. The market value of these shares at 31 December 2021 was £54.9m
(2020: £39.0m). Dividend income from, and voting rights on, the shares held
by the Trust have been waived.
Analysis of other reserves
Capital reduction reserve Legal reserve Cash flow hedge reserve Translation reserve1 Cost of hedging Total
£m
£m
£m
£m
£m
£m
At 1 January 2020 (1,722.7) 10.4 0.5 (155.9) - (1,867.7)
Net exchange adjustments offset in reserves1 - - - (35.4) - (35.4)
Net loss on net investment hedge1 - - - (17.2) - (17.2)
Net loss on cash flow hedge - - (4.9) - - (4.9)
Cost of hedging - - - - (1.0) (1.0)
Total comprehensive income for the year - - (4.9) (52.6) (1.0) (58.5)
At 31 December 2020 (1,722.7) 10.4 (4.4) (208.5) (1.0) (1,926.2)
Net exchange adjustments offset in reserves - - - (17.7) - (17.7)
Net gain in net investment hedge - - - 15.0 - 15.0
Net gain on cash flow hedge2 - - 13.2 - - 13.2
Transfer between reserves - (10.4) - - - (10.4)
Cost of hedging - - - - (1.5) (1.5)
Total comprehensive income for the year - (10.4) 13.2 (2.7) (1.5) (1.4)
At 31 December 2021 (1,722.7) - 8.8 (211.2) (2.5) (1,927.6)
1. Both net exchange adjustments offset in reserves and net loss on net
investment hedge have been restated in 2020 to reflect a correction to the
presentation in other comprehensive income. Previously this was presented as a
net loss of £52.6m classified as net exchange adjustments offset in reserves.
2. £13.2m net gain on cash flow hedge includes £14.4m loss (2020: £15.1m
gain) from the effective portion of changes in fair value offset by
reclassification to the income statement of£27.6m loss (2020: £20.0m gain)
due to changes in foreign exchange rates.
The capital reduction reserve arose in 2005 as a result of the scheme of
arrangement of Rentokil Initial 1927 plc, under section 425 of the Companies
Act 1985, to introduce a new holding company, Rentokil Initial plc, and the
subsequent reduction in capital approved by the High Court whereby the nominal
value of each ordinary share was reduced from 100p to 1p.
The legal reserve represents amounts set aside in compliance with local laws
in certain countries in which the Group operates. An assessment of this
reserve was completed during 2021 and determined that these amounts are no
longer required to be set aside. £10.4m (2020: £nil) has been transferred
back to the retained earnings reserve.
Consolidated Cash Flow Statement
For the year ended 31 December
Notes 2021 2020
£m
£m
Cash flows from operating activities
Cash generated from operating activities 17 668.5 628.8
Interest received 5.2 7.6
Interest paid 1 (41.6) (48.6)
Income tax paid (68.9) (64.4)
Net cash flows from operating activities 563.2 523.4
Cash flows from investing activities
Purchase of property, plant and equipment (127.8) (129.9)
Purchase of intangible fixed assets (32.1) (22.6)
Proceeds from sale of property, plant and equipment 7.4 6.3
Acquisition of companies and businesses, net of cash acquired 18 (463.1) (194.7)
Disposal of companies and businesses - 2.2
Dividends received from associates 3.9 11.7
Net change to cash flow from investment in term deposits2 170.6 (170.5)
Net cash flows from investing activities (441.1) (497.5)
Cash flows from financing activities
Dividends paid to equity shareholders 7 (138.7) -
Acquisition of shares from non-controlling interest (9.4) -
Capital element of lease payments (88.0) (85.4)
Cash outflow on settlement of debt related foreign exchange forward contracts (19.1) (23.7)
Proceeds from new debt 4.7 1,714.8
Debt repayments (166.6) (1,352.2)
Net cash flows from financing activities (417.1) 253.5
Net increase in cash and cash equivalents (295.0) 279.4
Cash and cash equivalents at beginning of year 550.8 273.9
Exchange losses on cash and cash equivalents (13.9) (2.5)
Cash and cash equivalents at end of the financial year 241.9 550.8
1. Interest paid includes the interest element of lease payments of £6.1m
(2020: £6.8m).
2. Net change to cash flow from investment in term deposits of £170.5m has
been restated in 2020 to correct the classification from financing activities
to investing activities.
Notes to the financial statements
1. Changes in accounting policies
The Group has adopted the following new standards and amendments to standards,
including any consequential amendments to other standards, with effect from 1
January 2021:
● Amendments to IFRS 16 Leases;
● Amendments to IFRS 4 Insurance Contracts; and
● Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest Rate
Benchmark Reform phase 2.
The application of these amendments has had no material impact on the
disclosures of the amounts recognised in the Group's consolidated financial
statements. Consequently, no adjustment has been made to the comparative
financial information at 31 December 2020.
The Group has not early-adopted any standard, interpretation or amendment that
was issued but is not yet effective.
2. Revenue recognition and operating segments
Revenue recognition
Revenue represents the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the Group expects to be
entitled. All revenue is considered revenue from contracts with customers as
defined by IFRS 15, including job work and sales of goods. Under IFRS 15,
revenue is recognised when a customer obtains control of goods or services in
line with identifiable performance obligations. In the majority of cases the
Group considers that the contracts it enters into are contracts for bundled
services which are accounted for as a single performance obligation.
Accordingly the majority of revenue across the Group is recognised on an
output basis evenly over the course of the contract because the customer
simultaneously receives and consumes the benefits provided by the Group's
performance as it performs. Job work is short-term contract revenue whereby
the period of service is typically less than one month in duration. The
performance obligations linked to this revenue type are individual to each job
due to their nature, with revenue being recognised at a point in time on
completion. Where consumables are supplied separately from the service
contract, revenue is recognised at the point the goods transfer.
The transaction price reported for all contracts is the price agreed in the
contract and there are no material elements of variable consideration,
financing component or non-cash consideration. The Group applies the practical
expedient in paragraph 121 of IFRS 15 and does not disclose information about
remaining performance obligations because the Group has a right to
consideration from customers in an amount that corresponds directly with the
value to the customer of the performance obligations completed to date.
Disaggregation of revenue into category, region and major type of revenue
stream is shown below under segmental reporting and in Note 21.
Contract costs
Contract costs are mainly incremental costs of obtaining contracts (primarily
sales commissions directly related to contracts obtained), and to a lesser
extent costs to fulfil contracts which are not within the scope of other
standards (mainly incremental costs of putting resources in place to fulfil
contracts).
It is anticipated that these costs are recoverable over the life of the
contract to which they relate. Accordingly the Group capitalises them as
contract costs and amortises them over the expected life of the contracts. The
expected length of contracts across the Group and associated amortisation
periods are between three and six years.
The contract costs recognised in the balance sheet at the period end amounted
to £75.0m (2020: £67.8m). The amount of amortisation recognised in the
period was £30.4m (2020: £28.1m) and impairment losses were £nil (2020:
£nil).
Applying the practical expedient in paragraph 94 of IFRS 15, the Group
recognises the incremental costs of obtaining contracts as an expense when
incurred if the amortisation period of the assets that the Group otherwise
would have recognised is one year or less.
Contract assets
Contract assets relate to the Group's right to consideration for performance
obligations satisfied but where the customer has yet to be invoiced. The
contract assets are transferred to receivables when the rights become
unconditional. This usually occurs when the Group issues an invoice to the
customer. All opening balances have been invoiced in the year.
Contract liabilities
Contract liabilities relate to advance consideration received from customers
where the performance obligations have yet to be satisfied. All opening
balances have subsequently been satisfied in the year. In most business
categories where revenue is recognised over time customers are invoiced in
advance or simultaneously with performance obligations being satisfied.
Segmental reporting
Segmental information has been presented in accordance with IFRS 8 Operating
Segments. Reporting segments reflect the internal management 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.
Disaggregated revenue under IFRS 15 is the same as the segmental analysis
below. Restructuring costs and central and regional costs are presented at a
Group level 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 21.
Revenue Revenue1 2 Operating Operating
2021
2020
profit
profit1
£m
£m
2021
2020
£m
£m
France 306.4 303.2 37.3 33.7
Benelux 95.9 96.7 29.3 27.9
Germany 113.9 120.6 36.6 42.1
Southern Europe 148.9 143.0 30.0 21.8
Latin America 63.1 57.7 7.0 5.5
Europe 728.2 721.2 140.2 131.0
UK & Ireland1 313.4 283.2 83.1 48.1
Rest of World 169.7 157.3 36.9 33.7
UK & Rest of World 483.1 440.5 120.0 81.8
Asia 242.5 242.0 25.5 26.9
North America2 1,299.1 1,203.9 217.6 211.9
Pacific 196.5 177.5 38.7 34.5
Central and regional overheads1 4.5 4.3 (90.8) (89.1)
Restructuring costs - - (9.7) (13.2)
Ongoing operations at AER 2,953.9 2,789.4 441.5 383.8
Disposed businesses3 2.7 13.9 - 0.2
Continuing operations at AER 2,956.6 2,803.3 441.5 384.0
One-off items - operating (20.7) (7.7)
Amortisation of intangible assets4 (74.3) (82.5)
Operating profit 346.5 293.8
1. During the year internal management reporting structures changed and a
small amount of revenue and profit previously reported under UK & Ireland
is now reported under Central and regional overheads.
2. Revenue has been restated in 2020 to reflect a correction in presentation
in relation to certain sales contracts where the Group acts as agent
(reduction in revenue of £20.2m). In these contracts revenue is presented on
a net basis.
3. Disposed businesses includes revenue of £2.7m (2020: £7.1m) from product
sales by the Group to CWS-boco International GmbH.
4. Excluding computer software.
One-off items operating:
One-off cost/(income) One-off tax impact One-off cash inflow/(outflow)
2021
2021
2021
£m
£m
£m
Acquisition and integration costs 13.3 (1.3) (12.1)
Fees relating to Terminix transaction 6.0 - (6.0)
Other 1.4 (0.4) (9.0)
Total 20.7 (1.7) (27.1)
Other segment items included in the consolidated income statement are as
follows:
Amortisation and Amortisation and
impairment of intangibles1
impairment of intangibles1
2021
2020
£m
£m
Europe 12.3 13.3
UK & Rest of World 12.8 12.4
Asia 4.6 15.1
North America 34.4 30.9
Pacific 3.9 3.6
Central and regional 6.3 7.2
Total 74.3 82.5
Tax effect (18.2) (17.5)
Total after tax effect 56.1 65.0
1. Excluding computer software.
3. Finance cost
2021 2020
£m
£m
Hedged interest payable on medium term notes issued1 9.5 15.6
Interest payable on bank loans and overdrafts1 2.6 3.0
Interest payable on revolving credit facility1 1.4 5.4
Interest payable on foreign exchange swaps2 13.7 9.5
Interest payable on leases 6.1 6.8
Amortisation of discount on provisions 0.3 0.3
Fair value loss on hedge ineffectiveness 0.1 7.9
Fair value adjustment on debt repayment - 4.1
Fair value loss on other derivatives3 - 25.9
Total finance cost 33.7 78.5
1. Interest expense on financial liabilities held at amortised cost.
2. Interest payable on foreign exchange swaps including coupon interest
payable for the year was £17.4m. £3.7m has been reported in reserves due to
hedge accounting.
3. Fair value loss on other derivatives relates to $335m synthetic borrowing
unit entered into since February 2019 ($170m in February 2019 and $165m in
July 2019) which do not qualify for hedge accounting. The instrument provides
an annual interest benefit of 1.9% of the outstanding principal and was closed
out in August 2020 with the full year loss of £26.2m excluding interest
accrued.
4. Finance income
2021 2020
£m
£m
Bank interest received 0.8 2.3
Interest receivable on foreign exchange swaps 0.2 3.4
Hyperinflation accounting adjustment 3.2 -
Interest on net defined benefit asset - 0.5
Total finance income 4.2 6.2
5. Income tax expense
Analysis of charge in the year:
2021 2020
£m
£m
UK corporation tax at 19.0% (2019: 19.0%) 9.5 8.8
Overseas taxation 47.8 60.9
Adjustment in respect of previous periods (3.3) (3.1)
Total current tax 54.0 66.6
Deferred tax expense/(credit) 20.8 (17.0)
Deferred tax adjustment in respect of previous periods (12.9) (6.1)
Total deferred tax 7.9 (23.1)
Total income tax expense 61.9 43.5
Income tax expense for the period comprises both current and deferred tax.
Current tax expense represents the amount payable on this year's taxable
profits and any adjustment relating to prior years. Deferred tax is an
accounting adjustment to provide for tax that is expected to arise in the
future due to differences between accounting and tax bases. Deferred tax is
determined using tax rates that are expected to apply when the timing
difference reverses based on tax rates which are enacted or substantively
enacted at the balance sheet date. Tax is recognised in the income statement,
except to the extent that it relates to items recognised in other
comprehensive income or equity.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date in the countries
where the Company's subsidiaries and associates operate and generate taxable
income.
Deferred income tax is provided on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of
assets or liabilities in transactions other than a business combination that
at the time of the transactions affect neither the accounting nor taxable
profit or loss; and, differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future. The
amount of deferred income tax is determined using tax rates (and laws) that
have been enacted (or substantively enacted) at the balance sheet date, and
are expected to apply when the related deferred income tax asset is realised
or the deferred income tax liability is settled. Deferred tax balances are not
discounted.
Deferred tax assets and liabilities are offset against each other when the
timing difference relates to income taxes levied by the same tax authority on
an entity or different entities which are part of a tax consolidation and
there would be the intention to settle on a net basis.
Deferred income tax assets are recognised to the extent that it is probable
that future taxable profits will be available against which the temporary
differences can be utilised. The amount of deferred tax assets recognised at
each balance sheet date is adjusted to reflect changes in management's
assessment of future taxable profits that will enable the tax losses to be
recovered. In recognising the deferred tax asset in respect of UK losses,
management have estimated the quantum of future UK taxable profits over the
next five years as this is the period over which it is considered that profits
can be reasonably estimated.
A deferred tax asset of £12.4m (2020: £16.0m) has been recognised in respect
of UK losses carried forward at 31 December 2021. 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
at the balance sheet date) applicable for each year. Remaining UK tax losses
of £40.6m (2020: £47.5m) have not been recognised as at 31 December 2021 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 has tax losses of £81.6m (2020: £105.0m)
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. Of the losses
£8.3m (2020: £14.6m) will expire at various dates between 2022 and 2032.
In addition, the Group has UK capital losses carried forward of £276.3m
(2020: £276.3m) on which no deferred tax asset is recognised. These losses
have no expiry date but management considers the future utilisation of these
losses to be unlikely.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of shares in
issue during the year, excluding those held in the Rentokil Initial Employee
Share Trust for UK employees (see note at the bottom of the Consolidated
Statement of Changes in Equity) which are treated as cancelled, and including
share options for which all conditions have been met.
Adjusted earnings per share is earnings per share adjusted for the after-tax
effects of one-off items, amortisation and impairment of intangibles and net
interest adjustments.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to include all potential dilutive ordinary shares. The
Group's potentially dilutive ordinary shares relate to the contingent issuable
shares under the Group's long term incentive plans (LTIPs) to the extent the
performance conditions have been met at the end of the period. These share
options are issued for nil consideration to employees if performance
conditions are met.
Details of the adjusted earnings per share are set out below:
2021 2020
£m
£m
Profit from continuing operations attributable to equity holders of the 263.2 185.9
Company
One-off items 20.7 7.7
Amortisation and impairment of intangibles1 74.3 82.5
Net interest adjustments (3.6) 35.2
Tax on above items2 (18.9) (26.4)
Adjusted profit from continuing operations attributable to equity holders of 335.7 284.9
the Company
Weighted average number of ordinary shares in issue (million) 1,858.1 1,853.2
Adjustment for potentially dilutive shares (million) 8.2 9.7
Weighted average number of ordinary shares for diluted earnings per share 1,866.3 1,862.9
(million)
Basic earnings per share 14.16p 10.03p
Diluted earnings per share 14.10p 9.98p
Basic adjusted earnings per share 18.07p 15.37p
Diluted adjusted earnings per share 17.99p 15.29p
1. Excluding computer software.
2. One-off items £1.7m (2020: £2.4m), amortisation and impairment of
intangibles £18.2m (2020: £17.5m), net interest adjustments £(1.0)m (2020:
£6.5m).
7. Dividends
Dividend distribution to the Company's shareholders is recognised as a
liability in the Group's financial statements in the period in which the
dividends are approved by the Company's shareholders. Interim dividends are
recognised when paid.
2021 2020
£m
£m
2020 final dividend paid - 5.41p per share 100.0 -
2021 interim dividend paid - 2.09p per share 38.7 -
138.7 -
An interim dividend of 2.09p per share was paid on 13 September 2021 amounting
to £38.7m. A final dividend in respect of 2021 of 4.30p per share is to be
proposed at the Annual General Meeting on 11 May 2022. The aggregate amount of
the proposed dividend to be paid out of retained earnings at 31 December 2021,
but not recognised as a liability at year end, is £79.5m.
8. Intangible assets
Goodwill Customer Other Product development Computer 2021 2020
£m
lists
£m
software
Total
Total
£m intangibles
£m
£m
£m
£m
Cost
At 1 January 1,653.4 824.4 66.1 39.4 144.8 2,728.1 2,395.0
Exchange differences 3.6 (13.3) 0.1 - (1.5) (11.1) (50.9)
Additions - - 3.7 6.4 21.0 31.1 22.5
Disposals/retirements - (3.7) (3.4) - (0.8) (7.9) (15.1)
Acquisition of companies and businesses1 228.2 68.6 0.5 - 0.1 297.4 379.1
Hyperinflationary adjustment 3.2 - - - - 3.2 -
Disposal of companies and businesses - - - - (0.2) (0.2) (2.5)
At 31 December 1,888.4 876.0 67.0 45.8 163.4 3,040.6 2,728.1
Accumulated amortisation and impairment
At 1 January (45.0) (585.3) (46.6) (26.8) (102.3) (806.0) (721.6)
Exchange differences 1.0 10.5 (0.1) - 1.3 12.7 -
Disposals/retirements - 3.7 3.4 - 0.8 7.9 14.5
Disposal of companies and businesses - - - - 0.2 0.2 2.1
Impairment charge (0.2) - - (0.1) (1.4) (1.7) (13.0)
Amortisation charge - (64.0) (4.7) (5.3) (15.4) (89.4) (88.0)
At 31 December (44.2) (635.1) (48.0) (32.2) (116.8) (876.3) (806.0)
Net book value
At 1 January 1,608.4 239.1 19.5 12.6 42.5 1,922.1 1,673.4
At 31 December 1,844.2 240.9 19.0 13.6 46.6 2,164.3 1,922.1
1. Includes current year acquisitions of £301.3m as well as adjustments to
prior year acquisitions within the measurement period.
9. Property, plant and equipment
Land and Service contract equipment Other plant and Vehicles 2021 2020
buildings
£m
equipment
and office
Total
Total
£m
£m
equipment
£m
£m
£m
Cost
At 1 January 87.3 523.5 186.1 200.4 997.3 924.3
Exchange differences (4.0) (26.5) (8.9) (4.9) (44.3) 28.8
Additions 2.7 93.8 12.8 18.8 128.1 127.1
Disposals (2.1) (73.4) (2.6) (17.5) (95.6) (91.6)
Acquisition of companies and businesses1 3.6 0.3 0.7 7.9 12.5 5.6
Disposal of companies and businesses - - - - - (0.2)
Reclassification from IFRS 16 ROU assets2 - - - 5.5 5.5 3.3
At 31 December 87.5 517.7 188.1 210.2 1,003.5 997.3
Accumulated depreciation and impairment
At 1 January (30.2) (309.6) (132.1) (122.7) (594.6) (532.6)
Exchange differences 1.6 16.1 6.6 3.1 27.4 (17.8)
Disposals 0.5 72.2 2.2 15.3 90.2 88.0
Disposals of companies and businesses - - - - - 0.1
Impairment charge - - - - - (0.4)
Depreciation charge (3.0) (92.4) (11.9) (21.1) (128.4) (131.9)
At 31 December (31.1) (313.7) (135.2) (125.4) (605.4) (594.6)
Net book value
At 1 January 57.1 213.9 54.0 77.7 402.7 391.7
At 31 December 56.4 204.0 52.9 84.8 398.1 402.7
1. Includes current year acquisitions of £11.4m as well as adjustments to
prior year acquisitions within the measurement period.
2. Certain leased assets become owned assets at the end of their lease period
and are therefore reclassified from ROU assets.
10. Financing
Fair value estimation
All financial instruments held at fair value are 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. Fair value is equal to carrying value for all instruments at
level 3.
The Group uses the following methods to estimate fair value of its financial
instruments:
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
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 forwards 2 Discounted cash flow using quoted market prices and forward interest rates
Borrowings not traded in active markets 2 Nominal value
Money market deposits 2 Nominal value
Trade payables and receivables 2 Nominal value less estimated credit adjustments
Provisions 2 Discounted cash flow using market bond rates
Contingent consideration 3 Discounted cash flows using WACC
11. Cash and cash equivalents
Cash and cash equivalents include cash in hand, short-term bank deposits, and
other short-term highly liquid investments with original maturities of three
months or less (and subject to insignificant changes in value). In the cash
flow statement cash and cash equivalents are shown net of bank overdrafts.
Bank overdrafts are shown within borrowings in current liabilities on the
balance sheet.
Cash at bank and in hand includes £6.6m (2020: £6.7m) 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. Cash at bank and in hand
also includes £65.5m (2020: £51.0m) of cash held in countries with foreign
exchange regulations. This cash is repatriated to UK where possible, if not
required for operational purposes in country.
Fair value is equal to carrying value for all cash and cash equivalents.
£m
At 31 December 2021
Cash at bank and in hand 553.8
Money market funds 52.8
Short-term bank deposits 61.8
Cash and cash equivalents in the Consolidated Balance Sheet 668.4
Bank overdraft (426.5)
Cash and cash equivalents in the Consolidated Cash Flow Statement 241.9
At 31 December 2020
Cash at bank and in hand 1,560.3
Money market funds 383.1
Short-term bank deposits 6.1
Cash and cash equivalents in the Consolidated Balance Sheet 1,949.5
Bank overdraft (1,398.7)
Cash and cash equivalents in the Consolidated Cash Flow Statement 550.8
12. Analysis of bank and bond debt
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
amount
year end
£m
at year end
£m
£m
%
Non-current
£550m RCF due August 2025 550.0 - 550.0 0.14
In September 2021 the Group amended its RCF to incorporate the switch from
LIBOR to Risk Free Rates. At the same time financial covenants were
permanently removed from the facility. The RCF was undrawn throughout 2021.
Medium-term notes and bond debt comprises:
Bond interest coupon Effective hedged interest rate
Non-current
€400m bond due November 2024 Fixed 0.95% Fixed 3.08%
€500m bond due May 2026 Fixed 0.875% Fixed 1.54%
€600m bond due October 2028 Fixed 0.50% Fixed 1.08%
Average cost of bond debt at year end rates 1.78%
The effective hedged interest rate reflects the interest rate payable after
the impact of interest due from currency swaps. The Group's hedging strategy
is to hold foreign currency debt in proportion to foreign currency profit and
cash flows, which are mainly in euro and US dollar. As a result, the Group has
swapped a portion of the bonds it has issued into US dollars, thus increasing
the effective hedged interest rate.
The Group considers the fair value of other current liabilities to be equal to
the carrying value.
13. 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.
The principal pension scheme in the Group is the UK Rentokil Initial 2015
Pension Scheme (RIPS) which has a defined contribution section, and a number
of defined benefit sections which are now closed to new entrants and future
accrual of benefits. On 4 December 2018, the Group signed an agreement with
Pension Insurance Corporation plc (PIC) to take over the payment of the
liabilities in the scheme via a buy-in, which converted to a full buy-out on
24 February 2022.
A number of much smaller defined benefit and defined contribution schemes
operate elsewhere which are also funded through payments to
trustee-administered funds or insurance companies.
Defined benefit schemes are reappraised annually by independent actuaries
based upon actuarial assumptions. Significant judgement is required in
determining these actuarial assumptions.
RIPS
On 4 December 2018 the Trustee entered into a binding agreement with PIC to
insure the liabilities of the RIPS, known as a buy-in. In December 2021 the
final true-up premium was paid to PIC and on 24 February 2022 the insurance
policy with PIC was transferred to the individual members of the scheme.
Accordingly in 2022 both the Scheme's assets and liabilities have been reduced
by the policy value (£1,238.6m).
There remains some uncertainty regarding the final surplus that will be
available to the Group until Guaranteed Minimum Pension adjustments for
members who transferred out of the scheme have been settled and final scheme
expenses have been paid. The remaining surplus recognised as a retirement
benefit asset is management's estimate of the value that will be returned to
the Group when wind-up of the scheme completes.
The defined benefit schemes are reappraised semi-annually by independent
actuaries based upon actuarial assumptions in accordance with IAS 19R
requirements (including schemes which are insured under a buy-in contract).
The assumptions used for the RIPS scheme are shown below:
2021 2020
£m
£m
Weighted average %
Discount rate 2.0% 1.4%
Future salary increases N/A N/A
Future pension increases 3.3% 3.0%
RPI inflation 3.4% 3.0%
CPI inflation 2.7% 2.3%
The movement in the net defined benefit obligation for all pension schemes
over the accounting period is as follows:
Present value of obligation Fair value of plan assets 2021 Total Present value of obligation Fair value of plan assets 2020 Total
2021
£m
2021
2020
£m
2020
£m
£m
£m
£m
At 1 January (1,481.1) 1,461.3 (19.8) (1,443.9) 1,443.8 (0.1)
Current service costs1 (1.5) - (1.5) (1.6) - (1.6)
Past service costs1 0.9 - 0.9 7.1 - 7.1
Settlement of defined benefit obligation1 21.9 (20.7) 1.2 - - -
Administration expenses1 (0.1) - (0.1) (0.1) - (0.1)
Interest on net defined benefit asset1 (20.7) 20.7 - (28.2) 28.7 0.5
Exchange difference 2.9 (1.6) 1.2 (0.1) (0.4) (0.5)
Total pension income 3.4 (1.7) 1.7 (22.9) 28.3 5.4
Remeasurements:
Remeasurement gain/(loss) on scheme assets - (77.8) (77.8) - 70.2 70.2
Remeasurement gain/(loss) on obligation2 78.6 - 78.6 (83.3) - (83.3)
Transfers:
Transferred on acquisition of business (0.3) - (0.3) - - -
Contributions:
Employers (0.7) 8.3 7.6 (0.3) 0.5 0.2
Participants (0.1) 0.1 - (0.2) 0.2 -
Benefit payments 86.6 (85.0) 1.6 69.4 (68.7) 0.7
Refund of surplus - - - - (13.0) (13.0)
Administration costs 0.1 - 0.1 0.1 - 0.1
At 31 December (1,313.5) 1,305.2 (8.3) (1,481.1) 1,461.3 (19.8)
Retirement benefit obligation schemes3 (63.0) 35.7 (27.3) (110.6) 71.8 (38.8)
Retirement benefit asset schemes4 (1,250.5) 1,269.5 19.0 (1,370.5) 1,389.5 19.0
1. Service costs, settlement and administration expenses are charged to
operating expenses, and interest cost and return on plan assets to finance
cost and finance income respectively.
2. The actuarial movement on the UK RIPS scheme comprises remeasurement gain
arising from changes in demographic assumptions of £2.7m (2020: gain
£16.1m), remeasurement gain arising from changes in financial assumptions of
£75.3m (2020: loss of £117.1m) and remeasurement loss arising from
experience of £0.5m (2020: gain of £25.0m).
3. Benefit plans in an obligation position include plans situated in Ireland,
the UK, Martinique, Trinidad and Tobago, Norway, South Africa, Germany,
Austria, France, Italy, South Korea, Philippines, India, Hong Kong and Saudi
Arabia.
4. Benefit plans in an asset position include plans situated in the UK,
Barbados and Australia.
Included in the table above is a net defined benefit surplus in relation to
the UK RIPS scheme of £18.2m (2020: £18.2m) recognised as defined benefit
obligation of £1,247.5m (2020: £1,369.3m) and plan assets of £1,265.7m
(2020: £1,387.5m). Of the £1,313.5m (2020: £1,481.1m) of obligations,
£17.0m (2020: £18.3m) is unfunded.
Total contributions payable to defined benefit pension schemes in 2022 are
expected to be less than £1m.
The fair value of plan assets at the balance sheet date is analysed as
follows:
2021 2020
£m
£m
Equity instruments 2.8 37.3
Debt instruments - unquoted 16.5 16.7
Insurance policies 1,238.6 1,343.6
Other 47.3 63.7
Total plan assets 1,305.2 1,461.3
14. Provisions for other liabilities and charges
The Group has environmental, self-insurance and other provisions. Provisions
are recognised when the Group has a present obligation as a result of past
events, it is probable that an outflow of resources will be required to settle
the obligation, and the amount is capable of being reliably estimated. If such
an obligation is not capable of being reliably estimated it is classified as a
contingent liability.
Future cash flows relating to these obligations are discounted when the effect
is material. This year the US is the only country where the effect of
discounting is material. The discount rates used are based on government bond
rates in the country of the cash flows, and were 0.9% (2020: 0.9%) for the US.
Judgement is required in determining the worldwide provision for environmental
restoration. These provisions tend to be long-term in nature and the use of an
appropriate market discount rate and forecast future utilisation based upon
management's best estimate determines the level of provision required at the
balance sheet date. The phasing and actual cash spend may be different from
the forecast on which the provision is based.
Environmental Self- Other 2021 2020
£m
insurance
£m
Total
Total
£m
£m
£m
At 1 January 13.6 32.5 18.1 64.2 59.1
Exchange differences (0.7) 0.3 (0.6) (1.0) 0.1
Additional provisions - 17.8 6.5 24.3 28.1
Used during the year (2.4) (14.3) (9.6) (26.3) (19.2)
Unused amounts reversed - (0.8) (1.8) (2.6) (4.3)
Acquisition of companies and businesses - 1.7 0.3 2.0 0.1
Unwinding of discount on provisions - 0.3 - 0.3 0.3
At 31 December 10.5 37.5 12.9 60.9 64.2
Analysed as follows:
Non-current 33.9 34.1
Current 27.0 30.1
Total 60.9 64.2
Environmental
The Group owns a number of properties in Europe and the US where there is land
contamination. Provisions are held for the remediation of such contamination.
These provisions are expected to be substantially utilised within the next
five years.
Self-insurance
The Group purchases external insurance from a portfolio of international
insurers for its key insurable risks, mainly employee-related risks.
Self-insured deductibles within these insurance policies have changed over
time due to external market conditions and scale of operations. These
provisions represent obligations for open claims and are estimated based on
actuarial/management's assessment at the balance sheet date. The Group expects
to continue self-insuring the same level of risks and estimates that 50% to
75% of claims should settle within the next five years.
Other
Other provisions principally comprise amounts required to cover obligations
arising and costs relating to disposed businesses and restructuring costs.
Other provisions also includes costs relating to properties it no longer
occupies such as security, utilities and insurance. Existing provisions are
expected to be substantially utilised within the next five years.
15. Share capital
2021 2020
£m
£m
Issued and fully paid
At 31 December - 1,859,332,965 shares (2020: 1,854,332,965) 18.6 18.5
16. Reconciliation of net change in cash and cash equivalents to net debt
Opening Cash flows Non-cash (fair value changes and accruals) Non-cash (foreign exchange and other) Closing 2021
20211 2
£m
£m
£m
£m
£m
Bank and other short-term borrowings (1,591.5) 1,134.6 (11.0) 8.6 (459.3)
Bank and other long-term borrowings (1,337.6) 14.6 (12.0) 78.8 (1,256.2)
Lease liabilities (214.5) 94.1 (6.1) (90.5) (217.0)
Other investments 172.2 (170.6) - - 1.6
Fair value of debt-related derivatives 6.6 31.4 (2.9) (57.3) (22.2)
Gross debt (2,964.8) 1,104.1 (32.0) (60.4) (1,953.1)
Cash and cash equivalents in the consolidated balance sheet1 1,949.5 (1,267.2) - (13.9) 668.4
Net debt (1,015.3) (163.1) (32.0) (74.3) (1,284.7)
1. Both cash and cash equivalents and bank and other short term borrowings
have been restated in 2020 by reducing cash in hand and overdrafts by £276.1m
to reflect the netted position of the main and shadow bank accounts pool
arrangement which were previously grossed up.
2. Trade and other receivables and bank and other short term borrowings have
been restated in 2020 due to a correction of the recognition of an overseas
factoring arrangement. Both have been increased by £21.0m.
17. Operating cash and Free Cash Flow
2021 2020
£m
£m
Operating profit 346.5 293.7
Adjustments for:
- Depreciation and impairment of property, plant and equipment 128.4 132.3
- Depreciation of leased assets 78.4 78.0
- Amortisation and impairment of intangible assets (excluding computer 74.3 82.5
software)
- Amortisation and impairment of computer software 16.8 18.5
- Other non-cash items 5.8 (0.5)
Changes in working capital (excluding the effects of acquisitions and exchange
differences on consolidation):
- Inventories (3.2) (23.3)
- Contract costs (4.8) (1.9)
- Trade and other receivables 58.8 (43.3)
- Contract assets (0.1) 2.4
- Trade and other payables and provisions (43.0) 78.2
- Contract liabilities 11.1 12.7
Cash generated from operating activities before special pension contributions 669.0 629.3
Special pension contributions (0.5) (0.5)
Cash generated from operating activities 668.5 628.8
Add back: special pension contributions 0.5 0.5
Purchase of property, plant and equipment (127.8) (129.9)
Purchase of intangible fixed assets (32.1) (22.6)
Additions of ROU assets/Capital element of finance lease payments (88.1) (82.8)
Proceeds from sale of property, plant and equipment 7.4 6.3
Dividends received from associates 3.9 11.7
432.3 412.0
Interest received 5.2 7.6
Interest paid (41.6) (48.6)
Income tax paid (68.9) (64.4)
Special pension contributions (0.5) (0.5)
Free Cash Flow from continuing operations 326.5 306.1
18. Business combinations
During the year the Group purchased 100% of the share capital or trade and
assets of 52 companies and businesses. It also acquired the remaining shares
from a non-controlling interest which is recognised as an equity transaction
rather than a business combination. The total consideration in respect of
these acquisitions was £313.7m and the cash outflow from current and past
period acquisitions, net of cash acquired, was £463.1m.
Details of goodwill and the fair value of net assets acquired are as follows:
2021 2020
£m
£m
Purchase consideration:
- Cash paid 273.1 156.9
- Deferred and contingent consideration 40.6 210.4
Total purchase consideration 313.7 367.3
Fair value of net assets acquired (83.1) (49.9)
Goodwill from current year acquisitions 230.6 317.4
Goodwill represents the synergies, workforce and other benefits expected as a
result of combining the respective businesses.
Deferred consideration of £12.6m and contingent consideration of £28.0m are
payable in respect of the above acquisitions. Contingent consideration is
payable based on a variety of conditions including revenue and profit targets
being met. Both deferred and contingent consideration are payable over the
next five years. The Group has recognised the contingent and deferred
consideration based on the fair value of the consideration at the acquisition
date. A range of outcomes for contingent consideration payments cannot be
estimated due to the variety of performance conditions and the volume of
businesses the Group acquires. During the year there were releases of deferred
consideration liabilities not paid of £0.6m (2020: £1.6m).
The provisional fair value1 of assets and liabilities arising from
acquisitions in the year are as follows:
2021 2020
£m
£m
Non-current assets
- Intangible assets2 70.7 56.9
- Property, plant and equipment3 13.2 9.9
- Other non-current assets 1.7 -
Current assets4 36.8 20.4
Current liabilities (25.4) (20.0)
Non-current liabilities5 (13.9) (17.3)
Net assets acquired 83.1 49.9
1. The provisional fair values will be finalised in the 2022 financial
statements. The fair values are provisional since the acquisition accounting
has not yet been finalised, primarily due to the proximity of many
acquisitions to the year end.
2. Includes £70.0m (2020: £56.8m) of customer lists and £0.7m (2020:
£0.1m) of other intangibles.
3. Includes £1.8m (2020: £4.2m) of right-of-use assets.
4. Includes trade and other receivables of £27.9m (2020: £11.2m) which
represents the gross and fair value of the assets acquired.
5. Includes £(7.6)m of deferred tax relating to acquired intangibles (2020:
£(5.1)m).
The cash outflow from current and past acquisitions are as follows:
2021 2020
£m
£m
Total purchase consideration 313.7 367.3
Consideration payable in future periods (40.6) (210.4)
Purchase consideration paid in cash 273.1 156.9
Cash and cash equivalents in acquired companies and businesses (6.0) (6.1)
Cash outflow on current period acquisitions 267.1 150.8
Deferred consideration paid 196.0 43.9
Cash outflow on current and past acquisitions 463.1 194.7
From the dates of acquisition to 31 December 2021, these acquisitions
contributed £49.9m to revenue and £7.0m to operating profit.
If the acquisitions had occurred on 1 January 2021 the estimated revenue and
operating profit of the Group would have amounted to £3,031.4m and £356.8m
respectively.
19. Related party transactions
The Group participates in a number of joint ventures where it has control and
therefore it consolidates these as subsidiaries in its Consolidated Financial
Statements. All transactions between these entities and the Group were
transacted at arm's length during the ordinary course of business and have
been eliminated on consolidation.
Nippon Calmic Ltd (49%) was an associate during 2020 and 2021. Boecker Public
Safety Services - Qatar W.L.L. (24.5%) and Boecker Public Health Services
(30%) became associate entities on 3 August 2021. There are no significant
transactions between associate entities and other Group companies.
20. Events occurring after the balance sheet date
On 24 February 2022 the buy-out of the Rentokil Initial 2015 Pension Scheme
completed when the insurance policy with PIC was transferred to the individual
members of the scheme. Accordingly both the Scheme's assets and liabilities
have been reduced by the policy value (£1,238.6m).
There were no other significant post balance sheet events affecting the Group
since 31 December 2021.
21. 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 which 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 currency of the Group).
In order to help understand the underlying trading performance of the
business, revenue and profit measures are often 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 (FY 2020 1.2951) and £/€ FY 2021 1.1617 (FY 2020 1.1315).
Comparisons are with the year ended 31 December 2020 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 amortisation and impairment of
intangible assets (excluding computer software), one-off items and net profit
on disposal of businesses (see below).
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
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 2.
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 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
understanding 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 (environmental liabilities), and payments or
receipts as a result of legal disputes.
Other non-cash gains and losses that can cause material fluctuations and
distort understanding of the performance of the business are 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 from
continuing operations attributable to equity holders of the Company by the
weighted average number of ordinary shares in issue. Note 6 shows the
adjustments made in arriving at adjusted profit from continuing operations
attributable to equity holders of the Company.
A reconciliation of non-GAAP measures to the comparable GAAP equivalents is
provided below at both AER and CER:
2021 2021 2020 % change
AER
CER
£m
£m
£m
AER CER
Ongoing Revenue 2,953.9 3,063.5 2,789.4 5.9 9.8
Revenue - disposed and closed businesses1 2.7 2.7 13.9 (80.4) (80.4)
Revenue 2,956.6 3,066.2 2,803.3 5.5 9.4
Ongoing Operating Profit 441.5 458.7 383.8 15.0 19.5
Operating Profit - disposed and closed businesses - - 0.2 (109.6) (110.1)
Adjusted Operating Profit 441.5 458.7 384.0 15.0 19.5
One-off items (20.7) (21.3) (7.7) (170.2) (177.6)
Amortisation and impairment of intangible assets2 (74.3) (77.3) (82.5) 9.9 6.4
Operating profit 346.5 360.1 293.8 17.9 22.6
Share of profit from associates (net of tax) 8.1 8.9 8.3 (1.7) 7.5
Net interest payable (excluding pensions/IFRS 16) (33.1) (34.0) (37.1) 10.6 8.4
Net interest adjustments 3.6 3.7 (35.2) 110.2 110.5
Profit before tax 325.1 338.7 229.8 41.5 47.5
Net interest adjustments (3.6) (3.7) 35.2 (110.2) (110.5)
One-off items 20.7 21.3 7.7 170.2 177.6
Amortisation and impairment of intangible assets2 74.3 77.3 82.5 (9.9) (6.4)
Adjusted profit before tax 416.5 433.6 355.2 17.3 22.1
Basic earnings per share 14.16p 14.77p 10.03p 41.2 47.2
Basic adjusted earnings per share 18.07p 18.81p 15.37p 17.6 22.4
1. Includes revenue of £2.7m (2020: £7.1m) from product sales by the Group
to CWS-boco International GmbH.
2. Excluding computer software.
Regional Analysis
Ongoing Revenue Ongoing Operating Profit
2021 Change from 2021 Change from
FY 2020
FY 2020
AER CER AER CER AER CER AER CER
£m
£m
%
%
£m
£m
%
%
France 306.4 314.6 1.1 3.8 37.3 38.3 10.9 13.9
Benelux 95.9 98.5 (0.7) 1.9 29.3 30.1 5.1 7.9
Germany 113.9 116.9 (5.6) (3.1) 36.6 37.6 (13.1) (10.8)
Southern Europe 148.9 152.8 4.1 6.9 30.0 30.8 37.5 41.2
Latin America 63.1 66.4 9.3 15.0 7.0 7.2 27.4 30.9
Total Europe 728.2 749.2 1.0 3.9 140.2 144.0 7.1 9.9
UK & Ireland 313.4 314.0 10.6 10.9 83.1 83.3 73.1 73.3
Rest of World 169.7 174.0 7.9 10.6 36.9 37.9 9.2 12.5
UK & Rest of World 483.1 488.0 9.7 10.8 120.0 121.2 46.7 48.2
Asia 242.5 254.0 0.2 5.0 25.5 26.8 (5.1) (0.1)
North America 1,299.1 1,375.0 7.9 14.2 217.6 230.2 2.7 8.7
Pacific 196.5 192.8 10.7 8.7 38.7 38.0 12.0 9.9
Central and regional overheads 4.5 4.5 4.5 4.6 (90.8) (91.3) (2.0) (2.5)
Restructuring costs - - - - (9.7) (10.2) 26.7 22.4
Ongoing operations 2,953.9 3,063.5 5.9 9.8 441.5 458.7 15.0 19.5
Disposed businesses 2.7 2.7 (80.4) (80.4) - - (109.6) (110.1)
Continuing operations 2,956.6 3,066.2 5.5 9.4 441.5 458.7 15.0 19.5
Category Analysis
Ongoing Revenue Ongoing Operating Profit
2021 Change from 2021 Change from
FY 2020
FY 2020
AER CER AER CER AER CER AER CER
£m
£m
%
%
£m
£m
%
%
Pest Control 1,933.4 2,020.0 13.5 18.6 361.1 375.8 28.2 33.4
- Growth 1,681.1 1,754.4 14.2 19.2 330.7 343.7 28.4 33.5
- Emerging 252.3 265.6 8.8 14.5 30.4 32.1 25.7 32.4
Hygiene 660.1 673.4 (10.2) (8.4) 138.7 141.2 (19.7) (18.3)
- Core Hygiene 547.5 555.6 6.6 8.2
- Disinfection 112.6 117.8 (49.1) (46.8)
Protect & Enhance 355.9 365.6 2.8 5.6 42.2 43.2 33.6 36.8
Central and regional overheads 4.5 4.5 4.5 4.6 (90.8) (91.3) (2.0) (2.5)
Restructuring costs - - - - (9.7) (10.2) 26.7 22.4
Ongoing operations 2,953.9 3,063.5 5.9 9.8 441.5 458.7 15.0 19.5
Disposed businesses 2.7 2.7 (80.4) (80.4) - - (109.6) (110.1)
Continuing operations 2,956.6 3,066.2 5.5 9.4 441.5 458.7 15.0 19.5
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 (on a trailing 12 month basis):
2021 2020 Variance
%
%
% points
France 12.2 11.1 1.1
Benelux 30.5 28.8 1.7
Germany 32.2 35.0 (2.8)
Southern Europe 20.2 15.3 4.9
Latin America 10.8 9.5 1.3
Total Europe 19.2 18.2 1.0
UK & Ireland 26.5 17.0 9.5
Rest of World 21.8 21.5 0.3
UK & Rest of World 24.8 18.6 6.2
Asia 10.6 11.1 (0.5)
North America 16.7 17.6 (0.9)
Pacific 19.7 19.5 0.2
Ongoing operations1 15.0 13.8 1.2
Disposed businesses (0.7) 1.3 (2.0)
Continuing operations1 15.0 13.7 1.3
2021 2020 Variance
%
%
% points
Pest Control 18.6 16.5 2.1
- Growth 19.6 17.5 2.1
- Emerging 12.1 10.4 1.7
Hygiene 21.0 23.5 (2.5)
Protect & Enhance 11.8 9.1 2.7
Ongoing operations1 15.0 13.8 1.2
Disposed businesses (0.7) 1.3 (2.0)
Continuing operations1 15.0 13.7 1.3
1. Operating Margin for ongoing operations and continuing operations is
calculated after central and regional overheads and restructuring costs.
Free Cash Flow
The Group aims to generate sustainable cash flow (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, equipment and intangible fixed 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:
2021 2020
AER
AER
£m
£m
Net cash from operating activities 563.2 523.4
Purchase of property, plant, equipment and intangible fixed assets (159.9) (152.5)
Capital element of lease payments and initial direct costs incurred (88.1) (82.8)
Proceeds from sale of property, plant, equipment and software 7.4 6.3
Dividends received from associates 3.9 11.7
Free Cash Flow 326.5 306.1
Free Cash Flow Conversion
Free Cash Flow Conversion is calculated by dividing Adjusted Profit from
continuing operations attributable to equity holders of the Company (further
adjusted for any post tax profits and one-offs from the CWS-boco International
GmbH associate) 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.
2021 2020
AER
AER
£m
£m
Adjusted profit after tax from continuing operations attributable to equity 335.6 284.9
holders of the Company
Free Cash Flow from continuing operations 326.5 306.1
One-off items1 27.1 6.7
Product development additions 6.4 5.7
360.0 318.5
Free Cash Flow Conversion 107.3% 111.8%
1. A breakdown of one-off items -operating can be seen in Note 1.
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.
2021 2021 2020
AER
CER
£m
£m
£m
Unadjusted income tax expense 61.9 64.4 43.5
Tax adjustments on:
Amortisation and impairment of intangible assets (excluding computer software) 18.2 18.9 17.5
One-off items 1.7 1.8 2.4
Net interest adjustments (1.0) (1.0) 6.5
Adjusted income tax expense (a) 80.8 84.1 69.9
Adjusted profit before income tax (b) 416.5 433.6 355.2
Adjusted Effective Tax Rate (a/b) 19.4% 19.4% 19.7%
22. Legal statements
The financial information for the year ended 31 December 2021 contained in
this preliminary announcement has been approved by the Board and authorised
for release on 3 March 2022.
The financial information in this statement does not constitute the Company's
statutory accounts for the years ended 31 December 2021 or 2020. The financial
information for 2020 and 2021 is derived from the statutory accounts for 2020
(which have been delivered to the registrar of companies) and 2021 (which will
be delivered to the registrar of companies following the AGM in May 2022). The
auditors have reported on the 2020 and 2021 accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
The statutory accounts for 2021 are prepared in accordance with UK-adopted
International Accounting Standards. The accounting policies (that comply with
IFRS) used by Rentokil Initial plc ("the Group") are consistent with those set
out in the 2020 Annual Report. A full list of policies will be presented in
the 2021 Annual Report. For details of new policies applicable to the Group in
2021 and their impact please refer to Note 1.
23. 2021 Annual Report
Copies of the 2021 Annual Report will be sent to shareholders who have elected
to receive hard copies on 30 March 2022 and will also be available from the
Company's registered office by contacting the Company Secretariat
(secretariat@rentokil-initial.com) and at www.rentokil-initial.com in PDF
format.
24. Financial calendar
The Company's Annual General Meeting will be held at, and be broadcast from,
the Company's offices at Compass House, Manor Royal, Crawley, West Sussex,
RH10 9PY at 3.00pm on 11 May 2022. Shareholders should refer to the Notice of
Meeting and the Company's website at www.rentokil-initial.com/agm for further
information on the AGM, including arrangements for attending in person.
25. Responsibility statements
The Directors consider that the Annual Report, which includes the Financial
Statements, complies with the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority in respect of the requirement
to produce an annual financial report.
Each of the Directors, whose names and functions are set out in the 2021
Annual Report, confirms that, to the best of their knowledge:
● the Group Financial Statements, which have been prepared in accordance with
UK-adopted International Accounting Standards, give a true and fair view of
the assets, liabilities, financial position and profit of the Group;
● the Company's Financial Statements, which have been prepared in accordance
with United Kingdom Accounting Standards, comprising FRS 101 'Reduced
Disclosure Framework', give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
● the Annual Report includes a fair review of the development and performance of
the business and the position of the Group, together with a description of the
principal risks and uncertainties that it faces.
By Order of the Board
Andy Ransom
Chief Executive
3 March 2022
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