Rentokil Initial Plc · LSE:RTO
Rentokil Initial — H1 2007 Earnings Presentation
46 slides from Rentokil Initial's earnings presentation, Aug 23, 2007
Slide 1: Interim Results 2007
Interim Results . 2007 23 August 2007 1
Slide 2: Doug Flynn
Doug Flynn Initial
Slide 3: Highlights
Highlights . H1 operating and financial performance in line with plan Inflection point reached in terms of profits Turnarounds progressing: UK Pest Control, UK Washroom Acquisition integration on or ahead of plan in Asia Pacific/City Link Reshaping of the group continues – Investment in hi
Slide 4: Revenue and Adjusted EBITA
Revenue and Adjusted .EBITA Revenue growth Adjusted EBITA growth % % 30 5 20 0 10 -5 0 -10 H1 06 H2 06 H1 07 H1 06 H2 06 H1 07 4
Slide 5: Organic Revenue
Organic Revenue . Group organic revenue growth Divisional organic revenue growth H1 07 % % 15 6 10 4 5 2 0 Ambius C/Link Text/Wash Pest Apac Fac Serv 0 H1 06 H2 06 H1 07 Division total Division ex UK HK govt pest contract 5
Slide 6: 'Turnarounds' Improving
‘Turnarounds’ Improving . French Textiles and Washroom – Strengthening trading – Textiles portfolio growth has continued over the last 10 months – Garments growth in small to medium size enterprises – Growth in washrooms through greater focus – Business normalising – “No longer a turnaround” UK
Slide 7: 'Turnarounds' Improving
‘Turnarounds’ Improving . UK Catering and Hospital Services – Improved performance and contract wins – Exiting unprofitable contracts – Costs reducing through procurement initiatives UK Pest Control – Bedding down new organisation structure – Investment in customer focus beginning to deliver pla
Slide 8: 'Turnarounds' Improving: UK Pest Control Retention
‘Turnarounds’ Improving . UK Pest Control Retention (MATs) January 2006 – June 2007 80 78 76 % 74 72 70 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2006 2007 8
Slide 9: Reshaping of the Group Continues
Reshaping of the Group . Continues Acquisition Spend Acquisition Spend H1 2007 January 2006 – June 2007 Pest Control Ambius Facilities Speciality Ambius Services Hygiene Speciality Textiles/ Hygiene City Link Pest Control Washroom Facilities Services Asia Pacific Textiles/ Washroom City Link Asia Pa
Slide 10: Andrew Macfarlane
Andrew Macfarlane Initial 10
Slide 11: Basis of Preparation
Basis of Preparation . Electronic Security Discontinued UK/NL/US sold for £533m on 2 July France: awaiting regulatory approval German hospital services Continuing up to date of sale; P&L neutral for H1 11
Slide 12: Financial Highlights
Financial Highlights . Continuing operations H1 07 H1 06 Constant exchange rates £m £m % Revenue 1,074.6 873.5 23.0 EBITA 122.7 115.3 6.4 Interest (38.5) (20.5) (87.8) Associates 1.2 1.1 9.1 PBTA 85.4 95.9 (10.9) One-off items 3.2 5.8 (44.8) Adjusted PBTA 88.6 101.7 (12.9) Free cash flow (actual exc
Slide 13: Adjusted PBTA
Adjusted PBTA . Constant Exchange Rates Q1 07 Q2 07 H1 07 £m % £m % £m % Textiles/Washroom 25.1 (8.1) 28.2 1.4 53.3 (3.3) Pest Control 10.5 (26.6) 18.0 (5.8) 28.5 (14.7) City Link 10.2 78.9 13.9 73.8 24.1 75.9 Facilities Services 9.8 30.7 8.8 15.8 18.6 23.2 Asia Pacific 5.7 16.3 8.3 53.7 14.0 35.9 A
Slide 14: Initial Textiles & Washroom Services
Initial Textiles & Washroom . Services % change versus prior year 2006 vs. 2005 2007 vs. 2006 Q1 Q2 Q3 Q4 Q1 Q2 Revenue 1.0 (1.2) (0.7) 3.5 1.8 2.0 Organic revenue (0.3) (1.4) (0.8) 3.5 2.31 2.81 EBITA (16.9) (20.7) (53.3) 1.3 (10.7) 13.1 Adjusted EBITA (16.5) (21.0) (22.5) (14.4) (8.1) 1.4 Retentio
Slide 15: Initial Textiles & Washroom Services: Portfolio Organic Net Gain
Initial Textiles & Washroom . Services Portfolio Organic Net Gain (MATs) £m 25 20 15 10 5 0 -5 -10 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Continental Europe UK Washroom 15
Slide 16: Initial Textiles & Washroom Services
Initial Textiles & Washroom . Services Constant exchange rates Portfolio Change in H1 Revenue £m ave. price adjusted change1 EBITA 2007 2006 Change % £m France 109.9 106.3 +3.6% 2.2% (0.6) Netherlands 37.7 36.8 +2.4% 0.2% 1.6 Belgium 33.8 32.7 +3.4% -0.6% 0.5 Germany2 34.8 36.1 -3.6% -0.4% 1.3 Other
Slide 17: Rentokil Pest Control
Rentokil Pest Control . Constant exchange rates £ million Revenue Adj EBITA 2006 H1 132.4 33.4 Changes due to: USA (mainly Ehrlich) +11.9 (1.6) Europe +3.9 +0.8 Other/divisional costs1 +0.2 (2.0) UK2 (1.8) (2.1) 2007 H1 146.6 28.5 1 £3m full year R&D and other costs transferred from centre i
Slide 18: UK Pest Control
UK Pest Control . 2005 2006 2007 H1 H2 H1 H2 H1 Revenue £m 34.1 34.4 33.0 32.8 31.2 Retention rate % pa 76.7 76.7 80.4 82.4 84.2 EBITA change vs. LY (2.7) (6.1) (2.1) Adjusted EBITA change* (2.1) (2.4) (2.1) *Adjusted for one-off reorganisation/restructuring charges of: H106 £0.6m; H206 £3.7m: H107
Slide 19: City Link
City Link . Q1 07 Q2 07 H1 07 £m % £m % £m % Revenue 94.5 177 108.5 128 203.0 149 Organic growth* ~10 ~6 ~10 Adjusted EBITA 10.2 79 13.9 74 24.1 76 8 franchisees acquired in H1 for £14m. Remaining 2 franchisees had H1 revenue of £2.9m Adjusted EBITA is before Target Express integration costs of
Slide 20: City Link/Target Express Integration
City Link/Target Express . Integration 2007 2008 £m £m Synergies Original estimate Nil Exit run rate > £10m pa Latest estimate – all in H2 2–3 Exit run rate > £15m pa Integration Costs Original estimate 6 6 Latest estimate* 9 12 Depot closures Original estimate: net 24 (close 27, open 3)
Slide 21: City Link – Profit Analysis
City Link – Profit Analysis . Estimate H1 07 Adj EBITA3 Consideration £m £m Legacy City Link business1 10.0 - Regional management costs (2.5) - 2005 acquisitions (0.1) 0.7 2006 acquisitions 3.2 51.2 2007 acquisitions 0.5 14.2 Target Express2 11.3 213.0 12.4 Total 22.4 279.1 Historic experience: busi
Slide 22: Initial Facilities Services
Initial Facilities Services . £ million Revenue Adj EBITA 2006 H1 254.0 15.1 Changes due to: UK Cleaning +27.5 +0.8 Catering (6.0) (0.6) Hospital Services +3.3 +1.1 Other businesses/divisional overheads +5.5 +2.2 2007 H1 284.3 18.6 Lancaster acquired in July for £19m. 2006 revenue of £45m.
Slide 23: Rentokil Initial Asia Pacific
Rentokil Initial Asia Pacific . Share of group revenue Share of group adjusted EBITA % % 10 15 11.5 7.1 10 7.7 4.7 5 5 0 0 Q1 06 Q2 07 Q1 06 Q2 07 Note: Q106 based on continuing operations at that time 23
Slide 24: Rentokil Initial Asia Pacific
Rentokil Initial Asia Pacific . 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Revenue £m 22.8 23.4 25.9 30.0 34.3 39.5 Revenue growth* 7.4% 7.2% 17.4% 29.2% 50.4% 68.8% Organic growth* 6.1% 4.6% 4.7% 7.2% 6.1% 9.8% Adjusted EBITA £m 4.9 5.4 5.6 7.9 5.7 8.3 Adjusted EBITA (9.1)% (5.1)% (1.8)% 28.6% 16.3% 53.7% growth
Slide 25: Interest
Interest . Actual exchange rates £ million 2007 2006 H1 H1 Net interest on bank/bond/finance lease debt* (39.2) (21.6) Expected return on pension scheme assets 25.4 25.8 Interest on pension scheme liabilities (25.7) (24.5) (0.3) 1.3 Unwind of discount on provisions (1.1) (1.1) Mark-to-market/forex a
Slide 26: Taxation
Taxation . Actual exchange rates 2007 H1 2006 H1 £ % £ % Profit before tax (continuing ops) 65.3 100.0% 89.4 100.0% Explanation of tax charge Expected charge at blended rate* 19.7 30.2% 27.7 31.0% Untaxed provision release (2.7) -4.1% - - Other factors affecting tax charge 0.4 0.6% (0.3) -0.3% Prior
Slide 27: Operating Cash Flow
Operating Cash Flow . Actual exchange rates 2007 H1 2006 H1 Continuing Discontinued One-off Total Total activities activities items before one-off items EBIT 106.0 19.4 (3.2) 122.2 106.0 Depn & amortisation 94.5 3.7 - 98.2 90.4 Non-cash items (4.7) - (2.3) (7.0) (6.4) EBITDA 195.8 23.1 (5.5) 213.4 1
Slide 28: Free Cash Flow and Movement in Net Debt
Free Cash Flow and Movement . in Net Debt Actual exchange rates £ million 2007 H1 2006 H1 Operating cash flow 79.0 85.2 Interest1 (22.9) (21.1) Tax (7.3) (20.1) Free cash flow 48.8 44.0 Equity dividend (94.9) (94.8) Acquisitions2 (93.6) (124.3) Disposals 0.6 106.8 Pension contribution (30.0) - FX/ot
Slide 29: 2007 Rationalisation and Integration Costs
2007 Rationalisation and . Integration Costs H1 Act H2 Est FY Est Benefits £m £m £m UK Washroom - branches 1.2 Reduces overheads by £3m from H2 07 UK Washroom – property sales (2.3) profits UK Pest Control branches 0.6 Completion of reorganisation Schaerbeek/Zele 1.0 Improves profits by £0.7m pa fro
Slide 30: Doug Flynn
Doug Flynn Initial 30
Slide 31: Strategy
Strategy . Restart revenue growth – Improve service Î increase retention – Improve sales and marketing effectiveness Reshape the portfolio – Build towards leading market positions – Towards growth sectors – Dispose of businesses with limited potential for the group Improve efficiency and produ
Slide 32: Trends and Expectations
Trends and Expectations . Organic growth rising across the company Business portfolio changes towards higher growth sectors continues Synergies from larger acquisitions begin to show in H2 – more in 2008/2009 Productivity gains starting to show through ÎAdjusted EBITA up in H1, more so in H2
Slide 33: Initial Textiles & Washroom Services
Initial Textiles & Washroom . Services Underlying business showing steady growth Positive Continental European portfolio trends continue Expect Q3 and Q4 to be ahead of last year Past low point in this business, expect to see positive margin trends going forward Opportunities for growth –
Slide 34: Initial Textiles & Washroom Services
Initial Textiles & Washroom . Services Improving efficiency and productivity – Cross-border structures (regionalising for efficiency, management, administration, processing and CRM) – Sales productivity in major markets – Lowering cost of Washroom provision (procurement and service efficiency) – E
Slide 35: Rentokil Pest Control
Rentokil Pest Control . Division – Markets continue to grow strongly – Growth in revenue, organic revenue and customer retention – Key acquisitions in continental Europe/USA – Roll out of websites to every country by end 2007 Europe – Investment in sales delivering strong revenue growth, complem
Slide 36: Rentokil - Powerful brand awareness
Rentokil - Powerful brand . awareness 36
Slide 37: Rentokil Online
Rentokil Online . Roll-out – New design differentiating between residential and commercial customers – Now live in 40 countries; 15 Asia Pacific sites went live in August Visitor numbers – 98,000 visitors to rentokil.com sites in July – 550,000 visitors to all the country sites since going live
Slide 38: City Link
City Link . Strong customer retention maintained Organic growth well ahead of market: stronger H1 growth in B2B than B2C No. of consignments up 8% vs. H1 06 Progress in pricing and cost recovery European Courier Company of the Year – Institute of Transport Management Some H2 integration
Slide 39: Integration Ahead of Schedule
Integration Ahead of Schedule . December 06 July 07 December 08 Mgmt team in place Trailer/cage harmonisation; Network operations aligned; common IT platform combined regional structure; September 07 trunking optimised May 07 Depot consolidation Single sales begins. 104 depots proposition. Single br
Slide 40: Initial Facilities Services
Initial Facilities Services . Maintaining revenue growth; new process and efficiency gains Cleaning – Daytime cleaning offers greater efficiency for customers, added profitability for IFS – one third of potential tapped – Reduced cost of management of smaller cleaning contracts – from mobile sup
Slide 41: Rentokil Initial Asia Pacific
Rentokil Initial Asia Pacific . Exited H1 in strong position Public awareness of hygiene factors in region remains high – SARS, Dengue, Avian Flu etc. Significant service productivity improvement underway in Australian and Indonesian Washroom businesses Pest control growing strongly – Hong K
Slide 42: Rentokil Initial Asia Pacific Acquisitions
Rentokil Initial Asia Pacific . Acquisitions Successful entry into IT hygiene market in Hong Kong under Ambius brand 23 acquisitions in H1 for consideration of £50 million; expected annualised revenue of ~£33m Further 7 acquisitions in July/August for consideration of £6.1m Good future acqui
Slide 43: Priorities for H2
Priorities for H2 . Good evidence of progress but H2 plan requires the effort to drop through to the bottom line European Textiles/Washroom: portfolio development; operational efficiency UK Washroom: completion of re-engineering; improve retention; sustained new business sales UK Pest Control:
Slide 44: Outlook
Outlook . H1 performance and progress in line with plan Interest benefit from Electronic Security sale proceeds – ~£15m in H2 2007 – ~£30m in 2008 2007 outlook unchanged – profit before tax and amortisation for year before one-off items in line with 2006 (excluding £15m interest benefit from E
Slide 45: Appendix
Appendix Initial 45
Slide 46: UK Pension Scheme
UK Pension Scheme . £ million 30-06-07 31-12-06 30-06-06 Assets Cash 0.6 - 8.3 Equities 186.2 177.2 170.4 Fixed income 692.0 700.8 689.7 Swap portfolio (13.0) 25.9 5.9 865.8 903.9 874.0 Liabilities (941.5) (1,012.2) (950.1) IAS 19 deficit, pre-tax (75.7) (108.3) (76.1) H1 2007 H2 2006 H1 200