REG - Rentokil Initial PLC - Final Results
07/03/2024 07:00
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RNS Number : 9022F Rentokil Initial PLC 07 March 2024
2023 Preliminary Results
Good overall operational and financial performance
RIGHT WAY 2 Plan launched to reinvigorate growth in North America
Terminix gross synergy target increased by $50m
Financial Results1 AER CER
£m 2023 2022 Change 2023 2022 Change
£m
£m
%
£m
£m
%
Revenue 5,375 3,714 44.7% 5,414 3,714 45.8%
Adjusted EBITDA 1,228 859 43.0%
Adjusted Operating Profit 898 571 57.1% 897 571 57.0%
Adjusted Profit before Tax 766 532 43.8% 801 532 50.5%
Free Cash Flow 500 374 33.7%
Diluted Adjusted EPS 23.08p 21.22p 8.8%
Statutory Results
Revenue 5,375 3,714 44.7%
Operating Profit 625 317 96.9%
Profit before Tax 493 296 66.9%
EPS 15.14p 11.57p 30.8%
Dividend Per Share 8.68p 7.55p 15.0%
Financial Highlights (Unless otherwise stated, all financials are presented at
constant exchange rates. Organic Revenue growth figures exclude COVID
disinfection.)
● Group Revenue up 45.8% and Statutory Revenue up 44.7%. Organic Revenue growth
of 4.9%, supported by strong performances in Europe, Asia, Pacific, UK and
LATAM
- North America Organic Revenue growth of 3.1% with growth of 3.5% in Pest
Control services owing to lower new business lead generation
- Good Organic Revenue growth across all business categories: 4.5% in Pest
Control; 4.8% in Hygiene and Wellbeing; and 13.2% in France Workwear
● Adjusted Operating Profit up 57.0% and Statutory Operating Profit up 96.9%.
Group Adjusted Operating Margin up 120bps to 16.6%2
- Full year margin expansion in Pest Control and France Workwear, with Hygiene
& Wellbeing margin in H2 above 19.0%, as expected
- North America Adjusted Operating Margin up 160bps to 18.7%
- Sustained strong price progression across all regions, accompanied by good
customer retention
● Diluted Adjusted EPS up 8.8% to 23.08p. EPS up 30.8% to 15.14p. Diluted
Adjusted EPS at CER up 12.9%
● Free Cash Flow of £500m representing 89.4% Adjusted Free Cash Flow conversion
● Net debt to EBITDA reduced to 2.8x at 31 December 2023, one year ahead of
target
● Recommended final dividend of 5.93p for total FY 23 dividend of 8.68p per
share, an increase of 15.0%, in line with our progressive dividend policy
Strategic Highlights
● RIGHT WAY 2 plan launched to reinvigorate organic growth in North America
- Action plan devised and underway following an in-depth regional performance
review. Increased Terminix synergies enables plan to be accompanied by
additional c.$25m of investment in sales and marketing
● Terminix gross synergy target increased by $50m with integration completion
revised to 2026
- $69m pre-tax net cost synergies achieved in FY 23, ahead of guidance ($60m).
Expected to deliver a further c.$40m of net cost synergies in FY 24
- Total gross and net synergy targets raised to c.$325m and c.$225m respectively
(previously $275m and $200m). Integration completion revised to 2026 to
de-risk branch integrations and deliver the upgraded synergy targets
● Continued momentum in value-creating M&A programme
- 41 acquisitions completed in 2023 with annualised revenues of c.£106m
Andy Ransom, Chief Executive of Rentokil Initial plc, said:
"The Group overall delivered a good operational and financial performance in
2023, despite weaker growth in North America, achieving 4.9% organic revenue
growth and 16.6% margin. We have continued to benefit from our diversified,
global footprint and resilient business model, in addition to our sustained
focus on customer service and investment in people, technology and innovation.
We're taking action to reinvigorate organic growth in the North American
business. In our RIGHT WAY 2 plan, we have created a clear and comprehensive
roadmap to reinvigorate growth in North America with the right team in place
to execute on that.
We have made strong progress in the integration of Terminix to create a
powerhouse business in the world's largest pest control market. This has been
achieved alongside significant improvement in colleague retention, with
Terminix service technician retention up more than 8 percentage points since
the deal closed. The combination with Terminix continues to create significant
value and we have upgraded expectations for total gross cost synergies by $50m
to $325m to be delivered by 2026."
Outlook
We start 2024 with confidence in our plans. Notwithstanding continuing
macroeconomic headwinds, for the full year, we expect good underlying trading
momentum, supported by our RIGHT WAY 2 plan to reinvigorate organic growth in
North America. Increased Terminix synergies enables the plan to be accompanied
by an additional c.$25m of investment in sales and marketing. We expect
Organic Revenue growth in North America to be c.2% in Q1 and between 2-4% in
the full year.
Based on good progress to date, we are raising our expectations for annual
pre-tax synergies from the Terminix integration by a further $50m to c $325m
gross, c.$225m net. The enlarged plan is scheduled to be completed in 2026
with net synergies of c.$40m in 2024, c.$65m in 2025 and c.$38m in 2026.
We expect modest North America margin progression in 2024, with improvement
weighted towards H2, owing to the region's expected organic growth trajectory
and additional investment in sales and marketing. The medium term Group margin
target of greater than 19% is expected to be achieved in 2026.
Our pipeline of bolt-on prospects remains strong and we expect to invest
£250m in 2024. Adjusted free cash flow conversion is forecast between
80-90%, as previously guided, with further modest deleveraging of the balance
sheet.
Enquiries:
Investors / Analysts: Peter Russell Rentokil Initial plc +44 (0)7795 166506
Media: Malcolm Padley Rentokil Initial plc +44 (0)7788 978199
A management presentation and Q&A for investors and analysts will be held
today, 7 March from 9.15am at the Leonardo Royal London St Paul's Hotel, 10
Godliman Street, London EC4V 5AJ. The event will also be available via a live
webcast. Dial-in details will be provided on the website
(https://www.rentokil-initial.com/investors.aspx). A recording will be made
available following the conclusion of the presentation.
Notes
1 Non-IFRS measures. This statement includes certain financial performance
measures which are non-IFRS measures as defined under International Financial
Reporting Standards (IFRS). These metrics include Adjusted Operating Profit,
Adjusted Profit Before Tax, Adjusted Profit After Tax, Adjusted EBITDA,
Adjusted Interest, Adjusted Earnings Per Share, Free Cash Flow, Adjusted Free
Cash Flow, Adjusted Free Cash Flow Conversion, Adjusted Effective Tax Rate and
Organic Revenue. Management believes these measures provide valuable
additional information for users of the financial statements in order to
understand the underlying trading performance. Adjusted Operating Profit
represents the performance of the continuing operations of the Group
(including acquisitions), and enables 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 all the above
non-IFRS measures used along with reconciliation from the nearest IFRS
measures is provided on page 16.
2 Includes net synergy benefit but excludes costs to achieve which are one-off
by nature.
AER - actual exchange rates; CER - constant 2022 exchange rates
This announcement contains statements that are, or may be, forward-looking
regarding the Group's financial position and results, business strategy, plans
and objectives. Such statements involve risk and uncertainty because they
relate to future events and circumstances and there are accordingly a number
of factors which might cause actual results and performance to differ
materially from those expressed or implied by such statements. Forward-looking
statements speak only as of the date they are made and no representation or
warranty, whether expressed or implied, is given in relation to them,
including as to their completeness or accuracy or the basis on which they were
prepared. Other than in accordance with the Company's legal or regulatory
obligations (including under the Listing Rules and the Disclosure Guidance and
Transparency Rules), the Company does not undertake any obligation to update
or revise publicly any forward-looking statement, whether as a result of new
information, future events or otherwise. Information contained in this
announcement relating to the Company or its share price, or the yield on its
shares, should not be relied upon as an indicator of future performance.
Nothing in this announcement should be construed as a profit forecast.
Summary of financial performance (at CER)
Regional Performance
Revenue Adjusted Operating Profit
2023 2022 Change 2023 2022 Change
£m
£m
%
£m
£m
%
North America 3,314 1,849 79.2% 618 315 95.9%
Pest Control 3,208 1,746 83.7% 599 297 101.8%
Hygiene & Wellbeing 106 103 2.5% 19 18 0.7%
Europe (incl. LATAM) 1078 941 14.6% 210 187 12.5%
Pest Control 520 427 21.8% 120 103 16.6%
Hygiene & Wellbeing 341 322 5.8% 52 53 (1.8%)
France Workwear 217 192 13.2% 38 31 23.6%
UK & Sub Saharan Africa 394 365 7.9% 95 95 (0.5%)
Pest Control 197 182 8.0% 51 47 8.0%
Hygiene & Wellbeing 197 183 7.7% 44 48 (8.9%)
Asia & MENAT 357 321 11.2% 47 45 4.0%
Pest Control 266 231 15.0% 35 34 4.5%
Hygiene & Wellbeing 91 90 1.5% 12 11 2.6%
Pacific 261 227 15.0% 57 48 19.8%
Pest Control 130 104 25.2% 23 16 44.5%
Hygiene & Wellbeing 131 123 6.4% 34 32 7.6%
Central 10 11 (4.4%) (121) (107) (12.7%)
Restructuring costs (9) (12) 20.6%
Total at CER 5,414 3,714 45.8% 897 571 57.0%
Total at AER 5,375 3,714 44.7% 898 571 57.1%
Category Performance
Revenue Adjusted Operating Profit
2023 2022 Change 2023 2022 Change
£m
£m
%
£m
£m
%
Pest Control 4,321 2,690 60.6% 828 497 66.7%
Hygiene & Wellbeing 866 821 5.4% 161 162 (1.5%)
France Workwear 217 192 13.2% 38 31 23.6%
Central 10 11 (4.4%) (121) (107) (12.7%)
Restructuring costs (9) (12) 20.6%
Total at CER 5,414 3,714 45.8% 897 571 57.0%
Total at AER 5,375 3,714 44.7% 898 571 57.1%
Note: Hygiene & Wellbeing year on year performance reflects the
anticipated decrease in COVID disinfection revenues from £21m in FY 22 to
£2m in FY 23.
In order to help understand the underlying trading performance, unless
otherwise stated, figures below are presented at constant exchange rates and
Organic Revenue growth figures exclude the COVID disinfection business.
Revenue
The Group delivered a good topline performance, with Revenue rising 45.8% to
£5,414m. Organic Revenue grew 4.9%. Statutory Revenue was up 44.7% to
£5,375m at AER. Revenue growth in North America was up 79.2%, benefiting from
the Terminix acquisition. Europe, the Group's second largest region, was up
strongly by 14.6%, while the Asia & MENAT region was up 11.2%. Group
Organic Revenue growth including COVID disinfection was 4.5%.
Our Pest Control category grew Revenue by 60.6% (4.5% Organic) to £4,321m,
underpinned by continued effective pricing and resilient customer retention.
Hygiene & Wellbeing Revenue increased by 5.4% (4.8% Organic) to £866m,
led by continued demand for washroom services. Strong new business sales
performance was reflected in the contribution from our France Workwear
business, with Revenue up by 13.2% to £217m (13.2% Organic).
Profit
Adjusted Operating Profit rose by 57.0% during the year to £897m, reflecting
a full year of Terminix profit and core business growth across major regions,
in addition to effective ongoing capture of synergies from the Terminix
transaction. This led to a 120bps increase year on year in Group Adjusted
Operating Margin to 16.6%. Synergies from the Terminix transaction contributed
100bps to Group margin. Statutory Operating Profit at AER was up 96.9% to
£625m. 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 to offset the impacts of
inflation on our cost base. The ability of the Group overall to offset
inflationary pressures for another year 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 up
by 70bps year on year to 19.2% (FY 22: 18.5%). Hygiene & Wellbeing
Adjusted Operating Margin decreased by 130bps year on year to 18.5% (FY 22:
19.8%). However, Hygiene & Wellbeing margin was 20.2% for H2, in line with
the guidance of above 19.0% for H2, issued at the Interim Results. The half
year and full year 2024 margin profile of Hygiene & Wellbeing is expected
to be similar to 2023.
Adjusted Profit before Tax (at AER) of £766m, which excludes one-off and
adjusting items and amortisation costs, increased by 43.8%. Adjusted interest
of £141m at actual exchange rates was higher year on year, partly reflecting
£86m of annualised interest charges relating to the financing of the Terminix
transaction, £15m of lease interest charges and a £7m offsetting reduction
from the impacts of hyperinflation and net interest received. In the year,
hyperinflation of £11m at AER in 2023 was £11m lower than the prior year (FY
22: £22m) due to devaluation of the Argentinian peso. Full year restructuring
costs of £9m at CER (£7m at AER) were down £3m on the prior year,
consisting mainly of costs in respect of initiatives focused on our North
American and Argentinian transformation programmes. One-off and adjusting
items (operating) at AER of £98m includes £1m of deal costs and £81m of
integration costs related to the Terminix acquisition ("Costs to Achieve'')
and £17m of other M&A costs. Statutory profit before tax at AER was
£493m, an increase of 66.9% on the prior year (FY 22: £296m) reflecting a
full year of Terminix profits net of one-off and adjusting items/Costs to
Achieve and increased interest costs relating to the Terminix transaction.
Cash (at AER)
Net cash flows from operating activities have risen by 22.8% to £737m in
2023. Free Cash Flow of £500m was £126m higher than in FY 22. Higher trading
profits resulted from organic and acquisitive growth. Adjusted EBITDA was
£1,228m, up 43.0% versus 2022. One-off and adjusting items (non-cash) of
£11m inflow (FY 22: £77m) represent Terminix related one-time share
incentive schemes and asset impairments.
The Group had a £47m working capital outflow in FY 23. Working capital was
driven higher by revenue growth, predominantly in North America and Europe,
across receivables and contract cost assets. Capital expenditure of £211m was
incurred in the period (FY 22: £190m), reflecting a more normal pattern of
spend post pandemic and the inclusion of Terminix capital expenditure. Lease
payments were up 45.2%.
Cash interest payments of £166m were £127m higher than in the prior year,
reflecting the timing of interest charge payments relating to financing of the
Terminix transaction. Cash tax payments for the period were £100m, an
increase of £23m compared with the corresponding period last year. Adjusted
Free Cash Flow Conversion was 89.4%.
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
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 3,306 78.7% 3,314 79.2% 3.1% 3.0%
Operating Profit 489 158.4% 490 159.0%
Adjusted Operating Profit 617 95.5% 618 95.9%
Adjusted Operating Margin 18.7% 1.6% 18.7% 1.6%
In North America, Revenue was up 79.2%, benefiting from a full year of the
Terminix acquisition. Regional Organic Revenue grew 3.1%, achieved alongside
the full programme of the Terminix integration. Organic Revenue growth in Pest
Control Services for our commercial, residential, and termite customers was
below our expectations at 3.5%, owing to lower new business lead generation in
a softer consumer market in H2. The Pest Control category as a whole, which
includes the Products Distribution and Lake Management businesses, recorded
Organic Revenue growth of 3.1%. Weaker Q3 2023 growth in North America
continued into the low season of Q4 at 1.2%, however Q1 2024 is expected to be
c.2%. The company has conducted an in-depth review to fully examine the
drivers of the underperformance and formulate a strategy to reinvigorate
growth, resulting in THE RIGHT WAY 2 plan detailed below.
Adjusted Operating Profit growth of 95.9% to £618m reflects the combined
impact from higher revenues and the Terminix acquisition. Statutory Operating
Profit was up 158.4% to £489m at AER. Strong price realisation across all
channels has successfully offset expected inflationary pressures. Adjusted
Operating Margins in North America were up 160bps year-on-year to 18.7%. The
full-year impact of lower Terminix margins reduced the overall North America
margin by 70bps. However, Terminix synergies delivered a benefit of 140bps,
while trading improvements, including density from growth and prudent cost
management, contributed 90bps of margin.
Total North America colleague retention, including Terminix, increased to
75.2% (FY 22: 70.1%), driven by improvement in retention of technician roles.
Sales colleague retention was flat. Terminix colleague retention has seen
continued improvement, up to 69.7% (FY 22: 64.0%). Since the close of the deal
in October 2022, colleague retention at Terminix has increased by 8.1ppts. The
Group continued to make investments in being an Employer of Choice, and we are
seeing ongoing success with our recruiting, onboarding, and training
initiatives. Despite price increases, total customer retention in North
America slightly increased to 79.5% (FY 22: 79.3%) and included an improvement
at Terminix. Customer satisfaction was also positive, with an excellent
Terminix Net Promoter Score of 64.9, up 1.5 on the prior year.
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
c.£46m in the year prior to purchase. This included the acquisition in the
second half of the year of Action Pest Control, a large Midwest provider. As
we integrate Terminix, we will continue to selectively pursue high-quality
M&A assets in the North America region.
In the year, there was further good progress on legacy termite warranty claim
volumes, with significantly fewer filed warranty claims. Total filed warranty
claims reduced by 14% on the prior year and by 44% since 2019. Open warranty
claims further reduced by 29% on the prior year and by 65% since 2019. Total
filed warranty claims in the Formosan termite-heavy Mobile Bay reduced by 48%
on the prior year and by 80% since 2019. Largely as a result of our plan to
accelerate the resolution of legacy claims, particularly focused on complex
litigated long-standing cases, and a shift in the mix of claim resolutions,
the blended average settled cost per claim, including inflationary impacts,
was up c.32%. Going forward, we have also successfully introduced a termite
residential sales warranty cap for new customers for the lifetime of the
agreement of $250,000 for new customers with qualifying homes.
Organic Growth in H2 2023
An in-depth review was conducted into the reasons for the slowdown in regional
organic growth experienced in the second half of 2023.
We have confirmed that service technician retention was further significantly
improved and customer retention remained resilient throughout the period. The
pricing strategy also continued to be effective, with cost input inflation
recovered, as expected.
Organic growth is generated from both existing and new customers. Trends in
upselling to the existing customer base did not see a material change from
prior trends. Notwithstanding this, we believe technician leads represent an
important growth opportunity in the US with the potential for sizeable upside
in the medium term. This is based on evidence of the Group's success in other
markets. For example, in 2023, c.88% of UK pest control technicians
participated in submitting leads with a c.32% close rate. This compared to a
US participation rate of c.50% and estimated c.20% close rate. Our 'Trusted
Advisor' programme (empowering technician leads and sales) already underway in
Terminix will be rolled out across Rentokil US branches.
The main challenge to new business growth in the second half of the year was
lower acquisition of new residential, termite and SME customers. The largest
adverse change was observed in inbound sales leads and sales enquiries from
prospective customers to our call centres and websites. In H2, in-bound sales
leads were down 2-3% in the region. We estimate that the US pest control
market grew at approximately 4% in 2023, reflecting lower growth in the
residential, termite and SME sectors, particularly in H2. This is about 1%
lower than the recent historical average. Nevertheless, we recognise that the
business was not sufficiently effective in attracting and closing sales leads.
In 2023, integration planning focused attention on organisational change. Our
marketing and sales leadership underwent considerable change, which in part
affected our marketing performance to generate leads and convert sales (close
rate in H2 was flat with prior year). Increased digital marketing spend by the
competition and flat sales colleague retention (c.60% in Terminix and c.77% in
Rentokil) compounded the overall impact. There was also a slightly disruptive
influence felt from branch closures and pilots.
THE RIGHT WAY 2 Plan
We have taken action to strengthen the North America management team and fully
resource the senior marketing and sales teams ahead of the 2024 pest season.
In addition to Brad Paulsen, recently appointed to the position of North
America CEO, we have in place new and experienced leadership for Residential
Marketing, Digital Marketing, and Sales. We've also seconded our UK Operations
Director to North America to take charge of technician sales leads.
Following the review of H2, the team has now defined THE RIGHT WAY 2 plan to
reinvigorate organic growth in North America. The core components of this plan
are:
● Driving further improvement in frontline colleague retention and productivity,
in particular in Sales to improve sales conversion. Our Employer of Choice
programme will focus on enhanced talent acquisition and onboarding, additional
investment in training, and seasonal sales incentive programmes.
● Investing in a brand strategy to reinforce awareness. This includes additional
investment in the Terminix brand to build on its industry-leading awareness
(#1 best known brand in US Pest Control according to a 2023 Google Brand Arc
Study) and build preference with our target segments. We'll also continue to
build the equity of the Rentokil brand to support business growth in the
National and Strategic accounts space.
● Adding capabilities and resources in marketing to refine our focus and build
our marketing excellence. In addition to the new regional marketing and sales
leadership, the North America business will benefit from increased investment
for growth of c.$25m towards people, sales leads, digital channels, and other
brand and marketing activities. New marketing agency partnerships are now in
place and our first multi-channel brand marketing campaign will be launched
this Spring.
● Strengthening sales effectiveness to target increased sales colleague
retention, particularly in the 0-12 months service category. Over time we will
introduce new data, tools and technologies in order to improve timing from
sales lead to inspection and quote.
● Enhancing our approach to pricing discipline to continue to offset inflation.
Sales and marketing initiatives will be accompanied by continued strong
pricing discipline for both new and existing customers. Our pricing practices
will be enhanced with third-party tools and data to deliver market and
segment-specific value to customers. This includes the viability testing of
new AI-backed capabilities. We will also optimise bundling, promotions and
discounting programmes through consistent market-level pricing tests.
● Improving customer satisfaction and retention to take it to par with the
average elsewhere in the Group over time. We are dedicated to delivering a
consistently positive customer experience including through investment in our
digital platforms, in technician training and in our contract renewal
processes.
● Increasing technician sales leads to expand revenue from existing customers.
Through execution of the Trusted Advisor Programme, we're focused on driving
up the volume, value, and conversion rate of technician leads towards the UK
benchmark over time. In 2024 the Trusted Advisor programme will be rolled out
to Rentokil technicians.
Rentokil Initial has a proven long term track record of operating very
successfully through economic cycles. We are confident the team has the
skills, know-how and insights to get growth back on track.
Europe (incl. LATAM)
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 1,081 14.9% 1,078 14.6% 9.2% 8.3%
Operating Profit 182 15.6% 161 2.2%
Adjusted Operating Profit 215 14.9% 210 12.5%
Adjusted Operating Margin 19.9% 0.0% 19.5% -0.4%
The region has enjoyed strong performance in 2023. Topline momentum in the
first half of the year carried into the second half, driven by both effective
price increases and resilience in overall demand. Revenue grew by 14.6% in the
year to £1,078m (9.2% Organic). Revenue growth in Pest Control was 21.8%,
with a strong contribution from key markets including France, Benelux, and
Germany. Hygiene & Wellbeing grew Revenue by 5.8% in the period, driven by
broad-based strength across the region and continued momentum in the core
washrooms business. Ambius, part of the Enhanced Environments business,
sustained a good performance through the year. As anticipated, there was an
improvement in Specialist Hygiene and Dental in the second half of the year,
after a period of post-COVID disruption. France Workwear Revenue was up 13.2%.
Strong new business sales performance was reflected in its contribution, which
was also supported by robust pricing.
Adjusted Operating Profit in the region grew by 12.5% to £210m. Statutory
Operating Profit was up 15.6% to £182m at AER. In Europe, as expected,
short-term H1 margin pressure from increased M&A activity reversed in H2.
The H1 headwind plus continued hyperinflation in Argentina in the aggregate
resulted in full-year Adjusted Operating Margin down slightly by 40bps to
19.5%. While inflationary pressures have persisted throughout the period, in
Europe and most of LATAM we have been successful at protecting margins with
pass-through pricing. Customer retention has remained strong at 88.4% (FY 22:
88.5%.) A focus on sales retention, including recruitment, onboarding and
early days retention led to excellent colleague retention rates of 90.4% (FY
22: 89.1%), with the business recording some of its best months on record in
the second half of the year.
In Europe and LATAM, 11 business acquisitions (5 in Europe and 6 in LATAM)
were completed in total with annualised revenues of c.£12m in the year prior
to purchase.
UK & Sub-Saharan Africa
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 390 6.6% 394 7.9% 3.5% 3.4%
Operating Profit 84 -6.6% 85 -5.5%
Adjusted Operating Profit 94 -1.7% 95 -0.5%
Adjusted Operating Margin 24.1% -2.0% 24.1% -2.0%
The region delivered a good trading performance against a challenging macro
backdrop and strong prior year comparators, especially in the first half of
the year. Performance in the mature UK market was supported by strong service
innovation and a record performance from technician sales leads. Revenue for
the region overall increased by 7.9% (3.5% Organic). Pest Control grew by
8.0%. Hygiene & Wellbeing increased by 7.7%, lapping COVID-boosted
comparators in the medical waste business. There was a positive contribution
from the recently acquired Urban Planters business, which supplies plants to
retail properties, offices, and restaurants. This was accompanied by an
improved performance year on year in the UK Property Care business despite the
cooler property market.
Regional Adjusted Operating Profit decreased by 0.5% to £95m. Statutory
Operating Profit was down 6.6% to £84m at AER. Adjusted Operating Margins
decreased by 200bps to 24.1%. As previously stated, margin performance in the
first half of the year was dampened by the anticipated reduction in COVID
disinfection and related services, such as needle and PPE disposal, and the
non-repeat of UK COVID credit note releases. However, these factors
substantially fell away in H2. Cash performance has been strong in the year
with debtor days finishing the year 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 a further improved customer retention rate of 86.9%
(FY 22: 86.6%) and world class customer experience scores. Colleague
retention for the full year was up strongly to 83.3% (FY 22: 77.9%).
In the UK & SSA two business acquisitions, both in the Hygiene &
Wellbeing category, were completed with annualised revenues of c.£18m in the
year prior to purchase.
Asia & MENAT
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 339 5.6% 357 11.2% 10.2% 7.1%
Operating Profit 33 40.3% 34 44.4%
Adjusted Operating Profit 45 0.3% 47 4.0%
Adjusted Operating Margin 13.3% -0.8% 13.1% -1.0%
The region delivered a good 2023 performance. Revenue rose by 11.2%, of which
10.2% was Organic, underpinned by contractual activity. Pricing was
complemented with volume growth, as markets overall remained structurally
supportive. The performance was led by the region's largest markets: India,
Indonesia, Malaysia, and Singapore. Hong Kong continued to be challenged by a
subdued economic environment, however there was a more positive contribution
from China.
Adjusted Operating Profit in Asia increased 4.0% to £47m and Adjusted
Operating Margin was down 100bps to 13.1%, lapping stronger COVID disinfection
revenues. Operating Profit was up 40.3% to £33m at AER. Customer retention
was 78.7% (FY 22: 81.3%). Regional operations have benefited from an increased
colleague retention rate of 92.0% (FY 22: 86.1%), while the average time to
fill vacancies has remained stable year on year. The region acquired seven
businesses with total annualised revenues in the year prior to purchase of
c.£8m.
Pacific
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 249 10.0% 261 15.0% 6.8% 6.8%
Operating Profit 47 19.5% 49 24.9%
Adjusted Operating Profit 55 14.6% 57 19.8%
Adjusted Operating Margin 21.7% 0.9% 21.7% 0.9%
The Pacific region delivered an excellent full year performance. Revenue
increased by 15.0% to £261m. Organic Revenue grew 6.8% as pricing was
complemented with volume growth. Pest Control delivered 25.2% Revenue growth,
with notable strength in commercial services. Good sales and customer
retention were also evident in the Hygiene & Wellbeing business, where
Revenue growth was 6.4%. The region saw good demand for Ambius services.
Adjusted Operating Profit in the Pacific grew strongly by 19.8% to £57m and
Adjusted Operating Margins rose by 90bps to 21.7%, with year-on-year
improvement across both Pest and Hygiene & Wellbeing categories, supported
by effective mitigation of cost inflation. Operating Profit was up 19.5% to
£47m at AER. The customer retention rate remained strong at 86.5% (FY 22:
88.8%). Colleague retention in the region has significantly improved to 77.5%
(FY 22: 72.9%), despite continued tight labour markets. The region acquired 8
businesses with total annualised revenues in the year prior to purchase of
c.£22m.
Category performance review
Pest Control
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 4,286 59.2% 4,321 60.6% 4.5% 4.5%
Operating Profit 649 107.5% 632 102.1%
Adjusted Operating Profit 830 66.5% 828 66.7%
Adjusted Operating Margin 19.3% 0.8% 19.2% 0.7%
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. Overall,
the business delivered good growth in the year, underpinned by the critical
nature of its services. Revenue was up by 60.6% (4.5% Organic) to £4,321m.
Performance has been supported by both pricing and volumes, led by the
Commercial Pest Control business, which has a high proportion of contractual
activity. Both Commercial and Residential Pest Control businesses have
benefited from resilient customer retention rates. Adjusted Operating Profit
was up by 66.7% to £828m, resulting in an Adjusted Operating Margin of 19.2%,
up 70bps on the prior year, including a benefit from Terminix integration
synergies of 130bps. Operating Profit was up by 107.5% to £649m at AER. For
FY 23, Pest Control represented 80% of Group Revenue and 81% of Group Adjusted
Operating Profit.
In 2023, new contracts for global accounts (multinational customers) were
signed in the pharma and hotel, restaurant and catering sectors. Global
Accounts now oversee revenues of over £100m. 91% of total revenues in the
Pest Control category were delivered by Growth markets and 9% by Emerging
markets.
M&A has continued to be strong this year, and we have acquired 34 pest
control businesses in the period, with annualised revenues in the year prior
to acquisition of c.£76m.
Hygiene & Wellbeing
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 858 4.6% 866 5.4% 4.8% 2.4%
Disinfection 2.44 -88.1% 2.48 -87.9%
Operating Profit 149 -4.9% 151 -3.8%
Adjusted Operating Profit 157 -2.6% 161 -1.5%
Adjusted Operating Margin 18.4% -1.4% 18.5% -1.3%
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.
Hygiene & Wellbeing Revenue increased by 5.4% to £866m. In addition to
supportive pricing, continued good levels of demand across service sectors
such as offices, shops, schools, and hospitality supported performance.
Organic Revenue growth was 4.8%. In 2023, COVID disinfection services
generated £2m of revenues (FY 22: £21m) reducing category Organic Revenue
growth by 240bps and Group Organic Revenue growth by 40bps. 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. In 2023, Organic Revenue growth in core washrooms was 4.5%,
while organic growth in premises hygiene and enhanced environments was 5.3%.
Adjusted Operating Profit was down by 1.5% to £161m due to COVID-boosted
prior year comparators in H1 (Operating Profit was down by 4.9% to £149m at
AER). Adjusted Operating Margin was 18.5%.
We have acquired seven hygiene companies this year with annualised revenues of
c.£30m in the year prior to purchase.
France Workwear
2023 AER 2023 CER Organic Organic
AER
Growth
CER
Growth
Growth excl
Growth incl
£m
£m
Disinfection
Disinfection
Revenue 221 15.3% 217 13.2% 13.2% 13.2%
Operating Profit 37 23.9% 37 21.6%
Adjusted Operating Profit 39 25.9% 38 23.6%
Adjusted Operating Margin 17.5% 1.5% 17.5% 1.5%
Strong new business sales performance, including key account gains and
upselling, resulted in another strong contribution from our France Workwear
business, where Revenue, all of which was organic, rose by 13.2% to £217m.
High customer retention of over 94% supported France Workwear's strong
volumes. Inflation was successfully mitigated with price increases. Adjusted
Operating Profit growth increased by 23.6%. Operating Profit was up 23.9% to
£37m at AER.
Integration of Terminix
Strong progress on the integration; gross synergy target raised by $50m to $325m
The Terminix integration continues to make very good progress. We have
completed the first phase of the integration and in 2023 we delivered $69m of
net synergies, ahead of our target of $60m. Overall, we have delivered pre-tax
net P&L cost synergies of $82m to date.
We have announced a second increase in the target for the total value of
integration cost synergies from the integration of Terminix - the gross
synergies target is increased by $50m to $325m and the net synergies target is
increased by $25m to $225m. $106m gross and $40m net cost synergies are
expected to be delivered in 2024.
The timetable for integration is now set to be completed in 2026, rather than
2025, in order to de-risk the branch integrations and achieve greater synergy
targets.
Phase One (Foundations) Complete
Phase One of the integration completed at the end of 2023 and has delivered
the foundations for success. Further to the Selling, General and
Administrative (SG&A) initiatives, large integration pilots and initial
branch co-locations communicated at the Interim Results, substantial headway
continued to be made in H2, in preparation for the frontline route and branch
integration that is set to commence mid 2024.
An additional 44 branch locations were exited in the second half of the year
as part of the consolidation of the legacy network and co-location of
colleagues. This brings the total number of branch locations exited since
closing the deal to 108. With 11 new sites, there has been a net reduction in
the branch network of 97 branches.
Strong progress was also made in effectively positioning HR and IT. These are
key enablers of administrative and operational efficiencies to be gained from
the overall integration plan, as well as critical levers for improving the
colleague and customer experience.
Key HR initiatives realised in the year include:
● Migration onto the Workday HR Information System (HRIS): 10,500 colleagues
from the legacy Rentokil North America business have been transitioned from
UKG to the Workday platform, completed in September 2023. This change to a
single HR platform for reporting is crucial to aligning numerous business
processes, including time tracking, payroll and performance management, and to
enabling downstream initiatives, such as pay plan harmonisation and branch
integrations.
● Benefits Harmonisation: Following an in-depth review, we adopted best
practices from across the combined organisation to update company policies,
procedures and offerings. All activities were completed allowing for a
singular Open Enrollment experience for our colleagues in November. A
harmonised benefit platform is critical to the reduction of administrative
complexity and ultimately colleague engagement. It ensures consistent
application of benefit access and cost to all colleagues, increases
efficiencies, and provides a single platform of communication.
● Preparation for Harmonisation of Technician, Sales and Field Management Pay
Plans: Both legacy organisations have had numerous different compensation
plans for front-line and field management roles. Harmonisation for
approximately 11,000 front-line colleagues, 2,500 sales colleagues and 550
field management roles are set to provide market competitive base salary and
performance-based commission directly aligned to our strategic objectives. New
positions have been defined in each area based on skills, experience,
certifications and licenses, with corresponding fixed base salary and
incentive levels. Pay plan design, which entailed impact analysis to mitigate
colleague retention, has been largely completed. Implementation will take
place in 2024 in a staged approach across regional markets.
There has been substantial work on IT systems and products. Google Apps have
now been rolled out to 13,000 colleagues and there have been 71 foundation IT
system enhancements. There have been important advances to the Group's
digitally enabled products and processes, drawing on Best of Breed from across
the organisation and with direct input from colleagues in the back office and
field services. Key initiatives realised in the year include:
● Customer Content Management (CCM) and Self-service Portal. These two
transformational tools are now live in North America, delivering business
benefits and improving the customer experience. The new residential portal,
deployed already to 18 brands in the region, meets customer demand for a 24/7
personalised experience that includes bill payment, appointment scheduling and
service recommendations. The portal also frees up valuable call agent time to
handle more complex, high value interactions. Alongside this we have launched
a refreshed CCM tool that better empowers our call agents with detailed
customer tracking, a 360 view of the customer and guided workflows for
consistency and best practice. The new CCM tool has delivered improvements in
customer query resolution and new colleague training.
● Enhanced Field Sales Tools. Valuable new features have been integrated to our
'Winning Formula' residential sales app, which is also being made available
for the first time to our Terminix colleagues. The app follows the sales
process end to end, from site inspection through to proposal and first
appointment scheduling. Additionally, we've integrated the 'Trusted Advisor'
process within our ServiceTrak app, further supporting service technicians to
generate sales leads and upsell opportunities. This reflects a strategic focus
on closer alignment between sales and service teams, enabled by technology.
● Big Data Platform. The development of a data command centre brings the
benefits of fast time access to big data and insights from multiple sources.
It will allow for Terminix data to be integrated and increasingly provide
actionable analytics from across our entire branch network. We also see
exciting AI opportunities with predictive capabilities.
Phase Two
Following completion of Phase One of the integration programme in 2023, we
have embarked on Phase Two - full preparedness for branch integrations. Phase
Two is scheduled to be largely delivered in approximately the first six months
of 2024, with a number of clearly defined legal, IT and operational goals,
including:
● A legal entity merger, critical to enabling branch integrations and unified
contracts
● Roll out of more than 100 IT system features leading up to the commencement of
system migration
● Migration to a single Procurement platform
● Consolidation onto a unified Finance system, including consolidation to a
single expenses and travel management system, followed by purchase card
harmonisation
● Migration of Terminix National Accounts to Rentokil's single customer
management and billing platform
● Combination of all heritage customer care agents onto a single unified
communications platform
● Completion and sign off on data migration and IT system architecture
configuration
Throughout 2024 we will also continue to co-locate branches ahead of
integration, with approximately an additional 75 properties to be exited
during the year.
Phase Three
The next phase of our integration plan is focused on the migration of Terminix
regions and branches. The first Terminix colleagues will begin to migrate onto
standard systems, data and processes in mid 2024, with rerouting and
technician pay plans introduced approximately three months later.
We have seven pest control Regions in the US and each integration will be
executed over approximately 10 months from planning to rerouting. The first
six to seven months will be used to develop a specific plan for the branches
being integrated, based upon our best practice playbook. We anticipate that
this will become increasingly standardised as Terminix markets use similar
technologies and systems. The planning stage includes three test data
migrations. This leads up to integration where the branch systems and data are
migrated. There then follows a three-month period of evaluation leading up to
the final part of the branch integration with branding, rerouting and
technician pay plan and contracts being standardised as appropriate.
Phase Four
The fourth and final phase in 2026 onwards will see the final Terminix markets
and branches complete their integrations.
This will mark the completion of the branch integration programme and the
delivery of our new synergy target in 2026. Post integration, our ambition is
to deliver Organic Revenue Growth in pest control services of 1.5x the market
over the medium term.
Synergies and Approximate Phasing
There has been strong delivery on cost synergies in 2023 with $69m of pre-tax
P&L net cost synergies achieved, ahead of the guided $60m. This takes the
cumulative P&L benefit from net synergies to $82m since completion of the
transaction.
Continued progress on delivery has validated our assumptions and given us
heightened confidence in the overall opportunity, allowing us to increase our
estimate of synergies achievable from the acquisition. We now expect to
achieve approximately $325m of annual pre-tax gross cost synergies ($225m net
cost synergies) by the end of 2026.
2022 2023 2024 2025 2026 Cumulative
Selling, General and Admin Synergies $15m $73m $77m $20m - $185m
Field Ops - $16m $29m $55m $40m $140m
Gross Synergies $15m $89m $106m $75m $40m $325m
Investments $(2)m $(20)m $(66)m $(10)m $(2)m $(100)m
Net Synergies $13m $69m $40m $65m $38m $225m
CTA Cash $40m $92m $85m $28m £5m $250m
Investments relate to salary and benefits harmonisation, SHE, innovation
centre, IT and branding, as well as additional SOX, audit and listing costs.
They are expected to be incurred 100% in cash.
Total one-time cash cost to achieve synergies are expected to be c.$250m.
Phasing of $131m in 2022-2023, $85m in 2024, $28m in 2025 and c.$5m in 2026.
In addition to the $131m of cash synergies in 2022-2023, we also incurred
non-cash costs to achieve of c.$42m relating to the impairment of the Terminix
head office and share-based integration incentive costs.
Paragon Distribution Business
As part of the Terminix merger, Rentokil acquired a small product distribution
business, Paragon, with revenue of c.$68m and profit of c.$4m in 2023. This
business is largely dependent upon a single, partially exclusive supplier
relationship, which will be discontinued with effect from 1 April 2024. As a
consequence, the decision has been taken to close this business. North America
regional Revenue and Adjusted Operating Profit in 2024 will be reduced by
approximately $61m and $4m respectively.
Continued strength of Bolt-on M&A
We acquired 41 new businesses, comprising 34 in Pest Control and 7 in Hygiene
& Wellbeing. A total consideration of c.£261m was agreed for these
acquired businesses with total annualised revenues of c.£106m in the year
prior to purchase. We have added 13 new businesses in North America during the
period with c.£46m revenues acquired. This included the acquisition in the
second half of the year of Action Pest Control, a Midwest provider ranking #62
on the Pest Control Technology Top 100 list. There was also a good performance
in the Pacific region with 8 deals (annualised revenues of c.£22m), Asia and
MENAT with 7 deals (annualised revenues of c.£8m), Europe (inc. LATAM) with
11 deals (annualised revenues of c.£12m) and 2 deals in the UK & SSA
region (annualised revenues of c.£18m). In addition, the Group acquired a
further 8% of the share capital of the Rentokil PCI business in India to take
ownership to 65%. The Rentokil PCI business is already 100% consolidated in
the Group accounts.
M&A remains central to our strategy for growth. We will continue to seek
attractive bolt-on deals, both in Pest Control and Hygiene & Wellbeing, to
build density in growth and emerging markets (Cities of the Future). Our
pipeline of prospects remains strong and our current guidance on spend on
M&A for FY 24 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.
In 2023, colleague retention increased globally by 4.7ppts to 84.2%. All
Regions improved year on year. Our North American region increased colleague
retention by 5.0ppts. This has been achieved through a wide-ranging programme
including: the launch of a retention dashboard and manager training;
monitoring for potential issues before escalation; additional mentoring
resources; and an enhanced new hire and onboarding experience.
Our Career Plus app has seen continued success across Rentokil Initial and has
been successfully launched in Terminix. The app provides colleagues with a
tool to share job vacancies externally on social media and to view roles
across the organisation, allowing them to seek out potential opportunities for
progression or roles more suitable for their needs. In 2023, Career Plus
delivered more than 20,000 job applications - 16,480 external and 5,719 from
existing colleagues - with no advertising or recruitment fees.
In the second half of the year, the Company undertook Your Voice Counts (YVC),
a global, confidential survey, which provides every colleague with the chance
to give feedback on workplace culture, leadership, customer focus,
development, and line manager performance. The survey is undertaken every two
years and saw a 90% participation rate. We maintained our strong levels of
engagement (79%, in line with the Global Company Norm) and enablement (83%,
which was 5ppts ahead of the Global Company Norm). We received excellent
feedback on the questions relating to Safety, Health, and Environment (SHE),
'My Manager' and Diversity, Equity and Inclusion. The survey results also
demonstrated that colleagues support the Company's approach and focus on
safety - a key ESG factor - which continues to be our highest performing
category. Areas recognised for improvement as measured by the Global Company
Norm include satisfaction with benefits and manager support for development.
Innovation and Technology
Digital innovation in pest control is necessary to meet the needs of an
evolving world. We lead our industry in the use of digital technologies, and
we are continuing to build this competitive advantage. Our smart technology is
providing more remote monitoring solutions and increased transparency of data.
356,000 PestConnect devices, which offer 24/7 monitoring, are now operating in
customers' premises. We have five countries where connected devices account
for more than 10% of the commercial portfolio, including the Netherlands (38%)
and France and the UK (both 23%). At the heart of our PestConnect system has
been our award-winning RADAR device, and that accounts for around two thirds
of connected units in customers' premises. In 2024 we will launch its
replacement - called RADAR X - a new dual catch unit with enhancements not
only for operational efficiency but also for sustainability. New research from
our operations in the Netherlands and the UK shows us that PestConnect can
typically resolve rodent infestations twice as fast as traditional
non-connected pest control services. In 2024, we will begin the phased rollout
of PestConnect in North America.
North America will also see the launch in H1 2024 of our proprietary EcoCatch
fly control solution as well as the continued rollout of our Lumnia LED flying
insect control range. Lumnia, which generates energy savings of up to 79%, has
now sold 445,000 units worldwide since its launch in 2017.
In 2024 we will launch our first dedicated pest control innovation centre in
the US based in Dallas, Texas which will focus on innovation and technology
for the residential and termite sectors.
Management changes
The following management changes will take effect from 1 April 2024.
Alain Moffroid, currently Regional Management Director for Europe Region, will
become Chief Commercial Officer. As part of this new role, Alain will lead the
central Marketing and Innovation function, focusing on the end to end customer
experience and service productivity. Fabrice Quinquenel, currently Managing
Director, France, Nordics and Poland, will succeed Alain in the role of
Regional Managing Director for Europe and will become a member of the
Executive Leadership Team. Rachel Canham, currently Group General Counsel,
will become Group General Counsel and Company Secretary. Gary Booker, Chief
Marketing, Innovation and Strategy Officer, will be leaving the Company in
mid-April to take up an external appointment.
Financial review
Central and regional overheads
Central and regional overheads of £121m (at CER and AER) were up £14m on the
prior year (FY 22: £107m at CER and AER) driven by Terminix related central
investments including higher share based payment charges for the larger
combined organisation.
Restructuring costs
The Company reports restructuring costs within Adjusted Operating Profit.
Costs associated with significant acquisitions are reported as one-off items
and are excluded from Adjusted Operating Profit. Restructuring costs of £9m
at CER (£7m at AER) were down £3m on the prior year (FY 22: £12m at CER and
AER). They consisted mainly of costs in respect of initiatives focused on our
North American and Argentinian transformation programmes.
Interest (at AER)
Adjusted interest of £141m at actual exchange rates was higher year on year,
partly reflecting £86m of annualised interest charges relating to financing
of the Terminix transaction, £15m of lease interest charges and a £7m
offsetting reduction from the impacts of hyperinflation and net interest
received. In the year, hyperinflation of £11m at AER in 2023 was £11m lower
than the prior year (FY 22: £22m) due to devaluation of the Argentinian peso.
Cash interest in FY 23 was £166m (FY 22: £39m) reflecting both higher
interest on debt raised for the Terminix acquisition and the phasing of coupon
payments annually in arrears.
In Appendix 1 we have shown a summary P&L interest table demonstrating how
the components of our financing drive interest costs and incomes and the
expected range for 2024 at average exchange rates. Changes in variable
interest rates, exchange rates and CPI rates in hyper-inflationary economies
during 2024 will impact the reporting of interest costs for 2024.
Tax
The income tax charge for the period at actual exchange rates was £112m on
the reported profit before tax of £493m, giving an effective tax
rate (ETR) of 22.7% (FY 22: 21.6%). The Group's ETR before
amortisation of intangible assets (excluding computer software), one-off
and adjusting items and the net interest adjustments for FY 23 was 23.8% (FY
22: 19.7%). This compares with a blended rate of tax for the countries in
which the Group operates of 25.1% (FY 22: 23.7%).
Net debt* and cash flow
£m at actual exchange rates Year to Date
2023 FY 2022 FY Change
£m £m £m
Adjusted Operating Profit 898 571 327
Depreciation 300 276 24
Other 30 12 18
Adjusted EBITDA 1,228 859 369
One-off and adjusting items (non-cash) (11) (77) 66
Working capital** (47) 9 (56)
Movement on provisions (56) (12) (44)
Capex - additions (211) (190) (21)
Capex - disposals 14 5 9
Capital of lease payments and initial direct costs incurred (151) (104) (47)
Interest (166) (39) (127)
Tax (100) (77) (23)
Free Cash Flow 500 374 126
Acquisitions (242) (1,018) 776
Disposal of companies and businesses 19 1 18
Dividends (201) (122) (79)
Cost of issuing new shares - (16) 16
Cash impact of one-off and adjusting items (107) (59) (48)
Other (6) - (6)
Debt related cash flows
Cash outflow on settlement of debt related foreign exchange forward contracts (3) 26 (29)
Net investment in term deposits - 1 (1)
Proceeds from new debt - 2,383 (2,383)
Debt repayments - (844) 844
Debt related cash flows (3) 1,566 (1,569)
Net increase/(decrease) in cash and cash equivalents (40) 726 (766)
Cash and cash equivalents at the beginning of the year 879 242 637
Exchange losses on cash and cash equivalents (7) (89) 82
Cash and cash equivalents at end of the financial year 832 879 (47)
Net increase/(decrease) in cash and cash equivalents (40) 726 (766)
Debt related cash flows 3 (1,566) 1,569
IFRS 16 liability movement 3 (34) 37
Debt acquired (1) (946) 945
Bond interest accrual (1) (42) 41
Foreign exchange translation and other items 169 (132) 301
Increase in net debt 133 (1,994) 2,127
Opening net debt (3,279) (1,285) (1,994)
Closing net debt (3,146) (3,279) 133
*Net debt is defined and explained in Note C2 to the Consolidated Financial
Statements in the Annual Report 2023
**Excludes £20m of one-off and adjusting items flowing through working
capital in 2023
Net cash flows from operating activities have risen by 22.8% to £737m in
2023. Free Cash Flow of £500m was £126m higher than in FY 22. Higher trading
profits resulted from organic and acquisitive growth. Adjusted EBITDA was
£1,228m, up 43.0% versus 2022. One-off and adjusting items (non-cash) of
£11m inflow (FY 22: £77m) represent Terminix related one-time share
incentive schemes and asset impairments.
The Group had a £47m working capital outflow in FY 23. Working capital was
driven higher by revenue growth, predominantly in North America and Europe,
across receivables and contract cost assets. Capital expenditure of £211m was
incurred in the period (FY 22: £190m), reflecting a more normal pattern of
spend post pandemic and the inclusion of Terminix capital expenditure. Lease
payments were up 45.2%.
Cash interest payments of £166m were £127m higher than in the prior year,
reflecting the timing of interest charge payments relating to financing of the
Terminix transaction.
Cash tax payments for the period were £100m, an increase of £23m compared
with the corresponding period last year. Adjusted Free Cash Flow Conversion
was 89.4%.
Cash spend on current and prior year acquisitions was £242m, dividend
payments were £201m and the cash impact of one-off and adjusting items was
£107m (largely related to the Terminix acquisition). Foreign exchange
translation and other items of £169m is primarily due to the weakening of the
US Dollar against Sterling. Overall, this led to a change in net debt of
£133m and closing net debt of £3,146m.
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.
Details of the scenarios modelled are explained in the Material Accounting
Policies section of the Annual Report.
Funding
As at 31 December 2023, the Group had liquidity headroom in the region of
£1,600m, including £785m ($1.0bn) of undrawn revolving credit facility
(RCF), with a maturity date of October 2028. The net debt to Adjusted EBITDA
ratio was 2.6x at 31 December 2023 (31 December 2022: 3.2x). The net debt to
EBITDA ratio was 2.8x at 31 December 2023 (31 December 2022: 4.6x). In July
2023, S&P Global reaffirmed the Group's BBB investment grade credit
rating; and in October 2023 the Group got a second rating (BBB with a stable
outlook) from Fitch Ratings. The interest rate on approximately 81% of the
Group's debt including leases is fixed. The Group has no debt maturities until
November 2024.
Dividend
The Board is recommending a final dividend in respect of 2023 of 5.93p per
share, payable to shareholders on the register at the close of business on 5th
April 2024, to be paid on 15th May 2024. This equates to a full-year dividend
of 8.68p per share, an increase of 15.0% compared to 2022. The last day for
DRIP elections is 23rd April 2024.
Technical guidance update for FY 24
Expected P&L Outcomes
● Restructuring costs: £5m; and One offs and Adjusting items excl. Terminix:
c.£10m
● Terminix integration Costs to Achieve*: c.$90m-$100m
● Central and regional overheads, including Terminix related investments.
£145m-£150m
● P&L adjusted interest costs: c.£135m-£145m**, incl. £10m-£15m of
hyperinflation (at AER)
● Estimated Adjusted Effective Tax Rate: 25%-26%
● Share of Profits from Associates: c.£8m-£10m
● Impact of FX within range of -£25m to -£35m***
● Intangibles amortisation: £175m-£185m
● Due to closure of the Paragon distribution business, North America regional
Revenue and Adjusted Operating Profit in 2024 will be reduced by approximately
$61m and $4m respectively.
Expected Cash Outcomes
● Overall one-off and adjusting items: c.£85m-£95m
● Working Capital: c.£50m-£60m and c.£55m-£65m of provision payments
● Capex excluding right of use (ROU) asset lease payments: £250m-£260m
● Cash interest: c.£160m-£170m
● Cash tax payments: £115m-£125m
● Anticipated spend on M&A in 2024 of c.£250m
* Reported as one-off and adjusting items and excluded from Adjusted Operating
Profit and Adjusted PBTA
** Interest costs will be impacted by refinancing decision taken around the
maturity of the €400m bond with a maturity date of November 2024
*** Based on maintenance of current FX rates
Appendix 1 - Adjusted Interest Summary1
Amount Rate Fixed/Floating 2023 2024
AER
AER
£m
£m
Bonds and swaps
EUR 400 0.95% Fixed - -
EUR 500 0.88% Fixed - -
EUR 600 0.50% Fixed - -
EUR 850 3.88% Fixed 15 15
EUR 600 4.38% Fixed 23 23
GBP 400 5.00% Fixed 20 20
Amortised Cost Fixed 4 3
Swaps 3.53% (avg) Fixed 42 40
Total 1,850 104 101
Term Loan
USD 700 5%-6% Float 31 23
Lease Interest Float 25 26
Other Interest Float 18 23
Total Other 43 49
Finance Cost2 178 173
Interest received (26) (20)
Hyperinflation (11) (13)
Finance Income3 (37) (33)
Adjusted Interest 141 140
Adjusting items
Amortisation of discount on legacy provisions2 11 10
Gain on hedge accounting recognised in finance income/cost3 (11) -
2023 average FX rate for £/€: 1.1503 and £/$: 1.2441
1. For a full reconciliation of statutory interest measures to adjusted
interest, please see non-IFRS measures section on page 16 below.
2. 2023 Finance Costs totalled £189m. See note 3.
3. 2023 Finance Income totalled £(48)m See note 4.
Use of Non-IFRS Measures
Reconciliation of non-IFRS measures to the nearest IFRS measure
The Group uses a number of non-IFRS measures to present the financial
performance of the business. These are not measures as defined under IFRS, but
management believe that these measures provide valuable additional information
for users of the Financial Statements, in order to better understand the
underlying trading performance in the year from activities that will
contribute to future performance. The Group's internal strategic planning
process is also based on these measures and they are used for management
incentive purposes. They should be viewed as complements to, and not
replacements for, the comparable IFRS measures. Other companies may use
similarly labelled measures which are calculated differently to the way the
Group calculates them, which limits their usefulness as comparative measures.
Accordingly, investors should not place undue reliance on these non-IFRS
measures.
The following sets out an explanation and the reconciliation to the nearest
IFRS measure for each non-IFRS measure.
Constant exchange rates (CER)
Given the international nature of the Group's operations, foreign exchange
movements can have a significant impact on the reported results of the Group
when they are translated into sterling (the presentation currency of the
Group). In order to help understand the underlying trading performance of the
business, revenue and profit measures are often presented at constant exchange
rates. CER is calculated by translating current-year reported numbers at the
full-year average exchange rates for the prior year. It is used to give
management and other users of the accounts clearer comparability of underlying
trading performance against the prior period by removing the effects of
changes in foreign exchange rates. The major exchange rates used for 2023 are
£/$ 1.2441 (2022: 1.2421) and £/€ 1.1503 (2022: 1.1717). Comparisons are
with the year ended 31 December 2022 unless otherwise stated.
Organic Revenue Growth
Acquisitions are a core part of the Group's growth strategy. The Organic
Revenue Growth measures (absolute and percentage) are used to help investors
and management understand the underlying performance, positive or negative, of
the business, by identifying Organic Revenue Growth excluding the impact of
Acquired Revenue. This approach isolates changes in performance of the Group
that take place under the Company's stewardship, whether favourable or
unfavourable, and thereby reflects the potential benefits and risks associated
with owning and managing a professional services business.
Organic Revenue Growth is calculated based on year-over-year revenue growth at
CER to eliminate the effects of movements in foreign exchange rates.
Acquired Revenue represents a 12-month estimate of the increase in Group
revenue from each business acquired. Acquired Revenue is calculated as: a) the
revenue from the acquisition date to the year end in the year of acquisition
in line with IFRS 3; and b) the pre-acquisition revenues from 1 January up to
the acquisition date in the year of acquisition. The pre-acquisition revenue
is based on the previously reported revenues of the acquired entity and is
considered to be an estimate.
In the year a business is acquired, all of its revenue reported under a) above
is classified as non-organic growth. In the subsequent first full financial
year after acquisition, Organic Revenue Growth is calculated for each
acquisition as the reported revenue less Acquired Revenue.
At a Group level, calculating Organic Revenue Growth therefore involves
isolating and excluding from the total year-over-year revenue change: i) the
impacts from foreign exchange rate changes, ii) the growth in revenues that
have resulted from completed acquisitions in the current period, and iii) the
estimate of pre-acquisition revenues from each business acquired. The sum of
ii) and iii) is equal to the total Acquired Revenues for all acquisitions. The
calculated Organic Revenue is expressed as a percentage of prior year revenue.
Prior year revenue is not 'pro-forma' adjusted in the calculation, as any such
estimated adjustments would have an immaterial impact..
If an acquisition is considered to be a material transaction, such as the
Terminix acquisition in October 2022, the above calculation is amended in
order to give a 'pro-forma' view of any Organic Revenue Growth for the full
financial year in the year of acquisition, as if the acquisition had been part
of the Group from the beginning of the prior year. The pro-forma calculation
is completed using pre-acquisition revenues to normalise current and prior
periods as shown in the table below. These revenue normalisations are
considered estimates, and ensure that the potentially larger Organic Revenue
Growth is measured over a denominator that includes the material acquisition.
The same adjustments are made to our North America and Pest Control segment
revenues for 2022 and 2023 as a result of the material Terminix acquisition.
While the management believes that the methodology used in the calculation of
Organic Revenue is representative of the performance of the Group, the
calculations may not be comparable to similarly labelled measures presented by
other publicly traded companies in similar or other industries.
North Europe UK & Sub-Saharan Asia & Pacific Central and regional Total
£m
£m
£m
America (incl. LATAM) Africa MENAT
£m £m £m £m
2022 Revenue 1,849 941 365 321 227 11 3,714
Adjustment for Terminix pre-acquisition 2022 Revenue(1) 1,311 23 - - - - 1,334
Normalised 2022 Revenue (base for Organic Revenue Growth percentage) 3,160 964 365 321 227 11 5,048
Revenue from 2023 acquisitions 33 7 15 6 14 - 75
(at 2022 CER)(2)
Revenue from 2022 acquisitions 24 27 1 7 4 - 63
(at 2022 CER)(3)
Organic Revenue Growth 2023 97 80 13 23 16 (1) 228
(at 2022 CER)(4)
Exchange differences (8) 3 (4) (18) (12) - (39)
2023 Revenue (at AER) 3,306 1,081 390 339 249 10 5,375
Organic Revenue Growth % 3.0% 8.3% 3.4% 7.1% 6.8% (4.4)% 4.5%
Year-over-year change in disinfection revenue (1) (8) - (9) - - (18)
Organic Revenue Growth excluding disinfection % 3.1% 9.2% 3.5% 10.2% 6.8% (4.4)% 4.9%
1. The adjustment brings in 2022 pre-acquisition revenue back to the first day
of the prior financial period for the acquired Terminix entities.
2. Revenue from completed acquisitions in the current period.
3. Revenue from each business acquired by the Group in the previous financial
year through to the 12-month anniversary of the Group's ownership.
4. Organic Revenue Growth includes Organic Revenue Growth for all entities in
the Group as at 31 December 2022.
North Europe UK & Sub-Saharan Asia & Pacific Central and regional Total
£m
£m
£m
America (incl. LATAM) Africa MENAT
£m £m £m £m
2021 Revenue 1,291 832 354 271 197 12 2,957
Adjustment for Terminix pre-acquisition 2021 Revenue(1) 1,412 33 - - - - 1,445
Normalised 2021 Revenue (base for Organic Revenue Growth percentage) 2,703 865 354 271 197 12 4,402
Revenue from 2022 acquisitions (excluding Terminix) (at 2021 CER)(2) 15 38 - 6 7 - 66
Revenue from 2021 acquisitions 48 11 - 12 4 - 75
(at 2021 CER)(3)
Organic Revenue Growth 2022 89 55 11 19 13 (1) 186
(at 2021 CER)(4)
Exchange differences 305 (5) - 13 6 - 319
Remove Terminix pre-acquisition 2022 Revenue (at AER)(5) (1,311) (23) - - - - (1,334)
2022 Revenue (at AER) 1,849 941 365 321 227 11 3,714
Organic Revenue Growth % 3.2% 6.3% 3.1% 6.8% 7.5% (11.9)% 4.2%
Year-over-year change in disinfection revenue (61) (21) (6) (7) (1) - (96)
Organic Revenue Growth excluding disinfection % 5.7% 9.1% 4.9% 11.0% 7.9% (11.9)% 6.6%
1.The adjustment brings all 12 months of 2021 pre-acquisition revenue for the
acquired Terminix entities.
2.Revenue that has resulted from completed acquisitions in the current period.
3.Revenue from each business acquired by the Group in the previous financial
year through to the 12-month anniversary of the Group's ownership.
4.Organic Revenue Growth includes Organic Revenue Growth for all entities in
the Group as at 31 December 2021 and for Terminix in the period since
acquisition on 12 October 2022.
5.Removal of the acquired entities of Terminix 2022 revenue pre-acquisition
revenues at current-year exchange rates from the first day of the period to
the anniversary of acquisition.
Adjusted expenses and profit measures
Adjusted expenses and profit measures are used to give investors and
management a further understanding of the underlying profitability of the
business over time by stripping out income and expenses that can distort
results due to their size and nature. Adjusted profit measures are calculated
by adding the following items back to the equivalent IFRS 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 (see table
on page 35).
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 environmental liabilities, and payments or
receipts as a result of legal disputes. An analysis of one-off and adjusting
items is set out on the next page.
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.
Adjusted expenses are one-off and adjusting items, and Adjusted Interest.
Adjusted profit measures used are Adjusted Operating Profit, Adjusted Profit
Before and After Tax, and Adjusted EBITDA. Adjusted Earnings Per Share is also
reported, derived from Adjusted Profit After Tax.
One-off and adjusting items
An analysis of one-off and adjusting items is set out below.
One-off and adjusting items One-off and adjusting items One-off and adjusting items
cost/(income) tax impact cash inflow/(outflow)
£m
£m £m
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 - - 22
Other 1 - 2
Total 136 (20) (59)
2023
Acquisition and integration costs 13 (2) (13)
Fees relating to Terminix acquisition 1 - (25)
Terminix integration costs 81 (21) (74)
Other 3 (1) 5
Total 98 (24) (107)
Adjusted Interest
Adjusted Interest is calculated by adjusting the reported finance income and
costs by net interest adjustments (amortisation of discount on legacy
provisions, and foreign exchange and hedge accounting ineffectiveness).
2023 2022
AER
AER
£m
£m
Finance cost 189 79
Finance income (48) (49)
Add back:
Amortisation of discount on legacy provisions (11) (3)
Foreign exchange and hedge accounting ineffectiveness 11 21
Adjusted Interest 141 48
Adjusted Operating Profit
Adjusted Operating Profit is calculated by adding back one-off and adjusting
items, and amortisation and impairment of intangible assets to operating
profit.
2023 2022
£m
£m
Operating profit 625 317
Add back:
One-off and adjusting items 98 136
Amortisation and impairment of intangible assets(1) 175 118
Adjusted Operating Profit (at AER) 898 571
Effect of foreign exchange (1) -
Adjusted Operating Profit (at CER) 897 571
1. Excluding computer software.
Adjusted Profit Before and After Tax
Adjusted Profit Before Tax is calculated by adding back net interest
adjustments, one-off and adjusting items, and amortisation and impairment of
intangible assets to profit before tax. Adjusted Profit After Tax is
calculated by adding back net interest adjustments, one-off and adjusting
items, amortisation and impairment of intangible assets, and the tax effect on
these adjustments to profit after tax.
2023
IFRS measures Net interest adjustments £m One-off and adjusting items Amortisation and impairment of intangibles(1) Non-IFRS measures
£m £m £m £m
Profit before income tax 493 - 98 175 766 Adjusted Profit Before Tax
Income tax expense (112) (2) (24) (44) (182) Tax on Adjusted Profit
Profit for the year 381 (2) 74 131 584 Adjusted Profit
After Tax
2022
IFRS measures Net interest adjustments £m One-off and adjusting items Amortisation and impairment of Non-IFRS measures
intangibles(1)
£m £m
£m
£m
Profit before 296 (18) 136 118 532 Adjusted Profit
income tax
Before Tax
Income tax expense (64) 3 (20) (24) (105) Tax on Adjusted Profit
Profit for the year 232 (15) 116 94 427 Adjusted Profit
After Tax
1. Excluding computer software.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back finance income, finance cost,
share of profit from associates net of tax, income tax expense, depreciation,
one-off and adjusting items, and amortisation, impairment of intangible assets
and other non-cash expenses to profit for the year.
2023 2022
£m
£m
Profit for the year 381 232
Add back:
Finance income (48) (49)
Finance cost 189 79
Share of profit from associates net of tax (9) (9)
Income tax expense 112 64
Depreciation 300 276
Other non-cash expenses 30 12
One-off and adjusting items 98 136
Amortisation and impairment of intangible assets(1) 175 118
Adjusted EBITDA 1,228 859
1. Excluding computer software.
Adjusted Earnings Per Share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of shares in
issue during the year, and is explained in Note 6 to the Financial Statements.
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 and is shown below.
For Adjusted 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 are
explained in Note 6 to the Financial Statements.
2023 2022
£m
£m
Profit attributable to equity holders of the Company 381 232
Add back:
Net interest adjustments - (18)
One-off and adjusting items 98 136
Amortisation and impairment of intangibles(1) 175 118
Tax on above items(2) (70) (41)
Adjusted profit attributable to equity holders of the Company 584 427
Weighted average number of ordinary shares in issue (million) 2,516 2,002
Adjustment for potentially dilutive shares (million) 11 12
Weighted average number of ordinary shares for diluted earnings per share 2,527 2,014
(million)
Basic Adjusted Earnings Per Share 23.19p 21.34p
Diluted Adjusted Earnings Per Share 23.08p 21.22p
1. Excluding computer software.
2. The tax effect on add-backs is as follows: one-off and adjusting items
£24m (2022: £20m); amortisation and impairment of intangibles £44m (2022:
£25m); and, net interest adjustments £2m (2022: £(3)m).
Adjusted cash measures
The Group aims to generate sustainable cash flow in order to support its
acquisition programme and to fund dividend payments to shareholders.
Management considers that this is useful information for investors. Adjusted
cash measures in use are Free Cash Flow, Adjusted Free Cash Flow, and Adjusted
Free Cash Flow Conversion.
Free Cash Flow
Free Cash Flow is measured as net cash flows from operating activities,
adjusted for cash flows related to the purchase and sale of property, plant,
equipment and intangible 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. Free Cash Flow is used by management for incentive
purposes and is a measure shared with and used by investors. A reconciliation
of net cash flows from operating activities in the Consolidated Cash Flow
Statement to Free Cash Flow is provided in the table below.
2023 2022
£m
£m
Net cash flows from operating activities 737 600
Purchase of property, plant, and equipment (167) (153)
Purchase of intangible assets (44) (37)
Capital element of lease payments and initial direct costs incurred (151) (104)
Proceeds from sale of property, plant and equipment, and software 14 5
Cash impact of one-off and adjusting items 107 59
Dividends received from associates 4 4
Free Cash Flow 500 374
Adjusted Free Cash Flow and Adjusted Free Cash Flow Conversion
Adjusted Free Cash Flow Conversion is provided to demonstrate to investors the
proportion of Adjusted Profit After Tax that is converted to cash. It 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. Product development additions are
adjusted due to their variable size and non-underlying nature. Net investment
hedge cash interest through Other Comprehensive Income is adjusted because the
cash relates to an item that is not recognised in Adjusted Profit After Tax.
2023 2022
£m
£m
Free Cash Flow 500 374
Product development additions 10 10
Net investment hedge cash interest through Other Comprehensive Income 12 8
Adjusted Free Cash Flow (a) 522 392
Adjusted Profit After Tax (b) 584 427
Adjusted Free Cash Flow Conversion (a/b) 89.4% 91.8%
The nearest IFRS-based equivalent measure to Adjusted Free Cash Flow
Conversion would be Cash Conversion, which is shown in the table below to
provide a comparison in the calculation. Cash Conversion is calculated as net
cash flows from operating activities divided by profit attributable to equity
holders of the Company, expressed as a percentage. Management considers that
this is useful information for investors as it gives an indication of the
quality of profits, and ability of the Group to turn profits into cash flows.
2023 2022
£m
£m
Net cash flows from operating activities (a) 737 600
Profit attributable to equity holders of the Company (b) 381 232
Cash Conversion (a/b) 193.4% 258.6%
Adjusted Effective Tax Rate (Adjusted ETR)
Adjusted Effective Tax Rate is used to show investors and management the rate
of tax applied to the Group's Adjusted Profit Before Tax. The measure is
calculated by dividing Adjusted Income Tax Expense by Adjusted Profit Before
Tax, expressed as a percentage.
2023 2022
£m
£m
Income tax expense 112 64
Tax adjustments on:
Amortisation and impairment of intangible assets(1) 44 24
Net interest adjustments 2 (3)
One-off and adjusting items 24 20
Adjusted Income Tax Expense (a) 182 105
Adjusted Profit Before Tax (b) 766 532
Adjusted Effective Tax Rate (a/b) 23.8% 19.7%
1. Excluding computer software.
The Group's effective tax rate (ETR) for 2023 on reported profit before tax
was 22.7% (2022: 21.6%). The Group's Adjusted ETR before amortisation of
intangible assets (excluding computer software), one-off and adjusting items,
and the net interest adjustments for 2023 was 23.8% (2022: 19.7%). This
compares with a blended rate of tax for the countries in which the Group
operates of 25.1% (2022: 23.7%). The Group's low tax rate in 2023 is primarily
attributable to net prior-year tax credits of £12m (2022: £9m).
The Group's tax charge and Adjusted 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.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December
Note 2023 2022 2021
£m £m £m
Revenue 2 5,375 3,714 2,957
Operating expenses (4,711) (3,373) (2,610)
Net impairment losses on financial assets (39) (24) -
Operating profit 625 317 347
Finance income 4 48 49 4
Finance cost 3 (189) (79) (34)
Share of profit from associates net of tax 9 9 8
Profit before income tax 493 296 325
Income tax expense1 5 (112) (64) (62)
Profit for the year 381 232 263
Profit for the year attributable to:
Equity holders of the Company 381 232 263
Non-controlling interests - - -
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Remeasurement of net defined benefit liability - 2 1
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves (352) (232) (18)
Net gain/(loss) on net investment hedge 109 (68) 15
Cost of hedging 9 (2) (1)
Effective portion of changes in fair value of cash flow hedge 3 (6) 13
Tax related to items taken to other comprehensive income 6 11 2
Other comprehensive income for the year (225) (295) 12
Total comprehensive income for the year 156 (63) 275
Total comprehensive income for the year attributable to:
Equity holders of the Company 156 (63) 275
Non-controlling interests - - -
Earnings per share attributable to the Company's equity holders:
Basic 6 15.14p 11.57p 14.16p
Diluted 6 15.07p 11.51p 14.10p
1. Taxation includes £106m (2022: £58m; 2021: £50m) in respect of overseas
taxation.
All profit is from continuing operations.
Consolidated Balance Sheet
At 31 December
Note 2023 Retrospectively
£m adjusted
20221
£m
Assets
Non-current assets
Intangible assets1 9 7,042 7,303
Property, plant and equipment 10 499 495
Right-of-use assets1 452 449
Investments in associated undertakings1 44 63
Other investments 21 23
Deferred tax assets 43 43
Contract costs1 224 215
Retirement benefit assets 3 3
Trade and other receivables 45 90
Derivative financial instruments 57 21
8,430 8,705
Current assets
Other investments 1 1
Inventories 207 200
Trade and other receivables1 880 830
Current tax assets 33 36
Derivative financial instruments 14 -
Cash and cash equivalents 11 1,562 2,170
2,697 3,237
Liabilities
Current liabilities
Trade and other payables1 (1,144) (1,166)
Current tax liabilities (48) (60)
Provisions for liabilities and charges 17 (94) (133)
Bank and other short-term borrowings1 (1,134) (1,345)
Lease liabilities (127) (135)
Derivative financial instruments (32) -
(2,579) (2,839)
Net current assets 118 398
Non-current liabilities
Other payables1 (71) (90)
Bank and other long-term borrowings (3,153) (3,574)
Lease liabilities1 (318) (325)
Deferred tax liabilities1 (517) (513)
Retirement benefit obligations 16 (28) (30)
Provisions for liabilities and charges1 17 (357) (381)
Derivative financial instruments (16) (92)
(4,460) (5,005)
Net assets 4,088 4,098
Equity
Capital and reserves attributable to the Company's equity holders
Share capital 18 25 25
Share premium 14 9
Other reserves 532 763
Retained earnings 3,518 3,302
4,089 4,099
Non-controlling interests (1) (1)
Total equity 4,088 4,098
1. Goodwill, right-of-use assets, investments in associated undertakings,
contract costs, accrued income, accruals, loans, long-term liabilities, lease
liabilities, deferred tax liabilities, and provisions have been
retrospectively adjusted in 2022, in accordance with IFRS 3, to reflect
measurement period adjustments made relating to the Terminix acquisition (see
note 8).
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 2021 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 hedge1 - - 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 hedge1 - - (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
Adjustment on initial application of IFRS17 - - - (1) - (1)
Adjusted balance as at 1 January 2023 25 9 763 3,301 (1) 4,097
Profit for the year - - - 381 - 381
Other comprehensive income:
Net exchange adjustments offset in reserves - - (352) - - (352)
Net gain on net investment hedge - - 109 - - 109
Net gain on cash flow hedge1 - - 3 - - 3
Cost of hedging - - 9 - - 9
Tax related to items taken directly to other comprehensive income - - - 6 - 6
Total comprehensive income for the year - - (231) 387 - 156
Transactions with owners:
Gain on stock options - 5 - - - 5
Dividends paid to equity shareholders - - - (201) - (201)
Cost of equity-settled share-based payment plans - - - 27 - 27
Movement in the carrying value of put options - - - 4 - 4
At 31 December 2023 25 14 532 3,518 (1) 4,088
1. £3m net gain (2022 £6m net loss; 2021: £13m net gain) on cash flow hedge
includes £28m loss (2022: £137m gain; 2021: £15m loss) from the effective
portion of changes in fair value offset by reclassification to the cost of
acquisition of £nil (2022: £118m gain; 2021: £nil) and reclassification to
the income statement of £31m loss (2022: £25m gain; 2021: £28m loss) due to
changes in foreign exchange rates.
Shares of £nil (2022: £nil; 2021: £nil) have been netted against retained
earnings. This represents 13.0m (2022: 19.6m; 2021: 9.4m) shares held by the
Rentokil Initial Employee Share Trust, which is not consolidated. The market
value of these shares at 31 December 2023 was £57m (2022: £100m; 2021:
£55m). 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 2021 (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 hedge1 - - - 13 - - 13
Transfer between reserves - - (10) - - - (10)
Cost of hedging - - - - - (1) (1)
Total other 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 hedge1 - - - (6) - - (6)
Cost of hedging - - - - - (2) (2)
Total other 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
Net exchange adjustments offset in reserves - - - - (352) - (352)
Net loss on net investment hedge - - - - 109 - 109
Net gain on cash flow hedge1 - - - 3 - - 3
Cost of hedging - - - - - 9 9
Total other comprehensive income for the year - - - 3 (243) 9 (231)
At 31 December 2023 (1,723) 2,998 - 6 (754) 5 532
1. £3m net gain (2022 £6m net loss; 2021: £13m net gain) on cash flow hedge
includes £28m loss (2022: £137m gain; 2021: £15m loss) from the effective
portion of changes in fair value offset by reclassification to the cost of
acquisition of £nil (2022: £118m gain; 2021: £nil) and reclassification to
the income statement of £31m loss (2022: £25m gain; 2021: £28m loss) 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. Accordingly, the balance of £10m was
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 2023 2022 2021
£m
£m
£m
Cash flows from operating activities1
Operating profit 625 317 347
Adjustments for:
- Depreciation and impairment of property, plant and equipment 154 148 128
- Depreciation and impairment of leased assets 120 106 78
- Amortisation and impairment of intangible assets (excluding computer 175 118 74
software
- Amortisation and impairment of computer software 26 22 17
- Other non-cash items 26 8 6
Changes in working capital (excluding the effects of acquisitions and exchange
differences on consolidation):
- Inventories (15) (4) (3)
- Contract costs (19) (10) (5)
- Trade and other receivables (29) 5 59
- Trade and other payables and provisions (60) 6 (32)
Interest received 25 13 5
Interest paid2 (191) (52) (42)
Income tax paid (100) (77) (69)
Net cash flows from operating activities 737 600 563
Cash flows from investing activities
Purchase of property, plant and equipment (167) (153) (128)
Purchase of intangible assets (44) (37) (32)
Proceeds from sale of property, plant and equipment 14 5 7
Acquisition of companies and businesses, net of cash acquired 8 (242) (1,018) (463)
Disposal of companies and businesses - 1 -
Disposal of investment in associate 19 - -
Dividends received from associates 4 4 4
Net change to cash flow from investment in term deposits - 1 171
Net cash flows from investing activities (416) (1,197) (441)
Cash flows from financing activities
Dividends paid to equity shareholders 7 (201) (122) (139)
Acquisition of shares from non-controlling interest - - (9)
Capital element of lease payments (157) (104) (88)
Cost of issuing new shares - (16) -
Cash (outflow)/inflow on settlement of debt-related foreign exchange forward (3) 26 (19)
contracts
Proceeds from new debt - 2,383 5
Debt repayments - (844) (167)
Net cash flows from financing activities (361) 1,323 (417)
Net (decrease)/increase in cash and cash equivalents (40) 726 (295)
Cash and cash equivalents at beginning of year 879 242 551
Exchange losses on cash and cash equivalents (7) (89) (14)
Cash and cash equivalents at end of the financial year 11 832 879 242
1. Cash flows from operating activities has been revised in 2023 to show a
reconciliation from operating profit to net cash flows from operating
activities - part of this reconciliation was previously shown in a separate
table in the notes to the financial statements.
2. Interest paid includes the interest element of lease payments of £25m
(2022: £10m; 2021: £6m).
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 2022.
The Group has adopted the following new standards and amendments to standards,
including any consequential amendments to other standards, with effect from 1
January 2023:
● introduction of IFRS 17 Insurance contracts (for non-issuers);
● amendments to IAS 8 Definition of accounting estimates;
● amendments to IAS 1 Disclosure of accounting policies; and
● amendments to IAS 12 Deferred tax.
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 2022.
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 December
2023 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.
Retrospective adjustments to prior year comparatives
In accordance with the requirements of IFRS 3 Business Combinations, 2022
comparative information has been retrospectively adjusted to show the effect
of measurement period adjustments arising on the Terminix acquisition during
2023. Further details can be found in note 8.
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 £224m (2022 retrospectively adjusted: £215m; 2021: £75m). The amount of
amortisation recognised in the period was £121m (2022: £39m; 2021: £30m)
and impairment losses were £nil (2022: £nil; 2021: £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.
The LATAM region is combined with Europe in the Group's segment reporting. It
is the Group's smallest region and not considered reportable under the
quantitative thresholds in IFRS 8. It is combined with Europe as they are
similar with respect to economic characteristics, the nature of services
provided, the type of customers, methods used to provide services, and
language and cultural similarities.
Disaggregated revenue under IFRS 15 is the same as the segmental analysis
below. Restructuring costs, one-off and adjusting items, amortisation and
impairment of intangible assets (excluding computer software), and central and
regional costs are presented at a Group level as they are not targeted or
managed at reportable segment level. The basis of presentation is consistent
with the information reviewed by internal management.
Revenue and profit from continuing operations
Revenue Revenue1 Revenue1 Operating Operating Operating
2023 2022 2021 profit profit1 profit1
£m £m £m 2022 2022 2021
£m £m £m
North America2
Pest Control 3,201 1,746 1,149 599 297 187
Hygiene & Wellbeing 105 103 142 18 18 29
3,306 1,849 1,291 617 315 216
Europe (incl LATAM)
Pest Control 516 427 350 124 103 92
Hygiene & Wellbeing 344 322 316 52 53 54
France Workwear 221 192 166 39 31 17
1,081 941 832 215 187 163
UK & Sub-Saharan Africa
Pest Control1 195 182 171 51 47 45
Hygiene & Wellbeing 195 183 183 43 48 49
390 365 354 94 95 94
Asia & MENAT
Pest Control 250 231 187 34 34 25
Hygiene & Wellbeing 89 90 84 11 11 11
339 321 271 45 45 36
Pacific
Pest Control 124 104 90 22 16 14
Hygiene & Wellbeing 125 123 107 33 32 25
249 227 197 55 48 39
Central and regional overheads 10 11 12 (121) (107) (96)
Restructuring costs - - - (7) (12) (10)
Revenue and Adjusted Operating Profit 5,375 3,714 2,957 898 571 442
One-off and adjusting items (98) (136) (21)
Amortisation and impairment of intangible assets3 (175) (118) (74)
Operating Profit 625 317 347
1. Central and regional overheads revenue relates to the wholesale of
metalwork and consumables including hygiene and pest control products. It is
managed centrally rather than in any region. During 2023, internal management
reporting structures changed and revenue and profit have been represented for
2022 and 2021 under the new structure. As a result of this change revenue of
£5m and operating profit of £1m was moved from UK & Sub-Saharan Africa -
Pest Control to central and regional overheads for each year..
2. During 2023 there were impairment losses recognised in North America
related to ROU assets of £nil (2022: £17m; 2021: £nil) and related to
property, plant and equipment of £nil (2022: £8m; 2021: £nil).
3. Excluding computer software.
Other segment items included in the consolidated income statement are as
follows:
Amortisation and Amortisation and Amortisation and
impairment of impairment of impairment of
intangibles1 intangibles1 intangibles1
2023 2022 2021
£m £m £m
North America 118 59 34
Europe (incl. LATAM) 24 29 14
UK & Sub-Saharan Africa 8 - 9
Asia & MENAT 11 20 7
Pacific 6 4 4
Central and regional 8 6 6
Total 175 118 74
Tax effect (44) (25) (18)
Total after tax effect 131 93 56
1. Excluding computer software.
3. Finance cost
2023 2022 2021
£m £m £m
Hedged interest payable on medium-term notes issued1 61 39 10
Interest payable on bank loans and overdrafts1 42 5 3
Interest payable on RCF1 3 1 1
Interest payable on foreign exchange swaps2 44 19 14
Interest payable on leases 25 10 6
Amortisation of discount on provisions 14 3 -
Fair value loss on hedge ineffectiveness - 2 -
Total finance cost 189 79 34
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 £55m (2022: £26m). £12m has been reported in other
comprehensive income due to hedge accounting (2022: £8m).
4. Finance income
2023 2022 2021
£m £m £m
Bank interest received 25 5 1
Fair value gain on hedge ineffectiveness 1 22 -
Foreign exchange gain on translation of foreign assets/liabilities 11 - -
Hyperinflation accounting adjustment 11 22 3
Total finance income 48 49 4
5. Income tax expense
Analysis of charge in the year:
2023 2022 2021
£m £m £m
Current tax expense 94 76 57
Adjustment in respect of previous periods (8) 2 (3)
Total current tax 86 78 54
Deferred tax expense/(credit) 30 (3) 21
Deferred tax adjustment in respect of previous periods (4) (11) (13)
Total deferred tax 26 (14) 8
Total income tax expense 112 64 62
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 £38m has been recognised in respect of losses (2022:
£23m), of which £28m (2022: £18m) relates to UK losses carried forward at
31 December 2023. 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 £34m (2022: £120m) have not been recognised as at 31 December 2023
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 £169m (2022: £230m) 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,
£95m (2022: £74m) will expire at various dates between 2024 and 2040.
The cash tax paid for the year was £100m (2022: £77m, 2021: £69m). The cash
tax paid is expected to increase in future periods due to the acquisition of
Terminix.
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.
For the calculation of diluted earnings per share, 18,422 share options were
anti-dilutive and not included in the calculation of the dilutive effect as at
31 December 2023 (31 December 2022: 1,290,294; 31 December 2021: nil).
Details of the calculation of earnings per share are set out below:
2023 2022 2021
£m £m £m
Profit attributable to equity holders of the Company 381 232 263
Weighted average number of ordinary shares in issue (million) 2,516 2,002 1,858
Adjustment for potentially dilutive shares (million) 11 12 8
Weighted average number of ordinary shares for diluted earnings per share 2,527 2,014 1,866
(million)
Basic earnings per share 15.14p 11.57p 14.16p
Diluted earnings per share 15.07p 11.51p 14.10p
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.
2023 2022 2021
£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 -
2022 final dividend paid - 5.15p per share 131 - -
2023 interim dividend paid - 2.75p per share 70 - -
Total 201 122 139
An interim dividend of 2.75p per share was paid on 11 September 2023 amounting
to £70m. A final dividend in respect of 2023 of 5.93p per share is to be
proposed at the Annual General Meeting on 8 May 2024.
The aggregate amount of the proposed dividend to be paid out of retained
earnings at 31 December 2023, but not recognised as a liability at year end,
is £150m (2022: £130m; 2021: £80m).
8. Business combinations
During the year the Group purchased 100% of the share capital or trade and
assets of 41 companies and businesses (2022: 53). The total consideration in
respect of these acquisitions was £261m (2022: £4,369m) and the cash outflow
from current and past period acquisitions net of cash acquired, was £242m
(2022: £1,018m).
During the year, measurement period adjustments have been made in relation to
the Terminix acquisition. These have been reflected as a retrospective
adjustment of 2022 comparatives in accordance with IFRS 3 as follows:
Measurement
As period Retrospectively
reported adjustment adjusted
£m £m £m
Non-current assets
- Intangible assets 2,027 - 2,027
- Property, plant and equipment1 249 (5) 244
- Other non-current assets 143 47 190
Current assets 701 (3) 698
Current liabilities (311) (5) (316)
Non-current liabilities (1,875) (18) (1,893)
Net assets acquired 934 16 950
Goodwill 3,176 (16) 3,160
1. Includes ROU assets
Goodwill on all acquisitions 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:
Total Terminix Global Holdings, Inc.1 Individually immaterial acquisitions Retrospectively
2023 2022 2022 adjusted
£m £m £m Total1
2022
£m
Purchase consideration
- Cash paid 203 1,087 214 1,301
- Deferred and contingent consideration 58 - 45 45
- Equity interests - 3,023 - 3,023
Total purchase consideration 261 4,110 259 4,369
Fair value of net assets acquired1 (88) (950) (87) (1,037)
Goodwill from current-year acquisitions1 173 3,160 172 3,332
Goodwill expected to be deductible for tax purposes 76 - 60 60
1. Goodwill (decrease £16m), contract costs (increase £36m), investments in
associates (increase £11m), ROU assets (decrease £5m), provisions (increase
£24m), lease liabilities (decrease £8m), loans (decrease £11m), long-term
liabilities (increase £11m), deferred tax liabilities (increase £2m),
accrued income (decrease £3m) and accruals (increase £5m) have been
retrospectively adjusted in 2022, in accordance with IFRS 3, to reflect
measurement period adjustments made relating to the Terminix acquisition.
Deferred consideration of £15m and contingent consideration of £43m are
payable in respect of the above acquisitions (2022: £22m and £23m
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 £nil
(2022: £10m).
The fair values7 of assets and liabilities arising from acquisitions in the
year are as follows:
Total Terminix Global Holdings, Inc.1 Individually immaterial acquisitions Retrospectively
2023 2022 2022 adjusted
£m £m £m Total1
2022
£m
Non-current assets
- Intangible assets2 80 2,027 74 2,101
- Property, plant and equipment3 12 244 14 258
- Other non-current assets - 190 - 190
Current assets4 22 698 28 726
Current liabilities5 (12) (316) (11) (327)
Non-current liabilities6 (14) (1,893) (18) (1,911)
Net assets acquired 88 950 87 1,037
1. Contract costs (increase £36m), investments in associates (increase
£11m), ROU assets (decrease £5m), provisions (increase £24m), lease
liabilities (decrease £8m), loans (decrease £11m), long-term liabilities
(increase £11m), deferred tax liabilities (increase £2m), accrued income
(decrease £3m) and accruals (increase £5m) have been retrospectively
adjusted in 2022, in accordance with IFRS 3, to reflect measurement period
adjustments made relating to the Terminix acquisition.
2. Includes £69m (2022: £778m) of customer lists, £nil (2022: £1,292m) of
indefinite-lived brands and £11m (2022: £31m) of other intangibles.
3. Includes £1m (2022: £195m) of right-of-use assets.
4. Includes cash acquired of £8m (2022: £322m), inventory of £2m (2022:
£48m) and trade and other receivables of £12m (2022: £357m).
5. Includes trade and other payables of £10m (2022: £326m).
6. Includes £12m of deferred tax liabilities relating to acquired intangibles
(2022: £447m), £nil of debt that was acquired with the Terminix business and
repaid in November 2022 (2022: £749m), lease liabilities of £1m (2022:
£207m), termite damage claims provisions of £nil (2022: £353m) and other
provisions of £1m (2022: £144m).
7. The fair values of assets and liabilities from acquisitions in the current
year will be finalised in the 2024 Financial Statements. These fair values are
provisional as the acquisition accounting has not yet been finalised,
primarily due to the proximity of many acquisitions to the year end.
The cash outflow from current and past acquisitions is as follows:
Total Terminix Global Holdings, Inc. Individually immaterial acquisitions Retrospectively
2023 2022 2022 adjusted
£m £m £m Total
2022
£m
Total purchase consideration 261 4,110 259 4,369
Equity interests - (3,023) - (3,023)
Consideration payable in future periods (58) - (45) (45)
Purchase consideration paid in cash 203 1,087 214 1,301
Cash and cash equivalents in acquired companies and businesses (8) (313) (9) (322)
Cash outflow on current period acquisitions 195 774 205 979
Deferred and contingent consideration paid 47 - 39 39
Cash outflow on current and past acquisitions 242 774 244 1,018
From the dates of acquisition to 31 December 2023, new acquisitions
contributed £75m to revenue and £10m to operating profit (2022: £422m and
£3m respectively).
If the acquisitions had occurred on 1 January 2023, the revenue and operating
profit of the combined Group would have amounted to £5,414m and £628m
respectively (2022: £5,109m and £444m respectively).
9. Intangible assets
A breakdown of intangible assets is as shown below:
Goodwill1 Customer Indefinite-lived brands Other Product development Computer Total1
£m lists £m intangibles £m software £m
£m £m £m
Cost
At 1 January 2022 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 3,336 779 1,292 23 - 11 5,441
Hyperinflationary adjustment 14 3 - 1 - - 18
Disposal of companies and businesses (1) - - - - - (1)
At 31 December 2022 (retrospectively adjusted) 5,165 1,473 1,185 81 55 206 8,165
Exchange differences (269) (70) (58) (5) - (3) (405)
Additions - - - - 10 34 44
Disposals/retirements (2) (15) - (12) - (8) (37)
Acquisition of companies and businesses 172 69 - 11 - - 252
Hyperinflationary adjustment 14 3 - 1 - - 18
At 31 December 2023 5,080 1,460 1,127 76 65 229 8,037
Accumulated amortisation and impairment
At 1 January 2022 (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)
Exchange differences 12 26 - 2 - 3 43
Disposals/retirements 2 15 - 12 - 7 36
Hyperinflationary adjustment (10) (1) - - - - (11)
Impairment charge (3) (1) - - - - (4)
Amortisation charge - (155) - (9) (7) (26) (197)
At 31 December 2023 (64) (689) - (39) (44) (159) (995)
Net book value
At 1 January 2022 1,844 241 - 19 14 46 2,164
At 31 December 20221 5,100 900 1,185 37 18 63 7,303
At 31 December 2023 5,016 771 1,127 37 21 70 7,042
1. Goodwill has been retrospectively adjusted by a decrease of £16m in 2022,
in accordance with IFRS 3, to reflect measurement period adjustments made
relating to the Terminix acquisition (see note 8).
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 2022 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 29 2 4 30 65
Reclassification from IFRS 16 ROU assets1 - - - 8 8
At 31 December 2022 127 587 215 255 1,184
Exchange differences (7) (20) (5) (15) (47)
Additions 7 123 14 23 167
Disposals (9) (77) (9) (25) (120)
Acquisition of companies and businesses - 1 1 8 10
Hyperinflationary adjustment 4 - - 1 5
Reclassification from IFRS 16 ROU assets1 - - - 8 8
At 31 December 2023 122 614 216 255 1,207
Accumulated depreciation and impairment
At 1 January 2022 (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)
Exchange differences 2 14 5 7 28
Disposals 4 75 8 22 109
Hyperinflationary adjustment (1) - - (1) (2)
Depreciation charge (5) (102) (15) (32) (154)
At 31 December 2023 (44) (369) (153) (142) (708)
Net book value
At 1 January 2022 56 204 53 85 398
At 31 December 2022 83 231 64 117 495
At 31 December 2023 78 245 63 113 499
1. 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 £15m (2022: £13m) 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 £70m (2022: £69m) 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.
Gross Gross
amounts amounts
2023 2022
£m £m
Cash at bank and in hand 1,080 1,713
Money market funds 153 236
Short-term bank deposits 329 221
Cash and cash equivalents in the Consolidated Balance Sheet 1,562 2,170
Bank overdraft (730) (1,291)
Cash and cash equivalents in the Consolidated Cash Flow Statement 832 879
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
2023 flows (fair value changes, accruals and acquisitions) and other) 2023
£m £m £m £m £m
Bank and other short-term borrowings (1,345) 664 (106) (347) (1,134)
Bank and other long-term borrowings (3,574) - - 421 (3,153)
Lease liabilities (460) 182 (162) (5) (445)
Other investments 1 - - - 1
Fair value of debt-related derivatives (71) 39 (1) 56 23
Gross debt (5,449) 885 (269) 125 (4,708)
Cash and cash equivalents in the Consolidated Balance Sheet 2,170 (601) - (7) 1,562
Net debt (3,279) 284 (269) 118 (3,146)
Opening Cash Non-cash Non-cash (foreign exchange Closing
2022 flows (fair value changes, accruals and acquisitions)1 and other) 1 2022 1
£m £m £m £m £m
Bank and other short-term borrowings1 (459) (121) (762) (3) (1,345)
Bank and other long-term borrowings (1,256) (2,257) - (61) (3,574)
Lease liabilities1 (217) 114 (217) (140) (460)
Other investments 1 - - - 1
Fair value of debt-related derivatives (22) (7) 19 (61) (71)
Gross debt1 (retrospectively adjusted) (1,953) (2,271) (960) (265) (5,449)
Cash and cash equivalents in the Consolidated Balance Sheet 668 1,591 - (89) 2,170
Net debt1 (retrospectively adjusted) (1,285) (680) (960) (354) (3,279)
1. Bank and other short-term borrowings (decrease £9m) and lease liabilities
(decrease £7m) have been retrospectively adjusted in 2022, in accordance with
IFRS 3, to reflect measurement period adjustments made relating to the
Terminix acquisition (see note 8).
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 2023 at year end
2023 2023 £m 2023
£m £m %
Non-current
$700m term loan due October 2025 550 550 - 5.94
$1.0bn RCF due October 2028 785 - 785 0.14
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 2028 827 - 827 0.14
The RCF was undrawn throughout 2022 and 2023.
Medium-term notes and bond debt comprises:
Bond interest coupon Effective hedged interest rate Bond interest coupon Effective hedged interest rate
2023 2023 2022 2022
Current
€400m bond due November 2024 Fixed 0.950% Fixed 3.60% Fixed 0.950% Fixed 3.08%
Non-current
€500m bond due May 2026 Fixed 0.875% Fixed 2.80% Fixed 0.875% Fixed 1.78%
€850m bond due June 2027 Fixed 3.875% Fixed 5.01% Fixed 3.875% Fixed 3.98%
€600m bond due October 2028 Fixed 0.500% Fixed 2.23% Fixed 0.500% Fixed 1.30%
€600m bond due June 2030 Fixed 4.375% Fixed 4.48% Fixed 4.375% Fixed 4.38%
£400m bond due June 2032 Fixed 5.000% Fixed 5.20% Fixed 5.000% Fixed 5.11%
Average cost of bond debt at year-end rates 3.97% 3.28%
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.
16. 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. The effect of discounting environmental provisions and other
provisions is not considered to be material due to the low level of expected
future cash flows. Termite damage claim provisions and self-insurance
provisions are discounted, and the majority of these provisions are held in
the US. The discount rate used is based on US government bond rates, and was
5.25% (2022: 3.5%-5.875%).
Termite damage claims1 Self- Environmental1 Other Total1
£m insurance £m £m £m
£m
At 1 January 2022 - 37 11 13 61
Exchange differences1 (29) (7) - - (36)
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 businesses1 354 136 7 1 498
Unwinding of discount on provisions 3 1 - - 4
At 31 December 20221(retrospectively adjusted) 321 165 16 12 514
At 1 January 2023 321 165 16 12 514
Exchange differences (14) (8) (1) 1 (22)
Additional provisions 15 56 3 7 81
Used during the year (73) (44) (2) (7) (126)
Unused amounts reversed - (8) - (3) (11)
Acquisition of companies and businesses - - - 1 1
Unwinding of discount on provisions 11 3 - - 14
At 31 December 2023 260 164 16 11 451
2023 Retrospectively
Total
£m adjusted
2022
Total1
£m
Analysed as follows:
Non-current1 357 381
Current 94 133
Total 451 514
1. Termite damage claim provisions and environmental provisions have been
retrospectively adjusted in 2022 by an increase of £18m and £4m
respectively, in accordance with IFRS 3, to reflect measurement period
adjustments made relating to the Terminix acquisition.
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 volume and value 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 at a declining rate. 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 provision is also likely to change.
The sensitivity of the liability balance to changes in the inputs is
illustrated as follows:
● Discount rate - The exposure to termite damage claims is largely based within
the United States, therefore measurement is based on a seven-year US bond
risk-free rate. During 2023, interest rates (and therefore discount rates)
have moved up and are at their highest level in over a decade. Rates could
move in either direction and management has modelled that an increase/decrease
of 5% in yields (would decrease/increase the provision by £3m (2022: £3m).
Over the 12 months to 31 December 2023, seven-year risk-free rate yields have
decreased c.4% from 4.03% to 3.88%.
● Claim value - Claim value forecasts have been based on the latest available
historical settled Terminix claims. Claims values 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 three months and one year, 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
values and therefore future material changes in provisions. Management has
modelled that an increase/decrease of 5% in claim values would
increase/decrease the provision by c.£15m (2022: £14m). Over the 12 months
to 31 December 2023, as a result of accelerating the clear down of legacy
longstanding claims and other macroeconomic factors, in-year costs per claim
rose by c.32% (2022: 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, 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
provision by c.£15m (2022: £14m), accordingly. Over the 12 months to 31
December 2023 claim rates fell by c.7% (2022: 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, 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 macroeconomic factors and to the performance of the Group. A 1%
movement in customer churn rates, up or down, would change the provision by
c.£11m up or down (2022: £10m), accordingly. On average over the last 10
years churn rates have moved by +/- c.1.8% per annum (2022: +/-1.2%).
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 all
pending claims should settle within the next five years.
Environmental
The Group owns, or formerly owned, a number of properties in Europe and the US
where environmental contamination is being managed. These issues tend to be
complex to determine and resolve and may be material, although it is often not
possible to accurately predict future costs of management or remediation
reliably. Provisions are held where liability is probable and costs can be
reliably estimated. Contingent liabilities exist where the conditions for
recognising a provision under IAS 37 have not been met. The Group monitors
such properties to determine whether further provisions are necessary. The
provisions that have been recognised 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 onerous contracts and
property dilapidations settlements. Existing provisions are expected to be
substantially utilised within the next five years.
17. Share capital
During the year, 2,500,000 new shares were issued in relation to employee
share schemes.
2023 2022
£m
£m
Issued and fully paid
At 31 December - 2,522,539,885 shares (2022: 2,520,039,885) 25 25
18. Post balance sheet events
There have been no significant post balance sheet events affecting the Group
since 31 December 2023.
19. Legal statements
The financial information for the year ended 31 December 2023 contained in
this preliminary announcement has been approved by the Board and authorised
for release on 7 March 2024.
The financial information in this statement does not constitute the Company's
statutory accounts for the years ended 31 December 2023 or 2022. The financial
information for 2022 and 2023 is derived from the statutory accounts for 2022
(which have been delivered to the registrar of companies) and 2023 (which will
be delivered to the registrar of companies following the AGM in May 2024). The
auditors have reported on the 2022 and 2023 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 2023 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 2022 Annual
Report. A full list of accounting policies will be presented in the 2023
Annual Report. For details of new accounting policies applicable to the Group
in 2023 and their impact please refer to Note 1.
20. 2023 Annual Report
Copies of the 2023 Annual Report will be sent to shareholders who have elected
to receive hard copies on or around 27 March 2024 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.
21. 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 11.30am on 8 May 2024. 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.
22. 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 2023
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 and International Reporting
Financial Standards as issued by the International Accounting Standards Board,
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
7 March 2024
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
2023), 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 especially as they may affect demand
from the Group's customers; 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; cyber security breaches,
attacks and other similar incidents, as well as disruptions or failures in the
Group's IT systems or data security procedures and those of its third-party
service providers; 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; the identification of material weaknesses
in the Group's internal control over financial reporting within the meaning of
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 and any
associated impacts on the termite provision; 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 in many jurisdictions, as well as contractual
obligations, including 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.
Additional information concerning these and other factors can be found in
Rentokil Initial's filings with the U.S. Securities and Exchange Commission
("SEC"), which may be obtained free of charge at the SEC's website, http://
www.sec.gov, and Rentokil Initial's Annual Reports, which may be obtained free
of charge from the Rentokil Initial website, https://www.rentokil-initial.com
No statement in this announcement is intended to be a profit forecast and no
statement in this announcement should be interpreted to mean that earnings per
share of Rentokil Initial for the current or future financial years would
necessarily match or exceed the historical published earnings per share of
Rentokil Initial.
This communication presents certain further non-IFRS measures, which should
not be viewed in isolation as alternatives to the equivalent IFRS measure,
rather they should be viewed as complements to, and read in conjunction with,
the equivalent IFRS measure. These include revenue and profit measures
presented at actual exchange rates ("AER" - IFRS) and constant full year 2022
exchange rates ("CER" - Non-GAAP). Non-IFRS measures include Adjusted
Operating Profit, Adjusted Profit Before Tax, Adjusted Profit After Tax,
Adjusted EBITDA, Adjusted Interest, Adjusted Earnings Per Share , Free Cash
Flow, Adjusted Free Cash Flow, Adjusted Free Cash Flow Conversion, Adjusted
Effective Tax rate and Organic Revenue, Adjusted Operating Profit represents
the performance of the continuing operations of the Group (including
acquisitions), and enables 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. The Group's internal strategic planning process is also
based on these measures, and they are used for incentive purposes. These
measures may not be calculated in the same way as similarly named measures
reported by other companies.
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