REG - Rentokil Initial PLC - Final Results
16/03/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230316:nRSP1565Ta&default-theme=true
RNS Number : 1565T Rentokil Initial PLC 16 March 2023
2022 Preliminary Results
Strong Organic Revenue growth and margin expansion
Excellent early progress on Terminix integration and cost synergy guidance
raised
Well positioned to deliver at least 5.0% medium term Organic Revenue growth
and >19.0% Group Adjusted Operating Margins in FY 25, up from c.15% pre
Terminix
Financial Results AER CER
£m 2022 2021 Change 2022 2021 Change
£m
£m
%
£m
£m
%
Revenue 3,714 2,957 25.6% 3,522 2,957 19.1%
Adjusted EBITDA 859 676 27.1%
Adjusted Operating Profit 571 442 29.4% 542 442 22.7%
Adjusted Profit before Tax 532 416 27.7% 515 416 23.5%
Free Cash Flow 374 353 5.9%
Diluted Adjusted EPS 21.22p 17.99p 18.0%
Statutory Results
Revenue 3,714 2,957 25.6%
Operating Profit 317 347 (8.4%)
Profit before Tax 296 325 (9.1%)
EPS 11.57p 14.16p (18.3%)
Dividend Per Share 7.55p 6.39p 18.2%
2022 Highlights (Unless otherwise stated, all financials include Terminix from
the date of transaction completion and are presented at constant exchanges
rates. Organic Revenue growth figures exclude COVID disinfection.)
● Revenue up 19.1%, reflecting benefit of M&A, including Terminix, and
strong Organic Revenue(1) growth of 6.6%, driven by resilient demand and
effective price progression. Statutory Revenue up 25.6% to £3,714m at AER. As
expected, COVID disinfection revenue reduced to £20m (FY 21: £117m), with
£6m in H2
- Organic Revenue growth of 5.7% in North America, with Terminix and Rentokil
North America(2) delivering similar rates of growth
- Organic Revenue up 9.1% in Europe, the Group's second largest region
- Strong broad-based Organic Revenue growth across all business categories: 5.6%
in Pest Control; 9.3% in Hygiene & Wellbeing; and 16.6% in France Workwear
● Adjusted Operating Profit increased 22.7%; 23.5% growth in Adjusted PBT.
Statutory PBT down 9.1% to £296m at AER due to one-off and adjusting items,
and interest related to the Terminix transaction
- Group Adjusted Operating Margin up 45bps to 15.4%(3), the highest for 20 years
- Margin improvement driven by 26bps improvement in underlying trading
performance and 19bps net impact from Terminix transaction
● Free Cash Flow of £374m leading to 91.8% Adjusted Free Cash Flow conversion
● Pro forma net debt to Adjusted EBITDA of less than 3.2x at 31 December 2022,
as expected. Net debt at £3.3bn in line with Q3 guidance
● Excellent progress on Terminix integration with cost synergy guidance
increased to at least $200m
- $13m pre-tax net P&L cost synergies achieved in FY 22, ahead of $4m
guidance. On track to deliver a further $60m in FY 23, with total synergy
target increased from at least $150m to at least $200m in FY 25
- Additional non-cash benefit of $18m in FY 22, reflecting application of IFRS
accounting for termite provisions and LTIPs; a further $32m of non-cash
benefits expected in FY 23
● Continued strong execution on M&A:
- 52 acquisitions (excluding Terminix) completed in 2022 for an aggregate
consideration of £259m.
Robust pipeline of high-quality M&A in place. Guidance on targeted spend
in FY 23 of c.£250m
● Recommended final dividend of 5.15p to bring total dividend for 2022 to 7.55p
per share, an increase of 18.2%, in line with our progressive policy
● Successful integration of Terminix and ongoing execution of our strategy will
enable the enlarged Group to deliver a highly attractive investment
proposition:
- Medium term Organic Revenue growth target increased to at least 5.0%
- Group Adjusted Operating Margin for FY 23 of c.16.5%, with North America
Adjusted Operating Margin of c.19.5%
- Group Adjusted Operating Margin greater than 19.0% and Free Cash Flow
conversion of at least 90% in FY 25
- Net debt to EBITDA of less than 3x by the end of FY 24, falling rapidly to
2-2.5x thereafter
- Continued progressive dividend policy
________________________________________________________________________________________________________
Andy Ransom, Chief Executive of Rentokil Initial plc, said:
"Our strong financial results, with Organic Revenue growth of 6.6%,
demonstrate the resilience of our business model. We continue to successfully
manage cost inflation, while driving investment in our services and people to
sustain high levels of customer and colleague retention.
All of this has been achieved alongside the landmark acquisition of Terminix,
reinforcing Rentokil Initial as the largest pest control company in the world.
Early progress on integration has been excellent. I am especially pleased with
today's announcement of an increase in expectations for total cost synergies
to at least $200m that evidences our strong conviction in the enlarged Group's
financial and strategic opportunities going forward."
2023 Outlook
We start the new calendar year with confidence in our plans, both operational
and strategic. This is underpinned by the Company's inherently resilient
business model as we continue to offset inflation with pricing and the early
headway made in delivery of Terminix acquisition benefits. For the full year,
notwithstanding the prevailing macroeconomic challenges, we expect continued
good underlying trading momentum.
The Group's expectations for annual pre-tax net cost synergies achievable from
the Terminix acquisition are increased from at least $150m to at least $200m
by the end of FY 25, with $60m of incremental pre-tax net cost synergies
expected to be delivered in FY 23. In-line with the increase in annualised
go-forward cost synergies, total one-time cost to achieve synergies are
expected to be c.$200m. In addition, we expect to benefit from $32m of further
non-cash benefits in FY 23 arising from the application of IFRS accounting of
termite provisions and LTIPs.
With margin protection from continued proactive cost inflation management and
margin accretion from strategy execution, synergy delivery and IFRS accounting
adjustments, Group Adjusted Operating Margin in FY 23 is expected to increase
to c.16.5% and North America Adjusted Operating Margin to c.19.5%.
Our anticipated spend on M&A in FY 23 is c.£250m and Free Cash Flow
conversion is expected to be 80-90%, primarily reflecting the impact of
accounting adjustments.
The Group remains on track to achieve mid-teens EPS accretion in FY 23.
Medium term Guidance
As a result of our ongoing operational and strategic plans, combined with the
benefits from the acquisition and integration of Terminix, we are increasing
our medium term guidance for Organic Revenue growth from 4.0%-5.0% to at least
5.0%. In FY 25, we expect to deliver a Group Adjusted Operating Margin of
greater than 19.0%.
As the impact of accounting adjustments phases out, Free Cash Flow conversion
should increase back to at least 90% by FY 25.
As previously guided, we expect leverage to be consistent with BBB rating by
the end of FY 24. Net debt to EBITDA is expected to be less than 3x by the end
of FY 24 and we remain on plan to deliver net debt to EBITDA of 2.0x to 2.5x
in the medium term. The Group is on track for ROIC to exceed WACC by FY 25.
Our progressive dividend policy remains unchanged.
Enquiries:
Investors / Analysts: Peter Russell Rentokil Initial plc 07795 166506
Media: Malcolm Padley Rentokil Initial plc 07788 978199
A presentation for investors and analysts will be held today, 16 March at
9.15am in the Bartholomew Suite Conference Room, The Leonardo Royal Hotel, 45
Prescot Street, London E1 8GP. This will be available via a live audio webcast
at www.rentokil-initial.com.
________________________________________________________________________________________________________
Notes
1 Organic Revenue growth represents the growth in Revenue excluding the effect
of businesses acquired during the year. Acquired businesses are included in
organic measures in the year following acquisition, and the comparative period
is adjusted to include an estimated full year performance for growth
calculations (pro forma revenue). The Terminix acquisition is treated
differently to other acquisitions for Organic Revenue growth purposes. The
full pre-acquisition results of the Terminix business are included for the
comparative period and Organic Revenue growth is calculated as the growth in
Revenue compared to the comparative period.
2 Rentokil North America refers to the Rentokil Initial business in North
America not inclusive of Terminix.
3 Includes net synergy benefit but excludes costs to achieve which are one-off
by nature..
AER - actual exchange rates; CER - constant 2021 exchange rates
Non-GAAP measures - This statement presents certain non-GAAP measures, which
should not be viewed in isolation as alternatives to the equivalent IFRS
measure, rather they should be read in conjunction with the equivalent IFRS
measure. These include revenue and profit measures presented at constant
exchange rates ("CER"), Organic Revenue Growth (including and excluding
disinfection), Adjusted Operating Profit and Adjusted Operating Profit at CER,
Adjusted Operating Margin at CER, Adjusted Profit Before Tax and Adjusted
Profit Before Tax at CER, Adjusted Profit After Tax, EBITDA, Free Cash Flow,
Adjusted Free Cash Flow, Adjusted Free Cash Flow Conversion, Adjusted Cash
Flow (previously named Operating Cash Flow), Adjusted Earnings Per Share and
Diluted Adjusted Earnings Per Share. These measures may not be calculated in
the same way as similarly named measures reported by other companies.
Management believes that these measures provide valuable additional
information for users of Rentokil Initial's Financial Statements in order to
better understand the underlying trading performance in the year from
activities and businesses that will contribute to future 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 IFRS measures.
Adjusted Operating Profit represent the performance of the continuing
operations of the Group (including acquisitions), 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. Adjusted
Operating Profit and Adjusted Profit Before Tax exclude certain items that
could distort the underlying trading performance. Revenue and Adjusted
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 2 on page 22.
Summary of financial performance (at CER)
Regional Performance
Revenue Adjusted Operating Profit
2022 2021 Change 2022 2021 Change
£m
£m
%
£m
£m
%
North America 1,675 1,291 29.7% 286 216 32.7%
Pest Control 1,581 1149 37.7% 269 187 44.1%
Hygiene & Wellbeing 94 142 (34.2%) 17 29 (41.5%)
Europe (inc. LATAM) 942 832 13.2% 187 163 14.8%
Pest Control 425 350 21.5% 103 92 12.7%
Hygiene & Wellbeing 324 316 2.4% 53 54 (2.7%)
France Workwear 193 166 16.6% 31 17 81.6%
UK & Sub Saharan Africa 370 359 2.9% 96 95 1.7%
Pest Control 187 176 6.2% 48 46 5.5%
Hygiene & Wellbeing 183 183 (0.2%) 48 49 (1.8%)
Asia & MENAT 308 271 13.4% 43 36 17.5%
Pest Control 222 187 18.8% 32 25 26.5%
Hygiene & Wellbeing 86 84 1.4% 11 11 (2.9%)
Pacific 221 197 12.8% 46 39 19.7%
Pest Control 101 90 12.9% 15 14 8.3%
Hygiene & Wellbeing 120 107 12.7% 31 25 26.2%
Central 6 7 (10.3%) (105) (97) (8.9%)
Restructuring costs (11) (10) (12.7%)
Total at CER 3,522 2,957 19.1% 542 442 22.7%
Total at AER 3,714 2,957 25.6% 571 442 29.4%
Category Performance
Revenue Adjusted Operating Profit
2022 2021 Change 2022 2021 Change
£m
£m
%
£m
£m
%
Pest Control 2,516 1,952 29.0% 467 364 28.7%
Hygiene & Wellbeing 807 832 (3.2%) 160 168 (4.9%)
France Workwear 193 166 16.6% 31 17 81.6%
Central 6 7 (10.3%) (105) (97) (8.9%)
Restructuring costs (11) (10) (12.7%)
Total at CER 3,522 2,957 19.1% 542 442 22.7%
Total at AER 3,714 2,957 25.6% 571 442 29.4%
Note: Hygiene & Wellbeing year on year performance reflects the
anticipated decrease in COVID disinfection revenues from £117m in FY 21 to
£20m in FY 22.
In order to help understand the underlying trading performance, unless
otherwise stated, figures below are presented at constant exchanges rates and
Organic Revenue growth figures exclude the COVID disinfection business.
Revenue
The Group delivered a strong topline performance, with Revenue rising 19.1% to
£3,522m and Organic Revenue up 6.6%. Statutory Revenue was up 25.6% to
£3,714m at AER. Revenue growth in North America was up 29.7%, benefiting from
the Terminix acquisition. Europe, the Group's second largest region, was up
strongly by 13.2%, while Asia & MENAT was up 13.4%. Organic Revenue growth
including COVID disinfection was 4.2%. Full year revenues from COVID
disinfection services amounted to £20m (FY 21: £117m), £6m of which was
generated in the second half of the year. Future revenues from disinfection
services are anticipated to be non-material.
Our Pest Control category grew Revenue by 29.0% (5.6% Organic) to £2,516m,
underpinned by strong price progression and good customer retention. Hygiene
& Wellbeing Revenue decreased by 3.2% (9.3% Organic) to £807m. This was
supported by resilient demand for washroom services, offset by the anticipated
year on year reduction in COVID disinfection business. Improved year on year
market conditions were reflected in the stronger contribution from our France
Workwear business with Revenue up by 16.6% to £193m (16.6% Organic).
Profit
Adjusted Operating Profit rose by 22.7% during the year to £542m, reflecting
core business growth across all major regions and categories, in addition to
effective capture of early synergies from the Terminix transaction. This led
to a 45bps increase year on year in Adjusted Operating Margins to 15.4%,
despite the reduction in COVID disinfection revenues. This represented the
Group's highest margin for 20 years. Underlying trading contributed 26bps to
Group margin. Terminix overall contributed a net benefit of 19bps, made up of
a 64bps increase from synergies and accounting adjustments with a 45bps offset
from the underlying Terminix business. We have continued to deliver on our
strategy of driving density improvements and M&A integration. Price
increases have also been successfully implemented over the course of the year,
with further price increases initiated for 2023. The extent to which the Group
has been able to offset inflationary pressures demonstrates the resilience of
the business model and the essential nature of our core products and services.
Within business categories, Adjusted Operating Margin for Pest Control was
flat year on year at 18.6%. Hygiene & Wellbeing Adjusted Operating Margin
decreased slightly by 30bps year on year to 19.8% (FY 21: 20.1%). Full-year
restructuring costs of £11m at CER (£12m at AER) were up £1m on the prior
year, consisting mainly of costs in respect of initiatives focused on our
North America transformation programme. Adjusted profit before tax (at AER) of
£532m, which excludes one-off and adjusting items and amortisation costs,
increased by 27.7%. Adjusted interest of £48m at actual exchange rates was
higher year on year, partly reflecting £44m of interest charges relating to
financing of the Terminix transaction and a £19m offsetting reduction from
the impacts of hyperinflation. One-off and adjusting items (operating) at AER
of £136m includes £78m of deal costs and £52m of integration costs related
to the Terminix acquisition ("Costs to Achieve") and £6m of other costs.
Statutory profit before tax at AER was £296m, a decrease of 9.1% on the prior
year (FY 21: £325m), due to one-off and adjusting items and increased
interest costs relating to the Terminix transaction.
Cash (at AER)
Adjusted Cash Flow was previously titled Operating Cash Flow and has been
amended for the sake of clarity, no changes have been made to the definition
of this Alternative Performance Measure.
Adjusted Cash Flow of £490m was £31m higher than in FY 21. Higher trading
profits resulted from organic and acquisitive growth. Adjusted EBITDA was
£859m, up 27.1% versus 2021. One-off and adjusting items (non-cash) of £77m
outflow (FY 21: £6m inflow) were largely due to deal and integration related
costs of the Terminix acquisition. The Group had a £9m working capital inflow
in FY 22 due to tight management of payables and receivables, partially offset
by higher levels of inventory in the year to protect against potential supply
chain challenges.
Capital expenditure of £190m was incurred in the period (FY 21: £160m),
reflecting a more normal pattern of spend post pandemic and the inclusion of
Terminix capital expenditure in the final quarter of the year. Lease payments
were up 18.2%.
Cash interest payments of £39m were only £2m higher than in the prior year,
reflecting the timing of interest charge payments relating to financing of the
Terminix transaction. At the year end, £42m of interest was accrued on the
balance sheet for payment in 2023. Cash tax payments for the period were
£77m, an increase of £8m compared with the corresponding period last year.
Free Cash Flow was £374m (FY 21: £353m), with Adjusted Free Cash Flow
Conversion of 91.8%.
Acquisition and Integration of Terminix
Value creation opportunity confirmed; synergy guidance raised
The Terminix transaction closed on 12 October 2022. The completion of this
landmark deal reinforces Rentokil Initial as the largest pest control company
in the world. In total, Rentokil Initial's operations now span 91 countries,
made up of nearly 59,000 colleagues, with 21,000 of those in North America.
The Group's industry-leading scale and resource gives power to more investment
in services, training, technology and innovation.
Extensive due diligence previously furnished us with a deep understanding of
the Terminix operations and those early assumptions about the health of the
business, both operational and financial, have remained intact. Terminix is a
high-quality business with engaged employees, who have helped build a
leadership position in North America residential and termite pest control. Our
integration planning has confirmed the strong potential of the combination,
which is both synergistic and complementary. The combined group will enjoy the
benefits of scale as well as higher density in our operations that will enable
margin acceleration. There is also a strong cultural fit between Terminix and
Rentokil Initial - the businesses have a very similar playbook that is
appropriately focused on people, customer service, sustainability and
shareholder value - enabling effective collaboration and knowledge sharing.
In addition to the significant benefits for our customers and colleagues, our
confidence is reinforced that the transaction will create significant value
for shareholders. This is notwithstanding the shift to a higher interest rate
environment since announcement of the deal in December 2021 that has prevented
the capture of the previously anticipated $11m in financing synergies.
However, there was strong early delivery on cost synergies with $13m of
pre-tax P&L net cost synergies achieved from transaction completion to 31
December 2022. There was an additional non-cash P&L benefit of $18m from
the application of IFRS accounting for termite provisions and LTIPs. Clear
validation of our operational assumptions has given us heightened confidence
in the overall opportunity. We have therefore increased our estimate of annual
pre-tax net cost synergies achievable from the acquisition, from at least
$150m by the third full year post completion to at least $200m by the end of
2025, based principally on greater opportunities to drive operational
efficiencies and improve service productivity. This figure is net of $75m of
total investment. We expect c.$150m of gross synergies to be delivered from
Selling, General and Administrative (SG&A) Expenses and c.$125m of gross
synergies to be delivered from field operations. In addition, we expect to
benefit from $32m of further non-cash P&L benefits in FY 23 from the
application of IFRS accounting of termite provisions and LTIPs.
Synergies and Approximate Phasing
We now expect to achieve at least $200 of annual pre-tax net cost synergies by
the end of FY 25, c.95% of which are from North America.
Achieved Incremental P&L Impact by Year Cumulative 2022-25
2022
2023 2024-25
SG&A Expenses $15m $80m $55m $150m
Field Operations - $10m $115m $125m
Gross Synergies $15m $90m $170m $275m
Investments $(2)m $(30)m $(43)m $(75)m
Synergies Net of Investments $13m $60m $127m $200m
Accounting Adjustments $18m $32m - $50m
Net Synergies plus Accounting Adjustments $31m $92m $127m $250m
SG&A expenses include sales productivity, procurement, fleet depreciation
and support functions, and are expected to be 85% in cash over the period.
Field Operations are primarily related to branch consolidation, density
benefits and productivity, and are expected to be 100% in cash.
Investments relate to salary and benefits harmonisation, SHE and Innovation
centre, IT and branding, as well as additional SOX, audit and listing. They
are expected to be 100% in cash.
The non-cash Accounting Adjustments are in relation to termite litigation and
LTIPs.
Total one-time cost to achieve synergies are expected to be c.$200m, increased
by $50m, in line with the increase in annual net cost synergies. Phasing of
$77m in FY 22 (including $30m of non-cash), c.$85m in FY 23 and c.$38m in FY
24-FY 25.
Excellent early integration
Excellent early progress has been made on delivering the integration plan to
ensure use of the most effective systems, processes and technology from each
organisation. Likewise, we have made strong progress in building a joint team
that is based on the best of talent and with a shared mission, vision and
values. Both employee and customer reaction to the combination has been
positive. Seven key workstreams are at the heart of the integration plan:
field operations; back office field support; procurement and fleet; marketing
and innovation; sales; human resources; and finances. Each of these are
underpinned by investments in IT capabilities. These workstreams are critical
to optimising the opportunities of the combination, reducing risks of
integration, following a best-of-breed approach and delivering the cost
synergies and financial benefits of the transaction.
With over 600 branches combined across Rentokil and Terminix, branch
integration and the opportunity for accelerating route density are intrinsic
to the overall plan, with a three-year programme to create an optimal network,
comprising in total of c.400 branches. That consolidation involves not only
the physical locations, but also the IT systems and other office
infrastructure, the brands, the service offering and technicians and sales
teams. We aim to create a back office field support function of the future
through process integration and efficiency improvements, drawing on existing
best practice capabilities. We're very fortunate to have two power brands.
Terminix is the leading residential and termite brand in North America with
strong consumer recognition. Rentokil is a global brand leader in commercial
pest control. Between the two companies in North America, there is also a
large number of regional and local brands. The three-year period will see
convergence of the vast majority of the smaller brands. Residential, termite
and SME commercial business will take the Terminix brand, while larger
commercial and national account customers will enjoy the Rentokil name.
Outside of North America, we'll retain Rentokil as the main brand for pest
control.
The integration process will be disciplined and well paced in order to reduce
risk. Rentokil Initial has a well-earned reputation for service quality. We
will remain sharply focused on continuing to meet the high expectations of our
customers, both within North America and across our global operations.
North America Reporting Structure
There has been a strong start to delivery of the integration plan, including
with regard to SG&A functions and field operations. Consolidation makes it
increasingly difficult to extricate the respective performances of the
Rentokil North America and Terminix businesses. All financial and operational
performance will therefore necessarily be reported on a fully combined basis.
Rentokil Initial has a geographic organisational structure. North America is
one of the five geographic regions to which the Group provides a wide range of
services to customers. In each of these regions, different service lines share
branch networks and back office administration, as well as functional support
such as procurement and HR. In North America, we will continue to refer to our
two business categories: Pest Control and Hygiene & Wellbeing. Pest
Control comprises residential, termite and commercial pest management, pest
control product distribution, and mosquito control and invasive aquatic
control services. Since the vast majority of our Pest Control business is run
on an integrated basis (often from the same branch location), the constituent
parts are not separately reported. Hygiene & Wellbeing comprises the
Ambius range of products and services including air purification, hand
sanitisation, plants, green walls and scenting.
Regional performance review
Due to the international nature of the Group, foreign exchange movements can
have a significant impact on regional performance. Unless otherwise stated,
percentage movements in Revenue and Adjusted Operating Profit are presented at
constant exchange rates.
North America
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 1,675 29.7% 5.7% 3.2% 1,849 43.3%
Disinfection 2 -96.8% 2 -97.4%
Adjusted Operating Profit 286 32.7% 315 46.6%
Adjusted Operating Margin 17.1% 0.4% 17.1% 0.4%
Operating Profit 161 -2.3% 178 7.9%
In North America, Organic Revenue grew 5.7%, with Terminix's annualised run
rate from date of acquisition completion similar to Rentokil North America's
full-year growth rate. Revenue was up 29.7%, benefiting from the Terminix
acquisition. Organic Revenue in the Pest Control category grew by 5.3% for the
year and by 5.6% in Q4. The full-year organic performance reflected an
increasing contribution from price rises to offset increased input costs. This
was supported by the distribution business, which delivered good growth
overall. There was a modest headwind in the year from intermittent, extreme
weather events. As previously stated at our interim results, we lapped strong
COVID disinfection revenues of £63m from 2021. These considerably reduced in
the year to just £2m, as COVID-related market conditions faded.
Adjusted Operating Profit growth of 32.7% reflects the combined impact from
higher revenues and the Terminix acquisition. Strong price realisation across
all channels has successfully offset expected inflationary pressures. We
continue to monitor fuel, labour and direct cost inflation to adjust our
pricing strategy on a regular basis. Adjusted Operating Margins in North
America were up 40bps year on year to 17.1%, despite the strong anticipated
reduction of COVID disinfection business. We estimate that Rentokil North
America delivered a full year Adjusted Operating Margin above 17.0%. This
includes a Q4 margin above 18.0%, meeting the target to deliver an 18% margin
by the end of the year. Despite labour market pressures, Rentokil North
America colleague retention increased to 80.9% (FY 21: 80.7%). The Group
continued to make investments in being an Employer of Choice. We are seeing
ongoing success with our virtual recruiting events, with time-to-fill rates
decreasing by 8% over the year and applicants per vacancy also slightly
improved. Despite price increases, customer retention at Rentokil North
America reduced only slightly to 82.7% (FY 21: 84.1%).
Notwithstanding the considerable focus required to complete the Terminix
transaction, our North American bolt-on M&A programme continued apace,
with the purchase of 13 businesses with combined annualised revenues of around
£38m in the year prior to purchase. As we integrate Terminix, we will
continue to selectively pursue high quality M&A assets in the North
America region.
Europe (incl. LATAM)
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 942 13.2% 9.1% 6.3% 941 13.1%
Disinfection 8 -73.3% 8 -71.4%
Adjusted Operating Profit 187 14.8% 187 14.5%
Adjusted Operating Margin 19.9% 0.3% 19.9% 0.3%
Operating Profit 154 6.1% 156 7.8%
The region has enjoyed stronger performance in 2022, with momentum in the
first half of the year carried into the second half of the year. This has
resulted in higher revenue and profitability, driven by both effective price
increases and resilience in overall demand. Revenue grew by 13.2% in the year
to £942m (9.1% Organic). Revenue growth in Pest Control was 21.5%, with a
strong contribution from larger markets like Benelux and France. Hygiene &
Wellbeing grew Revenue by 2.4% in the period. There has been stabilisation of
relationships across customer sectors post-COVID, with the business back to
providing full contractual service terms in the majority of its markets.
Ambius, particularly in northern Europe, benefited from good sales of green
products. This was partly offset by some disruption to the hospitality market
affecting Specialist Hygiene and in our dental recycling business where the
lag from reduced dental visits during COVID impacted collection volumes.
France Workwear Revenue was up 16.6%. Improving market conditions were
reflected in its stronger contribution business, which overall is back to
pre-COVID levels and supported by robust pricing.
Adjusted Operating Profit in the region grew by 14.8% to £187m. Adjusted
Operating Margins increased by 30bps to 19.9%. While there have been rising
inflationary pressures throughout the period, we have been successful at
protecting margins with pass-through pricing. Customer retention has
nevertheless remained strong at 88.5% (FY 21: 87.5%.) While labour markets
throughout the region remain tight, colleague retention rates remained very
high across the region at 90.2% (FY 21: 93.4%), with both service and sales
colleagues trending well. The business has had continued good results on
senior hiring and a renewed emphasis on regional recruitment.
M&A continued strongly in Europe and Latin America. 18 business
acquisitions were completed in total with annualised revenues of £62m in the
year prior to purchase.
UK & Sub-Saharan Africa
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 370 2.9% 4.7% 2.9% 370 3.0%
Disinfection 0 -100.0% 0 -98.8%
Adjusted Operating Profit 96 1.7% 96 1.8%
Adjusted Operating Margin 26.0% -0.4% 26.0% -0.4%
Operating Profit 91 6.4% 91 6.4%
The region delivered a resilient trading performance against strong
comparators in the prior year, which had provided strong growth opportunities
in both the medical waste and disinfection business streams. As anticipated,
revenue in these lines of business was significantly lower with the universal
lifting of restrictions. Revenue for the region increased by 2.9% (4.7%
Organic). Good revenue growth was delivered in both the Pest Control business
and core Hygiene & Wellbeing operations. Pest Control grew by 6.2%, while
Hygiene & Wellbeing decreased by 0.2% owing to the anticipated reduction
in COVID disinfection services. This was accompanied by an improved
performance year on year in our Ambius business, which benefited from a
comparatively supportive operating environment in the hospitality, office and
travel sectors. There was a modest headwind on the UK Property Care business
from domestic property services, where growth slowed in line with the housing
market.
Regional Adjusted Operating Profit increased by 1.7% to £96m. The rate of
improvement was dampened by £4m lower bad debt and credit note provision
releases than in the previous year (FY 21: £14m). Adjusted Operating Margins
reduced by 40bps to 26.0%. Regional cash performance has been good in the
year, with debtor days ahead of pre-COVID levels. Inflationary pressures have
been significant but the region's long-established pricing and margin
management systems, process and controls have delivered a price performance
that mitigates these cost increases. These price increases have been delivered
alongside an improved customer retention rate, up over 1 percentage point to
86.6% (FY 21: 85.4%). The UK labour market has faced marked labour shortages,
yet owing to the sustained investment in our people, colleague retention
continued to markedly strengthen in the second half of last year to 81.9% for
the full year (FY 21: 80.7%). The region acquired 1 business in the year with
annualised revenues in the year prior to purchase of £2m.
Asia & MENAT
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 308 13.4% 11.0% 6.8% 321 18.3%
Disinfection 10 -41.2% 10 -38.9%
Adjusted Operating Profit 43 17.5% 45 24.3%
Adjusted Operating Margin 13.9% 0.5% 14.1% 0.7%
Operating Profit 17 -41.5% 24 -16.0%
Asia delivered a strong 2022 performance. Revenue rose by 13.4%, of which
11.0% was Organic. Pricing was complemented with volume growth, which
benefited from post-COVID market reopening. Recovery was led by two of the
region's largest markets, Indonesia and Malaysia, while China and Hong Kong
continued to experience COVID disruption. As expected, disinfection sales
unwound markedly.
Adjusted Operating Profit in Asia increased 17.5% to £43m and Adjusted
Operating Margin was up 50bps to 13.9%. Customer retention was 81.3% (FY 21:
80.8%). Regional operations have benefited from a stable, high colleague
retention rate of 86.1% (FY 21: 89.0%), while the average time to fill
vacancies has remained stable year on year. Asia acquired 12 businesses in the
year with annualised revenues in the year prior to purchase of £13m.
Pacific
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 221 12.8% 7.9% 7.5% 227 15.2%
Disinfection 0 -100.0% 0 -98.6%
Adjusted Operating Profit 46 19.7% 48 21.9%
Adjusted Operating Margin 20.9% 1.2% 20.8% 1.1%
Operating Profit 39 13.0% 39 15.0%
The Pacific region was also a strong performer, seeing increased demand for
services as it benefited from reopened markets, international travel and a
return to offices. Revenue grew by 12.8% to £221m (7.9% Organic growth),
underpinned by contractual activity. The customer retention rate remained in
the high 80s at 88.8% (FY 21: 89.0%). Pest Control delivered 12.9% Revenue
growth, with notable strength in commercial services. Robust sales and
customer retention also buoyed Hygiene & Wellbeing, where Revenue growth
was 12.7%. The region saw good demand for Ambius services and new air hygiene
solutions.
Adjusted Operating Profit in the Pacific grew by 19.7% to £46m and Adjusted
Operating Margins rose by 120bps to 20.9% as cost inflation continued to be
mitigated. Colleague retention in the region was 72.9% (FY 21: 79.6%),
reflecting tight labour markets, though this has started to alleviate. The
region acquired 8 businesses, comprised of 7 in Pest Control (5 in Australia,
2 in New Zealand) and 1 in Hygiene & Wellbeing (Australia). These
acquisitions had total annualised revenues in the year prior to purchase of
£11m.
Category performance review
Pest Control
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 2,516 29.0% 5.6% 5.6% 2,695 38.2%
Disinfection
Adjusted Operating Profit 467 28.7% 498 37.1%
Adjusted Operating Margin 18.6% 0.0% 18.5% -0.1%
Operating Profit 288 0.8% 313 9.8%
Our Pest Control business, now including Terminix, is the largest operator in
both the US, the world's biggest pest control market, and the world. Rentokil
Initial is a leading global player in a resilient and non-cyclical industry
characterised by strong long-term structural growth drivers. We operate in 97
of the world's 100 leading cities by GDP. We have strengthened our position
through increased organic growth and by establishing stronger market
positions, through the introduction of innovative products and services,
acquisitions to build scale and density, and our determination to be an
Employer of Choice across our global operations.
Our Pest Control business overall delivered good growth in the year,
underpinned by the critical nature of its services. Revenue was up by 29.0%
(5.6% Organic) to £2,516m. Performance has been supported by both pricing and
volumes, led by the Commercial Pest Control business, which has a high
proportion of contractual activity and has benefited overall from continued
good customer retention rates. Adjusted Operating Profit was up by 28.7% to
£467m. For FY 22, Pest Control represented 71% of Group Revenue and 71% of
Group Adjusted Operating Profit (excluding central and restructuring costs).
M&A has continued to be strong this year, and we have acquired 46 pest
control businesses in the period, excluding Terminix, with annualised revenues
in the year prior to acquisition of £121m.
Hygiene & Wellbeing
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 807 -3.2% 9.3% -4.0% 821 -1.5%
Disinfection 20 -82.9% 21 -82.4%
Adjusted Operating Profit 160 -4.9% 162 -3.2%
Adjusted Operating Margin 19.8% -0.3% 19.8% -0.3%
Operating Profit 154 -2.1% 157 -0.3%
Rentokil Initial offers a wide range of hygiene and wellbeing services. Inside
the washroom we provide hand hygiene (soaps and driers), air care, in-cubicle
(feminine hygiene units), no-touch products and digital hygiene services. In
addition to core washroom hygiene, we deliver specialist hygiene services such
as clinical waste management. We're also improving the customer experience
through premium scenting, plants, air quality monitoring and green walls.
Customer sectors range from public sector (schools, government buildings) and
facilities management through to hotels, bars and restaurants, industrials and
retail.
Hygiene & Wellbeing Revenue decreased by 3.2% to £807m, reflecting the
anticipated reduction in COVID disinfection business. A year on year ramp-up
in activity across service sectors such as offices, shops, schools and
hospitality supported performance. Organic Revenue growth was 9.3%. In 2022,
COVID disinfection services generated £20m of revenues (FY 21: £117m). As
expected, as conditions post-COVID normalised, there has been a large
reduction in customers' need for these one-time services. We see the main
opportunities for future growth in our Hygiene & Wellbeing category as
being core washrooms, premises hygiene, including air care, and enhanced
environments. Organic Revenue growth in core washrooms was 10.4%, while
Organic Revenue growth in premises and enhanced environments was 8.8%.
Category growth was accompanied by an increase in customer satisfaction with
Net Promoter Score in Hygiene & Wellbeing up 3.7 points year on year and
ahead of pre-COVID levels.
We have acquired 6 hygiene businesses this year with annualised revenues of
c.£5m in the year prior to purchase.
France Workwear
2022 CER Organic Organic 2022 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 193 16.6% 16.6% 16.6% 192 15.6%
Disinfection
Adjusted Operating Profit 31 81.6% 31 80.1%
Adjusted Operating Margin 16.0% 5.7% 16.0% 5.7%
Operating Profit 30 82.7% 30 81.1%
Improved market conditions supported the strong contribution from our France
Workwear business where Revenue, all of which was organic, rose by 16.6% to
£193m. Continued investment in plant and machinery along with the opening of
a new depot in the Lyon area supported a strong rebound in volumes. Inflation
was fully covered with successful price increases, alongside strong customer
retention rates in line with pre-COVID levels.
Innovation and Technology
The Company's investment in innovation and technology continues to drive
profitable growth in the business. It strengthens our brand and cements our
leadership position, enabling us to provide enhanced service to customers and
target key growth sectors, while lowering our operating costs and improving
our sustainability credentials.
In the pest control industry, technology-enabled innovations have been
especially important in helping to differentiate us from our industry
competitors. To the backdrop of an investment pipeline of more than 50
projects across major pest sectors and 17 patent applications during 2022,
we've seen development on a number of key initiatives:
● Our Pest Control self-service portal is now operational in 50 countries,
supporting 1.2m customer sites. The 24/7 customer portal enables scheduling of
service visits, online payment of bills and viewing of documents.
● There has been further roll-out of PestConnect, which provides a real-time,
early warning digital system for monitoring and controlling rodents. We now
have 290,000 units in operation (up 30,000 in the six months to Dec. 2022)
across 16,000 sites.
● Lumnia, our award-winning range of LED insect light traps, is now available in
over 60 countries. Partnering with Vodafone and Google, we have been
developing a partner app for Lumnia, to improve the accuracy and efficiency of
counting and identifying trends using machine learning.
● We introduced our latest intelligent bird scare device. The device recognises
different bird species and identifies the best scare tool from a broad range
to deter each of them.
● We started the global delivery across 20 markets of our expanded Flexi Armour
Rodent Proofing Range, which applies impenetrable barriers to reduce the risk
of rodent infestations to premises, while lessening the need to use
rodenticides.
● Working with Vodafone and Google, we've conducted effective field trials of
our connected cameras, which monitors premises and identifies pests with the
use of AI technology. 40 individual cameras were trialled on customer sites in
the UK during 2022, with 28,000 photos taken, transmitted over Vodafone's
network and processed on our platform. The technology supports faster control
of pest problems and the reduction of unnecessary visits.
In the Hygiene & Wellbeing category, we have continued with product
initiatives for both the core washroom and premises hygiene, as well as how we
connect with the customer:
● A new and enhanced version of our myInitial customer portal was launched in
2022 and rolled out to c.20 countries. Total registered users have now reached
more than 100,000.
● We started the global roll-out of Luna Dry and Luna Mini Dry products,
following the H1 launch in Europe. These feature the latest brushless motor
technology, a hygienic HEPA 13 filter and long-life performance.
● We continued to invest in our high-quality dispenser ranges to add
differentiation and build upsell, significantly increasing usage of our
Signature suite of units.
● The Group sustained its focus on the high-growth air care market, already with
a product range that features air purification, air sterilisation and air
scenting products.
● We added a new air filtration product, Aeramax Pro 3, which was introduced in
Europe. This is a wall-mounted or floor-standing HEPA and carbon filter air
purifier with allergy-friendly accreditation.
● We are extending the clean air and wellbeing portfolio into air quality
monitoring with data analysis and actionable insights. Pilots have taken place
in Asia and Europe to assess and benchmark the quality of air in customer
premises and partnership opportunities with third-party solutions were
developed.
Continued strength of M&A
In addition to the historic Terminix deal, we continued to acquire companies
at a rate of about one every week, including our first operations in Pakistan,
Argentina and Israel. Rentokil Initial is focused on building scale in the
Cities of the Future - those urban areas that are expected to grow at
materially higher rates - and during the year we added scale in around 40 of
these cities, including Delhi, Lahore, Islamabad, and Santiago. The Group now
operates in a total of 91 countries.
We acquired 52 new businesses, excluding Terminix, comprising of 46 in Pest
Control and 6 in Hygiene & Wellbeing. An aggregate consideration of £259m
was paid for these acquired businesses with total annualised revenues of
£125m in the year prior to purchase. We have added 13 new businesses in North
America during the period with £38m revenues acquired. There was also a good
performance in Europe (inc. LATAM) with 18 deals and £62m of revenues
acquired. 12 acquisitions were made in Asia and MENAT, 8 acquisitions in the
Pacific region and 1 in the UK & SSA region.
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, and pursue
acquisitions in new markets and the major Cities of the Future. Our pipeline
of prospects remains strong and our guidance on spend on M&A for FY 23 is
c.£250m.
Employer of Choice (EOC)
Rentokil Initial is committed to being a world-class Employer of Choice, with
colleague safety and the attraction, recruitment and retention of the best
people from the widest possible pool of talent, being key business objectives
globally. As an organisation, we strongly believe that creating a diverse and
inclusive workforce that reflects the business environment in which we operate
will increase colleague engagement and customer satisfaction, as well as drive
increased innovation, enhance our reputation and therefore boost our financial
performance.
The global labour market remained tight through the course of the year,
fuelled by candidate shortages. Nevertheless, we are seeing good results from
our ongoing recruitment programme with more people than ever before applying
to work for the Company. Colleague retention (excluding Terminix) remained
good at 82.6% (FY 21: 84.4%), with a stable performance in the second half of
the year. Retention was supported with our largest ever training and
development 'Festival' for colleagues in September 2022. Terminix colleague
retention for 2022 was 63.9% on a like-for-like basis, up from 62.9% in 2021,
reflecting the opportunity to improve this KPI as part of our Employer of
Choice programme in 2023.
Financial review
Central and regional overheads
Central and regional overheads of £105m at CER (£108m at AER) were up £8m
on the prior year (FY 21: £97m at CER and AER).
Restructuring costs
With the exception of integration costs for significant acquisitions, the
Company reports restructuring costs within Adjusted Operating Profit. Costs
associated with significant acquisitions are reported as one-off and adjusting
items, and are excluded from Adjusted Operating Profit.
Full-year restructuring costs of £11m at CER (£12m at AER) were up £1m on
the prior year (FY 21: £10m at CER and AER), consisting mainly of costs in
respect of initiatives focused on our North America transformation programme,
together with integration costs of smaller acquisitions.
Interest (at AER)
Adjusted interest was £48m. This is an increase of £15m versus 2021
reflecting higher interest charges of £44m relating to the Terminix
transaction with a partial £19m offset from the 2022 impacts of
hyper-inflation accounting in Lebanon, Argentina and Turkey (FY 22: £22m, FY
21: £3m) and lower other interest of £10m. Cash interest was £39m (FY 21:
£37m).
In Appendix 1 we have shown a summary P&L interest table demonstrating how
the components of our financing drive interest costs and income for 2022 and
the expected range for 2023 at constant exchange rates. Changes in variable
interest rates, exchange rates and CPI rates in hyper-inflationary economies
during 2023 will impact the reporting of interest costs for 2023.
Tax
The income tax charge for the period at actual exchange rates was £64m on the
reported profit before tax of £296m, giving an effective tax rate of 21.6%
(FY 21: 19.0%). The Group's ETR before amortisation of intangible assets
(excluding computer software), one-off and adjusting items and the net
interest adjustments for 2022 was 19.7% (FY 21: 19.4%). This compares with a
blended rate of tax for the countries in which the Group operates of 24% (FY
21: 24%). The Group's low tax rate is primarily attributable to net prior-year
tax credits of £9m (FY 21: £16m).
The Group's tax charge and ETR will be influenced by the global mix and level
of profits, changes in future tax rates and other tax legislation, foreign
exchange rates, the utilisation of brought-forward tax losses on which no
deferred tax asset has been recognised, the resolution of open issues with
various tax authorities, acquisitions and disposals.
In December 2021, the OECD published a framework for the introduction of a
global minimum effective tax rate of 15%, applicable to large multinational
groups. HM Treasury has published draft legislation to implement these 'Pillar
Two' rules for accounting periods starting on or after 31 December 2023. The
Group is reviewing these draft rules, which have not been substantively
enacted, to understand any potential impacts.
Net debt and cash flow
£m at actual exchange rates Year to Date
2022 2021 Change
£m £m £m
Adjusted Operating Profit 571 442 129
Depreciation 276 224 52
Other 12 10 2
Adjusted EBITDA 859 676 183
One-off and adjusting items (non-cash) (77) 6 (83)
Working capital 9 23 (14)
Movement on provisions (12) (5) (7)
Capex - additions (190) (160) (30)
Capex - disposals 5 7 (2)
Capital of lease payments and initial direct costs incurred (104) (88) (16)
Adjusted Cash Flow 490 459 31
Interest (39) (37) (2)
Tax (77) (69) (8)
Free Cash Flow 374 353 21
Acquisitions (1,018) (463) (555)
Disposal of companies and businesses 1 - 1
Dividends (122) (139) 17
Cost of issuing new shares (16) - (16)
Cash impact of one-off and adjusting items (59) (27) (32)
Debt related cash flows
Acquisition of shares from non-controlling interest - (9) 9
Cash outflow on settlement of debt related foreign exchange forward contracts 26 (19) 45
Net investment in term deposits 1 171 (170)
Proceeds from new debt 2,383 5 2,378
Debt repayments (844) (167) (677)
Debt related cash flows 1,566 (19) 1,585
Net increase/(decrease) in cash and cash equivalents 726 (295) 1,021
Cash and cash equivalents at the beginning of the year 242 551 (309)
Exchange losses on cash and cash equivalents (89) (14) (75)
Cash and cash equivalents at end of the financial year 879 242 637
Net increase/(decrease) in cash and cash equivalents 726 (295) 1,021
Debt related cash flows (1,566) 19 (1,585)
IFRS 16 liability movement (34) (2) (32)
Debt acquired (964) (12) (952)
Bond interest accrual (42) 1 (43)
Foreign exchange translation and other items (131) 19 (150)
Increase in net debt (2,011) (270) (1,741)
Opening net debt (1,285) (1,015) (270)
Closing net debt (3,296) (1,285) (2,011)
Adjusted Cash Flow of £490m was £31m higher than in FY 21. Higher trading
profits were a result of organic and acquisitive growth. Adjusted EBITDA was
£859m, up 27.1% versus 2021. One-off and adjusting items (non-cash) of £77m
outflow (FY 21: £6m inflow) were largely due to deal costs and costs to
achieve related to the Terminix acquisition. The Group had a £9m working
capital inflow in FY 22 due to tight management of payables and receivables,
partially offset by higher levels of inventory in the year to protect against
potential supply chain challenges.
Capital expenditure of £190m was incurred in the period (FY 21: £160m),
reflecting a more normal pattern of spend post pandemic and the inclusion of
Terminix capital expenditure in the final quarter of the year. Lease payments
were up 18.2%.
Cash interest payments of £39m were only £2m higher than in the prior year,
reflecting the timing of interest payments relating to financing of the
Terminix transaction. At the year end, £42m of interest was accrued on the
balance sheet for payment in 2023. Cash tax payments for the period were
£77m, an increase of £8m compared with the corresponding period last year.
Free Cash Flow was £374m (FY 21: £353m), with Adjusted Free Cash Flow
Conversion of 91.8%.
Cash spend on current and prior year acquisitions of £1,018m, dividend
payments of £122m, proceeds from new debt of £2,383m, cash outflow on
settlement of debt of £844m, the cash impact of one-off and adjusting items
of £59m (largely due to deal costs and costs to achieve related to the
Terminix acquisition) and the cost of issuing new shares of £16m have
contributed to an underlying change in net debt of £1,880m. Foreign exchange
translation and other items of £131m is primarily due to the strengthening of
the Dollar against Sterling. Overall, this led to an increase in net debt of
£2,011m and closing net debt of £3,296m, in line with guidance provided at
the Q3 Trading Update.
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, 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
In June 2022, Rentokil Initial successfully issued three bonds: €850m 5-year
at 3.875%; €600m 8-year at 4.375%; and £400m 10-year at 5.0%. These bonds
fully covered the $1.34bn cash element of the Terminix transaction
consideration. The balance of the bonds alongside the Company's $700m
three-year term loan covered the refinancing of Terminix debt and transaction
costs. As at 30 June 2022, Terminix held two bonds: 7.45% $186m notes maturing
in 2027 and 7.25% $48m notes maturing in 2038; and a Senior Secured Term Loan
facility maturing in 2026 with an interest rate of 3.365%. The term loan
facility was settled on 12 October 2022 and the two bonds were redeemed on 7
November 2022. Following closing of the Terminix transaction, S&P affirmed
Rentokil Initial's BBB investment grade credit rating with a stable outlook.
As at 31 December 2022, the Group had liquidity headroom in the region of
£1,700m, including £827m of undrawn RCF, with a maturity date of 12 October
2027, plus two one-year extension options. The pro forma net debt to Adjusted
EBITDA ratio was less than 3.2x at 31 December 2022, in line with
expectations. The net debt to Adjusted EBITDA ratio was 3.8x at 31 December
2022, reflecting 81 days of Terminix trading. We remain committed to
maintaining a BBB investment grade credit rating and are confident of doing
so.
Dividend
The Board is recommending a final dividend in respect of 2022 of 5.15p per
share, payable to shareholders on the register at the close of business on 11
April 2023, to be paid on 17 May 2023. This equates to a full-year dividend of
7.55p per share, an increase of 18.2% compared to 2021. The last day for DRIP
elections is 25 April 2023.
Technical guidance for 2023
P&L
Restructuring costs ex Terminix: c.£7m
Deal related costs and costs to achieve*: c.£75-£90m
Incremental c.$32m of accounting benefit for termite and LTIPs in FY 23
Central and regional overheads: c.£150m including Terminix related
investments
P&L adjusted interest costs c.£125-£135m, incl. £20-£25m of
hyperinflation
Estimated Adjusted Effective Tax Rate: 25-26%
Share of Profits from Associates: £8m
Impact of FX within range of +£15m to £25m**
Intangibles amortisation: £155-£165m
Cash Flow
Overall exceptional items: c.£135-£150m***
Working Capital: c.$40m outflow including termite provision payments but
excluding exceptional items
Capex excluding ROU asset lease payments: £235-£245m
Cash interest: c.£150-£160m, reflecting c.75% of interest costs at fixed
rates
Cash tax payments: £115-£125m
Anticipated spend on M&A in 2023 of c.£250m
* Reported as one-off and adjusting items and excluded from Adjusted Operating
Profit and Adjusted PBT
** Based on maintenance of current FX rates. All technical items are also
subject to FX
*** c.£40-45m of 2022 exceptional items remained in creditors at December
2022
Appendix 1
2022 AER 2023 CER
Amount Rate Fixed/Floating Cost Swap Cost Total Cost Cost Swap Cost Total Cost
£m
£m
£m
£m
£m
£m
Legacy Bonds
EUR 400 0.95% Fixed 3 (3) - 3 (3) -
EUR 500 0.88% Fixed 4 (2) 2 4 (4) -
EUR 600 0.50% Fixed 3 (1) 2 3 (3) -
Amortised Cost Fixed 1 - 1 1 - 1
Swaps 2.85% (avg) Fixed - 15 15 28 28
Total 1,500 11 9 20 11 18 29
New Bonds
EUR 850 3.88% Fixed 14 (3) 11 28 (14) 14
EUR 600 4.38% Fixed 12 - 12 22 - 22
GBP 400 5.00% Fixed 10 - 10 20 - 20
Amortised Cost Fixed 1 - 1 3 - 3
Swaps 3.53% (avg) Fixed - 4 4 - 15 15
Total 37 1 38 73 - 74
Term Loan
USD 700 4-6% Float 5 - 5 27-33 - 27-33
Lease Interest Fixed/ - 10 - 18
Float
Other Interest Fixed/ - 2 - 4
Float
Total Other 12 22
Finance Cost 75 152-158
Interest received (5) (3)
Hyper-Inflation (22) (20-24)
Finance Income (27) (23-27)
Adjusted Interest 48 125-135
2022 average FX rate for £/€: 1.1717 and £/$: 1.2421
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December
Note 2022 2021 2020
£m £m £m
Revenue 2 3,714 2,957 2,803
Operating expenses (3,373) (2,610) (2,509)
Net impairment losses on financial assets (24) - -
Operating profit 317 347 294
Finance income 4 49 4 6
Finance cost 3 (79) (34) (78)
Share of profit from associates net of tax 9 8 8
Profit before income tax 296 325 230
Income tax expense(1) 5 (64) (62) (44)
Profit for the year 232 263 186
Profit for the year attributable to:
Equity holders of the Company 232 263 186
Non-controlling interests - - -
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Remeasurement of net defined benefit liability 2 1 (13)
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves (232) (18) (35)
Net (loss)/gain on net investment hedge (68) 15 (17)
Cost of hedging (2) (1) (1)
Effective portion of changes in fair value of cash flow hedge (6) 13 (5)
Tax related to items taken to other comprehensive income 11 2 4
Other comprehensive income for the year (295) 12 (67)
Total comprehensive income for the year (63) 275 119
Total comprehensive income for the year attributable to:
Equity holders of the Company (63) 275 119
Non-controlling interests - - -
Earnings per share attributable to the Company's equity holders:
Basic 6 11.57p 14.16p 10.03p
Diluted 6 11.51p 14.10p 9.98p
1. Taxation includes £58m (2021: £50m; 2020: £40m) in respect of overseas
taxation.
All profit is from continuing operations.
Consolidated Balance Sheet
At 31 December
Note 2022 2021
£m £m
Assets
Non-current assets
Intangible assets 9 7,319 2,164
Property, plant and equipment 10 495 398
Right-of-use assets 454 228
Investments in associated undertakings 53 30
Other investments 23 -
Deferred tax assets 43 42
Contract costs 182 75
Retirement benefit assets 3 19
Trade and other receivables 90 14
Derivative financial instruments 21 10
8,683 2,980
Current assets
Other investments 1 2
Inventories 200 136
Trade and other receivables 832 527
Current tax assets 36 9
Derivative financial instruments - 2
Cash and cash equivalents 11 2,170 668
3,239 1,344
Liabilities
Current liabilities
Trade and other payables (1,162) (764)
Current tax liabilities (60) (61)
Provisions for liabilities and charges 17 (133) (27)
Bank and other short-term borrowings (1,355) (459)
Lease liabilities (135) (78)
Derivative financial instruments - (1)
(2,845) (1,390)
Net current assets/(liabilities) 394 (46)
Non-current liabilities
Other payables (81) (72)
Bank and other long-term borrowings (3,574) (1,256)
Lease liabilities (332) (139)
Deferred tax liabilities (511) (108)
Retirement benefit obligations 16 (30) (27)
Provisions for liabilities and charges 17 (359) (34)
Derivative financial instruments (92) (34)
(4,979) (1,670)
Net assets 4,098 1,264
Equity
Capital and reserves attributable to the Company's equity holders
Share capital 18 25 19
Share premium 9 7
Other reserves 763 (1,927)
Retained earnings 3,302 3,166
4,099 1,265
Non-controlling interests (1) (1)
Total equity 4,098 1,264
Consolidated Statement of Changes in Equity
For the year ended 31 December
Attributable to equity holders of the Company
Share Share Other Retained Non- Total
capital premium reserves earnings controlling equity
£m £m £m £m interests £m
£m
At 1 January 2020 18 7 (1,868) 2,844 1 1,002
Profit for the year - - - 186 - 186
Other comprehensive income:
Net exchange adjustments offset in reserves - - (35) - - (35)
Net loss on net investment hedge - - (17) - - (17)
Net loss on cash flow hedge(1) - - (5) - - (5)
Cost of hedging - - (1) - - (1)
Remeasurement of net defined benefit liability - - - (13) - (13)
Tax related to items taken directly to other comprehensive income - - - 4 - 4
Total comprehensive income for the year - - (58) 177 - 119
Transactions with owners:
Cost of equity-settled share-based payment plans - - - 6 - 6
Tax related to items taken directly to equity - - - 3 - 3
Movement in the carrying value of put options - - - 1 - 1
At 31 December 2020 18 7 (1,926) 3,031 1 1,131
Profit for the year - - - 263 - 263
Other comprehensive income:
Net exchange adjustments offset in reserves - - (18) - - (18)
Net gain on net investment hedge - - 15 - - 15
Net gain on cash flow hedge(1) - - 13 - - 13
Cost of hedging - - (1) - - (1)
Remeasurement of net defined benefit liability - - - 1 - 1
Transfer between reserves - - (10) 10 - -
Tax related to items taken directly to other comprehensive income - - - 2 - 2
Total comprehensive income for the year - - (1) 276 - 275
Transactions with owners:
Shares issued in the year 1 - - (1) - -
Acquisition of non-controlling interests - - - (8) (2) (10)
Dividends paid to equity shareholders - - - (139) - (139)
Cost of equity-settled share-based payment plans - - - 10 - 10
Tax related to items taken directly to equity - - - 5 - 5
Movement in the carrying value of put options - - - (8) - (8)
At 31 December 2021 19 7 (1,927) 3,166 (1) 1,264
Profit for the year - - - 232 - 232
Other comprehensive income:
Net exchange adjustments offset in reserves - - (232) - - (232)
Net loss on net investment hedge - - (68) - - (68)
Net loss on cash flow hedge(1) - - (6) - - (6)
Cost of hedging - - (2) - - (2)
Remeasurement of net defined benefit liability - - - 2 - 2
Tax related to items taken directly to other comprehensive income - - - 11 - 11
Total comprehensive income for the year - - (308) 245 - (63)
Transactions with owners:
Shares issued in the year 6 - - - - 6
Merger relief on acquisition of Terminix Global Holdings, Inc. - - 3,014 - - 3,014
Gain on stock options - 2 - - - 2
Cost of issuing new shares - - (16) - - (16)
Dividends paid to equity shareholders - - - (122) - (122)
Cost of equity-settled share-based payment plans - - - 18 - 18
Tax related to items taken directly to equity - - - (2) - (2)
Movement in the carrying value of put options - - - (3) - (3)
At 31 December 2022 25 9 763 3,302 (1) 4,098
1. £6m net loss (2021: £13m net gain, 2020: £5m net loss) on cash flow
hedge includes £137m gain (2021: £15m loss; 2020: £15m gain) from the
effective portion of changes in fair value offset by reclassification to the
cost of acquisition of £118m gain (2021: £nil; 2020: £nil) and
reclassification to the income statement of £25m gain (2021: £28m loss;
2020: £20m gain) due to changes in foreign exchange rates.
Shares of £nil (2021: £nil; 2020: £nil) have been netted against retained
earnings. This represents 19.6m (2021: 9.4m; 2020: 7.7m) shares held by the
Rentokil Initial Employee Share Trust. The market value of these shares at 31
December 2022 was £100m (2021: £55m; 2020: £39m). Dividend income from, and
voting rights on, the shares held by the Trust have been waived.
Analysis of other reserves
Capital reduction reserve Merger Legal reserve Cash flow hedge reserve Translation reserve Cost of hedging Total
£m
£m
£m
£m
£m
£m
relief
reserve
£m
At 1 January 2020 (1,723) - 10 1 (156) - (1,868)
Net exchange adjustments offset in reserves - - - - (35) - (35)
Net loss on net investment hedge - - - - (17) - (17)
Net loss on cash flow hedge(1) - - - (5) - - (5)
Cost of hedging - - - - - (1) (1)
Total comprehensive income for the year - - - (5) (52) (1) (58)
At 31 December 2020 (1,723) - 10 (4) (208) (1) (1,926)
Net exchange adjustments offset in reserves - - - - (18) - (18)
Net gain on net investment hedge - - - - 15 - 15
Net gain on cash flow hedge(1) - - - 13 - - 13
Transfer between reserves - - (10) - - - (10)
Cost of hedging - - - - - (1) (1)
Total comprehensive income for the year - - (10) 13 (3) (1) (1)
At 31 December 2021 (1,723) - - 9 (211) (2) (1,927)
Net exchange adjustments offset in reserves - - - - (232) - (232)
Net loss on net investment hedge - - - - (68) - (68)
Net loss on cash flow hedge(1) - - - (6) - - (6)
Cost of hedging - - - - - (2) (2)
Total comprehensive income for the year - - (6) (300) (2) (308)
Transactions with owners:
Merger relief on acquisition of Terminix Global Holdings, Inc. - 3,014 - - - - 3,014
Cost of issuing new shares - (16) - - - - (16)
At 31 December 2022 (1,723) 2,998 - 3 (511) (4) 763
1. £6m net loss (2021: £13m net gain, 2020: £5m net loss) on cash flow
hedge includes £137m gain (2021: £15m loss; 2020: £15m gain) from the
effective portion of changes in fair value offset by reclassification to the
cost of acquisition of £118m gain (2021: £nil; 2020: £nil) and
reclassification to the income statement of £25m gain (2021: £28m loss;
2020: £20m 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. £nil (2021: £10m, 2020: £nil) has been
transferred back to the retained earnings reserve.
The excess of the fair value of shares issued to fund the acquisition of
Terminix over their par value gave rise to a new reserve called a Merger
Relief Reserve. Under section 612 of the Companies Act 2006, merger relief is
available if certain circumstances are met when a business is acquired by
issuing shares to replace already issued shares. This reserve is unrealised
(and therefore not distributable), but it may become realised at a later date,
for example on disposal of the investment to which it relates or on impairment
of that investment (which may occur after payment of a dividend by the
investment).
Consolidated Cash Flow Statement
For the year ended 31 December
Note 2022 2021 2020
£m
£m
£m
Cash flows from operating activities
Cash generated from operating activities 15 716 669 653
Interest received 13 5 8
Interest paid(1) (52) (42) (49)
Income tax paid (77) (69) (64)
Net cash flows from operating activities 600 563 548
Cash flows from investing activities
Purchase of property, plant and equipment (153) (128) (130)
Purchase of intangible fixed assets (37) (32) (23)
Proceeds from sale of property, plant and equipment 5 7 6
Acquisition of companies and businesses, net of cash acquired 8 (1,018) (463) (194)
Disposal of companies and businesses 1 - 2
Dividends received from associates 4 4 12
Net change to cash flow from investment in term deposits 1 171 (170)
Net cash flows from investing activities (1,197) (441) (497)
Cash flows from financing activities
Dividends paid to equity shareholders 7 (122) (139) -
Acquisition of shares from non-controlling interest - (9) -
Capital element of lease payments (104) (88) (85)
Cost of issuing new shares (16) - -
Cash inflow/(outflow) on settlement of debt-related foreign exchange forward 26 (19) (24)
contracts
Proceeds from new debt 2,383 5 1,690
Debt repayments (844) (167) (1,352)
Net cash flows from financing activities 1,323 (417) 229
Net increase/(decrease) in cash and cash equivalents 726 (295) 280
Cash and cash equivalents at beginning of year 242 551 274
Exchange losses on cash and cash equivalents (89) (14) (3)
Cash and cash equivalents at end of the financial year 11 879 242 551
1. Interest paid includes the interest element of lease payments of £10m
(2021: £6m; 2020: £7m).
Notes to the financial statements
1. Changes in accounting policies
Except as described below, the accounting policies applied in these Financial
Statements are the same as those applied in the Group's Consolidated Financial
Statements for the year ended 31 December 2021.
The Group has adopted the following new standards and amendments to standards,
including any consequential amendments to other standards, with effect from 1
January 2022:
● amendments to IAS 16 Property, Plant and Equipment;
● amendments to IFRS 3 Reference to the Conceptual Framework;
● amendments to IAS 37 Onerous Contracts; and
● annual improvements to IFRS Standards 2018-2020.
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 2021.
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 December
2022 reporting periods and have not been early adopted by the Group. These
standards, amendments or interpretations are not expected to have a material
impact on the entity in the current or future reporting periods and on
foreseeable future transactions.
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.
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.
Management takes a portfolio approach to recognising contract costs, and the
expected length of contracts across the Group and associated amortisation
periods are between three and seven years.
The contract costs recognised in the balance sheet at the period end amounted
to £182m (2021: £75m; 2020: £68m). The amount of amortisation recognised in
the period was £39m (2021: £30m; 2020: £28m) and impairment losses were
£nil (2021: £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 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.
Segment reporting
Segmental information has been presented in accordance with IFRS 8 Operating
Segments. The Group's operating segments are regions and this reflects the
internal management reporting structures and the way information is reviewed
by the chief operating decision maker (the Chief Executive). Each region 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 businesses within each operating
segment operate in a number of different countries and sell services across
three business segments.
Up to the end of 2021 the Group operated three business segments: Pest
Control, Hygiene and Protect & Enhance. In response to the rising
importance of hygiene and wellbeing services, Rentokil Initial reorganised its
business segments, primarily expanding the former Hygiene segment to become
Hygiene & Wellbeing and allocating the businesses in its former Protect
& Enhance segment, effective from 1 January 2022. The Protect &
Enhance segment had included five businesses: Ambius, Property Care, Dental
Services, Cleanroom Services and Workwear (France). The Ambius, Dental
Services and Cleanroom Services businesses have been added to the enlarged
segment, now called Hygiene & Wellbeing, the Property Care business has
been added to the Pest Control segment, and Workwear (France) has been left as
a standalone segment. At the same time, changes were made to the regional
structure, designed to provide clearer geographic links and align growth
strategies, as follows:
● North America: Puerto Rico joined the Latin America (LATAM) region
● Europe: Includes Nordics (Norway, Sweden, Finland, Denmark and Poland),
previously in UK & Rest of World region. Also continues to include LATAM¹
which has been expanded to include Caribbean (formerly in UK & Rest of
World) and Puerto Rico (formerly in North America)
● UK & Sub-Saharan Africa: No change to UK, Ireland & Baltics.
Sub-Saharan Africa remained in this region. Other Rest of World countries
(MENAT and Caribbean) moved to other regions
● Asia & MENAT: Enlarged region includes Asia and MENAT countries
● Pacific: No change
1. The LATAM region is combined with Europe. It is the Group's smallest region
and not considered reportable under the quantitative thresholds in IFRS 8. It
is combined with Europe as it historically reported through this region, it is
similar in nature to the Europe businesses and has language and cultural
alignment.
The financial information presented has been retrospectively adjusted to
reflect these changes.
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.
Adjusted profit 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 and adjusting items; and
● net interest adjustments.
Intangible assets (such as customer lists and brands) are recognised on
acquisition of businesses which, by their nature, can vary by size and amount
each year. Capitalisation of innovation-related development costs will also
vary from year to 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 and adjusting 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, 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.
Net interest adjustments are other non-cash or one-off accounting gains and
losses that can cause material fluctuations and distort understanding of the
performance of the business, such as net interest on pension schemes and
interest fair value adjustments. These adjustments are made to aid
year-on-year comparability.
Revenue and profit from continuing operations
Revenue Revenue(1) Revenue(1) Operating Operating Operating
2022 2021 2020 profit profit(1) profit(1)
£m £m £m 2022 2021 2020
£m £m £m
North America(2)
Pest Control 1,746 1,149 979 297 187 131
Hygiene & Wellbeing 103 142 218 18 29 78
1,849 1,291 1,197 315 216 209
Europe (incl LATAM)
Pest Control 427 350 324 103 92 75
Hygiene & Wellbeing 322 316 330 53 54 59
France Workwear 192 166 173 31 17 19
941 832 827 187 163 153
UK & Sub-Saharan Africa
Pest Control 187 176 163 48 46 37
Hygiene & Wellbeing 183 183 164 48 49 22
370 359 327 96 95 59
Asia & MENAT
Pest Control 231 187 171 34 25 20
Hygiene & Wellbeing 90 84 92 11 11 16
321 271 263 45 36 36
Pacific
Pest Control 104 90 81 16 14 15
Hygiene & Wellbeing 123 107 97 32 25 20
227 197 178 48 39 35
Central and regional overheads 6 7 11 (108) (97) (95)
Restructuring costs - - - (12) (10) (13)
Revenue and Adjusted Operating Profit 3,714 2,957 2,803 571 442 384
Adjusted Operating Profit Margin 15.4% 14.9% 13.7%
One-off and adjusting items (136) (21) (8)
Amortisation and impairment of intangible assets(3) (118) (74) (82)
Operating Profit 317 347 294
Operating Profit Margin 8.5% 11.7% 10.5%
Share of profit from associates (net of tax) 9 8 8
Net adjusted interest payable (48) (34) (37)
Net interest adjustments 18 4 (35)
Profit Before Tax 296 325 230
Net interest adjustments (18) (4) 35
One-off and adjusting items 136 21 8
Amortisation and impairment of intangible assets(3) 118 74 82
Adjusted Profit Before Tax 532 416 355
1. During 2022, internal management reporting structures changed and revenue
and profit have been represented for 2020 and 2021 under the new structure.
2. During 2022 there were impairment losses recognised in North America of
£17m (2020: £nil; 2019: £nil) related to ROU assets and £8m (2020: £nil;
2019: £nil) related to property, plant and equipment.
3. Excluding computer software.
Organic Revenue measures
Acquisitions are a core part of the Group's growth strategy. Organic Revenue
growth measures are used to help understand the underlying performance of the
Group. Organic Revenue growth represents the growth in Revenue excluding the
effect of businesses acquired during the year. Acquired businesses are
included in organic measures in the year following acquisition, and the
comparative period is adjusted to include an estimated full-year performance
for growth calculations (pro forma revenue). The Terminix acquisition is
treated differently to other acquisitions for Organic Revenue growth purposes,
with the growth in Revenue not being excluded. The full pre-acquisition
results of the Terminix business are included for the comparative period and
Organic Revenue growth calculated as the growth in Revenue compared with the
comparative period.
Organic Revenue growth Organic Revenue growth
excluding disinfection including disinfection
2022 2021 2022 2021
% % % %
North America 5.7% 8.7% 3.2% 1.5%
Europe (incl LATAM) 9.1% 4.7% 6.3% 1.9%
UK & Sub-Saharan Africa 4.7% 12.3% 2.9% 9.9%
Asia & MENAT 11.0% 5.8% 6.8% 4.9%
Pacific 7.9% 6.4% 7.5% 6.3%
Group 6.6% 7.0% 4.2% 2.9%
Pest Control 5.6% 8.2% 5.6% 8.2%
Hygiene & Wellbeing 9.3% 7.2% (4.0)% (5.7)%
France Workwear 16.6% 1.5% 16.6% 1.5%
Group 6.6% 7.0% 4.2% 2.9%
One-off and adjusting items - operating
One-off and adjusting items
One-off and adjusting items One-off and adjusting items cash inflow/(outflow)
cost/(income) tax impact £m
£m £m
2020
Acquisition and integration costs 15 (3) (15)
Pension scheme closure in North America (7) 2 -
UK pension scheme - return of surplus¹ - - 9
Other - (1) 4
Total 8 (2) (2)
2021
Acquisition and integration costs 13 (1) (12)
Terminix acquisition costs 6 - (6)
Other 2 (1) (9)
Total 21 (2) (27)
2022
Acquisition and integration costs 5 (2) (13)
Fees relating to Terminix acquisition 68 (4) (38)
Terminix integration costs 62 (14) (32)
UK pension scheme - return of surplus(1) - - 22
Other 1 - 2
Total 136 (20) (59)
1. More information about the UK pension scheme buy-out can be found in Note
16.
Other segment items included in the consolidated income statement are as
follows:
Amortisation and Amortisation and Amortisation and
impairment of impairment of impairment of
intangibles(1) intangibles(1) intangibles(1)
2022 2021 2020
£m £m £m
North America 59 34 30
Europe (incl. LATAM) 29 14 15
UK & Sub-Saharan Africa - 9 9
Asia & MENAT 20 7 17
Pacific 4 4 4
Central and regional 6 6 7
Disposed businesses - - -
Total 118 74 82
Tax effect (25) (18) (18)
Total after tax effect 93 56 64
1. Excluding computer software.
3. Finance cost
2022 2021 2020
£m £m £m
Hedged interest payable on medium-term notes issued(1) 39 10 16
Interest payable on bank loans and overdrafts(1) 5 3 3
Interest payable on RCF(1) 1 1 5
Interest payable on foreign exchange swaps(2) 19 14 9
Interest payable on leases 10 6 7
Amortisation of discount on provisions 3 - -
Fair value loss on hedge ineffectiveness 2 - 8
Fair value adjustment on debt repayment - - 4
Fair value loss on other derivatives(3) - - 26
Total finance cost 79 34 78
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 £26m (2021: £17m). £8m has been reported in other
comprehensive income due to hedge accounting (2021: £4m).
3. Fair value loss on other derivatives relates to $335m SBU entered into
since February 2019 ($170m in February 2019 and $165m in July 2019) which did
not qualify for hedge accounting. The instrument provided an annual interest
benefit of 1.9% of the outstanding principal and was closed out in August 2020
with a full-year loss of £26m excluding interest accrued.
4. Finance income
2022 2021 2020
£m £m £m
Bank interest received 5 1 2
Interest receivable on foreign exchange swaps - - 3
Fair value gain on hedge ineffectiveness 22 - -
Hyperinflation accounting adjustment 22 3 -
Interest on net defined benefit asset - - 1
Total finance income 49 4 6
Adjusted interest
Adjusted interest is calculated by adjusting the reported finance income and
costs by the net interest from amortisation of discount on legacy provisions
and by hedge accounting recognised in other comprehensive income. Fair value
is equal to carrying value for all cash and cash equivalents.
2022 2021
AER AER
£m £m
Finance cost 79 34
Finance income (49) (4)
Add back:
Amortisation of discount on legacy provisions (3) -
Gain on hedge accounting recognised in finance income/cost 21 4
Adjusted interest 48 34
5. Income tax expense
Analysis of charge in the year:
2022 2021 2020
£m £m £m
UK corporation tax at 19.0% (2021: 19.0%; 2020: 19.0%) 17 9 9
Overseas taxation 59 48 61
Adjustment in respect of previous periods 2 (3) (3)
Total current tax 78 54 67
Deferred tax (credit)/expense (3) 21 (17)
Deferred tax adjustment in respect of previous periods (11) (13) (6)
Total deferred tax (14) 8 (23)
Total income tax expense 64 62 44
The 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. In this case the tax is also recognised in
other comprehensive income or equity as appropriate.
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 Group'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 differences relate 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 losses,
management has estimated the quantum of future taxable profits over the next
ten years as this is the period over which it is considered that profits can
be reasonably estimated.
A deferred tax asset of £23m has been recognised in respect of losses (2021:
£14m), of which £18m (2021: £12m) relates to UK losses carried forward at
31 December 2022. This amount has been calculated by estimating the future UK
taxable profits, against which the UK tax losses will be utilised,
progressively risk weighted, and applying the tax rates (substantively enacted
as at the balance sheet date) applicable for each year. Remaining UK tax
losses of £120m (2021: £41m) have not been recognised as at 31 December 2022
as it is not considered probable that future taxable profits will be available
against which the tax losses can be offset. Deferred tax assets are expected
to be substantially utilised in the next 10 years.
At the balance sheet date the Group had tax losses of £230m (2021: £82m) 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,
£74m (2021: £8m) will expire at various dates between 2022 and 2039.
The cash tax paid for the year was £77m (2021: £69m, 2020: £64m). The cash
tax paid is expected to increase in future periods due to the acquisition of
Terminix.
Effective tax rate
Effective tax rate is calculated by dividing adjusted income tax expense by
adjusted profit before 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.
2022 2022 2021
AER CER AER/CER
£m £m £m
Unadjusted income tax expense 64 63 62
Tax adjustments on:
Amortisation and impairment of intangible assets (excluding computer software) 24 22 18
One-off and adjusting items - operating 20 19 1
Net interest adjustments (3) (3) (1)
Adjusted income tax expense (a) 105 101 80
Adjusted profit before tax (b) 532 515 416
Effective Tax Rate (a/b) 19.7% 19.7% 19.4%
6. Earnings per share
Basic earnings per share is calculated by dividing the profit after tax
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 (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.
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 that
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.
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.
For the calculation of diluted earnings per share, 1,290,294 share options
were anti-dilutive and not included in the calculation of the dilutive effect
as at 31 December 2022 (31 December 2021: nil).
Details of the adjusted earnings per share are set out below:
2022 2021 2020
£m £m £m
Profit from continuing operations attributable to equity holders of the 232 263 186
Company
One-off and adjusting items 136 21 8
Amortisation and impairment of intangibles(1) 118 74 82
Net interest adjustments(2) (18) (4) 35
Tax on above items(3) (41) (18) (26)
Adjusted profit from continuing operations attributable to equity holders of 427 335 285
the Company
Weighted average number of ordinary shares in issue (million) 2,002 1,858 1,853
Adjustment for potentially dilutive shares (million) 12 8 10
Weighted average number of ordinary shares for diluted earnings per share 2,014 1,866 1,863
(million)
Basic earnings per share 11.57p 14.16p 10.03p
Diluted earnings per share 11.51p 14.10p 9.98p
Basic adjusted earnings per share 21.34p 18.07p 15.37p
Diluted adjusted earnings per share 21.22p 17.99p 15.29p
1. Excluding computer software.
2. Includes: net interest credit from pensions £nil (2021: £nil; 2020:
£1m); finance costs from hedge accounting recognised in other comprehensive
income £nil (2021: £4m; 2020: £5m); IFRS 16 interest adjustment £nil
(2021: £nil; 2020: £(2)m); interest fair value adjustment £21m (2021:
£nil; 2020: £(38)m); discount unwind £(3)m (2021: £nil; 2020: £nil).
3. One-off and adjusting items - operating £20m (2021: £2m; 2020: £2m);
amortisation and impairment of intangibles £25m (2021: £18m; 2020: £18m);
net interest adjustments £(3)m (2021: £(1)m; 2020: £6m).
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.
2022 2021 2020
£m £m £m
2020 final dividend paid - 5.41p per share - 100 -
2021 interim dividend paid - 2.09p per share - 39 -
2021 final dividend paid - 4.30p per share 80 - -
2022 interim dividend paid - 2.40p per share 42 - -
Total 122 139 -
An interim dividend of 2.40p per share was paid on 12 September 2022 amounting
to £42m. A final dividend in respect of 2022 of 5.15p per share is to be
proposed at the Annual General Meeting on 10 May 2023.
The aggregate amount of the proposed dividend to be paid out of retained
earnings at 31 December 2022, but not recognised as a liability at year end,
is £130m (2021: £80m).
8. Business combinations
During the year the Group purchased 100% of the share capital or trade and
assets of 53 companies and businesses (2021: 52). The total consideration in
respect of these acquisitions was £4,369m (2021: £314m) and the cash outflow
from current and past period acquisitions net of cash acquired, was £1,018m
(2021: £463m).
Acquisition of Terminix Global Holdings, Inc.
On 12 October the Group purchased 100% of the share capital of Terminix Global
Holdings, Inc. (Terminix) based primarily in the USA. Terminix is the most
recognised brand in US termite and pest management services and is a
singularly focused pest management company. The transaction combined two of
the world's leading pest control businesses to create the leading global pest
control company, with approximately 4.9 million customers and 58,600 employees
globally. The combined group is set up to enhance shareholder value by
creating an enlarged platform for growth, particularly in North America.
Fair value of the purchase consideration was £4,110m, comprising Rentokil
Initial ADSs of £3,007m, cash of £1,087m and replacement employee share
awards of £16m.
Loans and borrowings of £749m acquired with Terminix were repaid in full
shortly following completion of the acquisition.
Costs related to the acquisition of Terminix Global Holdings, Inc. recognised
as an expense amounted to £68m recognised in operating costs and £16m
recognised as the cost of issuing new shares in equity.
Goodwill represents the synergies and other benefits expected to be realised
from integrating acquired businesses into the Group, such as improved route
density, expansion in use of best-in-class digital tools and back office
synergies. Details of goodwill and the fair value of net assets acquired in
the year are as follows:
Terminix Global Holdings, Inc. Individually immaterial acquisitions Total 2021
2022 2022 2022 £m
£m £m £m
Purchase consideration
- Cash paid 1,087 214 1,301 273
- Deferred and contingent consideration - 45 45 41
- Equity interests(1) 3,023 - 3,023 -
Total purchase consideration 4,110 259 4,369 314
Fair value of net assets acquired (934) (87) (1,021) (83)
Goodwill from current-year acquisitions 3,176 172 3,348 231
Goodwill expected to be deductible for tax purposes - 60 60 146
1. Equity interests in Rentokil Initial plc issued to shareholders of £3,007m
and replacement employee share awards of £16m.
Deferred consideration of £22m and contingent consideration of £23m are
payable in respect of the above acquisitions (2021: £13m and £28m
respectively). Contingent consideration is payable based on a variety of
conditions including revenue and profit targets being met. Amounts for both
deferred and contingent consideration are payable over the next five years.
The Group has recognised contingent and deferred consideration based on fair
value 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 contingent consideration liabilities not paid of £10m
(2021: £1m).
The provisional fair values(1) of assets and liabilities arising from
acquisitions in the year are as follows:
Terminix Global Holdings, Inc. Individually immaterial acquisitions Total 2021
2022 2022 2022 £m
£m £m £m
Non-current assets
- Intangible assets(2) 2,027 74 2,101 71
- Property, plant and equipment(3) 249 14 263 13
- Other non-current assets 143 - 143 2
Current assets(4) 701 28 729 37
Current liabilities(5) (311) (11) (322) (26)
Non-current liabilities(6) (1,875) (18) (1,893) (14)
Net assets acquired 934 87 1,021 83
1. The provisional fair values will be finalised in the 2023 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 £778m (2021: £70m) of customer lists, £1,292m (2021: £nil) of
indefinite-lived brands and £31m (2021: £1m) of other intangibles.
3. Includes £200m (2021: £2m) of right-of-use assets.
4. Includes cash acquired of £322m (2021: £6m), inventory of £48m (2021:
£3m) and trade and other receivables of £359m (2021: £28m).
5. Includes trade and other payables of £322m (2021: £26m).
6. Includes £445m of deferred tax liabilities relating to acquired
intangibles (2021: £8m), £749m of debt that was acquired with the Terminix
business and repaid in November 2022 (2021: £nil), lease liabilities of
£214m (2021: £2m), termite damage claims provisions of £335m (2021: £nil)
and other provisions of £140m (2021: £2m).
The cash outflow from current and past acquisitions is as follows:
Terminix Global Holdings, Inc. Individually immaterial acquisitions Total 2021
2022 2022 2022 £m
£m £m £m
Total purchase consideration 4,110 259 4,369 314
Equity interests (3,023) - (3,023) -
Consideration payable in future periods - (45) (45) (41)
Purchase consideration paid in cash 1,087 214 1,301 273
Cash and cash equivalents in acquired companies and businesses (313) (9) (322) (6)
Cash outflow on current period acquisitions 774 205 979 267
Deferred consideration paid - 39 39 196
Cash outflow on current and past acquisitions 774 244 1,018 463
From the dates of acquisition to 31 December 2022, these acquisitions
(including Terminix) contributed £422m to revenue and £3m to operating
profit (2021: £50m and £7m respectively).
If the acquisitions had occurred on 1 January 2022, the revenue and operating
profit of the Group would have amounted to £5,109m and £444m respectively
(2021: £3,031m and £357m respectively).
9. Intangible assets
A breakdown of intangible assets is as shown below:
Goodwill Customer Indefinite-lived brands Other Product development Computer Total
£m lists £m intangibles £m software £m
£m £m £m
Cost
At 1 January 2021 1,653 824 - 66 40 145 2,728
Exchange differences 4 (13) - - - (2) (11)
Additions - - - 4 6 21 31
Disposals/retirements - (4) - (3) - (1) (8)
Acquisition of companies and businesses¹ 228 69 - - - - 297
Hyperinflationary adjustment 3 - - - - - 3
At 31 December 2021 1,888 876 - 67 46 163 3,040
Exchange differences (72) (5) (107) 2 (1) 6 (177)
Additions - - - - 10 27 37
Disposals/retirements - (180) - (12) - (1) (193)
Acquisition of companies and businesses¹ 3,352 779 1,292 23 - 11 5,457
Hyperinflationary adjustment 14 3 - 1 - - 18
Disposal of companies and businesses (1) - - - - - (1)
At 31 December 2022 5,181 1,473 1,185 81 55 206 8,181
Accumulated amortisation and impairment
At 1 January 2021 (45) (585) - (47) (27) (102) (806)
Exchange differences 1 10 - - - 1 12
Disposals/retirements - 4 - 4 - 1 9
Impairment charge - - - - - (2) (2)
Amortisation charge - (64) - (5) (5) (15) (89)
At 31 December 2021 (44) (635) - (48) (32) (117) (876)
Exchange differences 1 (31) - (2) - (5) (37)
Disposals/retirements - 179 - 12 - 1 192
Hyperinflationary adjustment - (1) - - - - (1)
Impairment charge (22) - - - - - (22)
Amortisation charge - (85) - (6) (5) (22) (118)
At 31 December 2022 (65) (573) - (44) (37) (143) (862)
Net book value
At 1 January 2021 1,608 239 - 19 13 43 1,922
At 31 December 2021 1,844 241 - 19 14 46 2,164
At 31 December 2022 5,116 900 1,185 37 18 63 7,319
1. Includes current-year acquisitions of £5,449m (2021: £301m) as well as
adjustments to prior-year acquisitions within the measurement period.
10. Property, plant and equipment
A breakdown of property, plant and equipment is shown below:
Land and Service contract equipment Other plant and Vehicles Total
buildings £m equipment and office £m
£m £m equipment
£m
Cost
At 1 January 2021 87 524 186 200 997
Exchange differences (4) (27) (9) (5) (45)
Additions 3 94 13 19 129
Disposals (2) (73) (3) (18) (96)
Acquisition of companies and businesses(1) 3 - 1 8 12
Reclassification from IFRS 16 ROU assets(2) - - - 6 6
At 31 December 2021 87 518 188 210 1,003
Exchange differences 5 27 11 15 58
Additions 7 112 19 19 157
Disposals (1) (72) (7) (27) (107)
Acquisition of companies and businesses(1) 29 2 4 30 65
Reclassification from IFRS 16 ROU assets(2) - - - 8 8
At 31 December 2022 127 587 215 255 1,184
Accumulated depreciation and impairment
At 1 January 2021 (30) (310) (132) (122) (594)
Exchange differences 1 16 7 3 27
Disposals 1 72 2 15 90
Depreciation charge (3) (92) (12) (21) (128)
At 31 December 2021 (31) (314) (135) (125) (605)
Exchange differences (3) (18) (8) (11) (40)
Disposals 1 72 6 25 104
Impairment charge (8) - - - (8)
Depreciation charge (3) (96) (14) (27) (140)
At 31 December 2022 (44) (356) (151) (138) (689)
Net book value
At 1 January 2021 57 214 54 78 403
At 31 December 2021 56 204 53 85 398
At 31 December 2022 83 231 64 117 495
1. Includes current-year acquisitions of £64m (2021: £11m) 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.
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 £13m (2021: £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 £69m (2021: £66m) of cash held in
countries with foreign exchange regulations. This cash is repatriated to the
UK where possible, if not required for operational purposes in country.
Fair value is equal to carrying value for all cash and cash equivalents.
2022 2021
£m £m
Cash at bank and in hand 1,713 554
Money market funds 236 52
Short-term bank deposits 221 62
Cash and cash equivalents in the Consolidated Balance Sheet 2,170 668
Bank overdraft (1,291) (426)
Cash and cash equivalents in the Consolidated Cash Flow Statement 879 242
12. Reconciliation of net changes in cash and cash equivalents to net debt
Reconciliation of net change in cash and cash equivalents to net debt:
Opening Cash Non-cash Non-cash (foreign exchange Closing
2022 flows (fair value changes, accruals and acquisitions) and other) 2022
£m £m £m £m £m
Bank and other short-term borrowings (459) (121) (771) (4) (1,355)
Bank and other long-term borrowings (1,256) (2,257) - (61) (3,574)
Lease liabilities (217) 114 (225) (139) (467)
Other investments 1 - - - 1
Fair value of debt-related derivatives (22) (7) 19 (61) (71)
Gross debt (1,953) (2,271) (977) (265) (5,466)
Cash and cash equivalents in the Consolidated Balance Sheet 668 1,591 - (89) 2,170
Net debt (1,285) (680) (977) (354) (3,296)
Opening Cash Non-cash Non-cash (foreign exchange Closing
2021 flows (fair value changes, accruals and acquisitions) and other) 2021
£m £m £m £m £m
Bank and other short-term borrowings (1,591) 1,135 (12) 9 (459)
Bank and other long-term borrowings (1,338) 15 (12) 79 (1,256)
Lease liabilities (215) 94 (5) (91) (217)
Other investments 172 (171) - - 1
Fair value of debt-related derivatives 7 31 (3) (57) (22)
Gross debt (2,965) 1,104 (32) (60) (1,953)
Cash and cash equivalents in the Consolidated Balance Sheet 1,950 (1,267) - (15) 668
Net debt (1,015) (163) (32) (75) (1,285)
13. 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.
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
Borrowings not traded in active markets (term loans and uncommitted 2 Nominal value
facilities)
Money market deposits 2 Nominal value
Trade payables and receivables 2 Nominal value less estimated credit adjustments
Contingent consideration (including put option liability) 3 Discounted cash flow using WACC
14. 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 2022 at year end
2022 2022 £m 2022
£m £m %
Non-current
$700m term loan due October 2025 579 579 - 4.9
$1.0bn RCF due October 2027 827 - 827 0.14
Facility Drawn at Headroom Interest rate
amount year end 2021 at year
2021 2021 £m end
£m £m 2021
%
Non-current
£550m RCF due August 2025 550 - 550 0.14
During the year the Group amended, extended and increased its RCF with 16
relationship banks from £550m to $1.0bn in order to provide additional
liquidity headroom in relation to the acquisition of Terminix Global Holdings,
Inc. The RCF was undrawn throughout 2021 and 2022.
In addition, the Group entered into a £120m uncommitted RCF facility with ING
Bank N.V. which was drawn down in full and repaid during the period. This
facility was cancelled on 30 June 2022.
In June 2022, the Group issued three new bonds: €850m 5-year at 3.875%;
€600m 8-year at 4.375%; and £400m 10-year at 5.0%. These bonds fully
covered the $1.3bn cash element of the Terminix transaction consideration.
In October 2022 the Group drew down $700m on its term loan at floating
interest rate based on SOFR plus a 60bps margin.
Medium-term notes and bond debt comprises:
Bond interest coupon Effective hedged interest rate Bond interest coupon Effective hedged interest rate
2022 2022 2021 2021
Non-current
€400m bond due November 2024 Fixed 0.95% Fixed 3.21% Fixed 0.95% Fixed 3.08%
€500m bond due May 2026 Fixed 0.875% Fixed 1.78% Fixed 0.875% Fixed 1.54%
€850m bond due June 2027 Fixed 3.875% Fixed 3.98% - -
€600m bond due October 2028 Fixed 0.5% Fixed 1.3% Fixed 0.50% Fixed 1.08%
€600m bond due June 2030 Fixed 4.375% Fixed 4.38% - -
£400m bond due June 2032 Fixed 5.0% Fixed 5.11% - -
Average cost of bond debt at year-end rates 3.28% 1.78%
The effective hedged interest rate reflects the interest rate payable after
the impact of interest due from cross-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.
15. Operating cash and Free Cash Flow
2022 2021 2020
£m
£m
£m
Operating Profit 317 347 294
Adjustments for:
- Depreciation and impairment of property, plant and equipment 148 128 132
- Depreciation and impairment of leased assets 106 78 78
- Amortisation and impairment of intangible assets (excluding computer 118 74 82
software)
- Amortisation and impairment of computer software 22 17 19
- Other non-cash items 8 6 (1)
Changes in working capital (excluding the effects of acquisitions and exchange
differences on consolidation):
- Inventories (4) (3) (23)
- Contract costs (10) (5) (2)
- Trade and other receivables 37 59 (19)
- Accrued income (32) - 2
- Trade and other payables and provisions (75) (43) 78
- Contract liabilities 81 11 13
Cash generated from operating activities 716 669 653
Purchase of property, plant and equipment (153) (128) (130)
Purchase of intangible fixed assets (37) (32) (23)
Capital element of lease payments and initial direct costs incurred (104) (88) (83)
Proceeds from sale of property, plant and equipment 5 7 6
Cash impact of one-off and adjusting items 59 27 7
Dividends received from associates 4 4 12
Adjusted Cash Flow 490 459 442
Interest received 13 5 8
Interest paid (52) (42) (49)
Income tax paid (77) (69) (64)
Free Cash Flow 374 353 337
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, cash flows related to
leased assets, cash flows related to one-off and adjusting items 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:
2022 2021
AER AER
£m £m
Net cash from operating activities 600 563
Purchase of property, plant, equipment and intangible fixed assets (190) (160)
Capital element of lease payments and initial direct costs incurred (104) (88)
Proceeds from sale of property, plant, equipment and software 5 7
Cash impact of one-off and adjusting items 59 27
Dividends received from associates 4 4
Free Cash Flow 374 353
Adjusted Free Cash Flow conversion
Adjusted Free Cash Flow conversion is calculated by dividing Adjusted Free
Cash Flow by Adjusted Profit After Tax, expressed as a percentage. Adjusted
Free Cash Flow is measured as Free Cash Flow adjusted for product development
additions and net investment hedge cash interest through Other Comprehensive
Income.
2022 2021
AER AER
£m £m
Adjusted Profit After Tax 427 336
Free Cash Flow 374 353
Product development additions 10 7
Net investment hedge cash interest through Other Comprehensive Income 8 4
Adjusted Free Cash Flow 392 364
Free Cash Flow conversion 91.8% 108.3%
16. Retirement benefit obligations
Apart from contributions to 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, the largest of which has now been wound up following
a buy-out agreement with Pension Insurance Corporation plc (PIC) to take over
the payment of the liabilities in the scheme.
The largest retirement benefit obligation in the Group is now the Rentokil
Initial Irish Pension Scheme (which is in a surplus position).
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. Judgement is required in determining these
actuarial assumptions, but this is not considered by management to be a
significant accounting judgement as defined under IAS 1.
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 and
buy-out was completed. Accordingly in 2022 both the Scheme's assets and
liabilities have been reduced by the policy value (£1,159m). The wind-up of
the scheme was completed in December 2022 and the remaining surplus of £22m
was refunded to the Company.
The defined benefit schemes of the RIPS were 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 are shown below:
24 February 2022 31 December 2021
Weighted average %
Discount rate 2.6% 2.0%
Future salary increases n/a n/a
Future pension increases 3.6% 3.3%
RPI inflation 3.7% 3.4%
CPI inflation 3.0% 2.7%
The movement in the net defined benefit obligation for all Group pension
schemes over the accounting period is as follows:
Present value Fair value of Total Present value Fair value of Total
of obligation plan assets 2022 of obligation plan assets 2021
2022 2022 £m 2021 2021 £m
£m £m £m £m
At 1 January (1,313) 1,305 (8) (1,481) 1,461 (20)
Current service costs(1) (2) - (2) (1) - (1)
Past service costs(1) (1) - (1) 1 - 1
Settlement gain 4 - 4 22 (21) 1
Transfer of RIPS annuity policies (buy-out) 1,159 (1,159) - - - -
Administration expenses(1) 4 (4) - - - -
Interest on defined benefit obligation/asset(1) (5) 5 - (21) 21 -
Exchange difference (3) 2 (1) 2 (1) 1
Total pension income/(expense) 1,156 (1,156) - 3 (1) 2
Remeasurements:
- Remeasurement gain/(loss) on scheme assets - (79) (79) - (78) (78)
- Remeasurement gain/(loss) on obligation² 81 - 81 79 - 79
Contributions:
- Employers (1) - (1) (1) 8 7
- Benefit payments 12 (10) 2 87 (85) 2
- Refund of surplus - (22) (22) - - -
At 31 December (65) 38 (27) (1,313) 1,305 (8)
Retirement benefit obligation schemes(3) (49) 19 (30) (63) 36 (27)
Retirement benefit asset schemes(4) (16) 19 3 (1,250) 1,269 19
1. Service costs and administration expenses are charged to operating
expenses, and interest cost and return on plan assets to finance cost and
finance income.
2. The actuarial movement on the UK RIPS comprises remeasurement gain arising
from changes in demographic assumptions of £nil (2021: gain of £3m, 2020:
gain of £16m), remeasurement gain arising from changes in financial
assumptions of £82m (2021: gain of £75m, 2020: loss of £117m) and a
remeasurement loss arising from experience of £7m (2021: loss of £1m, 2020:
gain of £25m).
3. Benefit plans in an obligation position include plans situated in Thailand,
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 Australia,
Barbados and Ireland.
Included in the table above is a net defined benefit surplus in relation to
the UK RIPS of £nil (2021: £18m, 2020: £18m) recognised as defined benefit
obligation of £nil (2021: £1,248m, 2020: £1,369m) and plan assets of £nil
(2021: £1,266m, 2020: £1,388m). Of the £65m (2021: £1,313m, 2020:
£1,481m) of obligations, £20m (2021: £17m, 2020: £18m) is unfunded.
Total contributions payable to defined benefit pension schemes in 2023 are
expected to be less than £1m.
The fair value of plan assets at the balance sheet date is analysed as
follows:
2022 2021
£m
£m
Equity instruments 2 3
Debt instruments - unquoted 15 16
Insurance policies - 1,239
Other 21 47
Total plan assets 38 1,305
17. Provisions for liabilities and charges
The Group has provisions for termite damage claims, self-insurance,
environmental and other. 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 between 3.5% and 5.875%
(2021: 0.9%) for the US.
Termite damage claims Self- Environmental Other Total
£m insurance £m £m £m
£m
At 1 January 2021 - 32 14 18 64
Exchange differences - - (1) - (1)
Additional provisions - 18 - 6 24
Used during the year - (14) (2) (9) (25)
Unused amounts reversed - (1) - (2) (3)
Acquisition of companies and businesses - 2 - - 2
At 31 December 2021 - 37 11 13 61
At 1 January 2022 - 37 11 13 61
Exchange differences (28) (7) - - (35)
Additional provisions 3 30 - 8 41
Used during the year (10) (26) (2) (8) (46)
Unused amounts reversed - (6) - (2) (8)
Acquisition of companies and businesses 335 136 3 1 475
Unwinding of discount on provisions 3 1 - - 4
At 31 December 2022 303 165 12 12 492
2022 2021
Total
Total
£m
£m
Analysed as follows:
Non-current 359 34
Current 133 27
Total 492 61
Termite damage claims
The Group holds provisions for termite damage claims covered by contractual
warranties. Termite damage claim provisions are subject to significant
assumptions and estimation uncertainty. The assumptions included in valuing
termite provisions are based on an estimate of the rate and cost of future
claims (based on historical and forecast information), customer churn rates
and discount rates. These provisions are expected to be substantially utilised
within the next 20 years. The trend of volume and value of claims is monitored
and reviewed over time (with the support of external advisers) and as such the
value of the provisions are also likely to change.
The sensitivity of the liability balance to changes in the inputs is
illustrated as follows:
● Discount rate - this exposure is largely based within the United States,
therefore measurement is based on a US risk-free rate. As we have seen during
2022, interest rates (and therefore discount rates) have moved up and are at
their highest in over a decade. Rates could move in either direction and
management has modelled that an increase/decrease of 5% in yields (from 4.31%
to 4.53%) would reduce/increase the provisions by £3m. Over the 12 months to
31 December 2022, as a result, inter alia, of the conflict in Ukraine,
risk-free rate yields have risen from c.0.9% to 4.31%.
● Claim cost - claim cost forecasts have been based on the latest available
historical settled Terminix claims. Claims costs are dependent on a range of
inputs including labour cost, materials costs (e.g. timber), whether a claim
becomes litigated or not, and specific circumstances including contributory
factors at the premises. Management has determined the historical time period
for each material category of claim, between 6 months and 5 years, to
determine an estimate for costs per claim. Recent fluctuations in input prices
(e.g. timber prices) means that there is potential for volatility in claim
costs and therefore future material changes in provisions. Management has
modelled that a structural increase/decrease of 5% in total claim costs would
increase/decrease the provision by c.£14m. Over the 12 months to 31 December
2022, as a result of supply chain issues caused by the COVID pandemic and
other macro-economic factors, in year costs per claim rose by c.17%.
● Claim rate - management has estimated claim rates based on statistical
historical incurred claims. Data has been captured and analysed by a third
party agency, used by Terminix over many years, to establish incidence curves
that can be used to estimate likely future cash outflows. Changes in rates of
claim are largely outside the Group's control and may depend on litigation
trends within the US, and other external factors such as how often customers
move property and how well they maintain those properties. This causes
estimation uncertainty that could lead to material changes in provision
measurement. Management has modelled that an increase/decrease of 5% in
overall claim rates would increase/decrease the provisions by c.£14m,
accordingly. Over the 12 months to 31 December 2022 claim rates fell by c.16%.
● Customer churn rate - If customers choose not to renew their contracts each
year, then the assurance warranty falls away. As such there is sensitivity to
the assumption on how many customers will churn out of the portfolio of
customers each year. Data has been captured and analysed by a third party
agency, used by Terminix over many years, to establish incidence curves for
customer churn, and forward looking assumptions have been made based on these
curves. Changes in churn rates are subject to macro-economic factors and to
the performance of the Group. A 1% movement in customer churn rates, up or
down, would change the provisions by c.£10m up or down, accordingly. On
average over the last 10 years churn rates move by +/- c.1.2% per annum.
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.
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.
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 the Group no
longer occupies such as security, utilities and insurance. Existing provisions
are expected to be substantially utilised within the next five years.
18. Share capital
During the year, 656,206,920 new shares were issued in relation to the
acquisition of Terminix Global Holdings, Inc. and 4,500,000 new shares were
issued in relation to employee share schemes.
2022 2021
£m
£m
Issued and fully paid
At 31 December - 2,520,039,885 shares (2021: 1,859,332,965) 25 19
19. Post balance sheet events
There have been no other significant post balance sheet events affecting the
Group since 31 December 2022.
20. Legal statements
The financial information for the year ended 31 December 2022 contained in
this preliminary announcement has been approved by the Board and authorised
for release on 16 March 2022.
The financial information in this statement does not constitute the Company's
statutory accounts for the years ended 31 December 2022 or 2021. The financial
information for 2021 and 2022 is derived from the statutory accounts for 2021
(which have been delivered to the registrar of companies) and 2022 (which will
be delivered to the registrar of companies following the AGM in May 2023). The
auditors have reported on the 2021 and 2022 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 2022 are prepared in accordance with UK-adopted
International Accounting Standards and International Financial Reporting
Standards (IFRSs) as issued by the International Accounting Standards Board
(IASB). The accounting policies (that comply with IFRS) used by Rentokil
Initial plc ("the Group") are consistent with those set out in the 2021 Annual
Report. A full list of policies will be presented in the 2022 Annual Report.
For details of new policies applicable to the Group in 2022 and their impact
please refer to Note 1.
21. 2022 Annual Report
Copies of the 2022 Annual Report will be sent to shareholders who have elected
to receive hard copies on or around 4 April 2023 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.
22. 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 from 3.00pm on 10 May 2023. 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.
23. 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 2022
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
16 March 2023
Cautionary statement
In order to utilise the 'safe harbour' provisions of the U.S. Private
Securities Litigation Reform Act of 1995 (the "PSLRA") and the general
doctrine of cautionary statements, Rentokil Initial plc ("the Company") is
providing the following cautionary statement: This communication contains
forward-looking statements within the meaning of the PSLRA. Forward-looking
statements can sometimes, but not always, be identified by the use of
forward-looking terms such as "believes," "expects," "may," "will," "shall,"
"should," "would," "could," "potential," "seeks," "aims," "projects,"
"predicts," "is optimistic," "intends," "plans," "estimates," "targets,"
"anticipates," "continues" or other comparable terms or negatives of these
terms and include statements regarding Rentokil Initial's intentions, beliefs
or current expectations concerning, amongst other things, the results of
operations of the Company and its consolidated entities ("Rentokil Initial" or
"the Group") (including preliminary results for the year ended 31 December
2022), financial condition, liquidity, prospects, growth, strategies and the
economic and business circumstances occurring from time to time in the
countries and markets in which Rentokil Initial operates. Forward-looking
statements are based upon current plans, estimates and expectations that are
subject to risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialise, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated or
anticipated by such forward-looking statements. The Company can give no
assurance that such plans, estimates or expectations will be achieved and
therefore, actual results may differ materially from any plans, estimates or
expectations in such forward-looking statements. Important factors that could
cause actual results to differ materially from such plans, estimates or
expectations include: the Group's ability to integrate acquisitions
successfully, or any unexpected costs or liabilities from the Group's
disposals; difficulties in integrating, streamlining and optimising the
Group's IT systems, processes and technologies; the availability of a suitably
skilled and qualified labour force to maintain the Group's business; the
Group's ability to attract, retain and develop key personnel to lead the
business; the impact of environmental, social and governance ("ESG") matters,
including those related to climate change and sustainability, on the Group's
business, reputation, results of operations, financial condition and/or
prospects; inflationary pressures, such as increases in wages, fuel prices and
other operating costs; supply chain issues, which may result in product
shortages or other disruptions to the Group's business; weakening general
economic conditions, including changes in the global job market or decreased
consumer confidence or spending levels; the Group's ability to implement its
business strategies successfully, including achieving its growth objectives;
the Group's ability to retain existing customers and attract new customers;
the highly competitive nature of the Group's industries; cybersecurity
breaches, attacks and other similar incidents; extraordinary events that
impact the Group's ability to service customers without interruption,
including a loss of its third-party distributors; the Group's ability to
protect its intellectual property and other proprietary rights that are
material to the Group's business; the Group's reliance on third parties,
including third-party vendors for business process outsourcing initiatives,
investment counterparties, and franchisees, and the risk of any termination or
disruption of such relationships or counterparty default or litigation;
failure to maintain effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act; any future impairment
charges, asset revaluations or downgrades; failure to comply with the many
laws and governmental regulations to which the Group is subject or the
implementation of any new or revised laws or regulations that alter the
environment in which the Group does business, as well as the costs to the
Group of complying with any such changes; termite damage claims and lawsuits
related thereto; the Group's ability to comply with safety, health and
environmental policies, laws and regulations, including laws pertaining to the
use of pesticides; any actual or perceived failure to comply with stringent,
complex and evolving laws, rules, regulations and standards, as well as
contractual obligations, relating to data privacy and security; changes in tax
laws and any unanticipated tax liabilities; adverse credit and financial
market events and conditions, which could, among other things, impede access
to or increase the cost of financing; the restrictions and limitations within
the agreements and instruments governing our indebtedness; a lowering or
withdrawal of the ratings, outlook or watch assigned to the Group's debt
securities by rating agencies; an increase in interest rates and the resulting
increase in the cost of servicing the Group's debt; and exchange rate
fluctuations and the impact on the Group's results or the foreign currency
value of the Company's ADSs and any dividends. The list of factors presented
here is representative and should not be considered to be a complete statement
of all potential risks and uncertainties. Unlisted factors may present
significant additional obstacles to the realisation of forward-looking
statements. The Company cautions you not to place undue reliance on any of
these forward-looking statements as they are not guarantees of future
performance or outcomes and that actual performance and outcomes, including,
without limitation, the Group's actual results of operations, financial
condition and liquidity, and the development of new markets or market segments
in which the Group operates, may differ materially from those made in or
suggested by the forward-looking statements contained in this communication.
Except as required by law, Rentokil Initial assumes no obligation to update or
revise the information contained herein, which speaks only as of the date
hereof.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SFWSFMEDSEDDRecent news on Rentokil Initial
See all newsREG - Rentokil Initial PLC - Issue of Debt
AnnouncementREG - Rentokil Initial PLC - Holding(s) in Company
AnnouncementREG - Rentokil Initial PLC - Q1 Trading Update
AnnouncementREG - Rentokil Initial PLC - Holding(s) in Company
AnnouncementREG - Rentokil Initial PLC - Notice of Q1 Trading Update and Management Call
Announcement