REG - Rentokil Initial PLC - 2023 Interim Results
27/07/2023 07:15
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RNS Number : 3283H Rentokil Initial PLC 27 July 2023
2023 Interim Results
Strong operational and financial performance: Organic Revenue¹ growth of
5.9%; excellent momentum in bolt-on M&A with increased spend expectation
for full year
Effective delivery on Terminix integration plan; cost synergies firmly on
track
Financial Results¹ AER CER
£m H1 2023 H1 2022 Change H1 2023 H1 2022 Change
£m
£m
%
£m
£m
%
Revenue 2,671 1,572 69.9% 2,666 1,613 65.3%
Adjusted EBITDA 602 350 72.0%
Adjusted Operating Profit 437 233 88.0% 434 239 81.7%
Adjusted Profit before Tax 377 226 67.3% 383 229 66.9%
Free Cash Flow 229 151 51.7%
Diluted Adjusted EPS 11.41p 9.45p 20.7%
Statutory Results
Revenue 2,671 1,572 69.9%
Operating Profit 304 170 79.3%
Profit before Tax 240 162 48.1%
EPS 7.35p 6.67p 10.2%
Dividend Per Share 2.75p 2.40p 14.6%
2023 Interim Highlights (Unless otherwise stated, all financials are presented
at constant exchanges rates and Organic Revenue growth figures exclude COVID
disinfection.)
● Revenue up 65.3%, reflecting the benefit of M&A, including Terminix.
Strong Organic Revenue growth of 5.9%, reflecting growth across all regions,
and driven by resilient underlying demand and continued effective pricing.
Statutory Revenue up 69.9% to £2,671m at AER
- Organic Revenue growth of 4.1% in North America, achieved alongside the start
of the integration pilot programme and exit of 64 branches; Organic Revenue
growth of 4.8% in North America Pest Control services despite lower
industry-wide lead flow from residential and termite customers
- Organic Revenue up 11.1% in Europe, the Group's second largest region
Strong Organic Revenue growth across all business categories: 5.6% in Pest
Control; 5.2% in Hygiene and Wellbeing; and 16.3% in France Workwear
● Adjusted Operating Profit increased 81.7%; 67.3% growth in Adjusted PBT at AER
despite a £6m FX headwind. Statutory PBT up 48.1% to £240m at AER
- Group Adjusted Operating Margin up 150bps to 16.3%2, with margin expansion in
Pest Control and France Workwear partly offset by Hygiene & Wellbeing,
impacted in the half by COVID boosted prior year comparators
- North America Adjusted Operating Margin up 250bps to 18.5%, underpinned by the
delivery of Terminix synergies
- Sustained strong price progression across all regions, accompanied by good
customer retention
● Diluted Adjusted EPS up 20.7% to 11.41p
● Free Cash Flow of £229m due to the timing of interest payments, leading to
83.0% Adjusted Free Cash Flow conversion in H1, as expected. Guidance on
Adjusted FCF conversion in FY 23 maintained at 80-90%
● Effective reduction in leverage with pro forma net debt to Adjusted EBITDA of
2.8x at 30 June 2023 (FY 22: 3.2x). Net debt at £3.27bn (FY 22 £3.30bn)
● Strong progress on Terminix integration, tracking cost synergy guidance
- $37m pre-tax net P&L cost synergies achieved in H1 23, on track to deliver
total of $60m year over year in FY 23
- Terminix colleague retention up strongly, 3.7ppts to 67.7%
● Continued excellent momentum in value-creating M&A
- 24 acquisitions completed in H1 23 for a total consideration of £202m, with
total annualised revenues of £79m in the year prior to purchase
- Very strong pipeline of high-quality M&A in place. Guidance on targeted
spend in FY 23 raised by £50m to c.£300m
● Declared interim dividend up 14.6% at 2.75p per share, in line with our
progressive policy
Andy Ransom, Chief Executive of Rentokil Initial plc, said:
"Rentokil Initial has delivered a strong overall first half performance. Our
results show sustained trading momentum, with organic growth of 5.9%. The
Group enjoyed growth in every region and continued to benefit from effective
pricing to manage inflationary costs. Revenue growth was further supported by
another excellent period of M&A with 24 high-quality businesses acquired
for a total consideration of £202m. I am especially pleased with our progress
in integrating Terminix. We are seeing clear evidence of density benefits with
the start of the pilot programme and we remain firmly on track to deliver
synergies. We start the second half of the year with continued confidence in
our plans, both operational and strategic."
2023 Outlook
Rentokil Initial has a clear strategy to deliver growth and margin expansion.
Alongside the delivery of the Terminix integration, we expect continued good
underlying trading in the remainder of the year, underpinned by our resilient
business model and supportive, structural growth drivers. Despite the
continuing evolution of our US Pest business, we expect to deliver H2 23
Organic Revenue growth in North America broadly in line with our H1
performance.
Executing on our disciplined integration plan, we remain firmly on course to
capture the benefits of the Terminix deal, including both our FY 23 pre-tax
net cost synergy guidance of $60m year over year and total annual pre-tax net
cost synergies of at least $200m by the end of FY 25.
We also remain confident in our strong margin discipline. The majority of
headwinds to Hygiene & Wellbeing's margin performance are limited to H1,
and we therefore expect the category's Adjusted Operating Margin in H2 to be
in excess of 19.0%. Overall, with effective margin protection from proactive
cost inflation management and margin accretion from strategy execution and
synergy delivery, we reiterate our current year guidance to grow Group
Adjusted Operating Margin to c.16.5% and North America Adjusted Operating
Margin to c.19.5%.
The recent strengthening of GBP against USD leads to a revision in our FX
guidance from a tailwind in FY 23 of £15m-£25m to a headwind of £15m-£20m.
Notwithstanding enduring inflationary pressures, we remain confident in
achieving the operational and financial progress in FY 23 that we have
previously signposted. Furthermore, in view of our successful deleveraging,
net debt to EBITDA is anticipated to be approximately 3x by the end of FY 23,
one year ahead of schedule.
Enquiries:
Investors / Analysts: Peter Russell Rentokil Initial plc +44 (0)7795 166506
Media: Malcolm Padley Rentokil Initial plc +44 (0)7788 978199
A presentation for investors and analysts will be held today, 27 July at
9.15am at Goldman Sachs, 25 Shoe Lane, London EC4 4AU. To register attendance
please email investor@rentokil-initial.com. The event will also be available
via a live audio webcast. Dial-in details will be provided on the Company's IR
website (https://www.rentokil-initial.com/investors.aspx). A recording will be
made available following the conclusion of the presentation.
Notes
1 Non GAAP Measures - Organic Revenue (including and excluding disinfection)
growth represents the growth in Revenue excluding the effect of businesses
acquired during the year. Acquired businesses are included in organic measures
in the year following acquisition, and the comparative period is adjusted to
include an estimated full year performance for growth calculations (pro forma
revenue). The Terminix acquisition is treated differently to other
acquisitions for Organic Revenue growth purposes. The full pre-acquisition
results of the Terminix business are included for the comparative period and
Organic Revenue growth is calculated as the growth in Revenue compared to the
comparative period. This differing treatment for Terminix will expire at the
end of 2023 when we will have full year Terminix comparatives. Organic Growth
has no equivalent GAAP measure, and is presented to help understand the
element of revenue growth that does not relate to acquisition activity.
This statement presents certain further non-GAAP 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" - GAAP) and constant full year 2022 exchange
rates ("CER" - Non-GAAP). Non-GAAP measures include Adjusted Operating Profit,
Adjusted Profit Before Tax, Adjusted Profit After Tax, Adjusted EBITDA,
Adjusted Interest, Free Cash Flow, Adjusted Free Cash Flow, Adjusted Cash Flow
(previously named Operating Cash Flow), and Diluted Adjusted Earnings Per
Share. Adjusted Operating Profit and Adjusted Profit Before Tax exclude
certain items that could distort the underlying trading performance. These
measures may not be calculated in the same way as similarly named measures
reported by other companies. Management believes that these measures provide
valuable additional information for users of Rentokil Initial's Financial
Statements in order to better understand the underlying trading performance in
the year from activities and businesses that will contribute to future
performance. 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.
The Group's internal strategic planning process is also based on these
measures, and they are used for incentive purposes. Revenue and Adjusted
Operating Profit are presented at CER unless otherwise stated. An explanation
of the measures used along with reconciliation to the nearest IFRS measures is
provided in Notes 4,5 and 12.
2 Includes net synergy benefit but excludes costs to achieve which are one-off
by nature.
Summary of financial performance (at CER)
Regional Performance
Revenue Adjusted Operating Profit
H1 2023 H1 2022 Change H1 2023 H1 2022 Change
£m
£m
%
£m
£m
%
North America 1,646 724 127.3% 304 117 163.2%
Pest Control 1,601 679 135.6% 300 111 173.8%
Hygiene & Wellbeing 45 45 0.4% 4 6 (29.9%)
Europe (inc. LATAM) 522 440 18.7% 95 84 12.4%
Pest Control 250 192 30.0% 56 46 21.3%
Hygiene & Wellbeing 166 157 6.2% 21 25 (15.1%)
France Workwear 106 91 16.3% 18 13 34.1%
UK & Sub Saharan Africa 192 179 6.7% 46 46 (1.1%)
Pest Control 98 88 10.4% 26 21 20.1%
Hygiene & Wellbeing 94 91 3.2% 20 25 (19.6%)
Asia & MENAT 173 155 11.9% 24 22 6.4%
Pest Control 128 109 17.4% 18 16 11.2%
Hygiene & Wellbeing 45 46 (1.2%) 6 6 (6.6%)
Pacific 128 110 16.5% 29 24 22.3%
Pest Control 64 49 30.4% 12 8 56.4%
Hygiene & Wellbeing 64 61 5.2% 17 16 6.1%
Central 5 5 (2.1%) (58) (49) (19.3%)
Restructuring costs - - - (6) (5) (24.7%)
Total at CER 2,666 1,613 65.3% 434 239 81.7%
Total at AER 2,671 1,572 69.9% 437 233 88.0%
Business Category Performance
Revenue Adjusted Operating Profit
H1 2023 H1 2022 Change H1 2023 H1 2022 Change
£m
£m
%
£m
£m
%
Pest Control 2,141 1,117 91.5% 412 202 105.1%
Hygiene & Wellbeing 414 400 3.8% 68 78 (12.6%)
France Workwear 106 91 16.3% 18 13 34.1%
Central 5 5 (2.1%) (58) (49) (19.3%)
Restructuring costs - - - (6) (5) (24.7%)
Total at CER 2,666 1,613 65.3% 434 239 81.7%
Total at AER 2,671 1,572 69.9% 437 233 88.0%
Note: Hygiene & Wellbeing performance partly reflects the anticipated
decrease in COVID disinfection revenues from £14.2m in H1 22 to £1.6m in H1
23.
Group Overview
In order to help understand the underlying trading performance, unless
otherwise stated, the figures below are presented at constant exchanges rates
and Organic Revenue growth figures exclude the COVID disinfection business.
Revenue
The Group delivered strong topline momentum in H1, with Revenue rising 65.3%
to £2,666m and Organic Revenue up 5.9%, ahead of medium-term Organic Revenue
guidance. Statutory Revenue was up 69.9% to £2,671m at AER. Revenue growth in
North America was up 127.3%, benefiting from the Terminix acquisition. Europe
(inc. LATAM), the Group's second largest region, was up strongly by 18.7%.
Revenue in the Pacific region increased by 16.5% while Asia & MENAT was up
11.9% and the UK & Sub Saharan Africa was up 6.7%. Group Organic Revenue
growth including COVID disinfection was 5.4%. As expected, COVID disinfection
revenue in H1 reduced significantly to £1.6m (H1 22: £14.2m)
Our Pest Control category grew Revenue by 91.5% (5.6% Organic) to £2,141m,
underpinned by strong price progression and good customer retention, albeit
impacted by softer US Pest Control services due to lower industry-wide lead
flow from residential and termite customers. Hygiene & Wellbeing Revenue
increased by 3.8% (5.2% Organic) to £414m. This was supported by resilient
demand for washroom services, offset by the anticipated reduction in COVID
disinfection and related services, and the non-repeat of UK COVID credit note
releases. Robust market demand was reflected in the continued strong
contribution from our France Workwear business with Revenue up by 16.3% to
£106m (16.3% Organic).
Profit
Adjusted Operating Profit rose by 81.7% during the first six months to £434m,
reflecting the benefit of topline growth across all major regions and
categories, in addition to the contribution from the Terminix transaction.
Adjusted PBT at AER increased 67.3%, despite a £6m FX headwind. Group
Adjusted Operating Margin increased year on year by a total of 150bps to
16.3%. Adjusted Operating Margin for Pest Control increased 130bps to 19.2%.
There was a net benefit of 110bps to Group margin from the delivery on
Terminix synergies, partially offset by short-term margin dilution from
increased bolt-on M&A activity, predominantly in Europe. Hygiene &
Wellbeing Adjusted Operating Margin decreased 310bps to 16.5% impacted by the
anticipated reduction in COVID disinfection and related services, the
non-repeat of UK COVID credit note releases, and the transfer of Ambius
management from North America Pest Control.
We have continued to deliver on our strategy of driving density improvements
including through M&A integration to create long-term efficiencies. Price
increases have also been successfully implemented over the course of the half
year. The extent to which the Group has been able to offset inflationary
pressures demonstrates the resilience of the business model and the essential
nature of our core products and services.
Restructuring costs excluding Terminix of £6m (at CER and AER) were up £1m
on the prior year (H1 22: £5m at CER and AER), consisting mainly of costs in
respect of initiatives focused on our ongoing North America transformation
programme. The Company reports these restructuring costs within Adjusted
Operating Profit. Adjusted profit before tax (at AER) of £377m, which
excludes one-off and adjusting items and amortisation costs, increased by
67.3%. Adjusted interest of £67m at actual exchange rates was higher year on
year by £55m, driven by £57m of higher interest costs from Terminix related
financing, partially offset by a £2m higher impact from hyperinflation
accounting. One-off and adjusting items (operating) at AER of £46m includes
£35m of Terminix integration costs and £8m of other M&A and integration
costs. Statutory profit before tax at AER was £240m, an increase of 48.1% on
the prior year (H1 22: £162m).
Cash (at AER)
Adjusted Cash Flow of £401m was up from £202m in H1 22. Higher trading
profits resulted from organic and acquisitive growth. Adjusted EBITDA was
£602m, up 72.0% from £350m. One-off and adjusting items totalled £78m,
reflecting P&L items of £46m and a net c.£32m movement in one-off
accruals since December 2022, as presented at the Preliminary Results. The
Group had a £26m working capital outflow in the first six months of the year.
Capital expenditure of £102m was incurred in the period (H1 22: £83m),
reflecting the inclusion of Terminix capital expenditure. Lease payments were
up 80.0% to £81m.
Cash interest payments of £114m were £95m higher than in the prior year,
reflecting the payment in arrears of coupon interest on bonds issued in 2022
in relation to the Terminix transaction. Cash tax payments for the period were
£58m, an increase of £26m compared with the corresponding period last year,
largely related to the inclusion of Terminix trading results. Free Cash Flow
was £229m (H1 22: £151m), with Adjusted Free Cash Flow Conversion of 83.0%
due to the timing of interest payments.
Update on the Terminix Integration Process
The Terminix transaction adds valuable scale and capabilities and we have been
focused on delivering the deal's significant benefits. We are in the first
year of a three year integration programme, yet strong progress has already
been made. The delivery of synergies is firmly on track, and we continue to
expect $60m incremental pre-tax net P&L cost synergies in FY 23 and total
synergies of at least $200m in FY 25.
As anticipated, the large majority of gross cost synergies in the current year
are being delivered by Selling, General and Administrative (SG&A)
initiatives, in particular in regard to procurement and support functions:
● Procurement activity is setting the early pace for the overall integration and
has quickly demonstrated the value of the combined company. Procurement is
anticipated to deliver most of its synergies by the end of FY 23 and is
tracking to plan. In H1 23 we have leveraged our enhanced buying power to help
optimise spending on both products for our frontline colleagues and on
products and services to support the business. Fleet policies have been
aligned and a single fleet supplier has been appointed for North America. A
material benefit in insurance procurement was also achieved in the period.
● Significant progress has been made to right-size the new organisation to
deliver world-class support to our frontline colleagues at a competitive cost
base. Alongside the retention of critical talent, the removal of duplication
in central functions through restructuring in headcount and other associated
G&A costs has been substantially advanced.
In FY 23, we expect $12m of gross cost synergies from field operations (of the
total $125m recurring gross cost synergies from field operations by FY 25). In
H1, 44 branch locations were exited 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 64, and, by the end of H2 we would
expect this to exceed 100. In addition to executing branch co-locations that
deliver early property synergies, the focus for most of the current year is
planning and preparation as we approach the more complex task in 2024 of fully
integrating Terminix and Rentokil North America branches, consolidating routes
and aligning the customer offering.
This year we expect to make approximately $30m of investment into the business
to enable the success of the integration. Important planning and investment
have been made in HR to underpin synergy delivery and to ensure the quality of
the enhanced operations going forward. All functions and roles in the combined
business have been through an organisation design process. We have completed
job descriptions with pay and grading, and talent selection has been
finalised. The 3,500 role offers extended have been met with a 97% acceptance
rate. We have also concluded the harmonisation of benefits and paid time off
between legacy Terminix and Rentokil North America positions. The design of
harmonised pay plans is expected to be finalised in the second half of the
current year.
IT infrastructure is another important enabler of administrative and
operational efficiencies to be gained from the integration plan. As part of
our Best of Breed strategy we have now identified the most appropriate IT
solutions for functions and processes across the combined organisation, from
HR and Finance applications through to service planning and service delivery
platforms. These have been selected principally from either Rentokil North
America or Terminix, but also externally where the ideal future state solution
was not already present. The chosen IT solutions will replace a number of
composite legacy systems. They are expected to deliver improved overall
performance and resilience, better enabling both our employees and customers.
Year over Year P&L Impact
2023
Achieved 2022 H1 Actuals H2 Forecast FY 2023
Selling, General and Admin Expenses: $15m $40m $38m $78m
Sales productivity/Procurement/support functions
Field Operations: - $6m $6m $12m
Branch Consolidation/Density Benefits/Productivity
Gross Synergies $15m $46m $44m $90m
Investments: ($2m) ($9m) ($21m) ($30m)
Salary & Benefits Harmonization
SHE & Innovation Centre/IT/Branding/
Additional SOX/Audit and Listing Fees
Net Synergies $13m $37m $23m $60m
Positive Results from Initial Integration Pilots
In H1 23 we began the first phase of our programme of pilot integrations,
undertaking two branch integrations within the Rentokil North America legacy
network. These covered locations that previously had each generated revenues
of c.$65m and c.$97m, and entailed the consolidation of a total of 40 branches
into 23 branches. Locations had each been serviced by several different
brands, service protocols, operating systems and pay plans. Our approach in
these market pilots showed that the migration, while demanding, was successful
and we are seeing clear evidence of density benefits. The combination of
larger branches with higher network density drove an approximately 5
percentage point margin expansion in the pilot areas. We will continue to
monitor the pilots for any impact on organic growth.
As previously stated, we anticipate that our average annual branch revenue
post-integration will increase to approximately $8m to $10m. We have recently
conducted a detailed analysis of our North America branch network that shows a
clear link between branch size and margin, such that branches with annual
revenue of more than $8m deliver Adjusted Operating Profit margin that is
about 10% higher than branches with revenue of less than $3m. Across our
network of 600+ branches, we currently have 100+ branches operating at more
than $8m annual revenue and around 200+ operating at less than $3m annual
revenue.
Looking forward to the remainder of 2023, we will pilot test projects in
relation to HR information systems and a single pay plan, data migration and
data mapping, and technology applications. Our pilot programme provides a
platform to test our implementation approach, manage risk and prove value.
Contingent on the evaluation outcome of the pilot programme, the branch
integration phase will be deployed at scale across North America beginning
January 2024.
The integration of the two businesses is a large, complex programme with many
interrelated parts. We are taking a disciplined and measured approach, with
rigorous project governance and risk management procedures in place. We have
set clear expectations and goals throughout the business, and this is already
helping to deliver results.
We remain confident in the value creation opportunity of the Terminix
acquisition and integration. These initiatives - and the key enablers that
underpin our strategy - will allow us to build the organisational capability
to deliver our ambition of organic growth of 1.5x the North America industry
rate, post integration.
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
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 1,646 127.3% 4.1% 4.1% 1,654 138.4%
Disinfection - -80.5% - -79.7%
Adjusted Operating Profit 304 163.2% 306 176.0%
Adjusted Operating Margin 18.5% 2.5% 18.5% 2.5%
Operating Profit 209 138.7% 210 150.3%
Alongside the Terminix integration process, the North America business has
driven sustained trading momentum. In the first six months of the year,
Revenue was up 127.3%, benefiting from the Terminix acquisition. Organic
Revenue grew 4.1%, achieved despite the planned exit of 64 branches since
October 2022 as part of the integration process. The business delivered
Organic Revenue growth of 4.2% in North America Pest Control and 4.8% in North
America Pest Control services for our commercial, residential, and termite
customers. Q2 Organic Revenue growth of 4.0% for Pest Control services was
impacted by lower inbound lead flow for residential and termite services,
which mirrored trends observed in digital search demand for the Pest Control
industry as whole. General search demand for pest control and termite terms
was down year on year, while search for commercial, mosquito and bed bugs has
shown more resilience. We have remained disciplined in our marketing spend,
with a focus on lead quality over quantity. The revenue generated per lead has
increased substantially with this strategy, leading to a higher quality mix
and positively impacting margins. Growth in the products distribution business
was impacted from customer destocking due to high inventory levels. However,
underlying demand in products distribution bounced back toward the end of H1
and is expected to return to historic levels in H2.
Our planned cessation of Terminix's door to door selling programme in Canada,
as well as the anticipated impacts of our early branch integration pilots
across 40 branches, together contributed to a temporary reduction of organic
growth in North America in the half year of an estimated 32 basis points. We
are very pleased with our learnings from the pilots, which will inform the
implementation of additional pilots planned for the next few months, ahead of
the commencement of our full branch integration programme planned for 2024.
Adjusted Operating Profit growth of 163.2% in North America reflects the
combined impact from higher revenues and the Terminix acquisition. Strong
price realisation has continued to successfully offset expected inflationary
pressures. We closely monitor labour, fuel and direct cost inflation to adjust
our pricing strategy on a regular basis. Adjusted Operating Margins in North
America were up 250bps year on year to 18.5%. There was a net benefit of
190bps from the delivery on Terminix synergies.
In the Terminix termite business, we have continued to see a number of
improved year on year trends in H1, including a 12% reduction in total filed
warranty claims and a 24% reduction in open warranty claims. Total filed
warranty claims in the Mobile Bay area decreased by 51%. These data points
support provisions for termite claims at the half year being in line with
previous expectations.
Total North America colleague retention, including Terminix, increased to
72.4% (FY 22: 70.1%). Terminix colleague retention has seen continued
improvement, up to 67.7% (FY 22: 63.8%), with particular progress in
technician roles. Terminix has seen an increase of 5.3 percentage points in
colleague retention since the close of the deal in October 2022. The Group
continued to make investments in being an Employer of Choice. We are seeing
ongoing success with our recruiting initiatives, with time-to-fill rates
decreasing over the half year. Despite price increases, total customer
retention in North America increased to 83.5% (FY 22: 83.3%).
Notwithstanding the considerable focus required for the Terminix integration,
our North American bolt-on M&A programme continued apace, with the
purchase of 6 businesses with combined annualised revenues of £37m in the
year prior to purchase. As we integrate Terminix, we continue to selectively
pursue high quality M&A assets in the North America region.
Europe (incl. LATAM)
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 522 18.7% 11.1% 9.8% 529 22.0%
Disinfection 1 -88.2% 1 -87.2%
Adjusted Operating Profit 95 12.4% 97 16.8%
Adjusted Operating Margin 18.2% -1.0% 18.4% -0.9%
Operating Profit 75 -0.2% 80 8.2%
The region enjoyed another period of strong revenue performance, with Revenue
up by 18.7% in the first six months of the year to £522m. The business
delivered double-digit Organic Revenue growth of 11.1%, driven by both
effective price increases and resilience in overall demand. Revenue growth in
Pest Control was 30.0%, with a strong contribution from larger markets like
France and Benelux. Hygiene & Wellbeing grew Revenue by 6.2% in the period
driven by continued momentum in the core washrooms business. In premises and
enhanced environments, Ambius sustained a good performance, partially offset
by Specialist Hygiene and Dental, which both continue to experience some
post-COVID disruption. Strong demand has continued to drive a supportive
market for France Workwear, which delivered Revenue growth of 16.3%. Adjusted
Operating Profit in the region grew by 12.4% to £95m. Adjusted Operating
Margin reduced by 100bps to 18.2%, impacted by short-term margin dilution from
increased M&A activity, predominantly acquisitions in Sweden (Terminix)
and Israel (Eitan Amichai IPM). The movement also reflects a reduction in
COVID disinfection business. These factors, the impact of which will fall away
in H2, were partly offset by the strong performance in France Workwear.
Customer retention has remained strong at 88.3% (FY 22: 88.5%.) While labour
markets throughout the region remain tight, colleague retention rates have
remained relatively stable across the region at 89.4% (FY 22: 89.1%), with
both service and sales colleagues trending well.
M&A continued strongly in Europe and Latin America. 8 business
acquisitions were completed in total with annualised revenues of £7m in the
year prior to purchase.
UK & Sub-Saharan Africa
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 192 6.7% 3.9% 3.9% 190 6.0%
Disinfection - -100.0% - -100.0%
Adjusted Operating Profit 46 -1.1% 46 -1.7%
Adjusted Operating Margin 23.8% -1.9% 23.9% -1.8%
Operating Profit 41 -3.5% 40 -4.2%
The region delivered a resilient trading performance against a challenging
macro backdrop and strong prior year comparators. Overall, Revenue for UK
& Sub-Saharan Africa increased by 6.7% to £192m with a positive
contribution from both business categories, Pest Control and Hygiene &
Wellbeing. Organic Revenue growth was up 3.9%. The Pest Control business grew
strongly with Revenue up 10.4% to £98m. Hygiene & Wellbeing revenue
increased 3.2% to £94m, despite lapping COVID boosted comparators in the
medical waste business from the same period last year.
Adjusted Operating Profit was down 1.1% to £46m with Adjusted Operating
Margin reduced by 190bps to 23.8%. The Pest Control category sustained strong
margins. However, the region's margin performance was dampened by the
anticipated reduction in COVID disinfection and related services, and the
non-repeat of UK COVID credit note releases. The impact of these factors will
fall away in H2. The region continued to face well publicised inflationary
headwinds. However, significant cost increases have been well managed by our
long-established pricing and margin management systems, process and controls.
Price increases have been delivered alongside a customer retention rate that
has slightly improved to 86.7% (FY 22: 86.6%). Owing to sustained investment
in our people and training programmes as well as some recent loosening of the
UK labour market, colleague retention strengthened to 83.7% for the first six
months (FY 22: 77.9%).
The region acquired 1 business in the Hygiene & Wellbeing category with
annualised revenues in the year prior to purchase of £17m. This acquisition
was of the company Urban Planters, a leading UK service provider of planting
schemes for business premises.
Asia & MENAT
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 173 11.9% 11.3% 6.5% 168 10.9%
Disinfection 1 -89.8% 1 -89.8%
Adjusted Operating Profit 24 6.4% 23 8.0%
Adjusted Operating Margin 13.4% -0.7% 13.7% -0.4%
Operating Profit 17 1.5% 17 3.6%
Asia & MENAT delivered another strong performance in the first six months
of 2023. Revenue rose by 11.9%, of which 11.3% was Organic, underpinned by
contractual activity. The positive performance was led by the Pest Control
business and the region's largest markets, including Indonesia, Malaysia and
Singapore. While Hong Kong continued to be challenged by a subdued economic
environment, there was slightly improved trading in China.
Adjusted Operating Profit in the region increased 6.4% to £24m and Adjusted
Operating Margin was down slightly by 70bps to 13.4%. The period lapped
stronger COVID disinfection revenues with the headwind set to materially
reduce in the second half of the current year. Customer retention was 80.6%
(FY 22: 81.3%). Regional operations have benefited from an improved, high
colleague retention rate of 89.3% (FY 22: 86.1%), while the average time to
fill vacancies has remained steady year on year.
Asia acquired 4 businesses in the year with annualised revenues in the year
prior to purchase of £6m.
Pacific
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 128 16.5% 7.4% 7.3% 125 14.8%
Disinfection - -100.0% - -100.0%
Adjusted Operating Profit 29 22.3% 29 20.6%
Adjusted Operating Margin 22.9% 1.1% 22.9% 1.1%
Operating Profit 26 18.7% 25 17.1%
The Pacific region delivered an excellent first half performance. Revenue
accelerated by 16.5% to £128m. Organic Revenue grew 7.4% as pricing was
complemented with volume growth. Pest Control delivered 30.4% 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 5.2%. The region saw good demand for Ambius services.
Adjusted Operating Profit in the Pacific grew strongly by 22.3% to £29m and
Adjusted Operating Margins rose by 110bps to 22.9%, supported by effective
mitigation of cost inflation. The customer retention rate remained in the high
80s at 88.1% (FY 22: 88.8%). Colleague retention in the region has improved to
75.3% (FY 22: 72.9%), despite continued tight labour markets.
The region acquired 5 businesses, with 3 in Australia and 2 in New Zealand.
These acquisitions had total annualised revenues in the year prior to purchase
of £12m.
Category performance review
Pest Control
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 2,141 91.5% 5.6% 5.6% 2,144 97.7%
Adjusted Operating Profit 412 105.1% 415 112.3%
Adjusted Operating Margin 19.2% 1.3% 19.3% 1.3%
Operating Profit 317 100.5% 322 109.4%
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.
Rentokil Initial is a leading global player in a resilient and non-cyclical
industry characterised by positive and strong long-term structural growth
drivers. We have strengthened our position through organic growth and by
establishing stronger market positions, through the introduction of innovative
products and services, acquisitions to build scale and density, and our
determination to be an Employer of Choice across our global operations.
Our Pest Control business delivered strong growth in the first half of the
year, underpinned by the critical nature of our services. Revenue was up by
91.5% to £2,141m, benefiting from Organic Revenue growth of 5.6% and M&A,
including the Terminix transaction.
Overall performance has been supported by both pricing and volumes, led by the
Commercial Pest Control business, which has a high proportion of contractual
activity and benefited from continued good customer retention rates. North
America Organic Revenue growth was 4.2%, achieved alongside the integration
pilot programme and despite lower industry-wide lead flow from residential and
termite customers. Revenue in growth markets, representing 91% of the Pest
Control business, was up 100.8%, while revenue in emerging markets was up
28.1%. Adjusted Operating Profit was up by 105.1% to £412m and Adjusted
Operating Margin increased 130bps to 19.2%. There was an uplift to the
resilient underlying margin performance from Terminix synergies of 140bps,
partly offset by short-term margin dilution from increased M&A activity,
predominantly in Europe. For H1 23, Pest Control represented 80.4% of Group
Revenue and 82.7% of Group Adjusted Operating Profit (excluding central and
restructuring costs). M&A has continued to be strong this year, and we
have acquired 19 pest control businesses in the period with annualised
revenues in the year prior to acquisition of £54m.
Hygiene & Wellbeing
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 414 3.8% 5.2% 1.8% 414 5.4%
Disinfection 2 -88.4% 2 -87.9%
Adjusted Operating Profit 68 -12.6% 68 -11.9%
Adjusted Operating Margin 16.5% -3.1% 16.4% -3.3%
Operating Profit 65 -12.0% 64 -11.3%
Rentokil Initial offers a wide range of hygiene and wellbeing services. Inside
the washroom we provide hand hygiene (soaps and driers), air care, in-cubicle
(feminine hygiene units), no-touch products and digital hygiene services. In
addition to core washroom hygiene, we deliver specialist hygiene services such
as clinical waste management. We're also improving the customer experience
through premium scenting, plants, air quality monitoring and green walls.
Customer sectors range from public sector (schools, government buildings) and
facilities management through to hotels, bars and restaurants, industrials and
retail.
Hygiene & Wellbeing Revenue increased by 3.8% to £414m. This was
supported by resilient demand for washroom services, offset by the anticipated
reduction in COVID disinfection and related services, and the non-repeat of UK
COVID credit note releases. COVID disinfection revenues decreased from £14.2m
in H1 22 to £1.6m in H1 23. Organic Revenue growth in the category was 5.2%.
Organic Revenue growth in core washrooms was 6.1%, while Organic Revenue
growth in premises and enhanced environments was 3.5%. Adjusted Operating
Profit was down by 12.6% to £68m and Adjusted Operating Margin decreased
310bps to 16.5%. Hygiene & Wellbeing margin was impacted by the
anticipated reduction in COVID disinfection and related services, the
non-repeat of UK COVID credit note releases, and the transfer of Ambius
management from North America Pest Control. The H2 impact of these headwinds
to Hygiene & Wellbeing margin is expected to be c.100bps or one-third of
the H1 impact. They are anticipated to be offset by underlying operational
improvements, with H2 margin expected to be in excess of 19.0%.
We have acquired 5 hygiene businesses in the first six months with annualised
revenues of c.£24m in the year prior to purchase.
France Workwear
H1 23 CER Organic Organic H1 23 AER
CER
Growth
Growth excl
Growth incl
AER
Growth
£m
Disinfection
Disinfection
£m
Revenue 106 16.3% 16.3% 16.3% 108 20.6%
Adjusted Operating Profit 18 34.1% 18 39.1%
Adjusted Operating Margin 16.9% 2.2% 16.9% 2.2%
Operating Profit 18 34.9% 18 39.8%
Strong demand has continued to drive a supportive market for France Workwear,
which delivered Revenue growth of 16.3% to £106m, all of which was organic.
Robust volumes have been aided by ongoing market recovery in the hospitality
sector in particular, and driven by both strong new business sales and
upselling. The category's performance has been supported by effective price
progression. Inflation was fully covered with successful price increases,
while our investment in plant and machinery has enabled us to deliver more
efficient and sustainable operations. In the first six months of the year,
Adjusted Operating Profit increased by 34.1% to £18m, translating to a step
up in Adjusted Operating Margin of 220bps to 16.9%.
Continued excellent execution on bolt-on M&A
Bolt-on M&A activity continued at pace in the first half of the year. The
Group acquired 24 new businesses across both our growth and emerging markets.
An aggregate consideration of £202m was paid for these acquired businesses
with total annualised revenues of £79m in the year prior to purchase. In
North America, 6 new businesses were added. This included the acquisition of
RK Environmental/Comprehensive Food Safety, a specialist in pest management
services and food safety audit consulting to the commercial food industry
operating in 31 US states. RK had annualised revenues of c.£16m in the year
prior to purchase, ranking #44 on the Pest Control Technology 2022 Top 100
list. 5 acquisitions were made in both Europe and the Pacific. Building on
prior year success, 3 deals were made in Spain, creating the market leader. In
our emerging markets of Asia, MENAT and LATAM, 7 deals were completed with
total annualised revenues of £8m in the year prior to purchase.
We will continue to seek attractive bolt-on deals, both in Pest Control and
with an increased focus on Hygiene & Wellbeing, to build density in
existing markets, and pursue acquisitions in new markets and the major Cities
of the Future. Our pipeline of prospects remains very strong and our guidance
on spend on M&A for FY 23 is raised from c.£250m to c.£300m.
Employer of Choice
Rentokil Initial is committed to being a world-class Employer of Choice, with
colleague safety and the attraction, recruitment and retention of the best
people from the widest possible pool of talent being key business objectives
globally. As an organisation, we strongly believe that creating a diverse and
inclusive workforce that reflects the business environment in which we operate
will increase colleague engagement and customer satisfaction, as well as drive
increased innovation, enhance our reputation and therefore boost our financial
performance.
The global labour market remained tight through the course of the first half
of the year. Nevertheless, we are seeing good results from our sustained
investment in recruitment and training, with 6 consecutive months of
improvement in colleague retention. Total Group colleague retention, restated
to include Terminix, was up 2.6 percentage points to 82.0% (FY 22: 79.5%).
Terminix colleague retention has seen ongoing improvement, up from 63.8% for
FY 22 to 67.7%.
Innovation and Technology
The Company's investment in innovation and technology continues to drive
profitable growth in the business. It strengthens our brand and cements our
leadership position, enabling us to provide enhanced service to customers and
target key growth sectors, while lowering our operating costs and improving
our sustainability credentials.
In the Pest Control category, technology-enabled innovations have been
especially important in helping to differentiate us from our industry
competitors. Rentokil has developed the world's leading digital pest control
platform providing an unmatched level of reporting and insight for our
customers. In the first half of the year, we rolled out an additional 29,000
units of our award-winning PestConnect solution, which provides a real-time,
early warning digital system for monitoring and controlling rodents. We now
have 319,000 units in operation across 18,000 sites, and six countries where
more than 10% of the commercial portfolio benefits from connected devices.
This includes the Netherlands that is approaching 30% of the commercial
portfolio. The PestConnect product range has also been expanded with the
introduction of Radar X for businesses, which has successfully completed
customer trials and is set for market launch later this year. This is our most
sustainable connected device to date, using carbon dioxide gas rather than
rodenticides and benefiting from a longer battery life and more recyclable
parts.
In the Hygiene & Wellbeing category, our product initiatives for both the
core washroom and enhanced environments are delivering benefits. The global
roll-out of our Luna Dry range has supported a 17% increase in hand dryer unit
sales, which notably included an airport contract in the Nordics for Luna
units. In the period, we installed another 120,000 hygiene units from our
popular Signature colour range. The Group sustained its focus on the
high-growth air care market, already with a product range that features air
purification, air sterilisation and air scenting products. In H1 23 there was
a 10.9% year on year increase in the sale of new air care dispensers, led by a
50% increase in dispensers for air scenting. This was accompanied by the
recent launch of our new premium scenting product, the AQ890 freestanding
tower that has 50 intensity levels to cater for peak business hours and
traffic flow. Led by the Asia region, we also secured our first truly global
premium scenting agreement with a premier hotel group across 21 countries.
North America Innovation Centre
In line with our commitment made at the time of the Terminix transaction
announcement, the Group will be opening a new North American Innovation Centre
focused on residential, termite, vector control and sustainable fumigation.
Housing a combination of entomologists, vector scientists, fumigation chemists
and residential product owners, the centre will conduct research aimed at
providing transformative solutions to pest control challenges, as well as
delivering training for frontline colleagues. As part of this programme, we
are pleased to have appointed Dr Cassie Krejci as Head of Science &
Innovation North America.
Financial review
Central and regional overheads
Central and regional overheads of £58m (at CER and AER) were up £9m on the
prior year (H1 22: £49m at CER and £48m at AER) driven by higher share based
payment charges for the larger combined organisation.
Restructuring costs
With the exception of integration costs for significant acquisitions, the
Company reports restructuring costs within Adjusted Operating Profit. Costs
associated with significant acquisitions are reported as one-off items and
excluded from Adjusted Operating Profit. Restructuring costs of £6m (at CER
and AER) were up £1m on the prior year (H1 22: £5m at CER and AER). They
consisted mainly of costs in respect of initiatives focused on our ongoing
North America transformation programme.
Interest (at AER)
Adjusted interest of £67m at actual exchange rates was higher year on year by
£55m, driven by £57m of higher interest costs from Terminix related
financing, partially offset by £2m higher impact from hyperinflation of £8m
(H1 22: £6m). Cash interest in H1 2023 was £114m (H1 22: £19m) 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 2023 at average exchange rates. Changes in exchange rates
during the balance of 2023 will also impact the reporting of interest costs
for 2023.
Tax
The income tax charge for the period at actual exchange rates was £55m on the
reported profit before tax of £240m, giving an effective tax rate (ETR) of
22.9% (H1 22: 23.2%). The Group's ETR before amortisation of intangible assets
(excluding computer software), one-off and adjusting items and the net
interest adjustments for H1 23 was 23.4% (H1 22: 21.8%). This compares with a
blended rate of tax for the countries in which the Group operates of 25% (H1
22: 24%).
Net debt and cash flow
£m at actual exchange rates Year to Date
H1 2023 H1 2022 Change
£m £m £m
Adjusted Operating Profit 437 233 204
Depreciation 147 114 33
Other 18 3 15
Adjusted EBITDA 602 350 252
One-off and adjusting items in working capital 32 (8) 40
Working capital (26) (16) (10)
Movement on provisions (26) 1 (27)
Capex - additions (102) (83) (19)
Capex - disposals 2 3 (1)
Capital element of lease payments and initial direct costs incurred (81) (45) (36)
Adjusted Cash Flow 401 202 199
Interest (114) (19) (95)
Tax (58) (32) (26)
Free Cash Flow 229 151 78
Acquisitions (175) (127) (48)
Dividends (131) (80) (51)
Cost of issuing new shares - (13) 13
Cash impact of one-off and adjusting items (78) (15) (63)
Other (1) - (1)
Debt related cash flows
Cash outflow on settlement of debt related foreign exchange forward contracts (3) 1 (4)
Net investment in term deposits - (2) 2
Proceeds from new debt - 1,744 (1,744)
Debt repayments - (136) 136
Debt related cash flows (3) 1,607 (1,610)
Net (decrease)/increase in cash and cash equivalents (159) 1,523 (1,682)
Cash and cash equivalents at the beginning of the period 879 242 637
Exchange losses on cash and cash equivalents (22) 23 (45)
Cash and cash equivalents at end of the financial period 698 1,788 (1,090)
Net (decrease)/increase in cash and cash equivalents (159) 1,523 (1,682)
Debt related cash flows 3 (1,607) 1,610
IFRS 16 liability movement (7) 1 (8)
Debt acquired 18 (1) 19
Bond interest accrual 35 - 35
Foreign exchange translation and other items 136 (77) 213
Decrease/(increase) in net debt 26 (161) 187
Opening net debt (3,296) (1,285) (2,011)
Closing net debt (3,270) (1,446) (1,824)
Adjusted Cash Flow of £401m was up from £202m in H1 22. Higher trading
profits resulted from organic and acquisitive growth. Adjusted EBITDA was
£602m, up 72.0% from £350m. One-off and adjusting items totalled £78m,
reflecting P&L items of £46m and a net c.£32m movement in one-off
accruals since December 2022, as presented at the Preliminary Results. The
Group had a £26m working capital outflow in the first six months of the year.
Capital expenditure of £102m was incurred in the period (H1 22: £83m),
reflecting the inclusion of Terminix capital expenditure. Lease payments were
up 80.0% to £81m.
Cash interest payments of £114m were £95m higher than in the prior year,
reflecting the payment in arrears of coupon interest on bonds issued in 2022
in relation to the Terminix transaction. Cash tax payments for the period were
£58m, an increase of £26m compared with the corresponding period last year,
largely related to the inclusion of Terminix trading results. Free Cash Flow
was £229m (H1 22: £151m), with Adjusted Free Cash Flow Conversion of 83.0%
due to the timing of interest payments.
Cash spend in H1 on current and prior year acquisitions was £175m, dividend
payments were £131m and the cash impact of one-off and adjusting items was
£78m (largely related to the Terminix acquisition). Foreign exchange
translation and other items of £136m is primarily due to the weakening of the
Dollar against Sterling. Overall, this led to a change in net debt of £26m
and closing net debt of £3,270m.
Going Concern
The Board continues to adopt the going concern basis in preparing the accounts
on the basis that the Group's strong liquidity position and its demonstrated
ability to manage the level of capital expenditure, dividends or expenditure
on bolt-on acquisitions are sufficient to meet the Group's forecast funding
needs, including those modelled in a severe but plausible downside case.
Funding
As at 30 June 2023, the Group had liquidity headroom in the region of
£1,403m, including £787m ($1.0bn) of undrawn RCF, with a maturity date of
October 2027. The pro forma net debt to Adjusted EBITDA ratio was 2.8x at 30
June 2023 (31 December 2022: 3.2x). The pro forma net debt to EBITDA ratio was
3.4x at 30 June 2023 (31 December 2022: 4.6x). In July 2023, S&P Global
reaffirmed the Group's BBB investment grade credit rating.
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
In view of our performance in the first half of 2023 and our confidence for
H2, the Board is declaring an interim dividend payment of 2.75p, a 14.6%
increase on the prior year period, payable to shareholders on the register at
the close of business on 4 August 2023 and to be paid on 11 September 2023.
The last day for DRIP elections is 18 August 2023.
Notice of Management Change
Brett Ponton, CEO of our North America Region, is stepping down later this
year to take up the position of CEO of SERVPRO, a privately-owned property
cleanup, restoration, and construction franchisor. We wish him well and thank
him for his commitment and dedication to bringing together our pest control
businesses following the Terminix transaction. John Myers, CEO of US Pest
Control, continues to lead the Pest Control business in North America and
Brett's successor will be confirmed in due course.
Technical guidance update for FY 23
P&L
Restructuring costs ex Terminix: c.£10m (previously c.£7m)
Deal related costs and costs to achieve*: c.£80-£100m (previously
c.£75-£90m) due to the 24 deals in H1
Pre-tax net cost synergies of $60m year over year
Central and regional overheads: c.£150m including Terminix related
investments
P&L adjusted interest costs: c.£125m-£135m incl. £20-£25m of
hyperinflation
Estimated Adjusted Effective Tax Rate: 25-26%
Share of Profits from Associates: £9m (previously £8m)
Impact of FX**: within range of -£15m to -£20m (previously +£15m to £25m)
Intangibles amortisation: £160-£170m due to more M&A (previously
£155-£165m)
Cash Flow
Overall exceptional items: c.£135-£145m***
Working Capital: c.-£60m (previously -£40m) excluding prior year
exceptionals
Capex: £230-£240m (previously £235-£245m)
Cash interest: c.£160-£170m (previously c.£150-£160m), due to higher US
interest rates on $700m loan and North America variable rate leases
Cash tax payments: £115-£125m
Anticipated spend on M&A in 2023 of c.£300m (previously c.£250m)
* Reported as one-off and adjusting items and excluded from Adjusted Operating
Profit and Adjusted PBT
** Based on maintenance of current FX rates. All technical items are also
subject to FX
*** c.£40m of 2022 exceptional items remained in creditors at December 2022
Appendix 1
2023 AER
Amount Rate Fixed/Floating H1 H2 Total
£m
£m
£m
Legacy Bonds
EUR 400 0.950% Fixed - - -
EUR 500 0.875% Fixed - - -
EUR 600 0.500% Fixed - - -
Amortised Cost Fixed 1 1 2
Swaps 2.85% (avg) Fixed 14 14 28
Total 1,500 15 15 30
New Bonds
EUR 850 3.875% Fixed 7 7 14
EUR 600 4.375% Fixed 11 11 22
GBP 400 5.000% Fixed 10 10 20
Amortised Cost Fixed 1 2 3
Swaps 3.53% (avg) Fixed 7 7 14
Total 1,850 36 37 73
Term Loan
USD 700 4%-6% 50% Fixed 15 15 30
Lease Interest Float 12 11 23
Other Interest Float 6 1 7
Total Other 18 12 30
Finance Cost 84 79 163
Interest received (9) - (9)
Hyperinflation (8) (12) (20)
Finance Income (17) (12) (29)
Adjusted Interest 67 67 134
AER FX rate for £/€: 1.1437 and £/$: 1.2357
Appendix 2
Summary of financial performance (at AER)
Regional Performance
Revenue Adjusted Operating Profit
H1 2023 £m H1 2022 £m Change % H1 2023 £m H1 2022 £m Change %
North America 1,654 693 138.4% 306 111 176.0%
Pest Control 1,609 650 147.2% 302 105 187.2%
Hygiene & Wellbeing 45 43 5.1% 4 6 (27.2%)
Europe (inc LATAM) 529 434 22.0% 97 83 16.8%
Pest Control 252 189 33.1% 57 45 26.6%
Hygiene & Wellbeing 169 155 9.3% 22 25 (12.6%)
France Workwear 108 90 20.6% 18 13 39.1%
UK & Sub Saharan Africa 190 179 6.0% 46 46 (1.7%)
Pest Control 97 88 9.5% 26 21 19.2%
Hygiene & Wellbeing 93 91 2.5% 20 25 (20.0%)
Asia & MENAT 168 152 10.9% 23 22 8.0%
Pest Control 123 107 15.3% 18 16 13.1%
Hygiene & Wellbeing 45 45 0.4% 5 6 (5.6%)
Pacific 125 109 14.8% 29 24 20.6%
Pest Control 63 49 28.5% 12 8 54.2%
Hygiene & Wellbeing 62 60 3.7% 17 16 4.6%
Central 5 5 (2.1%) (58) (48) (20.2%)
Restructuring costs (6) (5) (14.5%)
Total at AER 2,671 1,572 69.9% 437 233 88.0%
Category Performance
Revenue Adjusted Operating Profit
H1 2023 £m H1 2022 £m Change % H1 2023 £m H1 2022 £m Change %
Pest Control 2,144 1,083 97.7% 415 195 112.3%
Hygiene & Wellbeing 414 394 5.4% 68 78 (11.9%)
France Workwear 108 90 20.6% 18 13 39.1%
Central 5 5 (2.1%) (58) (48) (20.2%)
Restructuring costs (6) (5) (14.5%)
Total at AER 2,671 1,572 69.9% 437 233 88.0%
Consolidated Statement of Profit or Loss and Other Comprehensive Income (unaudited)
For the period ended 30 June 2023
Note 6 months to 6 months to
30 June 2023
30 June
£m
2022
£m
Revenue 4 2,671 1,572
Operating expenses (2,354) (1,402)
Net impairment losses on financial assets (13) -
Operating profit 304 170
Finance income 17 7
Finance cost (88) (20)
Share of profit from associates net of tax 7 5
Profit before income tax 240 162
Income tax expense1 5 (55) (38)
Profit for the period 185 124
Profit for the period attributable to:
Equity holders of the Company 185 124
Non-controlling interests - -
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Remeasurement of net defined benefit liability - (2)
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves (341) 214
Net gain/(loss) on net investment hedge 49 (66)
Cost of hedging 17 5
Effective portion of changes in fair value of cash flow hedge 49 (7)
Tax related to items taken to other comprehensive income 2 (3)
Other comprehensive income for the period (224) 141
Total comprehensive income for the period (39) 265
Total comprehensive income for the period attributable to:
Equity holders of the Company (39) 265
Non-controlling interests - -
Earnings per share attributable to the Company's equity holders:
Basic 7.35p 6.67p
Diluted 7.31p 6.65p
1. Taxation includes £55m (2022: £27m) in respect of overseas taxation.
All profit is from continuing operations.
The weighted average number of ordinary shares in issue is 2,513m (HY 2022:
1,860m). For the diluted EPS calculation the adjustment for share options and
LTIPs is 14m (HY 2022: 6m).
Consolidated Balance Sheet (unaudited)
Note At 30 June 2023 At 31 December 2022
£m £m
Assets
Non-current assets
Intangible assets 7,101 7,319
Property, plant and equipment 485 495
Right-of-use assets 456 454
Investments in associated undertakings 43 53
Other investments 21 23
Deferred tax assets 46 43
Contract costs 179 182
Retirement benefit assets 6 3
Trade and other receivables 88 90
Derivative financial instruments 45 21
8,470 8,683
Current assets
Other investments 1 1
Inventories 209 200
Trade and other receivables 859 832
Current tax assets 35 36
Cash and cash equivalents 1,418 2,170
2,522 3,239
Liabilities
Current liabilities
Trade and other payables (1,193) (1,162)
Current tax liabilities (50) (60)
Provisions for liabilities and charges (125) (133)
Bank and other short-term borrowings (742) (1,355)
Lease liabilities (127) (135)
(2,237) (2,845)
Net current assets 285 394
Non-current liabilities
Other payables1 (76) (81)
Bank and other long-term borrowings (3,472) (3,574)
Lease liabilities (325) (332)
Deferred tax liabilities (503) (511)
Retirement benefit obligations (30) (30)
Provisions for liabilities and charges (329) (359)
Derivative financial instruments (68) (92)
(4,803) (4,979)
Net assets 3,952 4,098
Equity
Capital and reserves attributable to the Company's equity holders
Share capital 25 25
Share premium 12 9
Other reserves 537 763
Retained earnings 3,379 3,302
3,953 4,099
Non-controlling interests (1) (1)
Total equity 3,952 4,098
1. Non-current other payables includes £33m put option liability related to
the PCI India acquisition (2022: £43m).
Consolidated Statement of Changes in Equity (unaudited)
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 2022 19 7 (1,927) 3,166 (1) 1,264
Profit for the period - - - 124 - 124
Other comprehensive income:
Net exchange adjustments offset in reserves - - 214 - - 214
Net loss on net investment hedge - - (66) - - (66)
Net loss on cash flow hedge1 - - (7) - - (7)
Cost of hedging - - 4 - - 4
Remeasurement of net defined benefit asset - - - (2) - (2)
Tax related to items taken directly to other comprehensive income - - - (2) - (2)
Total comprehensive income for the period - - 145 120 - 265
Transactions with owners:
Cost of issuing new shares - - - (13) - (13)
Dividends paid to equity shareholders - - - (80) - (80)
Cost of equity-settled share-based payment plans - - - 5 - 5
Tax related to items taken directly to equity - - - (4) - (4)
Movement in the carrying value of put options - - - 1 - 1
At 30 June 2022 19 7 (1,782) 3,195 (1) 1,438
At 1 January 2023 25 9 763 3,302 (1) 4,098
Profit for the period - - - 185 - 185
Other comprehensive income:
Net exchange adjustments offset in reserves - - (341) - - (341)
Net gain on net investment hedge - - 49 - - 49
Net gain on cash flow hedge1 - - 49 - - 49
Cost of hedging - - 17 - - 17
Tax related to items taken directly to other comprehensive income - - - 2 - 2
Total comprehensive income for the period - - (226) 187 - (39)
Transactions with owners:
Gain on stock options - 3 - - - 3
Dividends paid to equity shareholders - - - (131) - (131)
Cost of equity-settled share-based payment plans - - - 14 - 14
Tax related to items taken directly to equity - - - 4 - 4
Movement in the carrying value of put options - - - 3 - 3
At 30 June 2023 25 12 537 3,379 (1) 3,952
1. £49m net gain on cash flow hedge includes £nil gain/loss (2022: £7m
gain) from the effective portion of changes in fair value offset by
reclassification to the income statement of £49m gain (2022: £14m gain) due
to changes in foreign exchange rates.
Shares of £nil (2022: £nil) have been netted against retained earnings. This
represents 14.5m (2022: 12.3m) shares held by the Rentokil Initial Employee
Share Trust. The market value of these shares at 30 June 2023 was £89m (2022:
£58m). Dividend income from, and voting rights on, the shares held by the
Trust have been waived.
Analysis of other reserves (unaudited)
Capital reduction reserve Merger Cash flow hedge reserve Translation reserve Cost of hedging Total
£m
£m
£m
£m
£m
relief
reserve
£m
At 1 January 2022 (1,723) - 9 (211) (2) (1,927)
Net exchange adjustments offset in reserves - - - 214 - 214
Net loss on net investment hedge - - - (66) - (66)
Net loss on cash flow hedge1 - - (7) - - (7)
Cost of hedging - - - - 4 4
Total comprehensive income for the period - - (7) 148 4 145
At 30 June 2022 (1,723) - 2 (63) 2 (1,782)
At 1 January 2023 (1,723) 2,998 3 (511) (4) 763
Net exchange adjustments offset in reserves - - - (341) - (341)
Net gain on net investment hedge - - - 49 - 49
Net gain on cash flow hedge1 - - 49 - - 49
Cost of hedging - - - - 17 17
Total comprehensive income for the period - - 49 (292) 17 (226)
At 30 June 2023 (1,723) 2,998 52 (803) 13 537
1. £49m net gain on cash flow hedge includes £nil gain/loss (2022: £7m
gain) from the effective portion of changes in fair value offset by
reclassification to the income statement of £49m gain (2022: £14m gain) due
to changes in foreign exchange rates.
Consolidated Cash Flow Statement (unaudited)
Note 6 months to 6 months to
30 June
30 June
2023
2022
£m
£m
Cash flows from operating activities
Cash generated from operating activities 12 504 312
Interest received 8 2
Interest paid1 (122) (21)
Income tax paid (58) (32)
Net cash flows from operating activities 332 261
Cash flows from investing activities
Purchase of property, plant and equipment (81) (68)
Purchase of intangible fixed assets (21) (15)
Proceeds from sale of property, plant and equipment 2 3
Acquisition of companies and businesses, net of cash acquired (175) (127)
Net change to cash flow from investment in term deposits - (2)
Net cash flows from investing activities (275) (209)
Cash flows from financing activities
Dividends paid to equity shareholders (131) (80)
Capital element of lease payments (82) (45)
Cost of issuing new shares - (13)
Cash (outflow)/inflow on settlement of debt-related foreign exchange forward (3) 1
contracts
Proceeds from new debt - 1,744
Debt repayments - (136)
Net cash flows from financing activities (216) 1,471
Net (decrease)/increase in cash and cash equivalents (159) 1,523
Cash and cash equivalents at beginning of period 879 242
Exchange (loss)/gain on cash and cash equivalents (22) 23
Cash and cash equivalents at end of the financial period 698 1,788
1. Interest paid includes the interest element of lease payments of £12m
(2022: £3m).
Explanatory notes to the interim financial statements (unaudited)
1. General information
The Company is a public limited company incorporated in England and Wales and
domiciled in the UK with a listing on the London Stock Exchange. The address
of its registered office is Rentokil Initial plc, Compass House, Manor Royal,
Crawley, West Sussex, RH10 9PY.
The consolidated half-yearly financial information for the half-year to 30
June 2023 was approved on 26 July 2023 for issue on 27 July 2023.
On page 101 of the Annual Report 2022 we set out the Group's approach to risk
management and on pages 63 to 69 we define the principal risks that are most
relevant to the Group. These risks are described in detail and have mitigating
actions assigned to each of them. In our view the principal risks remain
unchanged from those indicated in the Annual Report 2022. A summary of the
risks is laid out in the table below:
Principal risk Summary of risk
Failure to integrate acquisitions and execute disposals from continuing The Company has a strategy that includes growth by acquisition, and has
business acquired 24 businesses in H1 2023. These companies need to be integrated
quickly and efficiently to minimise potential impact on the acquired business
and the existing business.
Failure to develop products and services that are tailored and relevant to The Company operates across markets that are at different stages in the
local markets and market conditions economic cycle, at varying stages of market development and have different
levels of market attractiveness. We must be sufficiently agile to develop and
deliver products and services that meet local market needs.
Failure to grow our business profitably in a changing macro-economic The Company's two core categories (Pest Control and Hygiene & Wellbeing)
environment operate in a global macro-economic environment that is subject to uncertainty
and volatility.
Failure to mitigate against financial market risks Our business is exposed to foreign exchange risk, interest rate risk,
liquidity risk, counterparty risk and settlement risk.
Breaches of laws or regulations (including tax, competition and anti-trust As a responsible company we aim to comply with all laws and regulations that
laws) apply to our businesses across the globe.
Failure to ensure business continuity in case of a material incident The business needs to have resilience to ensure business can continue if
impacted by external events, e.g. cyber attack, hurricane or terrorism.
Fraud, financial crime and loss or unintended release of personal data Collusion between individuals, both internal and external, could result in
fraud if internal controls are not in place and working effectively. The
business holds personal data on colleagues, some customers and suppliers:
unintended loss or release of such data may result in criminal sanctions.
Safety, health and the environment (SHE) The Company has an obligation to ensure that colleagues, customers and other
stakeholders remain safe, that the working environment is not detrimental to
health and that we are aware of and minimise any adverse impact on the
environment.
Failure to deliver consistently high levels of service to the satisfaction of Our business model depends on servicing the needs of our customers in line
our customers with internal high standards and to levels agreed in contracts.
These interim financial results do not comprise statutory accounts within the
meaning of Section 435 of the Companies Act 2006, and should be read in
conjunction with the Annual Report 2022. Those accounts have been audited and
delivered to the registrar of companies. The report of the auditor was
unqualified, did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report and did not
contain statements under section 498(2) or (3) of the Companies Act 2006.
For all information relating to 2022 results please refer to the Annual Report
2022 which can be accessed here:
https://www.rentokil-initial.com/investors/annual-reports.aspx
2. Basis of preparation
The condensed consolidated financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority and in accordance with IAS 34 Interim Financial Reporting as
contained in UK-adopted international accounting standards. The condensed
consolidated financial statements should be read in conjunction with the
annual financial statements for the year ended 31 December 2022 which have
been prepared in accordance with UK-adopted International Accounting Standards
and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. The annual financial statements for the year
ended 31 December 2022 and the condensed consolidated financial statements
also comply fully with International Financial Reporting Standards (IFRSs) as
issued by the International Accounting Standards Board (IASB).
Going concern
The Directors have prepared Board-approved cash flow forecasts that
demonstrate that the Group has sufficient liquidity to meet its obligations as
they fall due for the period of at least 12 months from the date of approval
of these Financial Statements.
Additionally, the Directors have assessed severe but plausible downside
scenarios. The downside scenarios include a revenue decline of 20% against
base budget for six months or for 12 months, and a one off 'shock' in the form
of a cash loss of £200m. All of these scenarios are considerably worse than
the actual impact of the COVID-19 pandemic in 2020. Starting with c£1.4bn of
headroom at June 2023, none of the scenarios required additional external
funding above and beyond existing committed facilities and in the most severe
downside scenario the minimum headroom modelled was c.£0.95bn before the
inclusion of mitigating actions totalling £0.3bn, such as cost savings,
adjusting the level of M&A activity and/or dividends paid, which are all
within the Group's control and were used during the COVID-19 pandemic.
The Directors have therefore concluded that the Group will have sufficient
liquidity to continue to meet its liabilities as they fall due for this period
and therefore have prepared the Financial Statements on a going concern basis.
3. Accounting policies
The Group makes estimates and assumptions concerning the future. Estimates and
assumptions are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. Actual results may differ from these
estimates and revisions to estimates are recognised prospectively.
Sensitivities to the estimates and assumptions are provided, where relevant,
in the notes to the financial statements.
The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are listed below:
● Termite damage claim provisions
Provisions for uncertain tax positions is no longer considered to have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
Further detail can be found in the Annual Report 2022.
Significant seasonal or cyclical variations in the Group's total revenues are
not experienced during the financial year.
Changes in accounting policies
Except as described below, the accounting policies applied in these interim
financial statements are the same as those applied in the Group's consolidated
financial statements as at and for the year ended 31 December 2022. The
changes in accounting policies are also expected to be reflected in the
Group's consolidated financial statements as at and for the year ending 31
December 2023.
A number of new standards are effective from 1 January 2023 but they do not
have a material effect on the Group's financial statements.
The Group has adopted the following amendments to standards with effect from 1
January 2023:
● Insurance contracts (for non-insurers) - Introduction of IFRS 17
● Definition of accounting estimates - Amendments to IAS 8
● Disclosure of accounting policies - Amendments to IAS 1
● Deferred tax - Amendments to IAS 12.
These standards have had no material impact on the financial position or
performance of the Group. Consequently, no adjustment has been made to the
comparative financial information. The Group has not early adopted any
standard, interpretation or amendment that was issued but is not yet
effective.
4. Segmental information
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.
Effective from 1 January 2022, in response to the rising importance of hygiene
and wellbeing services, Rentokil Initial reorganised its business segments,
primarily expanding the former Hygiene segment to become Hygiene &
Wellbeing and allocating the businesses in its former Protect & Enhance
segment. The Protect & Enhance segment had included five businesses:
Ambius, Property Care, Dental Services, Cleanroom Services and Workwear
(France). The Ambius, Dental Services and Cleanroom Services businesses have
been added to the enlarged segment, now called Hygiene & Wellbeing, the
Property Care business has been added to the Pest Control segment, and
Workwear (France) has been left as a standalone segment. At the same time,
changes were made to the regional structure, designed to provide clearer
geographic links and align growth strategies, as follows:
● North America: Puerto Rico joined the Latin America (LATAM) region
● Europe: Includes Nordics (Norway, Sweden, Finland, Denmark and Poland),
previously in UK & Rest of World region. Also continues to include LATAM¹
which has been expanded to include Caribbean (formerly in UK & Rest of
World) and Puerto Rico (formerly in North America)
● UK & Sub-Saharan Africa: No change to UK, Ireland & Baltics.
Sub-Saharan Africa remained in this region. Other Rest of World countries
(MENAT and Caribbean) moved to other regions
● Asia & MENAT: Enlarged region includes Asia and MENAT countries
● Pacific: No change
1. The LATAM region is combined with Europe. It is the Group's smallest region
and not considered reportable under the quantitative thresholds in IFRS 8. It
is combined with Europe as it historically reported through this region, it is
similar in nature to the Europe businesses and has language and cultural
alignment.
The financial information presented has been retrospectively adjusted to
reflect these changes.
Disaggregated revenue under IFRS 15 is the same as the segmental analysis
below. Restructuring costs and central and regional costs are presented at a
Group level as they are not targeted or managed at reportable segment level.
The basis of presentation is consistent with the information reviewed by
internal management.
Adjusted profit measures
Adjusted profit measures are used to give management and other users of the
accounts a clear understanding of the underlying profitability of the business
over time. Adjusted profit measures are calculated by adding the following
items back to the equivalent GAAP profit measure:
● amortisation and impairment of intangible assets (excluding computer
software);
● one-off and adjusting items; and
● net interest adjustments.
Intangible assets (such as customer lists and brands) are recognised on
acquisition of businesses which, by their nature, can vary by size and amount
each year. Capitalisation of innovation-related development costs will also
vary from year to year. As a result, amortisation of intangibles is added back
to assist with understanding the underlying trading performance of the
business and to allow comparability across regions and categories.
One-off and adjusting items are significant expenses or income that will have
a distortive impact on the underlying profitability of the Group. Typical
examples are costs related to the acquisition of businesses, gain or loss on
disposal or closure of a business, material gains or losses on disposal of
fixed assets, adjustments to legacy property-related provisions (environmental
liabilities), and payments or receipts as a result of legal disputes.
Net interest adjustments are other non-cash or one-off accounting gains and
losses that can cause material fluctuations and distort understanding of the
performance of the business, such as net interest on pension schemes and
interest fair value adjustments. These adjustments are made to aid
year-on-year comparability.
Diluted Adjusted Earnings Per Share is calculated by dividing adjusted profit
after tax from continuing operations attributable to equity holders of the
Company by the weighted average diluted number of ordinary shares in issue.
Revenue and profit from continuing operations
Revenue Revenue¹ Operating Operating
30 June 30 June profit profit¹
2023 2022 30 June 30 June
£m £m 2023 2022
£m £m
North America
Pest Control 1,609 650 302 105
Hygiene & Wellbeing 45 43 4 6
1,654 693 306 111
Europe (incl LATAM)
Pest Control 252 189 57 45
Hygiene & Wellbeing 169 155 22 25
France Workwear 108 90 18 13
529 434 97 83
UK & Sub-Saharan Africa
Pest Control 97 88 26 21
Hygiene & Wellbeing 93 91 20 25
190 179 46 46
Asia & MENAT
Pest Control 123 107 18 16
Hygiene & Wellbeing 45 45 5 6
168 152 23 22
Pacific
Pest Control 63 49 12 8
Hygiene & Wellbeing 62 60 17 16
125 109 29 24
Central and regional overheads 5 5 (58) (48)
Restructuring costs - - (6) (5)
Revenue and Adjusted Operating Profit 2,671 1,572 437 233
Adjusted Operating Profit Margin 16.4% 14.8%
One-off and adjusting items (46) (23)
Amortisation and impairment of intangible assets2 (87) (40)
Operating Profit 304 170
Operating Profit Margin 11.4% 10.8%
Share of profit from associates (net of tax) 7 5
Adjusted interest (67) (12)
Net interest adjustments (4) (1)
Profit Before Tax 240 162
Net interest adjustments 4 1
One-off and adjusting items 46 23
Amortisation and impairment of intangible assets1 87 40
Adjusted Profit Before Tax 377 226
1. During 2022, internal management reporting structures changed and revenue
and profit have been represented for 2022 under the new structure.
2. Excluding computer software.
Organic Revenue measures
Acquisitions are a core part of the Group's growth strategy. Organic Revenue
growth measures are used to help understand the underlying performance of the
Group. Organic Revenue growth represents the growth in Revenue excluding the
effect of businesses acquired during the period. Acquired businesses are
included in organic measures in the period following acquisition, and the
comparative period is adjusted to include an estimated full-year performance
for growth calculations (pro forma revenue). The Terminix acquisition is
treated differently to other acquisitions for Organic Revenue growth purposes,
with the growth in Revenue not being excluded. The full pre-acquisition
results of the Terminix business are included for the comparative period and
Organic Revenue growth calculated as the growth in Revenue compared with the
comparative period.
Organic Revenue growth Organic Revenue growth
excluding disinfection including disinfection
30 June 30 June 30 June 30 June
2023 2022 2023 2022
% % % %
North America 4.1 5.7 4.1 1.0
Europe (incl LATAM) 11.1 9.5 9.8 5.0
UK & Sub-Saharan Africa 3.9 5.9 3.9 3.2
Asia & MENAT 11.3 8.0 6.5 5.4
Pacific 7.4 5.3 7.3 4.8
Group 5.9 6.2 5.4 2.0
Pest Control 5.6 5.1 5.6 5.1
Hygiene & Wellbeing 5.2 10.1 1.8 (12.2)
France Workwear 16.3 15.5 16.3 15.5
Group 5.9 6.2 5.4 2.0
Analysis of revenue by type
Revenue Revenue
30 June 30 June
2023 2022
£m £m
Recognised over time
Contract service revenue 1,918 1,110
Recognised at a point in time
Job work 541 289
Sales of goods 212 173
Total 2,671 1,572
One-off and adjusting items - operating
One-off and adjusting items - operating is a charge of £46m (2022: £23m)
which mainly relates to acquisition and integration costs, £35m of which
relates to the Terminix acquisition (2022: £19m).
Other segment items included in the consolidated income statement are as
follows:
Amortisation and Amortisation and
impairment of impairment of
intangibles1 intangibles1
30 June 2023 30 June 2022
£m £m
North America 58 20
Europe (incl. LATAM) 13 7
UK & Sub-Saharan Africa 4 4
Asia & MENAT 5 5
Pacific 3 2
Central and regional 4 2
Total 87 40
1. Excluding computer software.
5. Income tax expense
Analysis of charge in the period:
6 months to 6 months to
30 June 30 June
2023 2022
£m £m
UK corporation tax at 23.5% (2022: 19.0%; 2021: 19.0%) 2 9
Overseas taxation 44 40
Adjustment in respect of previous periods (2) (2)
Total current tax 44 47
Deferred tax expense/(credit) 13 (9)
Deferred tax adjustment from change in tax rates - -
Adjustment in respect of previous periods (2) -
Total deferred tax 11 (9)
Total income tax expense 55 38
The tax charge for the period has been calculated by applying the effective
tax rate which is expected to apply to the Group for the year ended 31
December 2023 using rates substantively enacted by 30 June 2023. A separate
effective income tax rate has been calculated for each jurisdiction in which
the Group operates applied to the pre tax profits for the interim period.
The reported tax rate for the period was 22.9% (H1 2022: 23.2%). The Group's
Effective Tax Rate (ETR) before amortisation of intangible assets (excluding
computer software), one-off items and the net interest adjustments for the
period was 23.4% (H1 2022: 21.8%). This compares with a blended rate of tax
for the countries in which the Group operates of 25% (H1 2022: 24%).
Legislation, which has been enacted at the balance sheet date, increases the
standard rate of UK corporation tax from 19% to 25% from 1 April 2023.
Deferred tax balances have been calculated using the tax rates upon which the
balance is expected to unwind.
The Group's ETR is expected to increase towards the blended tax rate due to
the high proportion of profits arising in the UK and US. The blended tax rate
is expected to remain at 25% in 2024.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023. The Group has
applied the exception under the proposed IAS 12 amendment to recognising and
disclosing information about deferred tax assets and liabilities related to
top-up income taxes.
Total uncertain tax positions (including interest thereon) amounted to £50m
as at 30 June 2023 (2022: £54m). Included within this amount is £6m (2022:
£6m) in respect of interest arising on tax provisions, which is included
within other payables.
Total tax payments for the period amounted to £58m (H1 2022: £32m), an
increase of £26m.
The movement on the deferred income tax account is as follows:
6 months to 6 months to
30 June 30 June
2023 2022
£m £m
At 1 January (468) (67)
Exchange differences 24 (7)
Acquisition of companies and businesses (7) (16)
(Charged)/credited to the income statement (11) 10
Credited to other comprehensive income 1 -
Credited/(charged) to equity 4 (4)
At 30 June (457) (84)
Deferred taxation has been presented on the balance sheet as follows:
Deferred tax asset within non-current assets 46 44
Deferred tax liability within non-current liabilities (503) (128)
(457) (84)
A deferred tax asset of £27m has been recognised in respect of losses (2022:
£23m), of which £21m (2022: £18m) relates to UK losses carried forward at
30 June 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 £82m (2022: £120m) have not been recognised as at 30 June 2023 as
it is not considered probable that future taxable profits will be available
against which the tax losses can be offset.
At the balance sheet date the Group had tax losses of £191m (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.
Adjusted effective tax rate
Adjusted effective tax rate is calculated by dividing adjusted income tax
expense by adjusted profit before tax, expressed as a percentage. The measure
is used by management to assess the rate of tax applied to the Group's
adjusted profit before tax from continuing operations.
6 months to 6 months to
30 June 30 June
2023 2022
AER AER/CER
£m £m
Unadjusted income tax expense 54 38
Tax adjustments on:
Amortisation and impairment of intangible assets (excluding computer software) 21 10
One-off and adjusting items - operating 12 1
Net interest adjustments 1 -
Adjusted income tax expense (a) 88 49
Adjusted profit before tax (b) 377 226
Adjusted effective tax rate (a/b) 23.4% 21.8%
6. 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.
6 months to 6 months to
30 June 30 June
2023 2022
£m £m
2021 final dividend paid - 4.30p per share - 80
2022 final dividend paid - 5.15p per share 131 -
Total 131 80
The directors have declared an interim dividend of 2.75p per share amounting
to £69m payable on 11 September 2023 to shareholders on the register at close
of business on 4 August 2023. The last day for DRIP elections is 18 August
2023. The Company has a progressive dividend policy and will consider the
level of growth for 2023 based on the year-end results. These interim
financial statements do not reflect this dividend payable.
7. Business combinations
During the period the Group purchased 100% of the share capital or trade and
assets of 24 companies and businesses (2022: 31). An overview of the
acquisitions in the year can be found on page 9 under the 'Continued excellent
execution on bolt-on M&A' heading. The Group acquires companies and
businesses as part of its growth strategy.
The total consideration in respect of these acquisitions was £202m (2022:
£160m).
Details of goodwill and the fair value of net assets acquired in the period
are as follows:
6 months to 6 months to
30 June 30 June
2023 2022
£m £m
Purchase consideration
- Cash paid 161 116
- Deferred and contingent consideration 41 44
Total purchase consideration 202 160
Fair value of net assets acquired 58 73
Goodwill from current-period acquisitions 144 87
Goodwill represents the synergies and other benefits expected to be realised
from integrating acquired businesses into the Group, such as improved route
density, expansion in use of best-in-class digital tools and back office
synergies.
Deferred consideration of £8m and contingent consideration of £33m are
payable in respect of the above acquisitions (2022: £17m and £27m
respectively). Contingent consideration is payable based on a variety of
conditions including revenue and profit targets being met. During the period
there were releases of contingent consideration liabilities not paid of £nil
(2022: £1m).
The provisional fair values1 of assets and liabilities arising from
acquisitions in the period are as follows:
6 months to 6 months to
30 June 30 June
2023 2022
£m £m
Non-current assets
- Intangible assets2 47 71
- Property, plant and equipment 11 7
Current assets 19 17
Current liabilities (10) (6)
Non-current liabilities (9) (16)
Net assets acquired 58 73
1. The provisional fair values will be finalised in the 2023 financial
statements. The fair values are provisional since the acquisition accounting
has not yet been finalised, primarily due to the proximity of many
acquisitions to the period end.
2. Includes £39m (2022: £68m) of customer lists and £8m (2022: £3m) of
other intangibles.
Acquired receivables are disclosed at fair value and represent the best
estimate of the contractual cash flows expected to be collected.
From the dates of acquisition to 30 June 2023, these acquisitions contributed
£28m to revenue and £6m to operating profit (2022: £14m and £3m
respectively). If the acquisitions had occurred on 1 January 2023, the revenue
and operating profit of the Group would have amounted to £2,686m and £307m
respectively (2022: £1,590m and £172m respectively).
In relation to prior period acquisitions, there has been an adjustment to the
provisional fair values of the Terminix acquisition resulting in an increase
to goodwill of £14m. This is made up of £10m reduction in the fair value of
acquired investments in associates and various other minor adjustments
resulting in a £4m decrease in the fair value of acquired net assets. The
Terminix opening balance sheet is still provisional at 30 June 2023.
The Group paid £21m in respect of deferred and contingent consideration for
current and prior year acquisitions (2022: £19m), resulting in the total cash
outflow in the period from current and past period acquisitions, net of £7m
(2022: £7m) cash acquired, of £175m (2022: £127m).
8. Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net identifiable assets of the acquired
business at the date of acquisition. It is recognised as an intangible asset.
Goodwill arising on the acquisition of an associate is included in investments
in associates.
Goodwill is carried at cost less accumulated impairment losses and is tested
annually for impairment. For the purpose of impairment testing, goodwill is
allocated to cash-generating units (CGUs) identified according to country of
operation and reportable business unit. The way in which CGUs are identified
has not changed from prior periods. Newly acquired entities might be a single
CGU until such time that they can be integrated. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the
entity sold.
The recoverable amount of a CGU is determined based on the higher of
value-in-use calculations using cash flow projections and fair value less
costs to sell if appropriate. The cash flow projections in year one are based
on financial budgets approved by management, which are prepared as part of the
Group's normal planning process. Cash flows for years two to five use
management's expectation of sales growth, operating costs and margin, based on
past experience and expectations regarding future performance and
profitability for each CGU. Cash flows beyond the five-year period are
extrapolated using estimated long-term growth rates. The effect of climate
change has been considered in the cash flows.
An assessment has been performed for all material CGUs at the half year to
identify any possible indicators of impairment. The assessment included a
review of internal and external factors that have the potential to
significantly reduce the CGU value. The indicator assessment resulted in two
CGUs showing possible indicators of impairment, and as a result a full
impairment assessment was undertaken for those CGUs. The impairment assessment
identified a total of £4m of goodwill impairments across 2 CGUs.
9. Net debt
Reconciliation of net change in cash and cash equivalents to net debt:
At 30 June At 31 December
2023 2022
£m
£m
Current
Cash and cash equivalents in the Consolidated Balance Sheet 1,418 2,170
Other investments 1 1
Bank and other short-term borrowings¹ (742) (1,355)
Lease liabilities (127) (135)
550 681
Non-current
Fair value of debt-related derivatives (23) (71)
Bank and other long-term borrowings² (3,472) (3,574)
Lease liabilities (325) (332)
(3,820) (3,977)
Total net debt (3,270) (3,296)
1. Bank and other short-term borrowings consists of £720m overdraft (2022:
£1,291m), £16m overseas loans (2022: £24m) and £6m bond accruals (2022:
£40m).
2. Bank and other long-term borrowings consists of £2,914m bond debt (2022:
£2,987m) and £558m loans (2022: £587m).
Fair value is equal to carrying value for all elements of net debt with the
exception of bond debt which has a carrying value of £2,914m (December 2022:
£2,987m) and a fair value of £2,774m (December 2022: £2,826m). No further
disclosures are required by IFRS 7.29(a).
Cash at bank and in hand includes £14m (December 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.
10. Derivative financial instrument
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
Fair value Fair value Fair value liabilities Fair value
30 June 2023
assets assets
£m liabilities
30 June 2023
31 December 2022
31 December 2022
£m
£m
£m
Interest rate swaps (level 2):
- non-hedge - - (1) -
- cash flow hedge 47 36 (11) (2)
- net investment hedge 15 15 (73) (120)
62 51 (85) (122)
Analysed as follows:
Current portion - - - -
Non-current portion 62 51 (85) (122)
Derivative financial instruments 62 51 (85) (122)
Contingent consideration¹ (level 3) - - (83) (70)
Analysed as follows:
Current portion - - (49) (32)
Non-current portion - - (34) (38)
Other payables (non-current) - - (83) (70)
1. Contingent consideration includes put option liability of £40m (2022:
£45m).
Certain interest rate swaps have been bifurcated to manage different foreign
exchange risks. The interest rate swaps are shown on the balance sheet as net
derivative assets £45m (2022: £21m) and net derivative liabilities £68m
(2022: £92m).
Contingent consideration includes liabilities for put options of £40m (2022:
£45m). The assumptions that are made in estimating the value of the put
option liabilities are option price and discount rate. A 5% reduction in the
estimated option price would result in a £2m decrease in the liability, and a
100 basis point decrease in the discount rate would result in a £1m increase
in the liability. All gains and losses relating to the put option are
recognised in OCI.
Given the volume of acquisitions and the variety of inputs to the valuation of
contingent consideration (depending on each transaction) there is not
considered to be any change in input that would have a material impact on the
contingent consideration liability.
Contingent Contingent
consideration consideration
30 June 2023 30 June 2022
£m £m
At 1 January 70 75
Exchange differences (2) 2
Acquisitions 33 27
Payments (15) (13)
Revaluation of put option through equity (3) (1)
83 90
Fair value is equal to carrying value for all other trade and other payables.
11. 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 period end at 30 June at period end
at 30 June at 30 June 2023 2023 at 30 June
2023 £m £m 2023
£m %
Non-current
$700m term loan due October 2025 551 551 - 5.9
$1.0bn RCF due October 2027 787 - 787 0.14
Facility Drawn at Headroom Interest rate at period end
amount period end at 31 December at 31 December
at 31 December at 31 December 2022 2022
2022 2022 £m %
£m £m
Non-current
$700m term loan due October 2025 579 579 - 4.9
$1.0bn RCF due October 2027 827 - 827 0.14
The Group has a committed $1.0bn revolving credit facility (RCF) which is
available for cash drawings up to $1.0bn. The maturity date is October 2027.
As at 30 June 2023 the facility was undrawn (2022: £nil).
Medium-term notes and bond debt comprises:
Bond interest Effective hedged interest rate
coupon 2023
2023
Non-current
€400m bond due November 2024 Fixed 0.950% Fixed 3.62%
€500m bond due May 2026 Fixed 0.875% Fixed 2.82%
€850m bond due June 2027 Fixed 3.875% Fixed 5.06%
€600m bond due October 2028 Fixed 0.500% Fixed 2.25%
€600m bond due June 2030 Fixed 4.375% Fixed 4.56%
£400m bond due June 2032 Fixed 5.000% Fixed 5.20%
Average cost of bond debt at period-end rates 4.00%
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 has no significant concentration of credit risk. At 30 June 2023 the
Group had a total of £23m of cash held on bank accounts with banks rated
below A- by S&P (2022: £36m). The highest concentration with any single
bank rated below A- was £4m (2022: £14m).
The Group considers the fair value of other current liabilities to be equal to
the carrying value.
12. Operating cash and Free Cash Flow
2023 2022
£m
£m
Operating profit 304 170
Adjustments for:
- Depreciation and impairment of property, plant and equipment 75 65
- Depreciation and impairment of leased assets 60 40
- Amortisation and impairment of intangible assets (excluding computer 87 40
software)
- Amortisation and impairment of computer software 12 9
- Other non-cash items 18 3
Changes in working capital (excluding the effects of acquisitions and exchange
differences on consolidation):
- Inventories (15) (22)
- Contract costs (5) (3)
- Trade and other receivables (64) (57)
- Accrued income 9 7
- Trade and other payables and provisions 3 47
- Contract liabilities 20 13
Cash generated from operating activities 504 312
Purchase of property, plant and equipment (81) (68)
Purchase of intangible fixed assets (21) (15)
Capital element of lease payments and initial direct costs incurred (81) (45)
Proceeds from sale of property, plant and equipment 2 3
Cash impact of one-off and adjusting items 78 15
Adjusted Cash Flow 401 202
Interest received 8 2
Interest paid (122) (21)
Income tax paid (58) (32)
Free Cash Flow 229 151
Free Cash Flow
The Group aims to generate sustainable cash flow (Free Cash Flow) in order to
support its acquisition programme and to fund dividend payments to
shareholders. Free Cash Flow is measured as net cash from operating
activities, adjusted for cash flows related to the purchase and sale of
property, plant, equipment and intangible fixed assets, cash flows related to
leased assets, cash flows related to one-off and adjusting items and dividends
received from associates. These items are considered by management to be
non-discretionary, as continued investment in these assets is required to
support the day-to-day operations of the business. A reconciliation of Free
Cash Flow from net cash from operating activities is provided in the table
below:
2023 2022
AER AER
£m £m
Net cash from operating activities 332 261
Purchase of property, plant, equipment and intangible fixed assets (102) (83)
Capital element of lease payments and initial direct costs incurred (81) (45)
Proceeds from sale of property, plant, equipment and software 2 3
Cash impact of one-off and adjusting items 78 15
Dividends received from associates - -
Free Cash Flow 229 151
Adjusted Free Cash Flow conversion
Adjusted Free Cash Flow conversion is calculated by dividing Adjusted Free
Cash Flow by Adjusted Profit After Tax, expressed as a percentage. Adjusted
Free Cash Flow is measured as Free Cash Flow adjusted for product development
additions and net investment hedge cash interest through Other Comprehensive
Income.
2023 2022
AER AER
£m £m
Adjusted Profit After Tax 289 177
Free Cash Flow 229 151
Product development additions 5 3
Net investment hedge cash interest through Other Comprehensive Income 6 4
Adjusted Free Cash Flow 240 158
Free Cash Flow conversion 83.0% 89.3%
13. 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.
Termite damage claims Self- Environmental Other Total
£m insurance £m £m £m
£m
At 1 January 2022 - 37 11 13 61
Exchange differences - 4 - - 4
Additional provisions - 11 - 3 14
Used during the period - (8) (1) (4) (13)
At 30 June 2022 - 44 10 12 66
At 1 January 2023 303 165 12 12 492
Exchange differences (14) (7) (1) - (22)
Additional provisions 8 28 3 3 42
Used during the period (37) (25) (1) (3) (66)
Unused amounts reversed - (2) - (1) (3)
Acquisition of companies and businesses - - 3 2 5
Unwinding of discount on provisions 6 - - - 6
At 30 June 2023 266 159 16 13 454
2023 2022
Total
Total
£m
£m
Analysed as follows:
Non-current 329 39
Current 125 27
Total 454 66
Termite damage claims
The Group holds provisions for termite damage claims covered by contractual
warranties. Termite damage claim provisions are subject to significant
assumptions and estimation uncertainty. The assumptions included in valuing
termite provisions are based on an estimate of the rate and cost of future
claims (based on historical and forecast information), customer churn rates
and discount rates. These provisions are expected to be substantially utilised
within the next 20 years. The trend of volume and value of claims is monitored
and reviewed over time (with the support of external advisers) and as such the
value of the provisions are also likely to change.
The sensitivity of the liability balance to changes in the inputs is
illustrated as follows:
● Discount rate - this exposure is largely based within the United States,
therefore measurement is based on a US risk-free rate. As we have seen during
2022 and 2023, interest rates (and therefore discount rates) have moved up and
are at their highest in over a decade. Rates could move in either direction
and management has modelled that an increase/decrease of 5% in yields (from
4.31% to 4.53%) would reduce/increase the provision by £3m. Over the 6 months
to 30 June 2023, risk free rates used for the provision have remained broadly
flat.
● Claim cost - claim cost forecasts have been based on the latest available
historical settled Terminix claims. Claims costs are dependent on a range of
inputs including labour cost, materials costs (e.g. timber), whether a claim
becomes litigated or not, and specific circumstances including contributory
factors at the premises. Management has determined the historical time period
for each material category of claim, between six months and five years, to
determine an estimate for costs per claim. Recent fluctuations in input prices
(e.g. timber prices) means that there is potential for volatility in claim
costs and therefore future material changes in provisions. Management has
modelled that a structural increase/ decrease of 5% in total claim costs would
increase/decrease the provision by c.£15m. Over the 6 months to 30 June 2023,
in year costs per claim rose by c.5.6%.
● Claim rate - management has estimated claim rates based on statistical
historical incurred claims. Data has been captured and analysed by a third
party agency, used by Terminix over many years, to establish incidence curves
that can be used to estimate likely future cash outflows. Changes in rates of
claim are largely outside the Group's control and may depend on litigation
trends within the US, and other external factors such as how often customers
move property and how well they maintain those properties. This causes
estimation uncertainty that could lead to material changes in provision
measurement. Management has modelled that an increase/decrease of 5% in
overall claim rates would increase/decrease the provision by c.£15m
accordingly. Over the 6 months to 30 June 2023 claim rates have been broadly
flat.
● Customer churn rate - If customers choose not to renew their contracts each
year, then the assurance warranty falls away. As such there is sensitivity to
the assumption on how many customers will churn out of the portfolio of
customers each year. Data has been captured and analysed by a third party
agency, used by Terminix over many years, to establish incidence curves for
customer churn, and forward looking assumptions have been made based on these
curves. Changes in churn rates are subject to macro-economic factors and to
the performance of the Group. A 1% movement in customer churn rates, up or
down, would change the provision by c.£10m up or down, accordingly. On
average over the last 10 years annualised churn rates move by +/- c.1.2% per
annum.
Self-insurance
The Group purchases external insurance from a portfolio of international
insurers for its key insurable risks, mainly employee-related risks.
Self-insured deductibles within these insurance policies have changed over
time due to external market conditions and scale of operations. These
provisions represent obligations for open claims and are estimated based on
actuarial/management's assessment at the balance sheet date. The Group expects
to continue self-insuring the same level of risks and estimates that 50% to
75% of claims should settle within the next five years.
Environmental
The Group owns a number of properties in Europe and the US where there may be
environmental contamination. These issues tend to be complex to determine and
resolve, and may be material although are often not possible to measure
reliably. Where issues are known and reliably measurable, provisions are held
for the remediation of any contamination. 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 properties the Group no
longer occupies such as security, utilities and insurance. Existing provisions
are expected to be substantially utilised within the next five years.
14. Post balance sheet events
There have been no significant post balance sheet events affecting the Group
since 30 June 2023.
15. Legal statements
The financial information for the six month period ended 30 June 2023
contained in this interim announcement has been approved by the Board and
authorised for release on 27 July 2023.
These condensed interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year 31 December 2022 were approved by the Board of
Directors and authorised for release on 16 March 2023 and delivered to the
Registrar of Companies. The report of the auditors on those accounts 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 directors of Rentokil Initial plc are listed in the Rentokil Initial plc
Annual Report for 31 December 2022. A list of the current directors is
maintained on the Rentokil Initial website: rentokil-initial.com.
Responsibility statement of the directors in respect of the 2023 interim statement
We confirm that to the best of our knowledge:
● the condensed set of financial statements prepared in accordance with IAS 34,
'Internal Financial Reporting', as adopted in the UK (IAS 34), gives a true
and fair view of the assets, liabilities, financial position and profit or
loss of the Company and its subsidiaries included in the consolidation as a
whole as required by DTR 4.2.4R; and
● the interim management report includes a fair review of the information
required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year.
We have reviewed, and found that we have nothing to report in relation to the
requirements of DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first six months
of the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
By Order of the Board
Andy Ransom
Chief Executive
27 July 2023
Independent review report to Rentokil Initial plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Rentokil Initial plc's condensed consolidated interim
financial statements (the "interim financial statements") in the 2023 Interim
Results of Rentokil Initial plc for the six month period ended 30 June 2023
(the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
● the consolidated Balance Sheet as at 30 June 2023;
● the consolidated Statement of Profit or Loss and Other Comprehensive Income
for the period then ended;
● the consolidated Cash Flow Statement for the period then ended;
● the consolidated Statement of Changes in Equity for the period then ended; and
● the explanatory notes to the interim financial statements.
The interim financial statements included in the 2023 Interim Results of
Rentokil Initial plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the 2023 Interim Results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The 2023 Interim Results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the 2023 Interim Results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the 2023 Interim Results, including
the interim financial statements, the directors are responsible for assessing
the group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the 2023 Interim Results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 July 2023
Cautionary statement
In order to utilise the 'safe harbour' provisions of the U.S. Private
Securities Litigation Reform Act of 1995 (the "PSLRA") and the general
doctrine of cautionary statements, Rentokil Initial plc ("the Company") is
providing the following cautionary statement: This communication contains
forward-looking statements within the meaning of the PSLRA. Forward-looking
statements can sometimes, but not always, be identified by the use of
forward-looking terms such as "believes," "expects," "may," "will," "shall,"
"should," "would," "could," "potential," "seeks," "aims," "projects,"
"predicts," "is optimistic," "intends," "plans," "estimates," "targets,"
"anticipates," "continues" or other comparable terms or negatives of these
terms and include statements regarding Rentokil Initial's intentions, beliefs
or current expectations concerning, amongst other things, the results of
operations of the Company and its consolidated entities ("Rentokil Initial" or
"the Group"), financial condition, liquidity, prospects, growth, strategies
and the economic and business circumstances occurring from time to time in the
countries and markets in which Rentokil Initial operates. Forward-looking
statements are based upon current plans, estimates and expectations that are
subject to risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialise, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated or
anticipated by such forward-looking statements. The Company can give no
assurance that such plans, estimates or expectations will be achieved and
therefore, actual results may differ materially from any plans, estimates or
expectations in such forward-looking statements. Important factors that could
cause actual results to differ materially from such plans, estimates or
expectations include: the Group's ability to integrate acquisitions
successfully, or any unexpected costs or liabilities from the Group's
disposals; difficulties in integrating, streamlining and optimising the
Group's IT systems, processes and technologies; the availability of a suitably
skilled and qualified labour force to maintain the Group's business; the
Group's ability to attract, retain and develop key personnel to lead the
business; the impact of environmental, social and governance ("ESG") matters,
including those related to climate change and sustainability, on the Group's
business, reputation, results of operations, financial condition and/or
prospects; inflationary pressures, such as increases in wages, fuel prices and
other operating costs; supply chain issues, which may result in product
shortages or other disruptions to the Group's business; weakening general
economic conditions, including changes in the global job market or decreased
consumer confidence or spending levels; the Group's ability to implement its
business strategies successfully, including achieving its growth objectives;
the Group's ability to retain existing customers and attract new customers;
the highly competitive nature of the Group's industries; cybersecurity
breaches, attacks and other similar incidents; extraordinary events that
impact the Group's ability to service customers without interruption,
including a loss of its third-party distributors; the Group's ability to
protect its intellectual property and other proprietary rights that are
material to the Group's business; the Group's reliance on third parties,
including third-party vendors for business process outsourcing initiatives,
investment counterparties, and franchisees, and the risk of any termination or
disruption of such relationships or counterparty default or litigation;
failure to maintain effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act; any future impairment
charges, asset revaluations or downgrades; failure to comply with the many
laws and governmental regulations to which the Group is subject or the
implementation of any new or revised laws or regulations that alter the
environment in which the Group does business, as well as the costs to the
Group of complying with any such changes; termite damage claims and lawsuits
related thereto; the Group's ability to comply with safety, health and
environmental policies, laws and regulations, including laws pertaining to the
use of pesticides; any actual or perceived failure to comply with stringent,
complex and evolving laws, rules, regulations and standards, as well as
contractual obligations, relating to data privacy and security; changes in tax
laws and any unanticipated tax liabilities; adverse credit and financial
market events and conditions, which could, among other things, impede access
to or increase the cost of financing; the restrictions and limitations within
the agreements and instruments governing our indebtedness; a lowering or
withdrawal of the ratings, outlook or watch assigned to the Group's debt
securities by rating agencies; an increase in interest rates and the resulting
increase in the cost of servicing the Group's debt; and exchange rate
fluctuations and the impact on the Group's results or the foreign currency
value of the Company's ADSs and any dividends. The list of factors presented
here is representative and should not be considered to be a complete statement
of all potential risks and uncertainties. Unlisted factors may present
significant additional obstacles to the realisation of forward-looking
statements. The Company cautions you not to place undue reliance on any of
these forward-looking statements as they are not guarantees of future
performance or outcomes and that actual performance and outcomes, including,
without limitation, the Group's actual results of operations, financial
condition and liquidity, and the development of new markets or market segments
in which the Group operates, may differ materially from those made in or
suggested by the forward-looking statements contained in this communication.
Except as required by law, Rentokil Initial assumes no obligation to update or
revise the information contained herein, which speaks only as of the date
hereof.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
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. END IR RFMPTMTATBJJRecent news on Rentokil Initial
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