Rentokil Initial Plc · LSE:RTO
Rentokil Initial — H1 2006 Earnings Presentation
42 slides from Rentokil Initial's earnings presentation, Aug 24, 2006
Slide 1: Interim Results 24 August 2006
Interim Results 24 August 2006 1
Slide 2: Doug Flynn, Chief Executive
Doug Flynn Chief Executive 9 Rentokil Initial
Slide 3: Key Themes
Key Themes • Good progress against our priorities to restart top line growth and improve customer retention • Building stronger strategic positions in key markets through structural changes and acquisitions • Focus moving to productivity and process improvement initiatives • Stronger and fitter – bu
Slide 4: First Half Highlights
First Half Highlights • First half in line with expectations • Substantial one-offs • Performance improvement initiatives progressing • Customer retention up • City Link transformation • Platform for growth in US pest control • Asia Pacific investment • Disposal of guarding; closure of UK textiles 4
Slide 5: Andrew Macfarlane, Chief Financial Officer
Andrew Macfarlane Chief Financial Officer 5
Slide 6: Basis of Preparation
Basis of Preparation UK, Canada, Belgium • Discontinued manned guarding US manned guarding • Discontinued in P&L • ‘Held for sale’ in balance sheet; sold in Q3 UK linen and workwear • Closure costs taken in Q2 • Discontinued in P&L • Surplus properties held at cost; profit on sale in Q3 6
Slide 7: Financial Summary
Financial Summary Continuing operations Actual exchange rates Q2 H1 2006 vs LY 2006 vs LY Revenue (£m) 523.6 +11.9% 1,018.6 +11.1% Operating profit1 (£m) 71.1 -1.5% 132.3 -9.3% Interest/associates (£m) (9.5) +41.4% (19.8) +23.6% PBTA2 (£m) 61.6 +10.0% 112.5 -6.2% Profit before tax (£m) 55.9 +9.2% 10
Slide 8: Profit Before Tax & Amortisation
Profit Before Tax & Amortisation Continuing operations Constant exchange rates Q2 H1 2006 vs LY 2006 vs LY £m % £m % Profit before tax 56.0 +8.5 101.8 -7.2 Add back: Exceptional costs - - - - Amortisation 5.6 +12.0 10.3 -1.0 PBTA 61.6 +8.8 112.1 -6.7 Add back: One-off costs charged against operating
Slide 9: Revenue Trends
Revenue Trends % Headline Organic Q2 H1 Q2 H1 Textiles & Washroom Services -1.2 -0.1 -1.4 -0.8 Pest Control +42.6 +28.8 -1.5 +1.1 Tropical Plants +2.9 +5.1 +0.8 +1.9 Electronic Security +3.0 +7.5 -4.4 -0.7 City Link +48.6 +42.3 +9.5 +11.1 Facilities Services +10.1 +12.0 +8.6 +10.4 Asia Pacific +6.3
Slide 10: Adjusted PBTA
Adjusted PBTA Constant exchange rates Q1 Q2 H1 £m % £m % £m % Textiles & Washroom Services 27.4 -16.5 27.9 -21.0 55.3 -18.8 Pest Control 14.3 -5.3 19.1 +14.4 33.4 +5.0 Tropical Plants 0.8 -27.3 1.4 -26.3 2.2 -26.7 Electronic Security 7.6 -5.0 8.7 -8.4 16.3 -6.9 City Link 5.7 +9.6 8.0 +11.1 13.7 +10.
Slide 11: UK Washroom
UK Washroom Continuing operations £ million H1 H2 H1 2005 2005 2006 Revenue 44.6 42.5 40.9 EBITA change vs H1 2005, before one-off items (6.2) One-off items (1.8) Headline change in EBITA (8.0) Likely H2 restructuring costs £6 million 11
Slide 12: Textiles & Washroom Services (inc UK)
Textiles & Washroom Services (inc UK) £ million Adjusted Revenue EBITA H1 2005 296.4 68.1 Changes due to • UK washroom (3.7) (6.2) • France/Netherlands/Belgium/Germany 0.7 (4.6) • Other – mainly divisional costs 2.8 (2.0) H1 2006 296.2 55.3 Change on prior year -0.8% -18.8% 12
Slide 13: Textiles & Washroom Services
Textiles & Washroom Services £m % H1 2006 Revenue Margin Portfolio Revenue growth vs decline vs growth vs H1 2005 H1 20051 31-12-05 France 106.7 +0.9 -2.1 +2.3 Germany 36.2 +3.4 -4.8 +1.6 Netherlands 37.1 -4.4 +1.2 +0.2 Belgium 32.8 +0.9 -0.8 -0.3 Total Continental Europe 251.4 +2.0 -2.9 +1.7 1Befor
Slide 14: Pest Control
Pest Control £ million Adjusted Revenue EBITA H1 2005 103.4 31.8 Changes due to • Ehrlich 27.7 3.4 • UK (1.1) (2.3) • Other 3.2 0.5 H1 2006 133.2 33.4 Change on prior year +28.8% +5.0% 14
Slide 15: City Link
City Link £ million Adjusted Revenue EBITA H1 2005 57.5 12.4 Estimated changes due to: • Acquisitions H2 2005 9.1 0.3 • Acquisitions H1 2006 8.8 0.3 • Organic growth 6.4 0.7 H1 2006 81.8 13.7 Change on prior year +42.3% +10.5% Acquisition capex H1 2006 £14.8m 15
Slide 16: Facilities Services
Facilities Services £ million Adjusted Revenue EBITA H1 2005 227.0 16.8 Changes due to: • Cleaning 25.5 1.4 • Catering and hospital services 0.5 (1.2) • Other businesses 1.2 (1.9) H1 2006 254.2 15.1 Change on prior year +12.0% -10.1% 16
Slide 17: Asia Pacific
Asia Pacific • Pink Healthcare acquired on 30-06-06. 2005 revenue A$22.5m • CWS branded washroom & dustmat businesses will be acquired on 31-08-06. 2005 revenue £8.3m. • Will add £18-20m pa full year revenues • Pro forma regional business mix will be ~60% washrooms 17
Slide 18: Interest
Interest Actual exchange rates £ million Q2 H1 2006 2005 2006 2005 Net interest on bank/bond/ finance lease debt1 (11.6) (11.8) (22.1) (23.9) Expected return on pension scheme assets2 14.3 9.9 25.8 19.9 Interest on pension scheme liabilities2 (12.3) (11.3) (24.5) (22.3) 2.0 (1.4) 1.3 (2.4) Ashtead a
Slide 19: Pensions - UK
Pensions - UK 2006 £ million Actual Estimate Q1 Q2 Q3 Q4 FY Service cost - DB (3.3) (3.3) (1.6) - (8.2) Normalised DC cost (0.8) (2.4) (3.2) Notional interest on scheme assets1 11.4 14.1 10.6 10.6 46.7 Notional interest on scheme liabilities2 (12.0) (12.0) (11.9) (11.8) (47.7) One-off costs (P&L) -
Slide 20: Pensions - UK
Pensions - UK UK DB scheme balance sheet £ million 30-06-06 31-12-05 Assets Cash 8.0 198.7 Equities 170.4 531.5 Fixed income 689.7 129.2 Swaps 5.9 - 874.0 859.4 Liabilities (950.1) (1,029.2) IAS 19 deficit (pre-tax) (76.1) (169.8) 20
Slide 21: Operating Cash Flow
Operating Cash Flow £ million H1 H1 FY 2006 2005 2005 Operating profit1 - Continuing operations 121.9 135.5 270.1 - Discontinued operations (15.9) (16.8) (3.6) Depreciation and amortisation 90.4 98.3 195.0 Non cash items/other2 (6.4) 26.6 24.6 EBITDA3 190.0 243.6 486.1 Working capital (24.2) 8.6 (11
Slide 22: Free Cash Flow
Free Cash Flow £ million H1 2006 H1 2005 FY 2005 Operating cash flow 85.2 156.3 287.0 Interest1 (21.1) (20.6) (46.1) Tax (20.1) (41.3) (80.5) Free cash flow 44.0 94.4 160.4 Acquisitions2 (124.3) (39.0) (55.8) Disposals 106.8 2.4 323.8 Equity dividend (94.8) (86.2) (124.7) Ashtead loan note - - 129.8
Slide 23: Modelling Guidance
Modelling Guidance • H2 one-off items £15-20m1 (excluding pensions curtailment), includes £6m UK washroom H2 branch rationalisation • UK pensions – see slide 19 • UK linen & workwear surplus property sales – proceeds £21m, profit £16m, Q3 – discontinued line • City Link – H2 acquisition spend ~£25m
Slide 24: Doug Flynn, Chief Executive
Doug Flynn Chief Executive 24
Slide 25: Recap of Priorities for 2006
Recap of Priorities for 2006 Strategic • Active business portfolio management • Systematic growth plans for all businesses People and structure • Establish high performance, outward looking, innovative culture • Develop & upgrade next management level • Introduce appropriate incentives Operations •
Slide 26: Active Portfolio Management
Active Portfolio Management Acquisitions Disposals • JC Ehrlich (US pest) • Manned guarding • Pink (Aust. washroom) - UK • CWS branded AsiaPac - Canada washroom & dustmat - USA • 4 City Link franchises - Belgium • 13 bolt-ons Total consideration: Total proceeds: £128m £150m Note: as at 24 August 200
Slide 27: Removing Corporate Clutter
Removing Corporate Clutter • 75 surplus properties • UK textiles surplus properties • Other minor businesses exited – Ailsa environmental remediation – UK timber preserving • Sale of Felcourt Note: as at 24 August 2006 27
Slide 28: City Link
City Link Transformation from hub/trunker operator to integrated parcels business ahead of schedule • Expected to be completed in 2007 • Franchise buy-back – At 30 June owned 41 of 70 branches • Customer-facing structure being introduced – Regional customer centres – Integrated systems from consigno
Slide 29: Asia Pacific
Asia Pacific Transforming scale, market position and shape to allow us to play bigger and more dynamic role in rapidly growing region • Strong senior management team • Develop and upgrade next management level • Acquisitions to build strategic positions – Pink Healthcare – CWS branded washroom and d
Slide 30: People & Structure
People & Structure • Culture – Leadership development – Creating high performance, customer focused culture; still a long way to go to embed throughout company • Develop and upgrade next management level – Leadership evaluation completed – Key appointments at business unit head level • Introduce app
Slide 31: Changing Culture
Changing Culture 1 “Underperforming” 2 “Satisfactory” 3 “Outperforming” 4 Vision and • Blurred vision • Clear vision & Leadership priorities priorities Leadership • Uncoordinated • Cohesive leadership leadership Decision roles & • Confused • Clear decision Accounta- accountabilities decision roles r
Slide 32: Major Performance Improvement Projects
Major Performance Improvement Projects French Textiles Build upon strong strategic position to create more dynamic, efficient and commercially capable operations • Reorganisation complete; yet to achieve full benefits • Improvement in retention • Mid-year price increases to recover higher fuel/energ
Slide 33: Major Performance Improvement Projects
Major Performance Improvement Projects UK Washroom Rebuild quality washroom services business and fully integrate old operations with processes which will deliver customer needs effectively • Winning new business – new sales up year- on-year • Improvement in productivity of service and field sales •
Slide 34: Major Performance Improvement Projects
Major Performance Improvement Projects UK Pest Control Recapture the high ground; retain and win customers through service knowledge and customer focus with efficient delivery • New management team • Changes planned now deeper and more wide- reaching • Solid upward trend in retention • Early signs o
Slide 35: Major Performance Improvement Projects
Major Performance Improvement Projects European Washroom Create revitalised, efficient and customer focused growing business • Integration complete • New lines of business and new products introduced • Portfolio gains in some markets • Efforts to increase number of customers having some success • So
Slide 36: Productivity and Process Improvements
Productivity and Process Improvements Opportunity to improve quality, customer responsiveness and costs through processes we employ • Administrative efficiency - ‘Work Smarter’ – Oracle is key enabler – Process structure includes shared service centres – Reduce low value payments/invoices – Reductio
Slide 37: Productivity and Process Improvements
Productivity and Process Improvements • Management efficiency – Span of control and layers of management – In business organisation • Head office activities and headcount – Rationalisation in corporate affairs, procurement, legal, real estate • Sales efficiency and routes to market – Tele-sales – Re
Slide 38: www.rentokil.com/uk
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Slide 39: Customer Retention
Customer Retention • Actions taken resulted in good progress in some businesses – European pest control – European washroom – Some parts of Asia Pacific • Overall improvement in retention for fifth consecutive half Group customer retention % 85 84 83 82 81 80 H1 04 H2 04 H1 05 H2 05 H1 06 • Continue
Slide 40: Recap of Priorities for 2006
Recap of Priorities for 2006 Strategic • Active business portfolio management • Systematic growth plans for all businesses People and structure • Establish high performance, outward looking, innovative culture • Develop & upgrade next management level • Introduce appropriate incentives Operations •
Slide 41: Outlook
Outlook • H2 textiles & washroom services profit likely to be broadly flat with H1 • Other divisions expected to demonstrate improving profit trends during H2 • Anticipate return to modest PBTA growth in 2007 as result of initiatives taken • Expect to maintain dividend in 2006 41
Slide 42: Interim Results 24 August 2006
Interim Results 24 August 2006 42