2015 Preliminary Results
Welcome
2015 Preliminary Results Welcome This presentation contains - - PowerPoint PPT Presentation
2015 Preliminary Results Welcome 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
Welcome
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 of factors which might cause actual results and performance to differ materially from those expressed or 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
Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or 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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John McAdam Chairman
Andy Ransom Chief Executive Officer
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Executing our strategy in 2015
Ongoing revenue +6.5% (CER) in 2015 (organic +1.8 % vs 1.2% PY). Good growth in NA, Germany, Asia, Pacific and UK. H2 revenue growth +7.7% (H1: 5.3%) reflecting Steritech acquisition in Q4. Customer retention +0.9%.
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Executing our strategy in 2015
Ongoing adjusted operating profit +8.5% (CER). Focus on density building. Group margins up 20bps. NA & Asia seeing margin uplift (+1.2% pts). France remains challenging.
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Executing our strategy in 2015
Pest Control: +13.1% revenue and +14.2% profit in 2015 (CER). 4.6% organic growth. Leadership in digital and innovation. World class business performing well.
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Executing our strategy in 2015
Hygiene revenue +2.6% and profit +1.2% growth in 2015 (CER). Good progress in Pacific, Asia and UK & Ireland, in particular. Benefits of product investment coming through.
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Executing our strategy in 2015
23 acquisitions in 2015, 21 in Pest Control. Annualised revenues of £158m. Steritech integration progressing well.
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Executing our strategy in 2015
Capital allocation model working well. Revenue growth: +14.0% Emerging, +12.0% Growth (CER). All 2015 acquisitions in Growth & Emerging quadrants. Growth & Emerging: 60% of portfolio.
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Clear strategy in place. Good opportunities to maintain the progress in 2016
Jeremy Townsend Chief Financial Officer
H2 Full Year 2015 2014 Δ 2015 2014 Δ Revenue at CER 951.1 892.6 6.6% 1,837.2 1,740.8 5.5% Revenue at CER – ongoing* 941.3 874.4 7.7% 1,813.9 1,702.9 6.5% Adjusted PBITA at CER 144.3 133.3 8.3% 251.2 232.2 8.2% Adjusted PBITA at CER – ongoing* 145.4 134.0 8.5% 252.8 233.0 8.5% Adjusted PBTA at CER 126.0 114.4 10.1% 215.1 190.8 12.7% Adjusted PBTA at AER 115.5 113.3 1.9% 198.0 190.8 3.8% PBT at CER 98.7 97.6 1.1% 174.7 163.2 7.0% Operating cash flow at AER 220.7 209.5 Free cash flow at AER 147.7 128.9 Adjusted EPS at CER 8.99p 8.05p 11.7% Dividend 2.93p 2.59p 13.1%
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CER = constant exchange rates AER = actual exchange rates *Ongoing revenue and profit exclude the financial performance of disposed and closed businesses but include results from acquisitions
+3.0% organic growth from Pest Control Operating profit performance and +1.2% margin improvement reflecting leverage from higher revenues, back office & property rationalisation and fuel cost savings Integration of Steritech proceeding well – annualised exit profit run rate of $20m 13 acquisitions in 2015 with annualised revenues of c.£149m Strategic focus for 2016: Integration of Steritech - delivering improved margins through density, National Accounts capability and maximising new line in Brand Standards Ongoing focus on driving organic growth Continued M&A to build city density Further margin improvement opportunities from M&A, scale efficiencies and service productivity
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Strong perfor mance in 2015 suppor ted by acquisitions Revenue up 16.8% (+2.7% organic),
Group revenue Gr Group operating ing profit it FY 20 Y 2015 Gr Growt wth
Revenue1 £407.9m
+16.8%
Operating profit2 £52.6m
+28.6%
Operating margin % 12.9%
+1.2%
1 ongoing revenue represents revenue with disposals removed and includes revenue from acquisitions 2 before amortisation and impairment of intangible assets, reorganisation costs and one-off items
22% 17%
At constant exchange rates
Good revenue growth in Germany (+3.2%), southern Europe (+5.3%) and Latin America - managed out of Europe region (+33.5%) - offset by declines in Benelux (-1.1%) and France (-3.4%) Profit decline driven by revenue reductions and pricing pressure in France Outlook for 2016: German and southern Europe businesses experiencing positive trading conditions, further progress expected Challenging economic and competitive conditions in France and Benelux anticipated to continue As a result of actions being undertaken to improve performance, level of profit decline anticipated to be considerably lower in 2016 than in 2015 Strategic focus for 2016: Support margins through Quality Initiative in Workwear, service and distribution productivity and branch & back office rationalisation
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Revenue flat, good growth in central and souther n Europe Overall perfor mance held back by France and Benelux
Group revenue Gr Group operating ing profit it FY 20 Y 2015 Gr Growt wth
Revenue1 £819.4m
+0.1%
Operating profit2 £152.4m
Operating margin % 18.6%
1 ongoing revenue represents revenue with disposals removed and includes revenue from acquisitions 2 before amortisation and impairment of intangible assets, reorganisation costs and one-off items
45% 48%
At constant exchange rates
Strong growth from UK Pest Control and Hygiene businesses, pest jobbing work in particular Continued revenue growth in RoW, driven by the Caribbean and South Africa Increase in operating margins reflecting leverage from revenue growth and continued strong cost control Strategic focus for 2016: Further improvements in performance through application of successful UK
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Revenue +11.5% (+4.2% organic) in 2015 Operating profit +12.5% reflecting revenue perfor mance and impact of Peter Cox proper ty care business acquired end 2014
Group revenue Gr Group operating ing profit it FY 20 Y 2015 Gr Growt wth
Revenue1 £342.3m
+11.5%
Operating profit2 £72.1m
+12.5%
Operating margin % 21.1%
+0.2%
1 ongoing revenue represents revenue with disposals removed and includes revenue from acquisitions 2 before amortisation and impairment of intangible assets, reorganisation costs and one-off items
19% 23%
At constant exchange rates
Good performances from both Pest Control and Hygiene businesses Combined revenue growth of 26.0% from India, China and Vietnam Combined high single-digit revenue growth from Indonesia and Malaysia Profit increase reflecting leverage from revenue growth and ongoing benefit from back office rationalisation +1.2% improvement in margins – further opportunities from revenue growth, service productivity and back office rationalisation Pest control acquisition in South Korea Strategic focus for 2016: Further M&A opportunities sought across region to build scale in this key strategic market
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Revenue +11.3% (+8.6% organic growth) in 2015 Operating profit +27.5% reflecting leverage from revenue
Group revenue Gr Group operating ing profit it FY 20 Y 2015 Gr Growt wth
Revenue1 £108.1m
+11.3%
Operating profit2 £10.2m
+27.5%
Operating margin % 9.4%
+1.2%
1 ongoing revenue represents revenue with disposals removed and includes revenue from acquisitions 2 before amortisation and impairment of intangible assets, reorganisation costs and one-off items
6% 3%
At constant exchange rates
Revenue driven by growth in contract revenue in Pest and Hygiene businesses and higher levels of jobbing work in pest control Margin improvement reflecting higher revenues and supported by procurement savings and reduction in overheads Three pest control acquisitions in Australia with annualised revenues of just under £3.0m Strategic focus for 2016: Further improvements in performance through additional acquisitions in Pest Control and Hygiene and improved service productivity
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Revenue +4.3% (+3.5% organic growth) in 2015 Operating profit +7.3% reflecting leverage from revenue
Group revenue Gr Group operating ing profit it FY 20 Y 2015 Gr Growt wth
Revenue1 £136.2m
+4.3%
Operating profit2 £28.1m
+7.3%
Operating margin % 20.6%
+0.6%
1 ongoing revenue represents revenue with disposals removed and includes revenue from acquisitions 2 before amortisation and impairment of intangible assets, reorganisation costs and one-off items
8% 9%
At constant exchange rates
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£ million FY 2015 FY 2014 Adjusted PBITA 232.9 232.2 Restructuring costs (7.9) (8.8) One-off items (5.4) (0.1) Depreciation 172.7 187.6 Non-cash items1 10.8 (1.9) EBITDA 403.1 409.0 Working capital (0.7) (4.4) Movement on provisions (7.0) (16.5) Capex (181.4) (191.6) Fixed asset disposal proceeds2 6.7 13.0 Operating cash flow – continuing operations 220.7 209.5 Operating cash flow – discontinued operations (0.9) (41.1) Operating cash flow 219.8 168.4
At actual exchange rates
1 Profit on sale of fixed assets, IFRS 2 etc. 2 Property, plant, vehicles
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£ million FY 2015 FY 2014 Operating cash flow – continuing 220.7 209.5 Cash interest (44.2) (49.5) Special pension contributions (0.9) (1.0) Cash tax (27.9) (30.1) Free cash flow – continuing 147.7 128.9 Free cash flow – discontinued (0.9) (41.1) Free cash flow 146.8 87.8 Acquisitions (369.2) (68.1) Disposals 0.8 256.0 Restricted cash disposed (IFS)
Dividends (48.9) (43.2) FX and other 18.9 44.0 (Increase) / reduction in net debt (251.6) 259.8 Opening net debt (775.0) (1,034.8) Closing net debt (1,026.6) (775.0)
At actual exchange rates
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Committed to a BBB credit rating
Improved free cash flow deliver y over last two years:
Enabling investment in Pest Control acquisitions, particularly in Growth and Emerging markets 54 businesses acquired over two years with annualised revenues of £233m
Continued application of capital allocation model with three core priorities:
Net debt to EBITDA 2.5x post Steritech acquisition (2014: 1.9x) Credit rating maintained at BBB in September 2015 Free cash flow target raised from £100m+ per annum: £110m+ for 2016 and £120m+ for 2017 Revolving credit facility extended to January 2021 Over £150m of centrally-held funds and £370m available of undrawn committed facilities – to fund 5.75% £300m bond maturing March 2016 Average cost of net debt less than 4% - will fall to c.3.5% post March 2016 bond refinancing Pension scheme well funded – one of the strongest positions in the FTSE 350
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Strong free cash flow will further strengthen the balance sheet in 2016
2016 Reporting Framework
With the exception of integration costs for significant acquisitions, we will report restructuring costs above the line in 2016 Organisational structure unchanged and locked down - therefore no changes to reporting structure in 2016 As with 2015, some minor changes to composition of four-quadrant matrix anticipated in 2016 but with no impact on formal reporting
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Transparent reporting on our performance
2015 Financial Summary
Ongoing revenue increase of 6.5% Improvement in organic growth +1.8% (1.2% PY) Ongoing profit increase of 8.5% £148m free cash flow delivered in year Balance sheet remains robust Dividend increase of 13.1% year on year Confident of further progress in 2016
Guidance Guidance for
2016
than P&L impact reflecting timing of payments
c.£35m
c.£15m based on current rates
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Andy Ransom Chief Executive Officer
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Working well and unchanged
26 Medium-term targets: Mid-single digit revenue growth High-single digit profit growth Strong and sustainable delivery of free cash flow (£110m+ pa)
Good progress in expanding our presence in higher GDP growth markets – Growth (+12.0%) and Emerging (+14.0%). Revenue growth fuelled by acquisitions and good organic growth in Asia, LatAm, UK and North America. Changes from 1 January 2016:
Pest into Growth (from P&E) (£28m)
(from P&E) (£61m)
Emerging (from Growth) (£5m)
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EMERGING GROWTH MANAGE FOR VALUE PROTECT AND ENHANCE
Revenue +14.0% to £142.4m Operating profit +24.3% to £21.7m 3 acquisitions in 2015 to build density Asia revenue +11.4% (8.6% organic) LatAm revenue +33.2% (14.4% organic) Revenue +12.0% to £943.2m Operating profit +15.7% to £170.7m 20 acquisitions in 2015 incl. Steritech in Q4 NA revenue +16.8% (2.7% organic) UK revenue +15.9% (4.8% organic) Revenue –0.3% to £62.8m Operating profit –0.7% to £10.5m Relatively small quadrant Continuing to reduce the number of businesses with closures of Austrian and N. Ireland flat linen. Revenue –1.2% to £665.5m Operating profit -8.3% to £117.1m Customer retention +1.7% in line with P&E strategy (France +1.4%) France remains challenging
Capital allocation model
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Global leadership in Pest Control and Hygiene
Pest Control (44% Group Revenue, 48% Group Operating Profit, 19.1% Operating Margin) Hygiene (25% Group Revenue, 28% Group Operating Profit, 19.6% Operating Margin) Workwear (21% Group Revenue, 16% Group Operating Profit, 13.4% Operating Margin)
Revenue: £791m Profit: £151m +13.1% +14.2%
World class business performing well. Strong innovation pipeline – Connect, AutoGate. Increasing scale in Growth and Emerging markets. 21 acquisitions inc. Steritech. Pest Control: +4.6% organic growth (+3.1% in PY).
Revenue: £384m Profit: £51m (3.2%) (16.9%)
Quality agenda underway across Europe. Country specific programmes. Measurable progress against KPIs (details follow).
Revenue: £458m Profit: £90m +2.6% +1.2%
Returned to profitable growth in 2015. Good performances: Pacific +3.7%, UK +7.3%, Ireland +8.3%. Range extensions launched incl. No Touch, Colour, etc. HygieneConnect launched in Netherlands & S. Korea. Hygiene: +2.3% organic growth (+0.2% in PY).
12 months to 31/12/15 at CER
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Consistent strategy, refreshed and focused
Accelerate Pest Control Execute Now in Hygiene Quality focus in Workwear
and local share
markets
Stronger positions in today’s growing markets. Good M&A pipeline to build further – we continue to prioritise pest control. Brand strength, technical expertise and industry-leading innovation. Well placed to take advantage of the big growth drivers:
industry) and the drive for consistency from multi-nationals
driving companies to invest in brand protection
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Rentokil well positioned to lead a growing market
Rentokil has an unrivalled global leadership position complemented fur ther with Steritech. The Global Leader in Pest Control
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Steritech integration on track in North America
Integration work streams underway. Add on services - detailed work plans including near-term
Strong route density opportunities identified. Regional & National accounts programme developed. IT infrastructure migration and application roadmap in place. Back office programme underway – removing duplicate activities, procurement, property etc. Brand Standards – longer term opportunity to explore.
Steritech - on track to deliver our 2016 synergy targets. Exit 2015 profit run rate of $20m. Good progress towards 2016 targets.
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Global expertise: Integrated Mosquito Management
Rentokil offers monitoring and control ser vices in Asia, LatAm, Caribbean, Africa and Nor th America.
Major public health concerns: Dengue fever, Zika, Yellow fever, Encephalitis, West Nile virus, Chikungunya and Malaria. Malaysia: Dengue cases +11% in 2015. Mosquito control sales c.20% during the year. New integrated mosquito control programme (right). Asia: Mosquito control: 6% of contract revenues, +13% in 2015. Caribbean: Hotels and resorts stepping up their mosquito prevention. North America: Multiple mosquito species breeding all year long. West Nile virus of concern in particular across the US. Brazil: Customers requesting support. Launched new integrated control service for Aedes - allows early action to be taken.
Rentokil is deploying its global expertise.
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High quality range - increasing differentiation
Strengthened hygiene range
Signature range now fully launched.
4 new Signature products added to the range. Complete No-Touch washroom range. 15% of Signature sales are new products launched in the previous 12 months (No-Touch in particular).
Signature Colour +12 countries.
France first to launch and 50% of Colour sales – doubling the number of services per customer.
Reflection – 6 new products in 2015. Premium Scenting range extension.
Closing portfolio for 2015 +61%. Success in Asia.
The New Standard Best Aesthetics Full range of No-Touch launched
Signature COLOUR
Premium Contemporary All of Signature plus Stand-out colours Link to customers’ brands
Reflection
Prestige Styling Premium customers
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Focus on execution of operational best practice
Countr y action plans focused on delivering operational best practice.
Examples: Indonesia: Density focused sales campaign in Jakarta Hygiene surveys to hotels and offices on target routes. Portfolio +10%. Germany: Incentives to sell additional product Drivers regularly on site looking for opportunity to sell additional products eg mats or extra FHU. Italy: Defined service concept by customer sector Targeted hygiene product options. +3.7% revenue per technician. UK: Margin analysis Gross Margin analysis in the UK has helped to inform the business
Hygiene: Annual Revenue Grow th
35+ best practice toolkits deployed.
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Country plans focused on what we can control
France: Operational Progress in Workwear. Benelux: Much improved on its major issues of 2013. Germany: Continued solid growth. Revenue +4.1%. Profit +6.7%. Customer satisfaction (+9pts Germany Workwear). Improved customer retention +3.8%. Good use of innovation such as AutoGate. YoY revenue slightly behind but profit slightly up. Lower service delivery and processing cost. Belgium stabilised, modest revenue growth on PY. Netherlands Workwear remains challenging. Safety (LTA) 54.7% Improvement Customer satisfaction 12.5% (+2.3 NPS) Customer retention +1.2% Capex spend Flat Ambition 2017 programme underway focused on quality agenda at lowest cost. Simplified French Sales & Customer Care
Hygiene new sales +2.1% reflecting Signature. Challenging economy and competitive environment.
Limited GDP growth. Focused on differentiation through product and service quality.
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KPIs in place and good processing improvements
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Range harmonisation and sharing of best practice
frequency by wearer and type (supporting hygiene compliance in food sector).
waterless system similar to dry cleaning – a first in Europe.
Clear plan in place being executed. A good start.
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Building sales pipeline and customer retention
New Pest Control web platform Rolled out in 2015 to 23 markets – now in all major markets. Total visitors +19% and web enquiries +13% through Rentokil sites in 2015. 65% of new business from digital channels in UK Pest. New Hygiene web platform Developed and launched in Australia. New design focused
New Customer Extranets myRentokil launched in 14 countries. myInitial launched 1/1/16 in 4 countries.
Technology leadership driving growth and long ter m differentiation.
Digital expertise driving growth.
Building sales pipeline and customer retention
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PestConnect Success in the Netherlands in 2015. Connect portfolio of €1m+. 3+ year contract duration and average of 10-20% uplift in contract value. Roll out to 10 countries incl. US and UK in 2016. AutoGate Launched in Germany in 2015 (which had record pest control sales). Roll out to 10 countries incl. UK in 2016. HygieneConnect Netherlands & Korea: c.50% improvement in hand washing compliance. Enabler to upgrade customers to other services. UK launch and further deployment in 2016.
Strong innovation pipeline in place including sensors for 24/7 pest & hygiene.
PestConnect
HygieneConnect AutoGate
Capital allocation model working well
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Profit Contribution Growth Potential
revenues.
density and Steritech strategic acquisition.
combined annualised revenues of £29m, predominately in MfV.
businesses closely to ensure they meet our financial hurdles.
–
2 small acquisitions in the P&E are delivering expected returns slightly lower than the quadrant’s target hurdle rate.
–
All other deals are delivering expected returns at or above their respective target hurdle level.
EMERGING GROWTH
MANAGE FOR VALUE PROTECT AND ENHANCE
Since 1/1/15 Acquisitions: 3 Revenue: £1.6m
Brazil, Colombia, Korea
Since 1/1/15 Acquisitions: 20 Revenue: £156m
USA, UK, South Africa, Australia
No acquisitions No acquisitions
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Focus on Growth and Emerging – changing shape of Group Revenues by quadrants Completed 6 acquisitions in 2016 Acquisition pipeline remains strong.
32% 29% 35% 4%
Emerging Growth Manage for Value Protect & Enhance
Two thirds of portfolio in Growth & Emerging quadrants in 2016.
32% 29% 35% 4% 60% 4% 28%
8%
Accelerating Pest Control (+13.1% ongoing revenue, +4.6% organic). Hygiene returned to profitable growth; focus on ‘execution now’ in sales and operations. Workwear Quality agenda making an operational difference; challenging conditions in France. Digital expertise driving sales enquiries (web) and customer retention (extranets); roll out underway. Strong innovation pipeline in place; PestConnect and AutoGate set for roll out. Continuing to focus on enhanced margins; density building bolt-ons and targeted selling. Greater sharing of best practice in Pest Control, Hygiene and Workwear. Capital allocation strategy working well: 23 acquisitions (all in Growth & Emerging). Integration of Steritech on track. Dividend +13.1%.
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Next Phase being executed
Next Phase being executed - confident of further progress in 2016.
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Profit Contribution Growth Potential
HIGH MED LOW LOW MED HIGH
EMERGING GROWTH
MANAGE FOR VALUE PROTECT AND ENHANCE
Asia MENAT Latin America Central America Fiji Kenya/Mozambique NA, UK, Germany Caribbean France PC Nordics PC South Africa PC Australia/NZ PC & Washrooms Baltics Italy PC Ireland PC & Washrooms Cleanrooms France Benelux Nordics Ireland Medical & Ambius South Africa CEE businesses* Southern Europe Ambius (small markets)
*CEE Businesses: Switzerland - Hygiene Austria - Hygiene Slovakia - Workwear Czech Republic - Hygiene Austria - Workwear
IRR ~30% IRR ~25% IRR ~15% IRR >15%