TIDMRTO
RNS Number : 3283H
Rentokil Initial PLC
27 July 2023
2023 Interim Results
Strong operational and financial performance: Organic Revenue
(1) 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 Results AER CER
(1)
--------------------------- ---------------------------
GBPm H1 2023 H1 2022 Change H1 2023 H1 2022 Change
GBPm GBPm % GBPm GBPm %
------------------------ -------- -------- ------- -------- -------- -------
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 GBP2,671m 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 GBP6m FX headwind. Statutory PBT up 48.1% to GBP240m
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 GBP229m 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 GBP3.27bn
(FY 22 GBP3.30bn)
-- 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
GBP202m, with total annualised revenues of GBP79m 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 GBP50m to c.GBP300m
-- 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 GBP202m. 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 GBP15m-GBP25m to a
headwind of GBP15m-GBP20m.
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:
Rentokil Initial
Investors / Analysts: Peter Russell plc +44 (0)7795 166506
Rentokil Initial
Media: Malcolm Padley 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
GBPm GBPm % GBPm GBPm %
---------------------- -------- -------- ------- -------- -------- --------
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
GBPm GBPm % GBPm GBPm %
--------------------- -------- -------- ------- -------- -------- --------
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 GBP14.2m
in H1 22 to GBP1.6m 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 GBP2,666m and Organic Revenue up 5.9%, ahead of
medium-term Organic Revenue guidance. Statutory Revenue was up
69.9% to GBP2,671m 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 GBP1.6m (H1 22: GBP14.2m)
Our Pest Control category grew Revenue by 91.5% (5.6% Organic)
to GBP2,141m, 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 GBP414m. 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 GBP106m (16.3% Organic).
Profit
Adjusted Operating Profit rose by 81.7% during the first six
months to GBP434m, 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 GBP6m 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 GBP6m (at CER and AER)
were up GBP1m on the prior year (H1 22: GBP5m 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 GBP377m, which excludes
one-off and adjusting items and amortisation costs, increased by
67.3%. Adjusted interest of GBP67m at actual exchange rates was
higher year on year by GBP55m, driven by GBP57m of higher interest
costs from Terminix related financing, partially offset by a GBP2m
higher impact from hyperinflation accounting. One-off and adjusting
items (operating) at AER of GBP46m includes GBP35m of Terminix
integration costs and GBP8m of other M&A and integration costs.
Statutory profit before tax at AER was GBP240m, an increase of
48.1% on the prior year (H1 22: GBP162m).
Cash (at AER)
Adjusted Cash Flow of GBP401m was up from GBP202m in H1 22.
Higher trading profits resulted from organic and acquisitive
growth. Adjusted EBITDA was GBP602m, up 72.0% from GBP350m. One-off
and adjusting items totalled GBP78m, reflecting P&L items of
GBP46m and a net c.GBP32m movement in one-off accruals since
December 2022, as presented at the Preliminary Results. The Group
had a GBP26m working capital outflow in the first six months of the
year.
Capital expenditure of GBP102m was incurred in the period (H1
22: GBP83m), reflecting the inclusion of Terminix capital
expenditure. Lease payments were up 80.0% to GBP81m.
Cash interest payments of GBP114m were GBP95m 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 GBP58m, an increase of GBP26m
compared with the corresponding period last year, largely related
to the inclusion of Terminix trading results. Free Cash Flow was
GBP229m (H1 22: GBP151m), 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:
Sales productivity/Procurement/support
functions $15m $40m $38m $78m
--------- ----------- ------------ --------
Field Operations:
Branch Consolidation/Density
Benefits/Productivity - $6m $6m $12m
--------- ----------- ------------ --------
Gross Synergies $15m $46m $44m $90m
--------- ----------- ------------ --------
Investments:
Salary & Benefits Harmonization
SHE & Innovation Centre/IT/Branding/
Additional SOX/Audit and
Listing Fees ($2m) ($9m) ($21m) ($30m)
--------- ----------- ------------ --------
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
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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 GBP37m 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)
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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
GBP522m. 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 GBP95m. 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 GBP7m in the year prior to purchase.
UK & Sub-Saharan Africa
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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 GBP192m 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 GBP98m. Hygiene & Wellbeing revenue
increased 3.2% to GBP94m, despite lapping COVID boosted comparators
in the medical waste business from the same period last year.
Adjusted Operating Profit was down 1.1% to GBP46m 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
GBP17m. This acquisition was of the company Urban Planters, a
leading UK service provider of planting schemes for business
premises.
Asia & MENAT
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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 GBP24m
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 GBP6m.
Pacific
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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 GBP128m. 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 GBP29m 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 GBP12m.
Category performance review
Pest Control
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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 GBP2,141m, 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 GBP412m 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 GBP54m.
Hygiene & Wellbeing
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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 GBP414m.
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 GBP14.2m in H1
22 to GBP1.6m 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 GBP68m 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.GBP24m in the year prior to
purchase.
France Workwear
Organic Organic
H1 23 Growth Growth H1 23
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
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
GBP106m, 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 GBP18m, 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 GBP202m
was paid for these acquired businesses with total annualised
revenues of GBP79m 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.GBP16m 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 GBP8m 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.GBP250m to c.GBP300m.
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 GBP58m (at CER and AER) were
up GBP9m on the prior year (H1 22: GBP49m at CER and GBP48m 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 GBP6m (at CER and
AER) were up GBP1m on the prior year (H1 22: GBP5m 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 GBP67m at actual exchange rates was higher
year on year by GBP55m, driven by GBP57m of higher interest costs
from Terminix related financing, partially offset by GBP2m higher
impact from hyperinflation of GBP8m (H1 22: GBP6m). Cash interest
in H1 2023 was GBP114m (H1 22: GBP19m) 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 GBP55m on the reported profit before tax of GBP240m, 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
Year to Date
-------------------------------------- ----------------------------
H1 2023 H1 2022 Change
GBPm at actual exchange rates GBPm GBPm GBPm
-------------------------------------- -------- -------- --------
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 GBP401m was up from GBP202m in H1 22.
Higher trading profits resulted from organic and acquisitive
growth. Adjusted EBITDA was GBP602m, up 72.0% from GBP350m. One-off
and adjusting items totalled GBP78m, reflecting P&L items of
GBP46m and a net c.GBP32m movement in one-off accruals since
December 2022, as presented at the Preliminary Results. The Group
had a GBP26m working capital outflow in the first six months of the
year.
Capital expenditure of GBP102m was incurred in the period (H1
22: GBP83m), reflecting the inclusion of Terminix capital
expenditure. Lease payments were up 80.0% to GBP81m.
Cash interest payments of GBP114m were GBP95m 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 GBP58m, an increase of GBP26m
compared with the corresponding period last year, largely related
to the inclusion of Terminix trading results. Free Cash Flow was
GBP229m (H1 22: GBP151m), 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
GBP175m, dividend payments were GBP131m and the cash impact of
one-off and adjusting items was GBP78m (largely related to the
Terminix acquisition). Foreign exchange translation and other items
of GBP136m is primarily due to the weakening of the Dollar against
Sterling. Overall, this led to a change in net debt of GBP26m and
closing net debt of GBP3,270m.
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 GBP1,403m, including GBP787m ($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.GBP10m (previously
c.GBP7m)
Deal related costs and costs to achieve*: c.GBP80-GBP100m
(previously c.GBP75-GBP90m) due to the 24 deals in H1
Pre-tax net cost synergies of $60m year over year
Central and regional overheads: c.GBP150m including Terminix
related investments
P&L adjusted interest costs: c.GBP125m-GBP135m incl.
GBP20-GBP25m of hyperinflation
Estimated Adjusted Effective Tax Rate: 25-26%
Share of Profits from Associates: GBP9m (previously GBP8m)
Impact of FX**: within range of -GBP15m to -GBP20m (previously
+GBP15m to GBP25m)
Intangibles amortisation: GBP160-GBP170m due to more M&A
(previously GBP155-GBP165m)
Cash Flow
Overall exceptional items: c.GBP135-GBP145m***
Working Capital: c.-GBP60m (previously -GBP40m) excluding prior
year exceptionals
Capex: GBP230-GBP240m (previously GBP235-GBP245m)
Cash interest: c.GBP160-GBP170m (previously c.GBP150-GBP160m),
due to higher US interest rates on $700m loan and North America
variable rate leases
Cash tax payments: GBP115-GBP125m
Anticipated spend on M&A in 2023 of c.GBP300m (previously
c.GBP250m)
* 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.GBP40m of 2022 exceptional items remained in creditors at
December 2022
Appendix 1
2023 AER
----------------------
H1 H2 Total
Amount Rate Fixed/Floating GBPm GBPm GBPm
------------------- ------- ------------ --------------- ------ ------ ------
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 GBP/EUR: 1.1437 and GBP/$: 1.2357
Appendix 2
Summary of financial performance (at AER)
Regional Performance
Revenue Adjusted Operating
Profit
---------------------- --------------------------- ----------------------------
H1 2023 H1 2022 Change H1 2023 H1 2022 Change
GBPm GBPm % GBPm GBPm %
---------------------- -------- -------- ------- -------- -------- --------
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 H1 2022 Change H1 2023 H1 2022 Change
GBPm GBPm % GBPm GBPm %
--------------------- -------- -------- ------- -------- -------- --------
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
6 months 6 months
to to
30 June 30 June
2023 2022
Note GBPm GBPm
----- --------- ---------
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 GBP55m (2022: GBP27m) 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)
At 30 June At 31 December
2023 2022
Note GBPm GBPm
------ ----------- ---------------
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 GBP33m put option
liability related to the PCI India acquisition (2022: GBP43m).
Consolidated Statement of Changes in Equity (unaudited)
Attributable to equity
holders of the Company
-------------------------------------------- ------------- --------
Non-
Share Share Other Retained controlling Total
capital premium reserves earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- --------- --------- ---------- ---------- ------------- --------
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. GBP49m net gain on cash flow hedge includes GBPnil gain/loss
(2022: GBP7m gain) from the effective portion of changes in fair
value offset by reclassification to the income statement of GBP49m
gain (2022: GBP14m gain) due to changes in foreign exchange
rates.
Shares of GBPnil (2022: GBPnil) 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 GBP89m (2022: GBP58m). Dividend
income from, and voting rights on, the shares held by the Trust
have been waived.
Analysis of other reserves (unaudited)
Cash
Capital Merger flow
reduction relief hedge Translation Cost
reserve reserve reserve reserve of hedging Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------- --------- --------- ------------ ------------ --------
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. GBP49m net gain on cash flow hedge includes GBPnil gain/loss
(2022: GBP7m gain) from the effective portion of changes in fair
value offset by reclassification to the income statement of GBP49m
gain (2022: GBP14m gain) due to changes in foreign exchange
rates.
Consolidated Cash Flow Statement (unaudited)
6 months 6 months
to to
30 June 30 June
2023 2022
Note GBPm GBPm
----- --------- ---------
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 contracts (3) 1
----- --------- ---------
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 GBP12m (2022: GBP3m).
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 The Company has a strategy that
and execute disposals from includes growth by acquisition,
continuing business and has 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 The Company operates across markets
and services that are tailored that are at different stages
and relevant to local markets in the economic cycle, at varying
and market conditions 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 The Company's two core categories
profitably in a changing macro-economic (Pest Control and Hygiene & Wellbeing)
environment operate in a global macro-economic
environment that is subject to
uncertainty and volatility.
-----------------------------------------
Failure to mitigate against Our business is exposed to foreign
financial market risks exchange risk, interest rate
risk, liquidity risk, counterparty
risk and settlement risk.
-----------------------------------------
Breaches of laws or regulations As a responsible company we aim
(including tax, competition to comply with all laws and regulations
and anti-trust laws) that apply to our businesses
across the globe.
-----------------------------------------
Failure to ensure business The business needs to have resilience
continuity in case of a material to ensure business can continue
incident if impacted by external events,
e.g. cyber attack, hurricane
or terrorism.
-----------------------------------------
Fraud, financial crime and Collusion between individuals,
loss or unintended release both internal and external, could
of personal data 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 The Company has an obligation
(SHE) 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 Our business model depends on
high levels of service to the servicing the needs of our customers
satisfaction of our customers in line 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 GBP200m. All of
these scenarios are considerably worse than the actual impact of
the COVID-19 pandemic in 2020. Starting with cGBP1.4bn 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.GBP0.95bn before the inclusion of mitigating actions totalling
GBP0.3bn, 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 LATAM(1) 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
Operating Operating
Revenue Revenue(1) profit profit(1)
30 June 30 June 30 June 30 June
2023 2022 2023 2022
GBPm GBPm GBPm GBPm
--------- ----------- ---------- -----------
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 Organic Revenue
growth 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
GBPm GBPm
--------- ---------
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 GBP46m
(2022: GBP23m) which mainly relates to acquisition and integration
costs, GBP35m of which relates to the Terminix acquisition (2022:
GBP19m).
Other segment items included in the consolidated income
statement are as follows:
Amortisation Amortisation
and and
impairment impairment
of of
intangibles1 intangibles1
30 June 2023 30 June
GBPm 2022
GBPm
-------------- --------------
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 6 months
to to
30 June 30 June
2023 2022
GBPm GBPm
--------- ---------
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 GBP50m as at 30 June 2023 (2022: GBP54m). Included
within this amount is GBP6m (2022: GBP6m) in respect of interest
arising on tax provisions, which is included within other
payables.
Total tax payments for the period amounted to GBP58m (H1 2022:
GBP32m), an increase of GBP26m.
The movement on the deferred income tax account is as
follows:
6 months 6 months
to to
30 June 30 June
2023 2022
GBPm GBPm
--------- ---------
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 GBP27m has been recognised in respect of
losses (2022: GBP23m), of which GBP21m (2022: GBP18m) 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 GBP82m (2022: GBP120m) 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 GBP191m
(2022: GBP230m) 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 6 months
to to
30 June 30 June
2023 2022
AER AER/CER
GBPm GBPm
--------- ---------
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 6 months
to to
30 June 30 June
2023 2022
GBPm GBPm
--------- ---------
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 GBP69m 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
GBP202m (2022: GBP160m).
Details of goodwill and the fair value of net assets acquired in
the period are as follows:
6 months 6 months
to to
30 June 30 June
2023 2022
GBPm GBPm
--------- ---------
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 GBP8m and contingent consideration of
GBP33m are payable in respect of the above acquisitions (2022:
GBP17m and GBP27m 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 GBPnil (2022:
GBP1m).
The provisional fair values1 of assets and liabilities arising
from acquisitions in the period are as follows:
6 months 6 months
to to
30 June 30 June
2023 2022
GBPm GBPm
--------- ---------
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 GBP39m (2022: GBP68m) of customer lists and GBP8m
(2022: GBP3m) 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 GBP28m to revenue and GBP6m to operating
profit (2022: GBP14m and GBP3m respectively). If the acquisitions
had occurred on 1 January 2023, the revenue and operating profit of
the Group would have amounted to GBP2,686m and GBP307m respectively
(2022: GBP1,590m and GBP172m 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 GBP14m. This is
made up of GBP10m reduction in the fair value of acquired
investments in associates and various other minor adjustments
resulting in a GBP4m decrease in the fair value of acquired net
assets. The Terminix opening balance sheet is still provisional at
30 June 2023.
The Group paid GBP21m in respect of deferred and contingent
consideration for current and prior year acquisitions (2022:
GBP19m), resulting in the total cash outflow in the period from
current and past period acquisitions, net of GBP7m (2022: GBP7m)
cash acquired, of GBP175m (2022: GBP127m).
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 GBP4m 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
GBPm GBPm
----------- ---------------
Current
----------- ---------------
Cash and cash equivalents in the Consolidated
Balance Sheet 1,418 2,170
----------- ---------------
Other investments 1 1
----------- ---------------
Bank and other short-term borrowings(1) (742) (1,355)
----------- ---------------
Lease liabilities (127) (135)
----------------------------------------------- ----------- ---------------
550 681
----------------------------------------------- ----------- ---------------
Non-current
----------- ---------------
Fair value of debt-related derivatives (23) (71)
----------- ---------------
Bank and other long-term borrowings(2) (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 GBP720m
overdraft (2022: GBP1,291m), GBP16m overseas loans (2022: GBP24m)
and GBP6m bond accruals (2022: GBP40m).
2. Bank and other long-term borrowings consists of GBP2,914m
bond debt (2022: GBP2,987m) and GBP558m loans (2022: GBP587m).
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
GBP2,914m (December 2022: GBP2,987m) and a fair value of GBP2,774m
(December 2022: GBP2,826m). No further disclosures are required by
IFRS 7.29(a).
Cash at bank and in hand includes GBP14m (December 2022: GBP13m)
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 unadjusted quoted prices in active markets for identical assets
1 - or liabilities;
Level inputs other than quoted prices that are observable for the asset
2 - or liability either directly as prices or indirectly through modelling
based on prices; and
-----------------------------------------------------------------------
Level inputs for the asset or liability that are not based on observable
3 - market data.
-----------------------------------------------------------------------
Hierarchy
Financial instrument level Valuation method
---------- ------------------------------
Financial assets traded 1 Current bid price
in active markets
---------- ------------------------------
Financial liabilities traded 1 Current ask price
in active markets
---------- ------------------------------
Listed bonds 1 Quoted market prices
---------- ------------------------------
Money market funds 1 Quoted market prices
---------- ------------------------------
Interest rate/currency 2 Discounted cash flow based
swaps on market swap rates
---------- ------------------------------
Forward foreign exchange 2 Forward exchange market rates
contracts
---------- ------------------------------
Borrowings not traded in 2 Nominal value
active markets (term loans
and uncommitted facilities)
---------- ------------------------------
Money market deposits 2 Nominal value
---------- ------------------------------
2 Nominal value less estimated
Trade payables and receivables credit adjustments
---------- ------------------------------
Contingent consideration 3 Discounted cash flow using
(including put option liability) WACC
---------------------------------- ---------- ------------------------------
Fair value Fair value Fair value Fair value
assets assets liabilities liabilities
30 June 31 December 30 June 31 December
2023 2022 2023 2022
GBPm GBPm GBPm GBPm
----------- ------------- ------------- -------------
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 consideration(1)
(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
GBP40m (2022: GBP45m).
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 GBP45m (2022: GBP21m)
and net derivative liabilities GBP68m (2022: GBP92m).
Contingent consideration includes liabilities for put options of
GBP40m (2022: GBP45m). 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 GBP2m decrease in the liability, and a 100 basis point
decrease in the discount rate would result in a GBP1m 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 30 June
2023 2022
GBPm GBPm
--------------- ---------------
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:
Interest
Facility rate
Drawn at period
amount at Headroom end
at 30 period at 30
June end June at 30 June
at 30
June
2023 2023 2023 2023
GBPm GBPm GBPm %
--------- -------- --------- ------------
Non-current
--------- -------- --------- ------------
$700m term loan due October 2025 551 551 - 5.9
--------- -------- --------- ------------
$1.0bn RCF due October 2027 787 - 787 0.14
---------------------------------- --------- -------- --------- ------------
Drawn
Facility at
Interest
rate at
period period
amount end Headroom end
at 31 at 31 at 31
December December December at 31 December
2022 2022 2022 2022
GBPm GBPm GBPm %
----------- ----------- ----------- ----------------
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: GBPnil).
Medium-term notes and bond debt comprises:
Effective
Bond interest hedged interest
coupon rate
2023 2023
--------------- -----------------
Non-current
--------------- -----------------
EUR400m bond due November 2024 Fixed 0.950% Fixed 3.62%
--------------- -----------------
EUR500m bond due May 2026 Fixed 0.875% Fixed 2.82%
--------------- -----------------
EUR850m bond due June 2027 Fixed 3.875% Fixed 5.06%
--------------- -----------------
EUR600m bond due October 2028 Fixed 0.500% Fixed 2.25%
--------------- -----------------
EUR600m bond due June 2030 Fixed 4.375% Fixed 4.56%
--------------- -----------------
GBP400m 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 GBP23m of cash held on bank
accounts with banks rated below A- by S&P (2022: GBP36m). The
highest concentration with any single bank rated below A- was GBP4m
(2022: GBP14m).
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
GBPm GBPm
------ ------
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 software) 87 40
------ ------
- 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
GBPm GBPm
------ ------
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
GBPm GBPm
------ ------
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 Self-
claims insurance Environmental Other Total
GBPm GBPm GBPm GBPm GBPm
-------- ----------- -------------- ------ ------
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
GBPm GBPm
------- -------
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 GBP3m. 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.GBP15m. 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.GBP15m 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.GBP10m 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
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END
IR RFMPTMTATBJJ
(END) Dow Jones Newswires
July 27, 2023 02:00 ET (06:00 GMT)
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