Rentokil Initial Plc · LSE:RTO
Rentokil Initial — H1 2008 Earnings Presentation
38 slides from Rentokil Initial's earnings presentation, Aug 22, 2008
Slide 1: 2008 Interim Results
2008 Interim . Results 22 August 2008 1
Slide 2: Agenda
Agenda . Andrew Macfarlane Divisional & Financial Review Alan Brown Operational Developments Alan Brown / Andrew Macfarlane Q&A *At constant exchange rates 2
Slide 3: Andrew Macfarlane
Andrew Macfarlane ntokil Initial
Slide 4: Financial Highlights
Financial Highlights . Actual Rates Constant Rates Continuing Operations H1 08 H1 08 H1 07 % £m £m £m Revenue 1,178.1 1,120.6 1,068.8 4.8 EBITA 68.2 59.4 122.4 (51.5) Interest (24.6) (24.3) (38.7) 37.2 Associates 1.2 1.0 1.1 (9.1) PBTA 44.8 36.1 84.8 (57.4) One-off items 3.3 3.2 3.2 - Adjusted PBTA
Slide 5: Adjusted PBTA
Adjusted PBTA . Constant Exchange Rates Q1 08 Q2 08 H1 08 H1 07 % £m £m £m £m City Link (15.4) (12.5) (27.9) 24.1 - Textiles/Washroom 24.6 20.2 44.8 53.5 (16.3) Pest Control 11.4 17.8 29.2 28.3 3.2 Facilities Services 8.6 9.1 17.7 18.6 (4.8) Asia Pacific 6.0 4.8 10.8 14.3 (24.5) Ambius 0.9 1.3 2.2 2
Slide 6: Year-on-year changes in adjusted PBITA
Year-on-year changes. in adjusted PBITA £m 1H 2007 125.6 Changes due to: • City Link (52.0) • Australia Pest Control & Washrooms (4.2) • UK Washroom (1) (3.7) • UK Pest Control (2) (2.3) • France Textiles/Washrooms (1.5) • Benelux Textiles/Washrooms (1.1) • Central Costs (3) 1.4 • Other businesses i
Slide 7: City Link
City Link . 2008 Q1 Q2 H1 £m £m £m Revenue 95.2 96.1 191.3 Recurring Costs (101.5) (106.4) (207.9) Non-recurring costs (1) (9.1) (2.2) (11.3) Adjusted PBITA (15.4) (12.5) (27.9) One-off items (2) (1.5) - (1.5) PBITA (16.9) (12.5) (29.4) Change in network revenue (%) (10.6)% (7.0)% (8.8)% Change in R
Slide 8: City Link – Year-on-year change in network revenue
. City Link – Year-on-year change in network revenue 260 Network Revenue 240 £m Jun-07 YTD 212.3 220 Prior Year Lost (29.0) 200 New business 11.7 180 Lost business (11.8) £M Net Win 08 (0.1) 160 Uptrade 52.5 140 Downtrade (42.1) Net Uptrade 08 10.4 120 Jun-08 YTD 193.6 100 80 2007 Network Prior Year
Slide 9: No. of trading customers per reporting period
No. of trading customers per reporting period 10,000 15,000 20,000 25,000 30,000 35,000 06 /0 7 07 /0 7 08 /0 7 09 H2 2007 /0 7 10 /0 . 7 11 /0 7 12 /0 7 City Link – Number of customers 01 /0 8 02 /0 8 trading 03 /0 8 H1 2008 04 /0 8 05 /0 8 06 /0 8 07 /0 8 9
Slide 10: Weekly Revenue £M
04 Weekly Revenue £ M /0 1/ 6.5 7.0 7.5 8.0 8.5 9.0 9.5 08 18 /0 1/ 08 01 /0 2/ 08 15 /0 2/ 08 Q1 29 /0 2/ 08 14 /0 3/ 08 28 /0 3/ 08 11 /0 4/ 08 25 /0 EASTER 4/ 08 09 /0 5/ 08 . 23 /0 5/ Q2 08 06 /0 6/ 08 20 /0 HOLIDAY City Link - Combined Weekly 2006 6/ MAY BANK 08 04 /0 7/ 08 18 /0 2007 7/ 08 01
Slide 11: Initial Textiles & Washroom Services
. Initial Textiles & Washroom Services Constant Exchange Rates H1 Revenue £m Portfolio Organic Change in ave. price Net Gain adjusted change (¹) EBITA 2008 2007 %Change % £m £m France 116.0 110.4 5.1 1.4 8.4 (1.5) Netherlands 37.9 37.9 - 0.7 0.3 (1.1) Belgium 35.7 33.9 5.3 5.1 1.9 - Germany (2) 33.6
Slide 12: Initial Textiles & Washroom Services Portfolio Organic Net Gain (MATs)
. Initial Textiles & Washroom Services Portfolio Organic Net Gain (MATs) 25 20 15 £m 10 5 0 -5 -10 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Continental Europe UK ex GHS 12
Slide 13: Rentokil Pest Control
Rentokil Pest Control. Constant Exchange Rates H1 Organic Change Revenue Annualised Net in Retention Gain adjusted PBITA 2008 2007 2008 2007 £m £m £m £m % % USA (1) 53.1 41.5 74.0 83.2 0.1 3.4 Europe 69.1 60.0 86.6 86.3 3.6 1.3 UK (2) 32.7 31.2 81.9 84.2 0.2 (2.3) Divisional Costs (2) / Other 9.6 10
Slide 14: Initial Facilities Services
. Initial Facilities Services Constant Exchange Rates H1 Organic Change Revenue Annualised Net in Retention Gain adjusted PBITA 2008 2007 2008 2007 £m £m £m £m % % Cleaning / IFM 191.2 178.6 89.1 88.9 8.8 (0.9) (1) Catering 29.8 32.2 - - - - Hospitals 33.7 31.3 74.4 88.3 (5.0) 0.1 Other / Divisional
Slide 15: Rentokil Initial Asia Pacific
. Rentokil Initial Asia Pacific Constant Exchange Rates H1 Organic Change Revenue Annualised Net in Retention Gain adjusted PBITA 2008 2007 2008 2007 £m £m £m £m % % North Asia 15.7 9.3 90.0 78.0 1.2 1.2 South Asia 26.6 19.5 85.1 81.0 2.3 0.8 Pacific (1) - Australia Pest Control 17.2 14.7 86.4 90.3
Slide 16: Central Costs
Central Costs . Adjusted PBITA 2007 2008 Q1 Q2 Q3 Q4 FY Q1 Q2 £m £m £m £m £m £m £m Central Costs (10.4) (10.2) (8.0) 0.1 (28.5) (10.1) (9.0) 2007 Costs higher in 1H due to set up of UK Shared Service Centre Run-rate fell in Q3 – efficiency savings Q4 reflects bonus and property provision adjustments
Slide 17: Interest
Interest . £ million At actual exchange rates 2008 2007 H1 H1 Net interest on bank/bond/finance lease debt* (29.9) (37.3) Expected return on pension scheme assets 30.1 25.4 Interest on pension scheme liabilities (27.0) (25.7) 3.1 (0.3) Fees and South Africa BEE (0.8) (0.7) Unwind of discount on prov
Slide 18: Taxation
Taxation . Actual exchange rates 2008 H1 2007 H1 2007 FY £ % £ % £ % Profit before tax (continuing ops) 18.3 100.0 65.3 100.0 142.0 100.0 Explanation of tax charge Expected charge at blended rate 5.5 30.1 19.7 30.2 42.6 30.0 Untaxed provision release - - (2.7) (4.1) (2.7) (1.9) Other factors affecti
Slide 19: Operating Cash Flow
Operating Cash Flow . At actual exchange rates 1H 1H 2007 2008 2007 Continuing Continuing Discontinued One-off Total activities activities activities items before one- off items EBIT 41.7 106.0 19.4 3.2 122.2 Amortisation (2) 26.5 18.3 1.5 - 19.8 Depreciation 88.9 76.2 2.2 - 78.4 Non-cash items (3)
Slide 20: Free Cash Flow and Movement in Net Debt
. Free Cash Flow and Movement in Net Debt Actual exchange rates £ million 2008 H1 2007 H1 2007 FY Operating Cash Flow 38.3 79.0 188.1 Interest (1) (44.4) (22.9) (58.9) Tax (10.3) (7.3) (27.1) Free Cash Flow (16.4) 48.8 102.1 Equity dividend (94.9) (94.9) (133.4) Acquisitions (2) (28.9) (93.6) (197.4
Slide 21: Net Debt and Liquidity
Net Debt and Liquidity . At 30/06/08 £m Headroom and Covenants - £252m facility to February 2010 €100m note repaid July Cash / Bank (86.6) (inc 12 month term-out option) At 31 July bank drawings £155m - £500m RCF to October 2012 leaving committed headroom of £597m €100m note (80.0) July 2008 Facilit
Slide 22: Alan Brown, Chief Executive Officer
Alan Brown, Chief. Executive Officer 22
Slide 23: Encouraged by…
Encouraged by… . Some well-run operations Some good management teams Generally highly motivated, committed and proud front-line colleagues Many leading and attractive market positions Strong sales culture Some similarities in business processes across the divisions Real growth opportunities, particu
Slide 24: However…key areas of weakness
However…key areas of. weakness A number of common issues across key businesses: – Loss of focus on the customer and on customer service – Insufficient and unclear accountability for the customer and for results – Insufficient focus on operational excellence – Lack of clear policy, process or systems
Slide 25: Short to medium-term priorities
Short to medium-term .priorities 1. Focus on customer service 2. Focus on cash 3. Framework of common policies, processes, KPIs and systems 4. Empower our branch network to deliver within this framework 5. Develop a cost savings agenda 25
Slide 26: 1. Focus on customer service
. 1. Focus on customer service Good progress – City Link: • 98.5% internal delivery on-time performance target - overall service now better than this • Net customers uptrading • Net new business wins from large customers and strong pipeline • Relocalisation of customer service - by year end – UK Pes
Slide 27: Average Service Levels
Average Service Levels 25 90% 91% 92% 93% 94% 95% 96% 97% 98% 99% 100% /0 4/ 20 08 02 /0 5/ 20 08 09 /0 5/ 20 08 16 /0 5/ 20 08 23 /0 5/ 20 08 30 /0 5/ 20 08 . 06 /0 6/ 20 08 13 /0 Service Standard 6/ 20 08 20 /0 Customer service improvements 6/ 20 08 27 /0 6/ All Service 20 08 04 /0 7/ City Link -
Slide 28: Customer service improvements – UK Pest Control
. Customer service improvements – UK Pest Control Rolling 12 Month LT SoS 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% July state of service: 96% 82.0% 80.0% Rolling average LSE Rolling average M&W 78.0% Rolling average NOR Rolling average RPC 76.0% Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-
Slide 29: 2. Focus on cash
2. Focus on cash . Trend Trend towards towards increasing increasing accounts accounts receivable receivable has has been been reversed, reversed, but but much much more to do to do – UK Washrooms: • Customer responsibility back to branches • Co-ordinated programme between credit control with suppor
Slide 30: 3. Develop common systems/processes framework
. 3. Develop common systems/processes framework Early stage of development Initiatives underway: – Common process map for all operations – Roll-out of International Contracts Administration Branch System (ICABS) tool across Pest Control, Asia Pacific and UK Washrooms – Standardised branch model for
Slide 31: 4. Empowerment of branch networks
. networks 4. Empowerment of branch Implementation underway Almost 1000 branches / depots / service centres around the world Serving tens of thousands of customers Serious erosion of accountability for service & results at branch level in some businesses Accountability to be restored to branches, wi
Slide 32: 5. Develop a cost savings agenda
. agenda 5. Develop a cost savings Early stage of development Three main areas of focus: – Increasing productivity of front-line colleagues, both service & sales – Reducing administration costs – Increasing productivity in textiles business in continental Europe Scoping of opportunity: – Group: • Ad
Slide 33: Top-line organisational structure
Top-line organisational. structure Organisational changes implemented on 1 July 2008 to support operational agenda: – In the UK, all UK cleaning businesses plus UK Washrooms and Specialist Hygiene (excluding Medical Services) brought under one leadership team – Dedicated leadership team established
Slide 34: Development of three-year operational plan
. Development of three-year operational plan All divisions and functions currently developing detailed, three-year plans Operationally focused, outlining practical steps to implement five key priorities across the business Also addressing growth agenda 34
Slide 35: Beijing Contract
VA) Beijing Contract (Cfo tho g BP 4 im i SO ag DE | A é¢ 9 Rentokil Initial 35 >=
Slide 36: Outlook
Outlook . 2008 guidance unchanged from trading update 25 July 2008 2009 outlook: – Bulk of profit improvement to come from City Link – Performance improvements elsewhere likely to be offset by higher interest cost – Operational plan under development: may require additional investment 36
Slide 37: A clear operational agenda…
. Foundation for recovery A clear operational agenda… Customer service & operational excellence 37
Slide 38: 2008 Interim Results
2008 Interim . Results 22 August 2008 38