Rentokil Initial Plc · LSE:RTO
Rentokil Initial — FY2016 Earnings Presentation
51 slides from Rentokil Initial's earnings presentation, Feb 23, 2017
Slide 1: 2016 Preliminary Results
2016 Preliminary Results 23 February 2017 1
Slide 2: Forward-looking statements disclaimer
This presentation contains statements that are, or may be, forward-looking regarding the group's financial position and results, business strategy, plans and objectives. Such statements involve risk and uncertainty because they relate to future events and circumstances and there are accordingly a nu
Slide 3: Opening Remarks
2016 Preliminary Results: Opening Remarks John McAdam Chairman 3
Slide 4: Introduction
2016 Preliminary Results: Introduction Andy Ransom Chief Executive Officer 4
Slide 5: 2016 Highlights: Ongoing Revenue +12.6%
2016 Highlights Executi ng our s tr ate g y i n 2016 +12.6% Ongoing R e v e nue + 1 2 .6 % in 2 0 1 6 ( 2 0 1 5 : + 7 .0 %) a t C E R . Acceleration in Organic Revenue growth +3.0% (2015: +1.8%). Good growth in NA, UK, Germany, Asia, Pacific and LatAm, Pest Control in particular. H2 Ongoing Revenue
Slide 6: 2016 Highlights: Ongoing Operating Profit +11.5%
2016 Highlights Executi ng our s tr ate g y i n 2016 +11.5% Ongoing Ope r a t ing P r of it + 11 .5 % in 2 0 1 6 a t C E R . Good growth in North America, UK, Asia, Pacific, Latin America. Europe Region rate of decline reduced by 2% points. France remains challenging. Adjusted Profit Before Tax favo
Slide 7: 2016 Highlights: Pest Control +25.9%
2016 Highlights Executi ng our s tr ate g y i n 2016 +25.9% P e s t C ont r ol: + 2 5 .9 % Ongoing R e v e nue . Increasing Organic Revenue growth of +5.7%. Leadership in digital and strong innovation pipeline in place. c.60% of the Group post Haniel transaction. 7
Slide 8: Hygiene Growth
2016 Highlights Executi ng our s tr ate g y i n 2016 Hygiene Growth Ongoing R e v e nue + 4 .8 % a nd Ongoing Ope r a t ing P r of it + 3 .9 % in 2 0 1 6 a t C E R . Increased Organic Revenue growth in Hygiene of +3.1% in 2016. Benefits of product investment coming through. Continue to focus on dens
Slide 9: 41 Acquisitions
2016 Highlights Executi ng our s tr ate g y i n 2016 41 Acquisitions 4 1 a c quis it ions in 2 0 1 6 , 3 5 in P e s t C ont r ol. Annualised revenues of £124m. Steritech integration progressing well – delivered c.$30m of profits. Very strong pipeline. M&A spend for 2017 raised to at least £150m. 9
Slide 10: Growth & Emerging
2016 Highlights Executi ng our s tr ate g y i n 2016 Growth & Emerging C a pit a l a lloc a t ion m ode l w or k ing w e ll. Ongoing Revenue growth: +18.7% Emerging, +19.7% Growth (CER) in 2016. Focus for acquisitions and good Organic Revenue growth in Asia (+8.6%) and NA (+4.4%). Growth & Emerging:
Slide 11: European JV with Haniel
2016 Highlights Executi ng our s tr ate g y i n 2016 European JV with Haniel Va lue c r e a t ing a gr e e m e nt . Proceeds to pay down debt and increase flexibility for acquisitions in higher growth markets. Retaining a c. 18% holding in a leading provider of Workwear and Hygiene with €19m annual
Slide 12: Strong performance in 2016
Strong performance in 2016 Good opportunities to maintain the progress in 2017 European JV with Haniel Va lue c r e a t ing t r a ns a c t ion 12
Slide 13: Financial Review
2016 Preliminary Results: Financial Review Jeremy Townsend Chief Financial Officer 13
Slide 14: Financial Highlights (Continuing Operations)
Financial Highlights (Continuing Operations) FY 2016 £ million CER AER Δ CER Δ AER Ongoing Revenue 1,956.0 2,157.7 12.6% 24.2% Ongoing Operating Profit 252.3 284.9 11.5% 25.8% Adjusted PBTA 221.9 252.1 16.7% 32.5% PBT 182.8 208.5 15.0% 31.0% Free cash flow 156.4 Adjusted EPS 9.30p 10.73p 16.5% 34.5%
Slide 15: Progress Against Financial Targets
Progress Against Financial Targets Building a track record of delivery against targets Strong and sustainable Mid-single digit High-single digit delivery of free cash revenue growth (CER) profit growth (CER) flow (£110m+ pa) (AER) Ongoing Revenue Growth Ongoing Operating Profit Growth Free Cash Flow
Slide 16: North America
North America At constant exchange rates St r o n g p e r fo r m a n c e i n 2 0 1 6 su p p o r t e d b y a c q u i si t i o n s Ongoing Gr oup Ongoing Gr oup Re ve n u e Oper ating Pr ofit • +4.4% Organic Revenue growth, +5.1% in Pest Control • Ongoing Operating Profit increase reflects leverage fr
Slide 17: Europe
Europe At constant exchange rates On g o i n g Reve n u e + 1 . 4 % ( + 0 . 9 % Or g a n i c Reve n u e g r owt h ) Ongoing Gr oup Ongoing Gr oup Re ve n u e Oper ating Pr ofit Ove r a l l p e r fo r m a n c e h e l d b a ck p r i m a r i l y b y Fr a n c e Wo r k we a r 38% 41% • Good Ongoing Reven
Slide 18: UK and Rest of World
UK and Rest of World At constant exchange rates On g o i n g Reve n u e + 4 . 5 % ( + 4 . 1 % Or g a n i c Reve n u e g r owt h ) Ongoing Gr oup Ongoing Gr oup Re ve n u e Oper ating Pr ofit On g o i n g Op e r at i n g Pr o f i t + 4 . 6 % r e f l e c t i n g h i g h e r r eve n u e a n d 18% 21% c
Slide 19: Asia
Asia At constant exchange rates On g o i n g Reve n u e + 1 2 . 0 % Ongoing Gr oup Ongoing Gr oup ( + 8 . 1 % Or g a n i c Reve n u e g r owt h ) Re ve n u e Oper ating Pr ofit On g o i n g Op e r at i n g Pr o f i t + 3 1 . 1 % 6% 4% r e f l e c t i n g h i g h e r r eve n u e • Good performances f
Slide 20: Pacific
Pacific At constant exchange rates On g o i n g Reve n u e + 1 0 . 7 % Ongoing Gr oup Ongoing Gr oup ( + 4 . 0 % Or g a n i c Reve n u e g r owt h ) Re ve n u e Oper ating Pr ofit On g o i n g Op e r at i n g Pr o f i t + 1 1 . 9 % r e f l e c t i n g l eve r a g e f r o m r eve n u e 7% 9% • Ongoin
Slide 21: Operating Cash Flow
Operating Cash Flow At actual exchange rates £ million FY 2016 FY 2015 Adjusted PBITA 284.4 225.0 One-off items (8.6) (5.4) Depreciation 200.7 172.7 Other1 12.6 10.8 EBITDA 489.1 403.1 Working capital (11.3) (0.7) Movement on provisions (14.5) (7.0) Capex (221.8) (181.4) Fixed asset disposal proceed
Slide 22: Free Cash Flow & Movement in Net Debt
Free Cash Flow & Movement in Net Debt At actual exchange rates £ million FY 2016 FY 2015 Operating cash flow – continuing 247.8 220.7 Cash interest (54.6) (44.2) Cash tax (35.8) (27.9) Special pension contributions (1.0) (0.9) Free cash flow – continuing 156.4 147.7 Free cash flow – discontinued (0.
Slide 23: Capital Allocation
Capital Allocation Continued application of capital allocation model with three core priorities: 1. Value-enhancing M&A: • Following an accelerated performance in M&A during 2016 and a particularly strong pipeline going in to 2017, we are up- weighting our anticipated spend on M&A in the coming year
Slide 24: Balance Sheet
Balance Sheet • Net debt to EBITDA 2.5x at 31 December 2016 (H1 2016: 2.5x), 2.0x on a pro forma basis post JV completion • Company’s BBB credit rating reconfirmed in June 2016 by S&P and outlook revised from Negative to Stable reflecting progress with Steritech integration • £156.4m Free Cash Flow
Slide 25: Proposed Joint Venture with Haniel – Key Financials
Proposed Joint Venture with Haniel – Key Financials The new joint venture announced in December 2016 will have combined pro forma revenues of c. €1.1bn and APBITA of c. €130m (12 months to 30 June 2016) The Rentokil Initial and CWS-boco businesses have complementary operations, products and capabili
Slide 26: Pro Forma Impact on EPS from Joint Venture
Pro Forma Impact on EPS from Joint Venture (based on 12 months to 31 December 2016 figures) Rentokil Transferred Pro forma Pro forma Total £ million Initial Businesses adjustments share of JV pro forma Ongoing Revenue 1,956 (239) - - 1,717 Organic Revenue growth 3.0% 3.4% Adjusted Operating Profit 2
Slide 27: Summary and Guidance for 2017
Summary and Guidance for 2017 2016 Financial Summary Guidance for 2017 Ongoing Revenue increase of +12.6% • Central & regional overheads c. £2m higher than the prior year, reflecting increased investment in digital capability Improvement in Organic Revenue growth +3.0% (2015: +1.8%) • Above the
Slide 28: Making good progress through the Next Phase of our strategy
Making good progress through the Next Phase of our strategy Andy Ransom Chief Executive Officer 28
Slide 29: Our Strategic Roadmap
Our Strategic Roadmap In 2016 we have continued to execute our strategy at pace Strong Regional Businesses Lean, Multi-Business Operations • North America • Europe • UK & Rest of World • Asia Branch • Pacific Leadership in our Business Lines Our colleagues as Experts Pest Control: Hygiene: Workwear:
Slide 30: The Next Phase
The Next Phase Good progress against priorities, as set out at interims in 2015 Greater exploitation of digital expertise Next Phase Further differentiation through innovation Accelerate Pest Control Deliver enhanced margins through density and local share Execute Now in Hygiene Boost service and sa
Slide 31: Accelerate Pest Control
Accelerate Pest Control Successful implementation of strategy is accelerating growth Market-leading positions across the globe Strong Performance in 2016 Revenue: £989.2m +25.9% Profit: £184.4m +25.1% At CER +5.7% Organic growth (+4.6% 2015) Market Number of Rentokil Markets Germany +7.5%, NA +5.1%,
Slide 32: Accelerate Pest Control: levers to drive Organic Revenue growth
Accelerate Pest Control Multiple levers to drive Organic Revenue growth £m % 1000 7.0 Mu l ti p l e o p p o r tu n i ti e s to 950 3-year d ri ve O r g a n i c Reve n u e g r owth i n Pe st Co n tr o l : Ongoing 900 Revenue CAGR 6.0 13.5 Technical expertise – trusted when it 850 15.7% 5.0 matters mo
Slide 33: Accelerate Pest Control: World leading technical expertise
Accelerate Pest Control World leading technical expertise I n 2 0 1 6 Re n to k i l wa s a wa r d e d th e c o n tr a c t to p r ovi d e a f u l l r a n g e o f p e st c o n tr o l se r vi c e s to th e Ri o O l ym p i c a n d Pa r a l ym p i c G a m e s: Preventative services to the 5 accommodation
Slide 34: Accelerate Pest Control: Innovations to enhance key ranges
Accelerate Pest Control Innovations to enhance our key ranges L u m n i a – f i r st c o m m e r c i al r a n g e o f e l e c tr o n i c f l y k i l l e r s u si n g L E D l i g h ti n g r ath e r th a n tr a d i ti o n a l b l u e - l i g h t f l u o r e sc e n t tu b e s: We have developed an LED
Slide 35: Accelerate Pest Control: PestConnect
Accelerate Pest Control PestConnect – setting a new standard in pest control +25, 000 connected uni ts i n 12 countri es and + 20m mes s a ges s ent fr om our di gi tal dev i ces i n the fi el d s i nce l aunch: Continuously monitors for pest activity – automatically alerts the technician when a pes
Slide 36: Hygiene: Execute Now
Hygiene: Execute Now Best in class products now delivering consistent organic growth Hygiene: Leading Market Positions 2016: Continuing revenue growth Revenue: £446.0m +4.8% Profit: £86.1m +3.9% At CER Increasing Organic Revenue growth: Market Number of Initial Markets +3.1% in 2016 (+2.3% 2015 and
Slide 37: Hygiene: Execute Now – operational strategy
Hygiene: Execute Now Operational Strategy Best-in-Class Products and Service M&A Products City-focused Best in Class Hygiene Density “Execute Customer and Now” Service • Range in place: Signature to Reflection or Colour. High quality Product • Targeted additions: including new feminine hygiene unit
Slide 38: Hygiene: Innovation and Digital
Hygiene: Execute Now Innovation and Digital – efficiency and productivity High Quality Web Presence myInitial Customer Portal • Global Hygiene web presence: New V3 infrastructure being rolled • High quality customer portal: Being rolled out. out following success in pest control • Features include:
Slide 39: Hygiene: Customer and Product density – margin expansion
Hygiene: Execute Now Customer and Product density – margin expansion Sevenoaks Gross Margin ILLUSTRATION = X% 10 Customers Average 3 hygiene units per customer Product Density Customer & Product Density Gross Margin Gross Margin Improvement Improvement + c. 7% points + c.10% points 10 Customers xxx
Slide 40: Hygiene: Density – targeted selling and M&A
Hygiene: Execute Now Customer and Product density – targeted selling and M&A Density – Targeted Selling Density – M&A • Focus: Across the business on density and margins. • Market leading positions: +3% Organic Revenue growth. • Additional commission: For multiple services and target services • Over
Slide 41: Focusing on Quality in Workwear
Focusing on Quality in Workwear Delivering differentiation through product and service quality Workwear: Scale across Europe 2016: Quality strategy being implemented Revenue: £342.7m (1.3%) Profit: £39.8m (14.5%) At CER Reduced rate of decline in Ongoing Revenue No. 2 in Europe and the only company
Slide 42: Rentokil Initial in France
Rentokil Initial in France Focus: Improvement plan B u s i n e s s i m p r o ve m e n t p l a n i n F r a n c e f o c u s e d o n q u a l i t y m e t r i c s i n Wo r k w e a r a n d g r o w t h i n Pest and Hygiene. New MD appointed. I n 2 0 1 6 , w e b e g a n t o s e e a n i m p r o ve d r a t e
Slide 43: Value-creating acquisitions in 2016
Value-creating acquisitions in 2016 2017 target spend increased to at least £150m. Very strong pipeline C i t y - fo c u se d a c q u i si t i o n s: I n 2 0 1 6 we a c q u i r e d 4 1 b u si n e sse s fo r £ 1 0 7 m wi t h c o m b i n e d a n n u a l r eve n u e s o f £ 1 2 4 m . 17 businesses In 2
Slide 44: Strategy into Action
Strategy into Action Group Revenues: Moved into higher growth markets and businesses Quadrant strategy: 2013 – 2016 Category strategy: 2013 – 2016 Greater Focus on Growth and Emerging Markets Greater Focus on Higher Growth Categories Growth and Emerging: c. 70% of Group Ongoing Revenues Pest Control
Slide 45: Strong Performance in 2016
Strong Performance in 2016 Consistent execution of our strategy driving growth Excellent revenue, profit and cash performance Ongoing Revenue +12.6% (2015: +7.0%), Ongoing Operating Profit +11.5% (2015: +9.1%). Free cash flow of £156.4m (2015: £147.7m). Pest Control revenues +25.9% with Organic Reve
Slide 46: 2016 Financial highlights
Rentokil Initial Accelerated Organic Revenue growth and acquisitions drive strong overall performance 2016 Financial highlights ‘Ongoing Revenue growth 12.6% Highest Organic Revenue growth in 10 years 8.0/0 22016 35%:F¥ 208 10% ‘Ongoing Operating Profit 11.5% Free cash flow (AER) £196.AM 2oretrcer<n
Slide 47: Rentokil Initial – Protecting People. Enhancing Lives.
Rentokil Initial Protecting People. Enhancing Lives.
Slide 48: Business Lines in 2016
Business Lines in 2016 Global leadership in Pest Control and Hygiene Pest Control (50% Group Revenue, 56% Group Operating Profit, 18.6% Operating Margin) Revenue: £989m +25.9% World class business performing well. Strong innovation pipeline – PestConnect, Lumnia, RapidPro. Increasing scale in Growth
Slide 49: Quadrant Strategy in 2016
Quadrant Strategy in 2016 Capital allocation model working well Str ong perfor mance in EMERGING GROWTH higher GDP g r owth mar kets – Gr owth Ongoing Revenue +18.7% to £164.2m Ongoing Revenue +19.7% to £1,192.9m (+19.7%) and Emer ging Ongoing Operating Profit +31.4% to £21.0m Ongoing Operating Prof
Slide 50: Capital Allocation
Capital Allocation Continued application of capital allocation model, with thr ee cor e priorities: 1. Value-enhancing M&A, 2. Maintain progressive dividend policy, 3. Pay down net debt £369m £109m 180.0 £179.6m £97m 160.0 147.7m £156.4m £68m 149.4m 140.0 £128.9m £12m 120.0 £110m+ 2013 2014 2015 201
Slide 51: Rentokil Initial – Protecting People. Enhancing Lives.
Rentokil Initial Protecting People. Enhancing Lives.