2012 Preliminary Results 15 March 2013 1 1 This presentation - - PowerPoint PPT Presentation

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15 March 2013

2012 Preliminary Results

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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 number

• f factors which might cause actual results and performance to differ materially

from those expressed

• r

implied by such statements. Forward-looking statements speak only as of the date they are made and no representation or warranty, whether expressed or implied, is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Other than in accordance with the Company’s legal or regulatory obligations (including under the Listing Rules and the Disclosure and Transparency Rules), the Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events

• r otherwise. Information contained in this announcement relating to the

Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance. Nothing in this presentation should be construed as a profit forecast.

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Highlights

Alan Brown Chief Executive Officer

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2012 Highlights

• Revenue and profit improvement in all divisions despite market challenges:

– Revenue +2.8%, +0.8%* organic – Acquisitions performing well, contributing 2.4%, net £61m, of revenue growth – Strong finish to 2012: Q4 adjusted profit before tax up 16%, FY +10%

• Solid performance from Initial Textiles & Hygiene in tough conditions
• Strong performance from Asia (notably Malaysia, China and India)
• Good progress from City Link: volumes +17% year on year; losses reduced by

£5m of which £4m in Q4

• Initial Facilities transition from single service cleaning to TFM moving rapidly
• Expansion of Rentokil Pest Control footprint through acquisition of Western and

bolt-ons in North, Central, South America and Middle East

*excluding Initial Facilities Spain, where the business is being scaled down to reduce financial exposure

At constant exchange rates

Good progress in 2012 and a strong finish to the year

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Operating & Financial Review

Jeremy Townsend Chief Financial Officer

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Financial Highlights

Q4 FY 2012 2011 2012 2011 £m £m £m £m Revenue at CER 683.2 663.1 3.0% 2,614.8 2,544.3 2.8% Adjusted PBITA at CER 78.4 68.9 13.8% 236.1 224.7 5.1% Adjusted PBTA at CER 68.4 59.0 15.9% 203.0 184.4 10.1% Adjusted PBTA at AER 64.4 57.8 11.4% 191.1 184.4 3.6% Operating Cash Flow at AER 91.6 73.7 24.3% 157.0 154.7 1.5% Basic adjusted EPS at AER 7.73p 7.48p 3.3%

CER = constant exchange rates AER = actual exchange rates

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2012 Financial Highlights

• Revenue growth across all divisions:

Asia +6.2%, City Link +4.8%, Pest Control +2.8%**, Textiles & Hygiene +2.5%, Initial Facilities

+3.8%*

• Adjusted operating profit +5.1%:

Improvements in profitability from all divisions (reduced losses at City Link) Offset in part by increased investment in capability through central costs

• Profit before tax £82.7m (at AER) versus loss last year of £50.5m, due to significantly

higher amortisation and impairment charges in 2011

• Operating cash flow at £157.0m +1.5% due to reduced working capital outflows
• £59m cost savings (versus target £50m); £50m target for 2013
• Final dividend +7.5% to 1.43p (2011: 1.33p) - full year total of 2.10p (notional 5%

increase for the year)

* excluding Initial Facilities Spain where the business is being scaled down to reduce financial exposure. This has impacted group performance by 0.4% but has led to profit improvement in Initial Facilities Spain ** includes Ambius operations, post its integration into the Pest Control Division

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1 before amortisation and impairment of intangible assets,

reorganisation costs and one-off items

2 % excludes central costs

At constant exchange rates

Textiles & Hygiene

• Revenue +2.5% (+0.8% organic):
• Solid performances in Germany and France

despite economic slowdown

• Growth in Pacific despite adverse weather

affecting pest business

• Customer retention 89.1% (+2.7% yoy)
• +3.5% profit growth (+3.5% organic):
• Strong performance from Benelux reflecting

continued turnaround

• Germany and France performing robustly in

challenging conditions

• Australia pest control adversely impacted by

weather

Q4 2012 FY 2012 Q4 FY Revenue 227.7 905.1 1.4% 2.5%

• Adj. PBITA1

41.4 143.2 2.0% 3.5% % Group Revenue % Adj. PBITA2

33.6% 49.7%

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At constant exchange rates

Pest Control

• Revenue +2.8% (+0.4% organic):

Strong performances in North America and

Northern Europe offsetting weaker trading in Southern Europe

New operations in Middle East, North,

Central and South America performing in line with expectations

• Profit +3.6% (+2.0% organic):

Strong improvements in North America,

East Africa and the Caribbean

Modest growth in UK and Europe Decline in Southern Europe and Ireland

reflecting ongoing Eurozone crisis

• Acquisition of Western completed Dec. 2012

Q4 2012 FY 2012 Q4 FY Revenue 202.4 773.4 4.2% 2.8%

• Adj. PBITA1

40.6 135.2 10.6% 3.6%

28.7% 46.9% 1 before amortisation and impairment of intangible assets, reorganisation costs and one-off items

2 % excludes central costs

% Group Revenue % Adj. PBITA2

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At constant exchange rates

• Revenue +6.2% (+7.4% organic):

High single digit growth in mature

markets of Malaysia and Singapore

33% growth from emerging markets of

India, China and Vietnam combined

• Profit +39.1% (+35.1% organic) reflecting

revenue growth, productivity and pricing improvements

Asia

Q4 2012 FY 2012 Q4 FY Revenue 25.5 99.0 5.8% 6.2%

• Adj. PBITA1

2.3 6.4 27.8% 39.1%

3.7% 2.2%

% Group Revenue % Adj. PBITA2

1 before amortisation and impairment of intangible assets, reorganisation costs and one-off items

2 % excludes central costs

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At constant exchange rates

• Loss of £26.4m on revenue up 4.8%
• 17% growth in volumes but sales mix

contributing to 10% fall in Revenue Per Consignment

• Good progress with recovery plan:

13% reduction in direct costs Implementation of new volume-based

• wner driver contracts across depots

Improved hub and line haul efficiency and

full route re-design

Investment in improved scanning and GPS

technology driving gains in productivity

Further consolidation of depot network

City Link

11.9%

Q4 2012 FY 2012 Q4 FY Revenue 96.0 321.7 9.1% 4.8%

• Adj. PBITA1

(2.4) (26.4) 64.2% 15.7% % Group Revenue

1 before amortisation and impairment of intangible assets, reorganisation costs and one-off items

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At constant exchange rates

Initial Facilities

• Revenue +3.8%* driven by MSS, Modus and

Phoenix acquisitions

• Underlying revenue -1.7%* reflecting decline

in single service cleaning

• +9.6% growth in profit (+5.2% excluding

acquisitions) reflecting margin improvement,

• perational efficiency and cost reductions

*excludes Initial Facilities Spain, where the business is being scaled down to reduce financial exposure

Q4 2012 FY 2012 Q4 FY Revenue 149.8 593.3 0.7% 2.1%

• Adj. PBITA1

10.4 29.7 13.0% 9.6%

22.0% 10.3%

% Group Revenue % Adj. PBITA2

1 before amortisation and impairment of intangible assets, reorganisation costs and one-off items

2 % excludes central costs

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Interest

At actual exchange rates

FY 2012 FY 2011 Net interest on bank/bond/finance lease debt (49.0) (47.0) Other 0.4 (0.8) Underlying Interest (48.6) (47.8) Net return on pension scheme 12.3 3.2 Per income statement (36.3) (44.6) Average net debt £954m £936m Average interest rate on bank/bond/finance/lease debt 5.1% 4.8% £ million

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Operating Cash Flow

FY 2012 FY 2011 Adjusted PBITA 222.8 224.7 Reorganisation costs and one-off items (51.8) (38.2) Depreciation 203.1 204.2 Non-cash items1 16.8 7.0 EBITDA 390.9 397.7 Working capital (24.7) (32.1) Capex (218.4) (216.4) Fixed asset disposal proceeds2 9.2 5.5 Operating cash flow 157.0 154.7 £ million

1 Profit on sale of fixed assets, IFRS 2 etc. 2 Property, plant, vehicles

At actual exchange rates

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Free Cash Flow and Movement in Net Debt

At actual exchange rates

FY 2012 FY 2011 Operating cash flow 157.0 154.7 Cash interest (44.2) (44.4) One-off items – financing (31.4)

• Financing - other

2.1 0.1 Cash tax (35.6) (44.5) Free cash flow 47.9 65.9 Acquisitions & Disposals (82.8) (32.0) Dividends (36.2)

• Special pension contribution

(12.5)

• FX and other

13.1 0.7 (Increase) / decrease in net debt (70.5) 34.6 Opening net debt (919.0) (953.6) Closing net debt (989.5) (919.0) £ million

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Funding

• Liquidity requirement for S&P requires the group to fund its maturities of c£150m in 2013 and €500m in

March 2014 at least 12 months in advance

• In September 2012 the group raised a €500m seven-year bond paying an annual coupon of 3.375%
• The group has met the remaining liquidity requirement by entering into an additional £240m two-year

committed bank bridge facility maturing December 2014 Current headroom and maturities by year (£m)

• We anticipate that we will issue a bond in the region of £300m later in the year to refinance the bond

maturity in 2014

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Guidance for 2013

• Cost savings £50m: focus on back-office administration
• Central costs in line with 2012:

– Reflecting continued investment in IT and M&I – Impact of change in accounting basis for pension admin costs – Pension interest benefit to be excluded from adjusted PBTA in 2013

• Interest cost reflecting carry cost of pre-funding 2014 bond maturities: estimated

total P&L charge £56m-£58m

• Exchange rate volatility: Sterling weakness a potential benefit to P&L
• One-off costs for 2013 expected to be in line with 2012 reflecting further

restructuring and focus on back-office rationalisation

• Net capex £230m-£250m: investment in workwear & hygiene plant, EFR and IT,

part funded by non-core disposals (e.g. Belgian flat linen)

• Working capital outflow £20m-£30m
• Adjusted effective tax rate 26%: 2013 tax payments c.£40m

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Strategy Update

Alan Brown Chief Executive Officer

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Objectives for 2012

Growth through marketing & innovation, Programme Olympic and acquisitions Cost Savings from productivity, procurement and back-office rationalisation Customer Care greater customer satisfaction and retention through care initiatives and CVC Turnaround the financial performance of City Link

1 2 4 3

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• Typically poor

January trading

• E-tailer volumes

lower than expected

• Poor productivity

in early part of quarter

Quarter 1 Revenue Profit*

* Profit taken at APBITA level

2012 Change

• vs. 2011

73.5 1.7 (12.7) (2.0)

Quarter 2

New business

improving

Operational

management changes

Price increases take

effect

76.0 5.3 (5.8) 1.3

Quarter 3

Step change in

productivity

Poor August trading;

especially in London

High Tier 2 attrition

76.2 2.4 (5.5) 1.3

Fuel surcharge takes

effect

Implementation of

customer profitability action plans

Sales effectiveness

programme initiated

Volumes slow to start

but in line with expectations by early December

Strong peak without

major incident – all depots clear by 24/12

96.0 9.1 (2.4) 4.3

Turnaround City Link: Progress in 2012

Quarter 4

1

2012 2012 2012 Change

• vs. 2011

Change

• vs. 2011

Change

• vs. 2011

£m

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Customer Care: Customer Voice Counts

2

Trend Q4 MAT 2012 vs. Q4 MAT 2011*

• Rentokil Initial

+1.2

• Ambius

+1.8

• Asia

+5.8

• Pacific

+3.7

• Initial Facilities

+5.1

• Textiles & Hygiene

+4.3

• Rentokil Pest Control

+0.4

*City Link data not available

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Cost Savings

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Textiles & Hygiene

Pest Control City Link Initial Facilities

Restructuring in France and Benelux Overheads Direct / indirect procurement Depot, driver, warehouse, hub & trunking cost initiatives 2012 Activities Saving Division

Progress in 2012

Restructuring in North America, Ambius (UK and Nordics), Property Care, Medical, UK Washrooms Restructuring Procurement Property rationalisation Workforce management Application of LEAN initiatives

£15 m £16 m

£17m £9m

Combined savings of £59m

Textiles & Hygiene Textiles & Hygiene

£15 m

Textiles & Hygiene

£15 m

Textiles & Hygiene

Pest Control £15 m

Textiles & Hygiene

£16 m Pest Control £15 m

Textiles & Hygiene

City Link £16 m Pest Control £15 m

Textiles & Hygiene

City Link

£15m

Pest Control

£18m Textiles & Hygiene

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Growth: Marketing & Innovation (M&I) Progress in 2012

M&I team established to drive world-class innovation in pest control, hygiene, workwear and plants A total of nine priority projects for implementation in 2013 / 2014

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Driving better products and services

Roll out of ‘Advantage’ Sales Tool (pest and hygiene) Further development ‘PestNetOnline’ and launch of ‘PestConnect’ remote monitoring Launch of high end ‘Reflection’ hygiene range and development

• f ‘Signature’

hygiene range for 2013 launch Successful pilot

• f ‘On Site

Service’ feminine hygiene service – roll out in Australia in 2013

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Growth: Acquisitions in 2012

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Textiles & Hygiene

• Modus FM
• Technical Services
• Phoenix Fire Services
• Sprinkler/Dry Rise

Installation

Initial Facilities

• US:
• Western Exterminator

(California)

• Eden (Washington/Oregon)
• Jones (South Carolina)
• Canada:
• Braemar (Halifax)
• Middle East:
• Totalai (Abu Dhabi/ Dubai)
• Latin America:
• Asseio (Brazil)

Pest Control

£128m combined annualised revenue

• ProQure Handelsbolag
• Mats servicing (Sweden)
• Residus Sanitaris
• Dental/clinical waste

management

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• Acquisition of Western Exterminator completed 10 December 2012
• Trading well driven largely by cost base improvements
• Integration proceeding well:
• Senior management in place for both pest control and speciality products businesses
• Reorganisation activity in line with plan: synergies expected in year one
• Implementation of common systems, tools and processes underway (Navision, migration to

North America payroll, implementation of NA region/district hub & spoke structure)

• Integration of national accounts sales team
• Western geographic presence ‘topped and tailed’ by acquisitions of Eden

Technologies in Portland and Assured Environments in Phoenix

Growth: Western Integration

4

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• 1. Customer Service/Care
• 3. Operational Excellence
• 2. Developing Capability
• 4. Cost and Maximum Cash
• 5. Growth
• 2. Developing Capability
• CVC industrialised across most operations and

bonus linked

• Drive material improvement in colleague behaviour

and handling of customer enquiries

• Further investment in processes and systems

Strategic Objectives for 2013

• £35m capex investment in systems
• Further investment in innovation
• Sales focus on account management & productivity
• Continuation of City Link turnaround
• Establish Shared Service Centre in Malaysia
• Roll out Standard Operating Procedures across group
• Implementation of Integrated Country

Operating Model

• Cost savings of £50m
• Major change programmes Netherlands, France,

Germany and US

• IT productivity
• Launch of ‘Signature’ hygiene range globally
• New technology roll-out - ‘Advantage’ sales tool and

IAAS in pest control

• Launch of Initial workwear range across Europe
• Acquisitions

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• 1. Segmentation of customer care offering
• 2. Business-wide customer experience training
• 3. Cross-functional customer process audit

Delivering outstanding customer service

• 1. Deliver sales effectiveness
• 2. Driver standards
• 3. Standard based employee terms & conditions

Delivering the capability of our

• rganisation & people
• 1. Operational conformance
• 2. Estimated Time of Arrival
• 3. Cage tracking & embedding end-to-end scanning

Delivering operational excellence

• 1. Resource mix optimisation
• 2. Optimised hub & trunking model
• 3. System simplification

Operating at lowest possible cost

• 1. Yield management
• 2. Rolling out the right products
• 3. Selling to the right customers

Delivering profitable growth

Turnaround City Link: Priorities for 2013

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Move to externally reporting group results

• n a major country, as

well as category basis from Q1 2013 New operating model supports implementation of group strategic thrusts Supported by global and regional teams providing…

• Management

accountability

• Category focus (expertise

in marketing & innovation, sales, operations)

• Global specialist

functions (finance, HR, IT)

From January 2013 almost all core businesses run by one manager per country Grouped into three geographic regions – East, West and Asia Operating model combines global leverage with local implementation FM and parcels largely single country

• perations managed as

stand-alone elements of portfolio

Integrated Country Operating Model for Core Operations

(pest, hygiene, workwear, plants)

Integrated Country Operating Model

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Integrated Country Operating Model (2012 results reported in 2013 format)

Pest Control Hygiene Workwear Plants Facilities Services Parcel Delivery Other Total APBITA (CER) £m £m £m £m £m £m £m £m £m France 23 76 250 5

• 24

378 63 Benelux 51 85 110 22

• 12

280 56 Germany 47 67 89 2

• 10

215 48 Pacific 64 69

• 16
• 149

29 East 185 297 449 45

• 46

1,022 196 North America 178

• 62
• 240

29 UK and Ireland 80 84

• 9
• 47

220 32 Rest of World 86 88

• 23
• 197

42 West 344 172

• 94
• 47

657 103 Asia 46 51

• 2

99 6 Initial Facilities

• 14
• 579
• 593

30 City Link

• 322
• 322

(26) Overheads*

• (73)

Group 575 534 449 139 579 322 95 2,693 236 APBITA (CER) 119 110 72 14 26 (26) (79) 236 2012 Revenue (CER) *(centre and regional)

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The ‘Signature Range’ – Global Hygiene Launch May 2013

• Proprietary range of 32 products to

Initial design

• Sourced from manufacturers in Asia &

Europe

• Significant aesthetic advance on current

product range with good functionality & proven resilience

• Global scale has driven substantial

product benefit at a marginal increase in cost over current range

31 Universal Range Knitwear/Cotton Club

Target markets

• Larger industries
• Manufacturing industry
• Transportation & storage
• Automotive (retail)
• Wholesale

Target markets

• Retail
• Hospitality
• Professional services

Initial Workwear Range – European Launch April 2013

32 32 32

Global/European Hygiene & Workwear Range Development

Benefits

• Speed to market
• Better design values
• Centralise workwear / hygiene

knowledge to support ‘expert’ positioning

• Scale benefits driving c.25% stock

and SKU reduction

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Growth: Organic Growth Trend 2010 to 2012

At constant exchange rates

Organic growth

*excluding Initial Facilities Spain where the business is being scaled down to reduce financial exposure. This has impacted group performance by 0.4%.

*

%

(1.6) (0.5) 0.8 (2) (1) 1 2 2010 2011 2012 (3) (3.1) 2009

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Outlook

• Conditions expected to remain tough in many of our markets: UK and continental

Europe in particular

• Strong innovation agenda for 2013 in our core categories
• Integrated Country Operating Model to deliver revenue growth and cost savings:

– particularly in North America with integration of Ambius & Western into existing pest operations to create a business with pro-forma revenue of US$520m

• Substantial reduction in City Link losses

Confident in sustaining momentum achieved in Q4 2012 for 2013 as a whole

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2012 Preliminary Results

15 March 2013

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Net Debt

Debt Maturity

Net debt at 31/12/121,2 £m £270m RCF 2016

(0)

£240m RCF 2014

(0)

£50m FRN 2013

(50)

£500m Bond 2014

(392)

€300m Bond 2016

(312)

£500m Bond 2019

(403) Cash & Other 1673

(990)

1 IAS 39 fair values 2 Headroom £180m; EBITDA / interest covenant is 4x minimum, actual 9.3x, Net debt/EBITDA covenant is 3.5x

maximum, actual is 2.1x'

3 Cash less finance leases and other debt

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Target markets

• Civil engeneering
• Municipalities
• Waste collection
• Utilities (gas, electr,steam)
• Renewable energy sector

PPE Range – High Vis PPE Range – Flame & heat

Target markets

• Welders &workers in

water, gas, oil, power, petrochem, metal processing

• Machine construction
• Metallurgy

PPE Range – Multirisk

Target markets

• Petrochemicals
• Oil industry
• Energy sector
• Emergency services

Initial Workwear Range – Personal Protective Equipment (PPE)

38 Migration of all Food ranges to CAWE

Target markets

• Food manufacturing
• Catering services

Initial Workwear Range – Food / Catering Collection

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Initial Workwear Range – Driver Collection