Rentokil Initial PLC 6-K, filed Mar 7, 2024
Rentokil Initial PLC (RTO)
6-K
2024-03-07
For: 2024-03-07
View Original
Added on
April 11, 2026
About this 6-K
Rentokil Initial PLC filed this 6-K on March 7, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For
the month of March 2024
Commission File Number: 001-41524
Rentokil Initial plc
(Registrant’s name)
Compass House
Manor Royal
Crawley
West Sussex RH10 9PY
United Kingdom
(Address of principal executive office)
Indicate
by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form
40-F ☐
Indicate by check mark if the registrant is
submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(1): ☐
Indicate by check mark if the registrant is
submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(7): ☐
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Final
Results dated 07 March 2024
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2023 Preliminary Results
Good overall operational and financial performance
RIGHT WAY 2 Plan launched to reinvigorate growth in North
America
Terminix gross synergy target increased by $50m
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Financial Results1
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AER
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CER
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||||
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£m
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2023£m
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2022£m
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Change%
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2023£m
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2022£m
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Change%
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|
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Revenue
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5,375
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3,714
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44.7%
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5,414
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3,714
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45.8%
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Adjusted EBITDA
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1,228
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859
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43.0%
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|
|
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Adjusted Operating Profit
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898
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571
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57.1%
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|
897
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571
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57.0%
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Adjusted Profit before Tax
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766
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532
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43.8%
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|
801
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532
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50.5%
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Free Cash Flow
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500
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374
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33.7%
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|
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Diluted Adjusted EPS
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23.08p
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21.22p
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8.8%
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Statutory Results
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Revenue
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5,375
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3,714
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44.7%
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|
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Operating Profit
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625
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317
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96.9%
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|
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Profit before Tax
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493
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296
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66.9%
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EPS
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15.14p
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11.57p
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30.8%
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Dividend Per Share
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8.68p
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7.55p
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15.0%
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Financial Highlights (Unless
otherwise stated, all financials are presented at constant exchange
rates. Organic Revenue growth figures exclude COVID
disinfection.)
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●
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Group Revenue up 45.8% and Statutory Revenue up 44.7%. Organic
Revenue growth of 4.9%, supported
by strong performances in Europe, Asia, Pacific, UK and
LATAM
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|
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-
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North America Organic Revenue growth of 3.1% with growth of 3.5% in
Pest Control services owing to lower new business lead
generation
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-
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Good Organic Revenue growth across all business categories: 4.5% in
Pest Control; 4.8% in Hygiene and Wellbeing; and 13.2% in France
Workwear
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●
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Adjusted Operating Profit up 57.0% and Statutory Operating Profit
up 96.9%. Group Adjusted Operating Margin up 120bps to
16.6%2
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-
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Full year margin expansion in Pest Control and France Workwear,
with Hygiene & Wellbeing margin in H2 above 19.0%, as
expected
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-
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North America Adjusted Operating Margin up 160bps to
18.7%
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|
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-
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Sustained strong price progression across all regions, accompanied
by good customer retention
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●
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Diluted Adjusted EPS up 8.8% to 23.08p. EPS up 30.8% to 15.14p.
Diluted Adjusted EPS at CER up 12.9%
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|
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●
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Free Cash Flow of £500m representing 89.4% Adjusted Free Cash
Flow conversion
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●
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Net debt to EBITDA reduced to 2.8x at 31 December 2023, one year
ahead of target
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●
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Recommended final dividend of 5.93p for total FY 23 dividend of
8.68p per share, an increase of 15.0%, in line with our progressive
dividend policy
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Strategic Highlights
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●
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RIGHT WAY 2 plan launched to reinvigorate organic growth in North
America
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-
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Action plan devised and underway following an in-depth regional
performance review. Increased Terminix synergies enables plan to be
accompanied by additional c.$25m of investment in sales and
marketing
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●
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Terminix gross synergy target increased by $50m with integration
completion revised to 2026
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-
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$69m pre-tax net cost synergies achieved in FY 23, ahead of
guidance ($60m). Expected to deliver a further c.$40m of net cost
synergies in FY 24
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|
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-
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Total gross and net synergy targets raised to c.$325m and c.$225m
respectively (previously $275m and $200m). Integration completion
revised to 2026 to de-risk branch integrations and deliver the
upgraded synergy targets
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●
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Continued momentum in value-creating M&A programme
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-
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41 acquisitions completed in 2023 with annualised revenues of
c.£106m
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Andy Ransom, Chief Executive of Rentokil Initial plc,
said:
"The Group overall delivered a good operational and financial
performance in 2023, despite weaker growth in North America,
achieving 4.9% organic revenue growth and 16.6% margin. We have
continued to benefit from our diversified, global footprint and
resilient business model, in addition to our sustained focus on
customer service and investment in people, technology and
innovation.
We're taking action to reinvigorate organic growth in the North
American business. In our RIGHT WAY 2 plan, we have created a clear
and comprehensive roadmap to reinvigorate growth in North America
with the right team in place to execute on that.
We have made strong progress in the integration of Terminix to
create a powerhouse business in the world's largest pest control
market. This has been achieved alongside significant improvement in
colleague retention, with Terminix service technician retention up
more than 8 percentage points since the deal closed. The
combination with Terminix continues to create significant value and
we have upgraded expectations for total gross cost synergies by
$50m to $325m to be delivered by 2026."
Outlook
We start 2024 with confidence in our plans. Notwithstanding
continuing macroeconomic headwinds, for the full year, we expect
good underlying trading momentum, supported by our RIGHT WAY 2 plan
to reinvigorate organic growth in North America. Increased Terminix
synergies enables the plan to be accompanied by an additional
c.$25m of investment in sales and marketing. We expect Organic
Revenue growth in North America to be c.2% in Q1 and between 2-4%
in the full year.
Based on good progress to date, we are raising our expectations for
annual pre-tax synergies from the Terminix integration by a further
$50m to c $325m gross, c.$225m net. The enlarged plan is scheduled
to be completed in 2026 with net synergies of c.$40m in 2024,
c.$65m in 2025 and c.$38m in 2026.
We expect modest North America margin progression in 2024, with
improvement weighted towards H2, owing to the region's expected
organic growth trajectory and additional investment in sales and
marketing. The medium term Group margin target of greater than 19%
is expected to be achieved in 2026.
Our pipeline of bolt-on prospects remains strong and we expect to
invest £250m in 2024. Adjusted free cash flow conversion
is forecast between 80-90%, as previously guided, with further
modest deleveraging of the balance sheet.
Enquiries:
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Investors / Analysts:
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Peter Russell
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Rentokil Initial plc
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+44 (0)7795 166506
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Media:
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Malcolm Padley
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Rentokil Initial plc
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+44 (0)7788 978199
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A management presentation and Q&A for investors and analysts
will be held today, 7 March from 9.15am at the Leonardo Royal
London St Paul's Hotel, 10 Godliman Street, London EC4V 5AJ. The
event will also be available via a live webcast. Dial-in details
will be provided on the website
(https://www.rentokil-initial.com/investors.aspx). A recording will
be made available following the conclusion of the
presentation.
Notes
1 Non-IFRS measures. This statement includes certain financial
performance measures which are non-IFRS measures as defined under
International Financial Reporting Standards (IFRS). These metrics
include Adjusted Operating Profit, Adjusted Profit Before Tax,
Adjusted Profit After Tax, Adjusted EBITDA, Adjusted Interest,
Adjusted Earnings Per Share, Free Cash Flow, Adjusted Free Cash
Flow, Adjusted Free Cash Flow Conversion, Adjusted Effective Tax
Rate and Organic Revenue. Management believes these measures
provide valuable additional information for users of the financial
statements in order to understand the underlying trading
performance. Adjusted Operating Profit represents the performance
of the continuing operations of the Group (including acquisitions),
and enables the users of the accounts to focus on the performance
of the businesses retained by the Group, and that will therefore
contribute to the future performance. Adjusted Operating Profit and
Adjusted profit before tax exclude certain items that could distort
the underlying trading performance. Revenue and Adjusted Operating
Profit are presented at CER unless otherwise stated. An explanation
of all the above non-IFRS measures used along with reconciliation
from the nearest IFRS measures is provided on page 16.
2 Includes net synergy benefit but excludes costs to achieve which
are one-off by nature.
AER - actual exchange rates; CER - constant 2022 exchange
rates
This announcement 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 obligations
(including under the Listing Rules and the Disclosure Guidance 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 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
announcement should be construed as a profit forecast.
Summary of financial performance (at CER)
Regional Performance
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Revenue
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|
Adjusted Operating Profit
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||||
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2023£m
|
2022£m
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Change%
|
2023£m
|
2022£m
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Change%
|
|
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North America
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3,314
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1,849
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79.2%
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|
618
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315
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95.9%
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Pest
Control
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3,208
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1,746
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83.7%
|
|
599
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297
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101.8%
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Hygiene
& Wellbeing
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106
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103
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2.5%
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19
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18
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0.7%
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|
|
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|
|
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Europe (incl. LATAM)
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1078
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941
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14.6%
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|
210
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187
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12.5%
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Pest
Control
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520
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427
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21.8%
|
|
120
|
103
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16.6%
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|
Hygiene
& Wellbeing
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341
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322
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5.8%
|
|
52
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53
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(1.8%)
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|
France
Workwear
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217
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192
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13.2%
|
|
38
|
31
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23.6%
|
|
|
|
|
|
|
|
|
|
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UK & Sub Saharan Africa
|
394
|
365
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7.9%
|
|
95
|
95
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(0.5%)
|
|
Pest
Control
|
197
|
182
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8.0%
|
|
51
|
47
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8.0%
|
|
Hygiene
& Wellbeing
|
197
|
183
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7.7%
|
|
44
|
48
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(8.9%)
|
|
|
|
|
|
|
|
|
|
|
Asia & MENAT
|
357
|
321
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11.2%
|
|
47
|
45
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4.0%
|
|
Pest
Control
|
266
|
231
|
15.0%
|
|
35
|
34
|
4.5%
|
|
Hygiene
& Wellbeing
|
91
|
90
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1.5%
|
|
12
|
11
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2.6%
|
|
|
|
|
|
|
|
|
|
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Pacific
|
261
|
227
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15.0%
|
|
57
|
48
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19.8%
|
|
Pest
Control
|
130
|
104
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25.2%
|
|
23
|
16
|
44.5%
|
|
Hygiene
& Wellbeing
|
131
|
123
|
6.4%
|
|
34
|
32
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7.6%
|
|
|
|
|
|
|
|
|
|
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Central
|
10
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11
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(4.4%)
|
|
(121)
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(107)
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(12.7%)
|
|
Restructuring costs
|
|
|
|
|
(9)
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(12)
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20.6%
|
|
Total at CER
|
5,414
|
3,714
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45.8%
|
|
897
|
571
|
57.0%
|
|
Total at AER
|
5,375
|
3,714
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44.7%
|
|
898
|
571
|
57.1%
|
Category Performance
|
|
Revenue
|
|
Adjusted Operating Profit
|
||||
|
|
2023£m
|
2022£m
|
Change%
|
2023£m
|
2022£m
|
Change%
|
|
|
Pest Control
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4,321
|
2,690
|
60.6%
|
|
828
|
497
|
66.7%
|
|
Hygiene & Wellbeing
|
866
|
821
|
5.4%
|
|
161
|
162
|
(1.5%)
|
|
France Workwear
|
217
|
192
|
13.2%
|
|
38
|
31
|
23.6%
|
|
Central
|
10
|
11
|
(4.4%)
|
|
(121)
|
(107)
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(12.7%)
|
|
Restructuring costs
|
|
|
|
|
(9)
|
(12)
|
20.6%
|
|
Total at CER
|
5,414
|
3,714
|
45.8%
|
|
897
|
571
|
57.0%
|
|
Total at AER
|
5,375
|
3,714
|
44.7%
|
|
898
|
571
|
57.1%
|
Note: Hygiene & Wellbeing year on year performance reflects the
anticipated decrease in COVID disinfection revenues from £21m
in FY 22 to £2m in FY 23.
In order to help understand the underlying trading performance,
unless otherwise stated, figures below are presented at constant
exchange rates and Organic Revenue growth figures exclude the COVID
disinfection business.
Revenue
The Group delivered a good topline performance, with Revenue rising
45.8% to £5,414m. Organic Revenue grew 4.9%. Statutory Revenue
was up 44.7% to £5,375m at AER. Revenue growth in North
America was up 79.2%, benefiting from the Terminix acquisition.
Europe, the Group's second largest region, was up strongly by
14.6%, while the Asia & MENAT region was up 11.2%. Group
Organic Revenue growth including COVID disinfection was
4.5%.
Our Pest Control category grew Revenue by 60.6% (4.5% Organic) to
£4,321m, underpinned by continued effective pricing and
resilient customer retention. Hygiene & Wellbeing Revenue
increased by 5.4% (4.8% Organic) to £866m, led by continued
demand for washroom services. Strong new business sales performance
was reflected in the contribution from our France Workwear
business, with Revenue up by 13.2% to £217m (13.2%
Organic).
Profit
Adjusted Operating Profit rose by 57.0% during the year to
£897m, reflecting a full year of Terminix profit and core
business growth across major regions, in addition to effective
ongoing capture of synergies from the Terminix transaction. This
led to a 120bps increase year on year in Group Adjusted Operating
Margin to 16.6%. Synergies from the Terminix transaction
contributed 100bps to Group margin. Statutory Operating Profit at
AER was up 96.9% to £625m. We have continued to deliver on our
strategy of driving density improvements and M&A integration.
Price increases have also been successfully implemented over the
course of the year to offset the impacts of inflation on our cost
base. The ability of the Group overall to offset inflationary
pressures for another year demonstrates the resilience of the
business model and the essential nature of our core products and
services.
Within business categories, Adjusted Operating Margin for Pest
Control was up by 70bps year on year to 19.2% (FY 22: 18.5%).
Hygiene & Wellbeing Adjusted Operating Margin decreased by
130bps year on year to 18.5% (FY 22: 19.8%). However, Hygiene &
Wellbeing margin was 20.2% for H2, in line with the guidance of
above 19.0% for H2, issued at the Interim Results. The half year
and full year 2024 margin profile of Hygiene & Wellbeing is
expected to be similar to 2023.
Adjusted Profit before Tax (at AER) of £766m, which excludes
one-off and adjusting items and amortisation costs, increased by
43.8%. Adjusted interest of £141m at actual exchange rates was
higher year on year, partly reflecting £86m of annualised
interest charges relating to the financing of the Terminix
transaction, £15m of lease interest charges and a £7m
offsetting reduction from the impacts of hyperinflation and net
interest received. In the year, hyperinflation of £11m at AER
in 2023 was £11m lower than the prior year (FY 22: £22m)
due to devaluation of the Argentinian peso. Full year restructuring
costs of £9m at CER (£7m at AER) were down £3m on
the prior year, consisting mainly of costs in respect of
initiatives focused on our North American and Argentinian
transformation programmes. One-off and adjusting items (operating)
at AER of £98m includes £1m of deal costs and £81m
of integration costs related to the Terminix acquisition ("Costs to
Achieve'') and £17m of other M&A costs. Statutory profit
before tax at AER was £493m, an increase of 66.9% on the prior
year (FY 22: £296m) reflecting a full year of Terminix profits
net of one-off and adjusting items/Costs to Achieve and increased
interest costs relating to the Terminix transaction.
Cash (at AER)
Net cash flows from operating activities have risen by 22.8% to
£737m in 2023. Free Cash Flow of £500m was £126m
higher than in FY 22. Higher trading profits resulted from organic
and acquisitive growth. Adjusted EBITDA was £1,228m, up 43.0%
versus 2022. One-off and adjusting items (non-cash) of £11m
inflow (FY 22: £77m) represent Terminix related one-time share
incentive schemes and asset impairments.
The Group had a £47m working capital outflow in FY 23. Working
capital was driven higher by revenue growth, predominantly in North
America and Europe, across receivables and contract cost assets.
Capital expenditure of £211m was incurred in the period (FY
22: £190m), reflecting a more normal pattern of spend post
pandemic and the inclusion of Terminix capital expenditure. Lease
payments were up 45.2%.
Cash interest payments of £166m were £127m higher than in
the prior year, reflecting the timing of interest charge payments
relating to financing of the Terminix transaction. Cash tax
payments for the period were £100m, an increase of £23m
compared with the corresponding period last year. Adjusted Free
Cash Flow Conversion was 89.4%.
Regional performance review
Due to the international nature of the Group, foreign exchange
movements can have a significant impact on regional performance.
Unless otherwise stated, percentage movements in Revenue and
Adjusted Operating Profit are presented at constant exchange
rates.
North America
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
3,306
|
78.7%
|
3,314
|
79.2%
|
3.1%
|
3.0%
|
|
Operating Profit
|
489
|
158.4%
|
490
|
159.0%
|
|
|
|
Adjusted Operating Profit
|
617
|
95.5%
|
618
|
95.9%
|
|
|
|
Adjusted Operating Margin
|
18.7%
|
1.6%
|
18.7%
|
1.6%
|
|
|
In North America, Revenue was up 79.2%, benefiting from a full year
of the Terminix acquisition. Regional Organic Revenue grew 3.1%,
achieved alongside the full programme of the Terminix integration.
Organic Revenue growth in Pest Control Services for our commercial,
residential, and termite customers was below our expectations at
3.5%, owing to lower new business lead generation in a softer
consumer market in H2. The Pest Control category as a whole, which
includes the Products Distribution and Lake Management businesses,
recorded Organic Revenue growth of 3.1%. Weaker Q3 2023 growth in
North America continued into the low season of Q4 at 1.2%, however
Q1 2024 is expected to be c.2%. The company has conducted an
in-depth review to fully examine the drivers of the
underperformance and formulate a strategy to reinvigorate growth,
resulting in THE RIGHT WAY 2 plan detailed below.
Adjusted Operating Profit growth of 95.9% to £618m reflects
the combined impact from higher revenues and the Terminix
acquisition. Statutory Operating Profit was up 158.4% to £489m
at AER. Strong price realisation across all channels has
successfully offset expected inflationary pressures. Adjusted
Operating Margins in North America were up 160bps year-on-year to
18.7%. The full-year impact of lower Terminix margins reduced the
overall North America margin by 70bps. However, Terminix synergies
delivered a benefit of 140bps, while trading improvements,
including density from growth and prudent cost management,
contributed 90bps of margin.
Total North America colleague retention, including Terminix,
increased to 75.2% (FY 22: 70.1%), driven by improvement in
retention of technician roles. Sales colleague retention was flat.
Terminix colleague retention has seen continued improvement, up to
69.7% (FY 22: 64.0%). Since the close of the deal in October 2022,
colleague retention at Terminix has increased by 8.1ppts. The Group
continued to make investments in being an Employer of Choice, and
we are seeing ongoing success with our recruiting, onboarding, and
training initiatives. Despite price increases, total customer
retention in North America slightly increased to 79.5% (FY 22:
79.3%) and included an improvement at Terminix. Customer
satisfaction was also positive, with an excellent Terminix Net
Promoter Score of 64.9, up 1.5 on the prior year.
Notwithstanding the considerable focus required to complete the
Terminix transaction, our North American bolt- on M&A programme
continued apace, with the purchase of 13 businesses with combined
annualised revenues of c.£46m in the year prior to purchase.
This included the acquisition in the second half of the year of
Action Pest Control, a large Midwest provider. As we integrate
Terminix, we will continue to selectively pursue high-quality
M&A assets in the North America region.
In the year, there was further good progress on legacy termite
warranty claim volumes, with significantly fewer filed warranty
claims. Total filed warranty claims reduced by 14% on the prior
year and by 44% since 2019. Open warranty claims further reduced by
29% on the prior year and by 65% since 2019. Total filed warranty
claims in the Formosan termite-heavy Mobile Bay reduced by 48% on
the prior year and by 80% since 2019. Largely as a result of our
plan to accelerate the resolution of legacy claims, particularly
focused on complex litigated long-standing cases, and a shift in
the mix of claim resolutions, the blended average settled cost per
claim, including inflationary impacts, was up c.32%. Going forward,
we have also successfully introduced a termite residential sales
warranty cap for new customers for the lifetime of the agreement of
$250,000 for new customers with qualifying homes.
Organic Growth in H2 2023
An in-depth review was conducted into the reasons for the slowdown
in regional organic growth experienced in the second half of
2023.
We have confirmed that service technician retention was further
significantly improved and customer retention remained resilient
throughout the period. The pricing strategy also continued to be
effective, with cost input inflation recovered, as
expected.
Organic growth is generated from both existing and new customers.
Trends in upselling to the existing customer base did not see a
material change from prior trends. Notwithstanding this, we believe
technician leads represent an important growth opportunity in the
US with the potential for sizeable upside in the medium term. This
is based on evidence of the Group's success in other markets. For
example, in 2023, c.88% of UK pest control technicians participated
in submitting leads with a c.32% close rate. This compared to a US
participation rate of c.50% and estimated c.20% close rate. Our
'Trusted Advisor' programme (empowering technician leads and sales)
already underway in Terminix will be rolled out across Rentokil US
branches.
The main challenge to new business growth in the second half of the
year was lower acquisition of new residential, termite and SME
customers. The largest adverse change was observed in inbound sales
leads and sales enquiries from prospective customers to our call
centres and websites. In H2, in-bound sales leads were down 2-3% in
the region. We estimate that the US pest control market grew at
approximately 4% in 2023, reflecting lower growth in the
residential, termite and SME sectors, particularly in H2. This is
about 1% lower than the recent historical average. Nevertheless, we
recognise that the business was not sufficiently effective in
attracting and closing sales leads. In 2023, integration planning
focused attention on organisational change. Our marketing and sales
leadership underwent considerable change, which in part affected
our marketing performance to generate leads and convert sales
(close rate in H2 was flat with prior year). Increased digital
marketing spend by the competition and flat sales colleague
retention (c.60% in Terminix and c.77% in Rentokil) compounded the
overall impact. There was also a slightly disruptive influence felt
from branch closures and pilots.
THE RIGHT WAY 2 Plan
We have taken action to strengthen the North America management
team and fully resource the senior marketing and sales teams ahead
of the 2024 pest season. In addition to Brad Paulsen, recently
appointed to the position of North America CEO, we have in place
new and experienced leadership for Residential Marketing, Digital
Marketing, and Sales. We've also seconded our UK Operations
Director to North America to take charge of technician sales
leads.
Following the review of H2, the team has now defined THE RIGHT WAY
2 plan to reinvigorate organic growth in North America. The core
components of this plan are:
|
●
|
Driving further improvement in frontline colleague retention and
productivity, in particular in Sales to improve sales
conversion. Our
Employer of Choice programme will focus on enhanced talent
acquisition and onboarding, additional investment in training, and
seasonal sales incentive programmes.
|
|
●
|
Investing in a brand strategy to reinforce
awareness. This
includes additional investment in the Terminix brand to build on
its industry-leading awareness (#1 best known brand in US Pest
Control according to a 2023 Google Brand Arc Study) and build
preference with our target segments. We'll also continue to build
the equity of the Rentokil brand to support business growth in the
National and Strategic accounts space.
|
|
●
|
Adding capabilities and resources in marketing to refine our focus
and build our marketing excellence. In
addition to the new regional marketing and sales leadership, the
North America business will benefit from increased investment for
growth of c.$25m towards people, sales leads, digital channels, and
other brand and marketing activities. New marketing agency
partnerships are now in place and our first multi-channel brand
marketing campaign will be launched this
Spring.
|
|
●
|
Strengthening sales effectiveness to target increased sales
colleague retention, particularly in the 0-12 months service
category. Over time we will introduce new data, tools and
technologies in order to improve timing from sales lead to
inspection and quote.
|
|
●
|
Enhancing our approach to pricing discipline to continue to offset
inflation. Sales and marketing initiatives will be accompanied by
continued strong pricing discipline for both new and existing
customers. Our pricing practices will be enhanced with third-party
tools and data to deliver market and segment-specific value to
customers. This includes the viability testing of new AI-backed
capabilities. We will also optimise bundling, promotions and
discounting programmes through consistent market-level pricing
tests.
|
|
●
|
Improving customer satisfaction and retention to take it to par
with the average elsewhere in the Group over time. We are dedicated
to delivering a consistently positive customer experience including
through investment in our digital platforms, in technician training
and in our contract renewal processes.
|
|
●
|
Increasing technician sales leads to expand revenue from existing
customers. Through execution of the Trusted Advisor Programme,
we're focused on driving up the volume, value, and conversion rate
of technician leads towards the UK benchmark over time. In 2024 the
Trusted Advisor programme will be rolled out to Rentokil
technicians.
|
Rentokil Initial has a proven long term track record of operating
very successfully through economic cycles. We are confident the
team has the skills, know-how and insights to get growth back on
track.
Europe (incl. LATAM)
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
1,081
|
14.9%
|
1,078
|
14.6%
|
9.2%
|
8.3%
|
|
Operating Profit
|
182
|
15.6%
|
161
|
2.2%
|
|
|
|
Adjusted Operating Profit
|
215
|
14.9%
|
210
|
12.5%
|
|
|
|
Adjusted Operating Margin
|
19.9%
|
0.0%
|
19.5%
|
-0.4%
|
|
|
The region has enjoyed strong performance in 2023. Topline momentum
in the first half of the year carried into the second half, driven
by both effective price increases and resilience in overall demand.
Revenue grew by 14.6% in the year to £1,078m (9.2% Organic).
Revenue growth in Pest Control was 21.8%, with a strong
contribution from key markets including France, Benelux, and
Germany. Hygiene & Wellbeing grew Revenue by 5.8% in the
period, driven by broad-based strength across the region and
continued momentum in the core washrooms business. Ambius, part of
the Enhanced Environments business, sustained a good performance
through the year. As anticipated, there was an improvement in
Specialist Hygiene and Dental in the second half of the year, after
a period of post-COVID disruption. France Workwear Revenue was up
13.2%. Strong new business sales performance was reflected in its
contribution, which was also supported by robust
pricing.
Adjusted Operating Profit in the region grew by 12.5% to
£210m. Statutory Operating Profit was up 15.6% to £182m
at AER. In Europe, as expected, short-term H1 margin pressure from
increased M&A activity reversed in H2. The H1 headwind plus
continued hyperinflation in Argentina in the aggregate resulted in
full-year Adjusted Operating Margin down slightly by 40bps to
19.5%. While inflationary pressures have persisted throughout the
period, in Europe and most of LATAM we have been successful at
protecting margins with pass-through pricing. Customer retention
has remained strong at 88.4% (FY 22: 88.5%.) A focus on sales
retention, including recruitment, onboarding and early days
retention led to excellent colleague retention rates of 90.4% (FY
22: 89.1%), with the business recording some of its best months on
record in the second half of the year.
In Europe and LATAM, 11 business acquisitions (5 in Europe and 6 in
LATAM) were completed in total with annualised revenues of
c.£12m in the year prior to purchase.
UK & Sub-Saharan Africa
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
390
|
6.6%
|
394
|
7.9%
|
3.5%
|
3.4%
|
|
Operating Profit
|
84
|
-6.6%
|
85
|
-5.5%
|
|
|
|
Adjusted Operating Profit
|
94
|
-1.7%
|
95
|
-0.5%
|
|
|
|
Adjusted Operating Margin
|
24.1%
|
-2.0%
|
24.1%
|
-2.0%
|
|
|
The region delivered a good trading performance against a
challenging macro backdrop and strong prior year comparators,
especially in the first half of the year. Performance in the mature
UK market was supported by strong service innovation and a record
performance from technician sales leads. Revenue for the region
overall increased by 7.9% (3.5% Organic). Pest Control grew by
8.0%. Hygiene & Wellbeing increased by 7.7%, lapping
COVID-boosted comparators in the medical waste business. There was
a positive contribution from the recently acquired Urban Planters
business, which supplies plants to retail properties, offices, and
restaurants. This was accompanied by an improved performance year
on year in the UK Property Care business despite the cooler
property market.
Regional Adjusted Operating Profit decreased by 0.5% to £95m.
Statutory Operating Profit was down 6.6% to £84m at AER.
Adjusted Operating Margins decreased by 200bps to 24.1%. As
previously stated, margin performance in the first half of the year
was dampened by the anticipated reduction in COVID disinfection and
related services, such as needle and PPE disposal, and the
non-repeat of UK COVID credit note releases. However, these factors
substantially fell away in H2. Cash performance has been strong in
the year with debtor days finishing the year ahead of pre-COVID
levels. Inflationary pressures have been significant, but the
region's long-established pricing and margin management systems,
process, and controls have delivered a price performance that
mitigates these cost increases. These price increases have been
delivered alongside a further improved customer retention rate of
86.9% (FY 22: 86.6%) and world class customer experience
scores. Colleague retention for the full year was up strongly
to 83.3% (FY 22: 77.9%).
In the UK & SSA two business acquisitions, both in the Hygiene
& Wellbeing category, were completed with annualised revenues
of c.£18m in the year prior to purchase.
Asia & MENAT
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
339
|
5.6%
|
357
|
11.2%
|
10.2%
|
7.1%
|
|
Operating Profit
|
33
|
40.3%
|
34
|
44.4%
|
|
|
|
Adjusted Operating Profit
|
45
|
0.3%
|
47
|
4.0%
|
|
|
|
Adjusted Operating Margin
|
13.3%
|
-0.8%
|
13.1%
|
-1.0%
|
|
|
The region delivered a good 2023 performance. Revenue rose by
11.2%, of which 10.2% was Organic, underpinned by contractual
activity. Pricing was complemented with volume growth, as markets
overall remained structurally supportive. The performance was led
by the region's largest markets: India, Indonesia, Malaysia, and
Singapore. Hong Kong continued to be challenged by a subdued
economic environment, however there was a more positive
contribution from China.
Adjusted Operating Profit in Asia increased 4.0% to £47m and
Adjusted Operating Margin was down 100bps to 13.1%, lapping
stronger COVID disinfection revenues. Operating Profit was up 40.3%
to £33m at AER. Customer retention was 78.7% (FY 22: 81.3%).
Regional operations have benefited from an increased colleague
retention rate of 92.0% (FY 22: 86.1%), while the average time to
fill vacancies has remained stable year on year. The region
acquired seven businesses with total annualised revenues in the
year prior to purchase of c.£8m.
Pacific
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
249
|
10.0%
|
261
|
15.0%
|
6.8%
|
6.8%
|
|
Operating Profit
|
47
|
19.5%
|
49
|
24.9%
|
|
|
|
Adjusted Operating Profit
|
55
|
14.6%
|
57
|
19.8%
|
|
|
|
Adjusted Operating Margin
|
21.7%
|
0.9%
|
21.7%
|
0.9%
|
|
|
The Pacific region delivered an excellent full year performance.
Revenue increased by 15.0% to £261m. Organic Revenue grew 6.8%
as pricing was complemented with volume growth. Pest Control
delivered 25.2% Revenue growth, with notable strength in commercial
services. Good sales and customer retention were also evident in
the Hygiene & Wellbeing business, where Revenue growth was
6.4%. The region saw good demand for Ambius services.
Adjusted Operating Profit in the Pacific grew strongly by 19.8% to
£57m and Adjusted Operating Margins rose by 90bps to 21.7%,
with year-on-year improvement across both Pest and Hygiene &
Wellbeing categories, supported by effective mitigation of cost
inflation. Operating Profit was up 19.5% to £47m at AER. The
customer retention rate remained strong at 86.5% (FY 22: 88.8%).
Colleague retention in the region has significantly improved to
77.5% (FY 22: 72.9%), despite continued tight labour markets. The
region acquired 8 businesses with total annualised revenues in the
year prior to purchase of c.£22m.
Category performance review
Pest Control
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
4,286
|
59.2%
|
4,321
|
60.6%
|
4.5%
|
4.5%
|
|
Operating Profit
|
649
|
107.5%
|
632
|
102.1%
|
|
|
|
Adjusted Operating Profit
|
830
|
66.5%
|
828
|
66.7%
|
|
|
|
Adjusted Operating Margin
|
19.3%
|
0.8%
|
19.2%
|
0.7%
|
|
|
Our Pest Control business, now including Terminix, is the largest
operator in both the US, the world's biggest pest control market,
and the world. Overall, the business delivered good growth in the
year, underpinned by the critical nature of its services. Revenue
was up by 60.6% (4.5% Organic) to £4,321m. Performance has
been supported by both pricing and volumes, led by the Commercial
Pest Control business, which has a high proportion of contractual
activity. Both Commercial and Residential Pest Control businesses
have benefited from resilient customer retention rates. Adjusted
Operating Profit was up by 66.7% to £828m, resulting in an
Adjusted Operating Margin of 19.2%, up 70bps on the prior year,
including a benefit from Terminix integration synergies of 130bps.
Operating Profit was up by 107.5% to £649m at AER. For FY 23,
Pest Control represented 80% of Group Revenue and 81% of Group
Adjusted Operating Profit.
In 2023, new contracts for global accounts (multinational
customers) were signed in the pharma and hotel, restaurant and
catering sectors. Global Accounts now oversee revenues of over
£100m. 91% of total revenues in the Pest Control category were
delivered by Growth markets and 9% by Emerging
markets.
M&A has continued to be strong this year, and we have acquired
34 pest control businesses in the period, with annualised revenues
in the year prior to acquisition of c.£76m.
Hygiene & Wellbeing
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
858
|
4.6%
|
866
|
5.4%
|
4.8%
|
2.4%
|
|
Disinfection
|
2.44
|
-88.1%
|
2.48
|
-87.9%
|
|
|
|
Operating Profit
|
149
|
-4.9%
|
151
|
-3.8%
|
|
|
|
Adjusted Operating Profit
|
157
|
-2.6%
|
161
|
-1.5%
|
|
|
|
Adjusted Operating Margin
|
18.4%
|
-1.4%
|
18.5%
|
-1.3%
|
|
|
Rentokil Initial offers a wide range of hygiene and wellbeing
services. Inside the washroom we provide hand hygiene (soaps and
driers), air care, in-cubicle (feminine hygiene units), no-touch
products, and digital hygiene services. In addition to core
washroom hygiene, we deliver specialist hygiene services such as
clinical waste management. We're also improving the customer
experience through premium scenting, plants, air quality
monitoring, and green walls.
Hygiene & Wellbeing Revenue increased by 5.4% to £866m. In
addition to supportive pricing, continued good levels of demand
across service sectors such as offices, shops, schools, and
hospitality supported performance. Organic Revenue growth was 4.8%.
In 2023, COVID disinfection services generated £2m of revenues
(FY 22: £21m) reducing category Organic Revenue growth by
240bps and Group Organic Revenue growth by 40bps. We see the main
opportunities for future growth in our Hygiene & Wellbeing
category as being core washrooms, premises hygiene, including air
care, and enhanced environments. In 2023, Organic Revenue growth in
core washrooms was 4.5%, while organic growth in premises hygiene
and enhanced environments was 5.3%. Adjusted Operating Profit was
down by 1.5% to £161m due to COVID-boosted prior year
comparators in H1 (Operating Profit was down by 4.9% to £149m
at AER). Adjusted Operating Margin was 18.5%.
We have acquired seven hygiene companies this year with annualised
revenues of c.£30m in the year prior to purchase.
France Workwear
|
|
2023AER£m
|
AERGrowth
|
2023CER£m
|
CERGrowth
|
OrganicGrowth exclDisinfection
|
OrganicGrowth inclDisinfection
|
|
Revenue
|
221
|
15.3%
|
217
|
13.2%
|
13.2%
|
13.2%
|
|
Operating Profit
|
37
|
23.9%
|
37
|
21.6%
|
|
|
|
Adjusted Operating Profit
|
39
|
25.9%
|
38
|
23.6%
|
|
|
|
Adjusted Operating Margin
|
17.5%
|
1.5%
|
17.5%
|
1.5%
|
|
|
Strong new business sales performance, including key account gains
and upselling, resulted in another strong contribution from our
France Workwear business, where Revenue, all of which was organic,
rose by 13.2% to £217m. High customer retention of over 94%
supported France Workwear's strong volumes. Inflation was
successfully mitigated with price increases. Adjusted Operating
Profit growth increased by 23.6%. Operating Profit was up 23.9% to
£37m at AER.
Integration of Terminix
Strong progress on the integration; gross synergy target raised by
$50m to $325m
The Terminix integration continues to make very good progress. We
have completed the first phase of the integration and in 2023 we
delivered $69m of net synergies, ahead of our target of $60m.
Overall, we have delivered pre-tax net P&L cost synergies of
$82m to date.
We have announced a second increase in the target for the total
value of integration cost synergies from the integration of
Terminix - the gross synergies target is increased by $50m to $325m
and the net synergies target is increased by $25m to $225m. $106m
gross and $40m net cost synergies are expected to be delivered in
2024.
The timetable for integration is now set to be completed in 2026,
rather than 2025, in order to de-risk the branch integrations and
achieve greater synergy targets.
Phase One (Foundations) Complete
Phase One of the integration completed at the end of 2023 and has
delivered the foundations for success. Further to the Selling,
General and Administrative (SG&A) initiatives, large
integration pilots and initial branch co-locations communicated at
the Interim Results, substantial headway continued to be made in
H2, in preparation for the frontline route and branch integration
that is set to commence mid 2024.
An additional 44 branch locations were exited in the second half of
the year as part of the consolidation of the legacy network and
co-location of colleagues. This brings the total number of branch
locations exited since closing the deal to 108. With 11 new sites,
there has been a net reduction in the branch network of 97
branches.
Strong progress was also made in effectively positioning HR and IT.
These are key enablers of administrative and operational
efficiencies to be gained from the overall integration plan, as
well as critical levers for improving the colleague and customer
experience.
Key HR initiatives realised in the year include:
|
●
|
Migration onto the Workday HR Information System
(HRIS): 10,500 colleagues
from the legacy Rentokil North America business have been
transitioned from UKG to the Workday platform, completed in
September 2023. This change to a single HR platform for reporting
is crucial to aligning numerous business processes, including time
tracking, payroll and performance management, and to enabling
downstream initiatives, such as pay plan harmonisation and branch
integrations.
|
|
●
|
Benefits Harmonisation: Following an in-depth review, we adopted
best practices from across the combined organisation to update
company policies, procedures and offerings. All activities were
completed allowing for a singular Open Enrollment experience for
our colleagues in November. A harmonised benefit platform is
critical to the reduction of administrative complexity and
ultimately colleague engagement. It ensures consistent application
of benefit access and cost to all colleagues, increases
efficiencies, and provides a single platform of
communication.
|
|
●
|
Preparation for Harmonisation of Technician, Sales and Field
Management Pay Plans: Both
legacy organisations have had numerous different compensation plans
for front-line and field management roles. Harmonisation for
approximately 11,000 front-line colleagues, 2,500 sales colleagues
and 550 field management roles are set to provide market
competitive base salary and performance-based commission directly
aligned to our strategic objectives. New positions have been
defined in each area based on skills, experience, certifications
and licenses, with corresponding fixed base salary and incentive
levels. Pay plan design, which entailed impact analysis to mitigate
colleague retention, has been largely completed. Implementation
will take place in 2024 in a staged approach across regional
markets.
|
There has been substantial work on IT systems and products. Google
Apps have now been rolled out to 13,000 colleagues and there have
been 71 foundation IT system enhancements. There have been
important advances to the Group's digitally enabled products and
processes, drawing on Best of Breed from across the organisation
and with direct input from colleagues in the back office and field
services. Key initiatives realised in the year
include:
|
●
|
Customer Content Management (CCM) and Self-service
Portal. These two
transformational tools are now live in North America, delivering
business benefits and improving the customer experience. The new
residential portal, deployed already to 18 brands in the region,
meets customer demand for a 24/7 personalised experience that
includes bill payment, appointment scheduling and service
recommendations. The portal also frees up valuable call agent time
to handle more complex, high value interactions. Alongside this we
have launched a refreshed CCM tool that better empowers our call
agents with detailed customer tracking, a 360 view of the customer
and guided workflows for consistency and best practice. The new CCM
tool has delivered improvements in customer query resolution and
new colleague training.
|
|
●
|
Enhanced Field Sales Tools. Valuable new features have been integrated
to our 'Winning Formula' residential sales app, which is also being
made available for the first time to our Terminix colleagues. The
app follows the sales process end to end, from site inspection
through to proposal and first appointment scheduling. Additionally,
we've integrated the 'Trusted Advisor' process within our
ServiceTrak app, further supporting service technicians to generate
sales leads and upsell opportunities. This reflects a strategic
focus on closer alignment between sales and service teams, enabled
by technology.
|
|
●
|
Big Data Platform. The
development of a data command centre brings the benefits of fast
time access to big data and insights from multiple sources. It will
allow for Terminix data to be integrated and increasingly provide
actionable analytics from across our entire branch network. We also
see exciting AI opportunities with predictive
capabilities.
|
Phase Two
Following completion of Phase One of the integration programme in
2023, we have embarked on Phase Two - full preparedness for branch
integrations. Phase Two is scheduled to be largely delivered in
approximately the first six months of 2024, with a number of
clearly defined legal, IT and operational goals,
including:
|
●
|
A legal entity merger, critical to enabling branch integrations and
unified contracts
|
|
●
|
Roll out of more than 100 IT system features leading up to the
commencement of system migration
|
|
●
|
Migration to a single Procurement platform
|
|
●
|
Consolidation onto a unified Finance system, including
consolidation to a single expenses and travel management system,
followed by purchase card harmonisation
|
|
●
|
Migration of Terminix National Accounts to Rentokil's single
customer management and billing platform
|
|
●
|
Combination of all heritage customer care agents onto a single
unified communications platform
|
|
●
|
Completion and sign off on data migration and IT system
architecture configuration
|
Throughout 2024 we will also continue to co-locate branches ahead
of integration, with approximately an additional 75 properties to
be exited during the year.
Phase Three
The next phase of our integration plan is focused on the migration
of Terminix regions and branches. The first Terminix colleagues
will begin to migrate onto standard systems, data and processes in
mid 2024, with rerouting and technician pay plans introduced
approximately three months later.
We have seven pest control Regions in the US and each integration
will be executed over approximately 10 months from planning to
rerouting. The first six to seven months will be used to develop a
specific plan for the branches being integrated, based upon our
best practice playbook. We anticipate that this will become
increasingly standardised as Terminix markets use similar
technologies and systems. The planning stage includes three test
data migrations. This leads up to integration where the branch
systems and data are migrated. There then follows a three-month
period of evaluation leading up to the final part of the branch
integration with branding, rerouting and technician pay plan and
contracts being standardised as appropriate.
Phase Four
The fourth and final phase in 2026 onwards will see the final
Terminix markets and branches complete their
integrations.
This will mark the completion of the branch integration programme
and the delivery of our new synergy target in 2026. Post
integration, our ambition is to deliver Organic Revenue Growth in
pest control services of 1.5x the market over the medium
term.
Synergies and Approximate Phasing
There has been strong delivery on cost synergies in 2023 with $69m
of pre-tax P&L net cost synergies achieved, ahead of the guided
$60m. This takes the cumulative P&L benefit from net synergies
to $82m since completion of the transaction.
Continued progress on delivery has validated our assumptions and
given us heightened confidence in the overall opportunity, allowing
us to increase our estimate of synergies achievable from the
acquisition. We now expect to achieve approximately $325m of annual
pre-tax gross cost synergies ($225m net cost synergies) by the end
of 2026.
|
|
2022
|
2023
|
2024
|
2025
|
2026
|
Cumulative
|
|
Selling, General and Admin Synergies
|
$15m
|
$73m
|
$77m
|
$20m
|
-
|
$185m
|
|
Field Ops
|
-
|
$16m
|
$29m
|
$55m
|
$40m
|
$140m
|
|
Gross Synergies
|
$15m
|
$89m
|
$106m
|
$75m
|
$40m
|
$325m
|
|
Investments
|
$(2)m
|
$(20)m
|
$(66)m
|
$(10)m
|
$(2)m
|
$(100)m
|
|
Net Synergies
|
$13m
|
$69m
|
$40m
|
$65m
|
$38m
|
$225m
|
|
|
|
|
|
|
|
|
|
CTA Cash
|
$40m
|
$92m
|
$85m
|
$28m
|
£5m
|
$250m
|
Investments relate to salary and benefits harmonisation, SHE,
innovation centre, IT and branding, as well as additional SOX,
audit and listing costs. They are expected to be incurred 100% in
cash.
Total one-time cash cost to achieve synergies are expected to be
c.$250m. Phasing of $131m in 2022-2023, $85m in 2024, $28m in 2025
and c.$5m in 2026. In addition to the $131m of cash synergies in
2022-2023, we also incurred non-cash costs to achieve of c.$42m
relating to the impairment of the Terminix head office and
share-based integration incentive costs.
Paragon Distribution Business
As part of the Terminix merger, Rentokil acquired a small product
distribution business, Paragon, with revenue of c.$68m and profit
of c.$4m in 2023. This business is largely dependent upon a single,
partially exclusive supplier relationship, which will be
discontinued with effect from 1 April 2024. As a consequence, the
decision has been taken to close this business. North America
regional Revenue and Adjusted Operating Profit in 2024 will be
reduced by approximately $61m and $4m respectively.
Continued strength of Bolt-on M&A
We acquired 41 new businesses, comprising 34 in Pest Control and 7
in Hygiene & Wellbeing. A total consideration of c.£261m
was agreed for these acquired businesses with total annualised
revenues of c.£106m in the year prior to purchase. We have
added 13 new businesses in North America during the period with
c.£46m revenues acquired. This included the acquisition in the
second half of the year of Action Pest Control, a Midwest provider
ranking #62 on the Pest Control Technology Top 100 list. There was
also a good performance in the Pacific region with 8 deals
(annualised revenues of c.£22m), Asia and MENAT with 7 deals
(annualised revenues of c.£8m), Europe (inc. LATAM) with 11
deals (annualised revenues of c.£12m) and 2 deals in the UK
& SSA region (annualised revenues of c.£18m). In addition,
the Group acquired a further 8% of the share capital of the
Rentokil PCI business in India to take ownership to 65%. The
Rentokil PCI business is already 100% consolidated in the Group
accounts.
M&A remains central to our strategy for growth. We will
continue to seek attractive bolt-on deals, both in Pest Control and
Hygiene & Wellbeing, to build density in growth and emerging
markets (Cities of the Future). Our pipeline of prospects remains
strong and our current guidance on spend on M&A for FY 24 is
c.£250m.
Employer of Choice (EOC)
Rentokil Initial is committed to being a world-class Employer of
Choice, with colleague safety and the attraction, recruitment and
retention of the best people from the widest possible pool of
talent, being key business objectives globally.
In 2023, colleague retention increased globally by 4.7ppts to
84.2%. All Regions improved year on year. Our North American region
increased colleague retention by 5.0ppts. This has been achieved
through a wide-ranging programme including: the launch of a
retention dashboard and manager training; monitoring for potential
issues before escalation; additional mentoring resources; and an
enhanced new hire and onboarding experience.
Our Career Plus app has seen continued success across Rentokil
Initial and has been successfully launched in Terminix. The app
provides colleagues with a tool to share job vacancies externally
on social media and to view roles across the organisation, allowing
them to seek out potential opportunities for progression or roles
more suitable for their needs. In 2023, Career Plus delivered more
than 20,000 job applications - 16,480 external and 5,719 from
existing colleagues - with no advertising or recruitment
fees.
In the second half of the year, the Company undertook Your Voice
Counts (YVC), a global, confidential survey, which provides every
colleague with the chance to give feedback on workplace culture,
leadership, customer focus, development, and line manager
performance. The survey is undertaken every two years and saw a 90%
participation rate. We maintained our strong levels of engagement
(79%, in line with the Global Company Norm) and enablement (83%,
which was 5ppts ahead of the Global Company Norm). We received
excellent feedback on the questions relating to Safety, Health, and
Environment (SHE), 'My Manager' and Diversity, Equity and
Inclusion. The survey results also demonstrated that colleagues
support the Company's approach and focus on safety - a key ESG
factor - which continues to be our highest performing category.
Areas recognised for improvement as measured by the Global Company
Norm include satisfaction with benefits and manager support for
development.
Innovation and Technology
Digital innovation in pest control is necessary to meet the needs
of an evolving world. We lead our industry in the use of digital
technologies, and we are continuing to build this competitive
advantage. Our smart technology is providing more remote monitoring
solutions and increased transparency of data.
356,000 PestConnect devices, which offer 24/7 monitoring, are now
operating in customers' premises. We have five countries where
connected devices account for more than 10% of the commercial
portfolio, including the Netherlands (38%) and France and the UK
(both 23%). At the heart of our PestConnect system has been our
award-winning RADAR device, and that accounts for around two thirds
of connected units in customers' premises. In 2024 we will launch
its replacement - called RADAR X - a new dual catch unit with
enhancements not only for operational efficiency but also for
sustainability. New research from our operations in the Netherlands
and the UK shows us that PestConnect can typically resolve rodent
infestations twice as fast as traditional non-connected pest
control services. In 2024, we will begin the phased rollout of
PestConnect in North America.
North America will also see the launch in H1 2024 of our
proprietary EcoCatch fly control solution as well as the continued
rollout of our Lumnia LED flying insect control range. Lumnia,
which generates energy savings of up to 79%, has now sold 445,000
units worldwide since its launch in 2017.
In 2024 we will launch our first dedicated pest control innovation
centre in the US based in Dallas, Texas which will focus on
innovation and technology for the residential and termite
sectors.
Management changes
The following management changes will take effect from 1 April
2024.
Alain Moffroid, currently Regional Management Director for Europe
Region, will become Chief Commercial Officer. As part of this new
role, Alain will lead the central Marketing and Innovation
function, focusing on the end to end customer experience and
service productivity. Fabrice Quinquenel, currently Managing
Director, France, Nordics and Poland, will succeed Alain in the
role of Regional Managing Director for Europe and will become a
member of the Executive Leadership Team. Rachel Canham, currently
Group General Counsel, will become Group General Counsel and
Company Secretary. Gary Booker, Chief Marketing, Innovation and
Strategy Officer, will be leaving the Company in mid-April to take
up an external appointment.
Financial review
Central and regional overheads
Central and regional overheads of £121m (at CER and AER) were
up £14m on the prior year (FY 22: £107m at CER and AER)
driven by Terminix related central investments including higher
share based payment charges for the larger combined
organisation.
Restructuring costs
The Company reports restructuring costs within Adjusted Operating
Profit. Costs associated with significant acquisitions are reported
as one-off items and are excluded from Adjusted Operating Profit.
Restructuring costs of £9m at CER (£7m at AER) were down
£3m on the prior year (FY 22: £12m at CER and AER). They
consisted mainly of costs in respect of initiatives focused on our
North American and Argentinian transformation
programmes.
Interest (at AER)
Adjusted interest of £141m at actual exchange rates was higher
year on year, partly reflecting £86m of annualised interest
charges relating to financing of the Terminix transaction,
£15m of lease interest charges and a £7m offsetting
reduction from the impacts of hyperinflation and net interest
received. In the year, hyperinflation of £11m at AER in 2023
was £11m lower than the prior year (FY 22: £22m) due to
devaluation of the Argentinian peso. Cash interest in FY 23 was
£166m (FY 22: £39m) reflecting both higher interest on
debt raised for the Terminix acquisition and the phasing of coupon
payments annually in arrears.
In Appendix 1 we have shown a summary P&L interest table
demonstrating how the components of our financing drive interest
costs and incomes and the expected range for 2024 at average
exchange rates. Changes in variable interest rates, exchange rates
and CPI rates in hyper-inflationary economies during 2024 will
impact the reporting of interest costs for 2024.
Tax
The income tax charge for the period at actual exchange rates was
£112m on the reported profit before tax of £493m,
giving an effective tax rate (ETR) of
22.7% (FY 22: 21.6%). The Group's ETR
before amortisation of intangible assets
(excluding computer software), one-off and adjusting items and the
net interest adjustments for FY 23 was 23.8% (FY 22: 19.7%). This
compares with a blended rate of tax for the countries in which the
Group operates of 25.1% (FY 22: 23.7%).
Net debt* and cash flow
|
£m at actual exchange rates
|
Year to Date
|
||
|
2023 FY
£m
|
2022 FY
£m
|
Change
£m
|
|
|
Adjusted Operating Profit
|
898
|
571
|
327
|
|
Depreciation
|
300
|
276
|
24
|
|
Other
|
30
|
12
|
18
|
|
Adjusted EBITDA
|
1,228
|
859
|
369
|
|
One-off and adjusting items (non-cash)
|
(11)
|
(77)
|
66
|
|
Working capital**
|
(47)
|
9
|
(56)
|
|
Movement on provisions
|
(56)
|
(12)
|
(44)
|
|
Capex - additions
|
(211)
|
(190)
|
(21)
|
|
Capex - disposals
|
14
|
5
|
9
|
|
Capital of lease payments and initial direct costs
incurred
|
(151)
|
(104)
|
(47)
|
|
Interest
|
(166)
|
(39)
|
(127)
|
|
Tax
|
(100)
|
(77)
|
(23)
|
|
Free Cash Flow
|
500
|
374
|
126
|
|
Acquisitions
|
(242)
|
(1,018)
|
776
|
|
Disposal of companies and businesses
|
19
|
1
|
18
|
|
Dividends
|
(201)
|
(122)
|
(79)
|
|
Cost of issuing new shares
|
-
|
(16)
|
16
|
|
Cash impact of one-off and adjusting items
|
(107)
|
(59)
|
(48)
|
|
Other
|
(6)
|
-
|
(6)
|
|
Debt related cash flows
|
|
|
|
|
Cash outflow on settlement of debt related foreign exchange forward
contracts
|
(3)
|
26
|
(29)
|
|
Net investment in term deposits
|
-
|
1
|
(1)
|
|
Proceeds from new debt
|
-
|
2,383
|
(2,383)
|
|
Debt repayments
|
-
|
(844)
|
844
|
|
Debt related cash flows
|
(3)
|
1,566
|
(1,569)
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
(40)
|
726
|
(766)
|
|
Cash and cash equivalents at the beginning of the year
|
879
|
242
|
637
|
|
Exchange losses on cash and cash equivalents
|
(7)
|
(89)
|
82
|
|
Cash and cash equivalents at end of the financial year
|
832
|
879
|
(47)
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
(40)
|
726
|
(766)
|
|
Debt related cash flows
|
3
|
(1,566)
|
1,569
|
|
IFRS 16 liability movement
|
3
|
(34)
|
37
|
|
Debt acquired
|
(1)
|
(946)
|
945
|
|
Bond interest accrual
|
(1)
|
(42)
|
41
|
|
Foreign exchange translation and other items
|
169
|
(132)
|
301
|
|
Increase in net debt
|
133
|
(1,994)
|
2,127
|
|
Opening net debt
|
(3,279)
|
(1,285)
|
(1,994)
|
|
Closing net debt
|
(3,146)
|
(3,279)
|
133
|
*Net debt is defined and explained in Note C2 to the Consolidated
Financial Statements in the Annual Report 2023
**Excludes
£20m of one-off and adjusting items flowing through working
capital in 2023
Net cash flows from operating activities have risen by 22.8% to
£737m in 2023. Free Cash Flow of £500m was £126m
higher than in FY 22. Higher trading profits resulted from organic
and acquisitive growth. Adjusted EBITDA was £1,228m, up 43.0%
versus 2022. One-off and adjusting items (non-cash) of £11m
inflow (FY 22: £77m) represent Terminix related one-time share
incentive schemes and asset impairments.
The Group had a £47m working capital outflow in FY 23. Working
capital was driven higher by revenue growth, predominantly in North
America and Europe, across receivables and contract cost assets.
Capital expenditure of £211m was incurred in the period (FY
22: £190m), reflecting a more normal pattern of spend post
pandemic and the inclusion of Terminix capital expenditure. Lease
payments were up 45.2%.
Cash interest payments of £166m were £127m higher than in
the prior year, reflecting the timing of interest charge payments
relating to financing of the Terminix transaction.
Cash tax payments for the period were £100m, an increase of
£23m compared with the corresponding period last year.
Adjusted Free Cash Flow Conversion was 89.4%.
Cash spend on current and prior year acquisitions was £242m,
dividend payments were £201m and the cash impact of one-off
and adjusting items was £107m (largely related to the Terminix
acquisition). Foreign exchange translation and other items of
£169m is primarily due to the weakening of the US Dollar
against Sterling. Overall, this led to a change in net debt of
£133m and closing net debt of £3,146m.
Going Concern
The Board continues to adopt the going concern basis in preparing
the accounts on the basis that the Group's strong liquidity
position and its demonstrated ability to manage the level of
capital expenditure, dividends or expenditure on bolt-on
acquisitions are sufficient to meet the Group's forecast funding
needs, including those modelled in a severe but plausible downside
case. Details of the scenarios modelled are explained in the
Material Accounting Policies section of the Annual
Report.
Funding
As at 31 December 2023, the Group had liquidity headroom in the
region of £1,600m, including £785m ($1.0bn) of undrawn
revolving credit facility (RCF), with a maturity date of October
2028. The net debt to Adjusted EBITDA ratio was 2.6x at 31 December
2023 (31 December 2022: 3.2x). The net debt to EBITDA ratio was
2.8x at 31 December 2023 (31 December 2022: 4.6x). In July 2023,
S&P Global reaffirmed the Group's BBB investment grade credit
rating; and in October 2023 the Group got a second rating (BBB with
a stable outlook) from Fitch Ratings. The interest rate on
approximately 81% of the Group's debt including leases is fixed.
The Group has no debt maturities until November 2024.
Dividend
The Board is recommending a final dividend in respect of 2023 of
5.93p per share, payable to shareholders on the register at the
close of business on 5th April 2024, to be paid on 15th May 2024.
This equates to a full-year dividend of 8.68p per share, an
increase of 15.0% compared to 2022. The last day for DRIP elections
is 23rd April 2024.
Technical guidance update for FY 24
Expected P&L Outcomes
|
●
|
Restructuring costs: £5m; and One offs and Adjusting items
excl. Terminix: c.£10m
|
|
●
|
Terminix integration Costs to Achieve*: c.$90m-$100m
|
|
●
|
Central and regional overheads, including Terminix related
investments. £145m-£150m
|
|
●
|
P&L adjusted interest costs: c.£135m-£145m**, incl.
£10m-£15m of hyperinflation (at AER)
|
|
●
|
Estimated Adjusted Effective Tax Rate: 25%-26%
|
|
●
|
Share of Profits from Associates: c.£8m-£10m
|
|
●
|
Impact of FX within range of -£25m to
-£35m***
|
|
●
|
Intangibles amortisation: £175m-£185m
|
|
●
|
Due to closure of the Paragon distribution business, North America
regional Revenue and Adjusted Operating Profit in 2024 will be
reduced by approximately $61m and $4m respectively.
|
Expected Cash Outcomes
|
●
|
Overall one-off and adjusting items:
c.£85m-£95m
|
|
●
|
Working Capital: c.£50m-£60m and c.£55m-£65m of
provision payments
|
|
●
|
Capex excluding right of use (ROU) asset lease payments:
£250m-£260m
|
|
●
|
Cash interest: c.£160m-£170m
|
|
●
|
Cash tax payments: £115m-£125m
|
|
●
|
Anticipated spend on M&A in 2024 of c.£250m
|
* Reported as one-off and adjusting items and excluded from
Adjusted Operating Profit and Adjusted PBTA
** Interest costs will be impacted by refinancing decision taken
around the maturity of the €400m bond with a maturity date of
November 2024
*** Based on maintenance of current FX rates
Appendix 1 - Adjusted Interest Summary1
|
|
Amount
|
Rate
|
Fixed/Floating
|
2023AER£m
|
|
2024AER£m
|
|
Bonds and swaps
|
|
|
|
|
|
|
|
EUR
|
400
|
0.95%
|
Fixed
|
-
|
|
-
|
|
EUR
|
500
|
0.88%
|
Fixed
|
-
|
|
-
|
|
EUR
|
600
|
0.50%
|
Fixed
|
-
|
|
-
|
|
EUR
|
850
|
3.88%
|
Fixed
|
15
|
|
15
|
|
EUR
|
600
|
4.38%
|
Fixed
|
23
|
|
23
|
|
GBP
|
400
|
5.00%
|
Fixed
|
20
|
|
20
|
|
Amortised Cost
|
|
|
Fixed
|
4
|
|
3
|
|
Swaps
|
|
3.53% (avg)
|
Fixed
|
42
|
|
40
|
|
Total
|
1,850
|
|
|
104
|
|
101
|
|
Term Loan
|
|
|
|
|
|
|
|
USD
|
700
|
5%-6%
|
Float
|
31
|
|
23
|
|
|
|
|
|
|
|
|
|
Lease Interest
|
|
|
Float
|
25
|
|
26
|
|
Other Interest
|
|
|
Float
|
18
|
|
23
|
|
Total Other
|
|
|
|
43
|
|
49
|
|
|
|
|
|
|
|
|
|
Finance Cost2
|
|
|
|
178
|
|
173
|
|
|
|
|
|
|
|
|
|
Interest received
|
|
|
|
(26)
|
|
(20)
|
|
Hyperinflation
|
|
|
|
(11)
|
|
(13)
|
|
Finance Income3
|
|
|
|
(37)
|
|
(33)
|
|
|
|
|
|
|
|
|
|
Adjusted Interest
|
|
|
|
141
|
|
140
|
|
Adjusting items
|
|
|
|
|
|
|
|
Amortisation of discount on legacy
provisions2
Gain on hedge accounting recognised in finance
income/cost3
|
11
(11)
|
|
10
-
|
|||
2023 average FX rate for £/€: 1.1503 and £/$:
1.2441
1. For a full reconciliation of statutory interest measures to
adjusted interest, please see non-IFRS measures section on page 16
below.
2. 2023 Finance Costs totalled £189m. See note 3.
3. 2023 Finance Income totalled £(48)m See note
4.
Use of Non-IFRS Measures
Reconciliation of non-IFRS measures to the nearest IFRS
measure
The Group uses a number of non-IFRS measures to present the
financial performance of the business. These are not measures as
defined under IFRS, but management believe that these measures
provide valuable additional information for users of the Financial
Statements, in order to better understand the underlying trading
performance in the year from activities that will contribute to
future performance. The Group's internal strategic planning process
is also based on these measures and they are used for management
incentive purposes. They should be viewed as complements to, and
not replacements for, the comparable IFRS measures. Other companies
may use similarly labelled measures which are calculated
differently to the way the Group calculates them, which limits
their usefulness as comparative measures. Accordingly, investors
should not place undue reliance on these non-IFRS
measures.
The following sets out an explanation and the reconciliation to the
nearest IFRS measure for each non-IFRS measure.
Constant exchange rates (CER)
Given the international nature of the Group's operations, foreign
exchange movements can have a significant impact on the reported
results of the Group when they are translated into sterling (the
presentation currency of the Group). In order to help understand
the underlying trading performance of the business, revenue and
profit measures are often presented at constant exchange rates. CER
is calculated by translating current-year reported numbers at the
full-year average exchange rates for the prior year. It is used to
give management and other users of the accounts clearer
comparability of underlying trading performance against the prior
period by removing the effects of changes in foreign exchange
rates. The major exchange rates used for 2023 are £/$ 1.2441
(2022: 1.2421) and £/€ 1.1503 (2022: 1.1717).
Comparisons are with the year ended 31 December 2022 unless
otherwise stated.
Organic Revenue Growth
Acquisitions are a core part of the Group's growth strategy. The
Organic Revenue Growth measures (absolute and percentage) are used
to help investors and management understand the underlying
performance, positive or negative, of the business, by identifying
Organic Revenue Growth excluding the impact of Acquired Revenue.
This approach isolates changes in performance of the Group that
take place under the Company's stewardship, whether favourable or
unfavourable, and thereby reflects the potential benefits and risks
associated with owning and managing a professional services
business.
Organic Revenue Growth is calculated based on year-over-year
revenue growth at CER to eliminate the effects of movements in
foreign exchange rates.
Acquired Revenue represents a 12-month estimate of the increase in
Group revenue from each business acquired. Acquired Revenue is
calculated as: a) the revenue from the acquisition date to the year
end in the year of acquisition in line with IFRS 3; and b) the
pre-acquisition revenues from 1 January up to the acquisition date
in the year of acquisition. The pre-acquisition revenue is based on
the previously reported revenues of the acquired entity and is
considered to be an estimate.
In the year a business is acquired, all of its revenue reported
under a) above is classified as non-organic growth. In the
subsequent first full financial year after acquisition, Organic
Revenue Growth is calculated for each acquisition as the reported
revenue less Acquired Revenue.
At a Group level, calculating Organic Revenue Growth therefore
involves isolating and excluding from the total year-over-year
revenue change: i) the impacts from foreign exchange rate changes,
ii) the growth in revenues that have resulted from completed
acquisitions in the current period, and iii) the estimate of
pre-acquisition revenues from each business acquired. The sum of
ii) and iii) is equal to the total Acquired Revenues for all
acquisitions. The calculated Organic Revenue is expressed as a
percentage of prior year revenue. Prior year revenue is not
'pro-forma' adjusted in the calculation, as any such estimated
adjustments would have an immaterial impact..
If an acquisition is considered to be a material transaction, such
as the Terminix acquisition in October 2022, the above calculation
is amended in order to give a 'pro-forma' view of any Organic
Revenue Growth for the full financial year in the year of
acquisition, as if the acquisition had been part of the Group from
the beginning of the prior year. The pro-forma calculation is
completed using pre-acquisition revenues to normalise current and
prior periods as shown in the table below. These revenue
normalisations are considered estimates, and ensure that the
potentially larger Organic Revenue Growth is measured over a
denominator that includes the material acquisition. The same
adjustments are made to our North America and Pest Control segment
revenues for 2022 and 2023 as a result of the material Terminix
acquisition.
While the management believes that the methodology used in the
calculation of Organic Revenue is representative of the performance
of the Group, the calculations may not be comparable to similarly
labelled measures presented by other publicly traded companies in
similar or other industries.
|
|
North
America
£m
|
Europe
(incl. LATAM)
£m
|
UK & Sub-Saharan
Africa
£m
|
Asia &
MENAT
£m
|
Pacific£m
|
Central and regional£m
|
Total£m
|
|
2022 Revenue
|
1,849
|
941
|
365
|
321
|
227
|
11
|
3,714
|
|
Adjustment for Terminix pre-acquisition 2022
Revenue1
|
1,311
|
23
|
-
|
-
|
-
|
-
|
1,334
|
|
Normalised 2022 Revenue (base for Organic Revenue Growth
percentage)
|
3,160
|
964
|
365
|
321
|
227
|
11
|
5,048
|
|
Revenue from 2023 acquisitions(at 2022 CER)2
|
33
|
7
|
15
|
6
|
14
|
-
|
75
|
|
Revenue from 2022 acquisitions(at 2022 CER)3
|
24
|
27
|
1
|
7
|
4
|
-
|
63
|
|
Organic Revenue Growth 2023(at 2022 CER)4
|
97
|
80
|
13
|
23
|
16
|
(1)
|
228
|
|
Exchange differences
|
(8)
|
3
|
(4)
|
(18)
|
(12)
|
-
|
(39)
|
|
2023 Revenue (at AER)
|
3,306
|
1,081
|
390
|
339
|
249
|
10
|
5,375
|
|
Organic Revenue Growth %
|
3.0%
|
8.3%
|
3.4%
|
7.1%
|
6.8%
|
(4.4)%
|
4.5%
|
|
Year-over-year change in disinfection revenue
|
(1)
|
(8)
|
-
|
(9)
|
-
|
-
|
(18)
|
|
Organic Revenue Growth excluding disinfection %
|
3.1%
|
9.2%
|
3.5%
|
10.2%
|
6.8%
|
(4.4)%
|
4.9%
|
1. The adjustment brings in 2022 pre-acquisition revenue back to
the first day of the prior financial period for the acquired
Terminix entities.
2. Revenue from completed acquisitions in the current
period.
3. Revenue from each business acquired by the Group in the previous
financial year through to the 12-month anniversary of the Group's
ownership.
4. Organic Revenue Growth includes Organic Revenue Growth for all
entities in the Group as at 31 December 2022.
|
|
North
America
£m
|
Europe
(incl. LATAM)
£m
|
UK & Sub-Saharan
Africa
£m
|
Asia &
MENAT
£m
|
Pacific£m
|
Central and regional£m
|
Total£m
|
|
2021 Revenue
|
1,291
|
832
|
354
|
271
|
197
|
12
|
2,957
|
|
Adjustment for Terminix pre-acquisition 2021
Revenue1
|
1,412
|
33
|
-
|
-
|
-
|
-
|
1,445
|
|
Normalised 2021 Revenue (base for Organic Revenue Growth
percentage)
|
2,703
|
865
|
354
|
271
|
197
|
12
|
4,402
|
|
Revenue from 2022 acquisitions (excluding Terminix) (at 2021
CER)2
|
15
|
38
|
-
|
6
|
7
|
-
|
66
|
|
Revenue from 2021 acquisitions(at 2021 CER)3
|
48
|
11
|
-
|
12
|
4
|
-
|
75
|
|
Organic Revenue Growth 2022(at 2021 CER)4
|
89
|
55
|
11
|
19
|
13
|
(1)
|
186
|
|
Exchange differences
|
305
|
(5)
|
-
|
13
|
6
|
-
|
319
|
|
Remove Terminix pre-acquisition 2022 Revenue (at
AER)5
|
(1,311)
|
(23)
|
-
|
-
|
-
|
-
|
(1,334)
|
|
2022 Revenue (at AER)
|
1,849
|
941
|
365
|
321
|
227
|
11
|
3,714
|
|
Organic Revenue Growth %
|
3.2%
|
6.3%
|
3.1%
|
6.8%
|
7.5%
|
(11.9)%
|
4.2%
|
|
Year-over-year change in disinfection revenue
|
(61)
|
(21)
|
(6)
|
(7)
|
(1)
|
-
|
(96)
|
|
Organic Revenue Growth excluding disinfection %
|
5.7%
|
9.1%
|
4.9%
|
11.0%
|
7.9%
|
(11.9)%
|
6.6%
|
1.The adjustment brings all 12 months of 2021 pre-acquisition
revenue for the acquired Terminix entities.
2.Revenue that has resulted from completed acquisitions in the
current period.
3.Revenue from each business acquired by the Group in the previous
financial year through to the 12-month anniversary of the Group's
ownership.
4.Organic Revenue Growth includes Organic Revenue Growth for all
entities in the Group as at 31 December 2021 and for Terminix in
the period since acquisition on 12 October 2022.
5.Removal of the acquired entities of Terminix 2022 revenue
pre-acquisition revenues at current-year exchange rates from the
first day of the period to the anniversary of
acquisition.
Adjusted expenses and profit measures
Adjusted expenses and profit measures are used to give investors
and management a further understanding of the underlying
profitability of the business over time by stripping out income and
expenses that can distort results due to their size and nature.
Adjusted profit measures are calculated by adding the following
items back to the equivalent IFRS profit measure:
|
●
|
amortisation and impairment of intangible assets (excluding
computer software);
|
|
●
|
one-off and adjusting items; and
|
|
●
|
net interest adjustments.
|
Intangible assets (such as customer lists and brands) are
recognised on acquisition of businesses which, by their nature, can
vary by size and amount each year. Capitalisation of
innovation-related development costs will also vary from year to
year. As a result, amortisation of intangibles is added back to
assist with understanding the underlying trading performance of the
business and to allow comparability across regions and categories
(see table on page 35).
One-off and adjusting items are significant expenses or income that
will have a distortive impact on the underlying profitability of
the Group. Typical examples are costs related to the acquisition of
businesses, gain or loss on disposal or closure of a business,
material gains or losses on disposal of fixed assets, adjustments
to legacy environmental liabilities, and payments or receipts as a
result of legal disputes. An analysis of one-off and adjusting
items is set out on the next page.
Net interest adjustments are other non-cash or one-off accounting
gains and losses that can cause material fluctuations and distort
understanding of the performance of the business, such as net
interest on pension schemes and interest fair value
adjustments.
Adjusted expenses are one-off and adjusting items, and Adjusted
Interest. Adjusted profit measures used are Adjusted Operating
Profit, Adjusted Profit Before and After Tax, and Adjusted EBITDA.
Adjusted Earnings Per Share is also reported, derived from Adjusted
Profit After Tax.
One-off and adjusting items
An analysis of one-off and adjusting items is set out
below.
|
|
One-off and adjusting items
cost/(income)
£m
|
One-off and adjusting items
tax impact
£m
|
One-off and adjusting items
cash inflow/(outflow)£m
|
|
2021
|
|
|
|
|
Acquisition and integration costs
|
13
|
(1)
|
(12)
|
|
Terminix acquisition costs
|
6
|
-
|
(6)
|
|
Other
|
2
|
(1)
|
(9)
|
|
Total
|
21
|
(2)
|
(27)
|
|
2022
|
|
|
|
|
Acquisition and integration costs
|
5
|
(2)
|
(13)
|
|
Fees relating to Terminix acquisition
|
68
|
(4)
|
(38)
|
|
Terminix integration costs
|
62
|
(14)
|
(32)
|
|
UK pension scheme - return of surplus
|
-
|
-
|
22
|
|
Other
|
1
|
-
|
2
|
|
Total
|
136
|
(20)
|
(59)
|
|
2023
|
|
|
|
|
Acquisition and integration costs
|
13
|
(2)
|
(13)
|
|
Fees relating to Terminix acquisition
|
1
|
-
|
(25)
|
|
Terminix integration costs
|
81
|
(21)
|
(74)
|
|
Other
|
3
|
(1)
|
5
|
|
Total
|
98
|
(24)
|
(107)
|
Adjusted Interest
Adjusted Interest is calculated by adjusting the reported finance
income and costs by net interest adjustments (amortisation of
discount on legacy provisions, and foreign exchange and hedge
accounting ineffectiveness).
|
|
2023AER£m
|
2022AER£m
|
|
Finance cost
|
189
|
79
|
|
Finance income
|
(48)
|
(49)
|
|
Add back:
|
|
|
|
Amortisation of discount on legacy provisions
|
(11)
|
(3)
|
|
Foreign exchange and hedge accounting ineffectiveness
|
11
|
21
|
|
Adjusted Interest
|
141
|
48
|
Adjusted Operating Profit
Adjusted Operating Profit is calculated by adding back one-off and
adjusting items, and amortisation and impairment of intangible
assets to operating profit.
|
|
2023£m
|
2022£m
|
|
Operating profit
|
625
|
317
|
|
Add back:
|
|
|
|
One-off and adjusting items
|
98
|
136
|
|
Amortisation and impairment of intangible assets1
|
175
|
118
|
|
Adjusted Operating Profit (at AER)
|
898
|
571
|
|
Effect of foreign exchange
|
(1)
|
-
|
|
Adjusted Operating Profit (at CER)
|
897
|
571
|
1. Excluding computer software.
Adjusted Profit Before and After Tax
Adjusted Profit Before Tax is calculated by adding back net
interest adjustments, one-off and adjusting items, and amortisation
and impairment of intangible assets to profit before tax. Adjusted
Profit After Tax is calculated by adding back net interest
adjustments, one-off and adjusting items, amortisation and
impairment of intangible assets, and the tax effect on these
adjustments to profit after tax.
|
|
2023
|
|||||
|
|
IFRS measures
£m
|
Net interest adjustments £m
|
One-off and adjusting items
£m
|
Amortisation and impairment of
intangibles1
£m
|
Non-IFRS measures
£m
|
|
|
Profit before income tax
|
493
|
-
|
98
|
175
|
766
|
Adjusted Profit Before Tax
|
|
Income tax expense
|
(112)
|
(2)
|
(24)
|
(44)
|
(182)
|
Tax on Adjusted Profit
|
|
Profit for the year
|
381
|
(2)
|
74
|
131
|
584
|
Adjusted ProfitAfter Tax
|
|
|
2022
|
|||||
|
|
IFRS measures
£m
|
Net interest adjustments £m
|
One-off and adjusting items
£m
|
Amortisation and impairment ofintangibles1
£m
|
Non-IFRS measures
£m
|
|
|
Profit beforeincome tax
|
296
|
(18)
|
136
|
118
|
532
|
Adjusted ProfitBefore Tax
|
|
Income tax expense
|
(64)
|
3
|
(20)
|
(24)
|
(105)
|
Tax on Adjusted Profit
|
|
Profit for the year
|
232
|
(15)
|
116
|
94
|
427
|
Adjusted ProfitAfter Tax
|
1. Excluding computer software.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back finance income,
finance cost, share of profit from associates net of tax, income
tax expense, depreciation, one-off and adjusting items, and
amortisation, impairment of intangible assets and other non-cash
expenses to profit for the year.
|
|
2023£m
|
2022£m
|
|
Profit for the year
|
381
|
232
|
|
Add back:
|
|
|
|
Finance income
|
(48)
|
(49)
|
|
Finance cost
|
189
|
79
|
|
Share of profit from associates net of tax
|
(9)
|
(9)
|
|
Income tax expense
|
112
|
64
|
|
Depreciation
|
300
|
276
|
|
Other non-cash expenses
|
30
|
12
|
|
One-off and adjusting items
|
98
|
136
|
|
Amortisation and impairment of intangible assets1
|
175
|
118
|
|
Adjusted EBITDA
|
1,228
|
859
|
1. Excluding computer software.
Adjusted Earnings Per Share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of shares in issue during the year, and is explained
in Note 6 to the Financial Statements. Adjusted Earnings Per Share
is calculated by dividing adjusted profit from continuing
operations attributable to equity holders of the Company
by the weighted average number of ordinary shares in issue and
is shown below.
For Adjusted Diluted Earnings Per Share, the weighted average
number of ordinary shares in issue is adjusted to include all
potential dilutive ordinary shares. The Group's potentially
dilutive ordinary shares are explained in Note 6 to the Financial
Statements.
|
|
2023£m
|
2022£m
|
|
Profit attributable to equity holders of the Company
|
381
|
232
|
|
Add back:
|
|
|
|
Net interest adjustments
|
-
|
(18)
|
|
One-off and adjusting items
|
98
|
136
|
|
Amortisation and impairment of intangibles1
|
175
|
118
|
|
Tax on above items2
|
(70)
|
(41)
|
|
Adjusted profit attributable to equity holders of the
Company
|
584
|
427
|
|
|
|
|
|
Weighted average number of ordinary shares in issue
(million)
|
2,516
|
2,002
|
|
Adjustment for potentially dilutive shares (million)
|
11
|
12
|
|
Weighted average number of ordinary shares for diluted earnings per
share (million)
|
2,527
|
2,014
|
|
|
|
|
|
Basic Adjusted Earnings Per Share
|
23.19p
|
21.34p
|
|
Diluted Adjusted Earnings Per Share
|
23.08p
|
21.22p
|
1. Excluding computer software.
2. The tax effect on add-backs is as follows: one-off and adjusting
items £24m (2022: £20m); amortisation and impairment of
intangibles £44m (2022: £25m); and, net interest
adjustments £2m (2022: £(3)m).
Adjusted cash measures
The Group aims to generate sustainable cash flow in order to
support its acquisition programme and to fund dividend payments to
shareholders. Management considers that this is useful information
for investors. Adjusted cash measures in use are Free Cash Flow,
Adjusted Free Cash Flow, and Adjusted Free Cash Flow
Conversion.
Free Cash Flow
Free Cash Flow is measured as net cash flows from operating
activities, adjusted for cash flows related to the purchase and
sale of property, plant, equipment and intangible assets, cash
flows related to leased assets, cash flows related to one-off and
adjusting items and dividends received from associates. These items
are considered by management to be non-discretionary, as continued
investment in these assets is required to support the day-to-day
operations of the business. Free Cash Flow is used by management
for incentive purposes and is a measure shared with and used by
investors. A reconciliation of net cash flows from operating
activities in the Consolidated Cash Flow Statement to Free Cash
Flow is provided in the table below.
|
|
2023£m
|
2022£m
|
|
Net cash flows from operating activities
|
737
|
600
|
|
Purchase of property, plant, and equipment
|
(167)
|
(153)
|
|
Purchase of intangible assets
|
(44)
|
(37)
|
|
Capital element of lease payments and initial direct costs
incurred
|
(151)
|
(104)
|
|
Proceeds from sale of property, plant and equipment, and
software
|
14
|
5
|
|
Cash impact of one-off and adjusting items
|
107
|
59
|
|
Dividends received from associates
|
4
|
4
|
|
Free Cash Flow
|
500
|
374
|
Adjusted Free Cash Flow and Adjusted Free Cash Flow
Conversion
Adjusted Free Cash Flow Conversion is provided to demonstrate to
investors the proportion of Adjusted Profit After Tax that is
converted to cash. It is calculated by dividing Adjusted Free Cash
Flow by Adjusted Profit After Tax, expressed as a percentage.
Adjusted Free Cash Flow is measured as Free Cash Flow adjusted for
product development additions and net investment hedge cash
interest through Other Comprehensive Income. Product development
additions are adjusted due to their variable size and
non-underlying nature. Net investment hedge cash interest through
Other Comprehensive Income is adjusted because the cash relates to
an item that is not recognised in Adjusted Profit After
Tax.
|
|
2023£m
|
2022£m
|
|
Free Cash Flow
|
500
|
374
|
|
Product development additions
|
10
|
10
|
|
Net investment hedge cash interest through Other Comprehensive
Income
|
12
|
8
|
|
Adjusted Free Cash Flow (a)
|
522
|
392
|
|
Adjusted Profit After Tax (b)
|
584
|
427
|
|
Adjusted Free Cash Flow Conversion (a/b)
|
89.4%
|
91.8%
|
The nearest IFRS-based equivalent measure to Adjusted Free Cash
Flow Conversion would be Cash Conversion, which is shown in the
table below to provide a comparison in the calculation. Cash
Conversion is calculated as net cash flows from operating
activities divided by profit attributable to equity holders of the
Company, expressed as a percentage. Management considers that this
is useful information for investors as it gives an indication
of the quality of profits, and ability of the Group to turn profits
into cash flows.
|
|
2023£m
|
2022£m
|
|
Net cash flows from operating activities (a)
|
737
|
600
|
|
Profit attributable to equity holders of the Company
(b)
|
381
|
232
|
|
Cash Conversion (a/b)
|
193.4%
|
258.6%
|
Adjusted Effective Tax Rate (Adjusted ETR)
Adjusted Effective Tax Rate is used to show investors and
management the rate of tax applied to the Group's Adjusted Profit
Before Tax. The measure is calculated by dividing Adjusted Income
Tax Expense by Adjusted Profit Before Tax, expressed as a
percentage.
|
|
2023£m
|
2022£m
|
|
Income tax expense
|
112
|
64
|
|
Tax adjustments on:
|
|
|
|
Amortisation and impairment of intangible assets1
|
44
|
24
|
|
Net interest adjustments
|
2
|
(3)
|
|
One-off and adjusting items
|
24
|
20
|
|
Adjusted Income Tax Expense (a)
|
182
|
105
|
|
Adjusted Profit Before Tax (b)
|
766
|
532
|
|
Adjusted Effective Tax Rate (a/b)
|
23.8%
|
19.7%
|
1. Excluding computer software.
The Group's effective tax rate (ETR) for 2023 on reported profit
before tax was 22.7% (2022: 21.6%). The Group's Adjusted ETR before
amortisation of intangible assets (excluding computer software),
one-off and adjusting items, and the net interest adjustments for
2023 was 23.8% (2022: 19.7%). This compares with a blended rate of
tax for the countries in which the Group operates of 25.1% (2022:
23.7%). The Group's low tax rate in 2023 is primarily attributable
to net prior-year tax credits of £12m (2022:
£9m).
The Group's tax charge and Adjusted ETR will be influenced by the
global mix and level of profits, changes in future tax rates and
other tax legislation, foreign exchange rates, the utilisation of
brought-forward tax losses on which no deferred tax asset has been
recognised, the resolution of open issues with various tax
authorities, acquisitions and disposals.
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
For the year ended 31 December
|
|
Note
|
2023
£m
|
2022
£m
|
2021
£m
|
|
Revenue
|
2
|
5,375
|
3,714
|
2,957
|
|
Operating expenses
|
|
(4,711)
|
(3,373)
|
(2,610)
|
|
Net impairment losses on financial assets
|
|
(39)
|
(24)
|
-
|
|
Operating profit
|
|
625
|
317
|
347
|
|
Finance income
|
4
|
48
|
49
|
4
|
|
Finance cost
|
3
|
(189)
|
(79)
|
(34)
|
|
Share of profit from associates net of tax
|
|
9
|
9
|
8
|
|
Profit before income tax
|
|
493
|
296
|
325
|
|
Income tax expense1
|
5
|
(112)
|
(64)
|
(62)
|
|
Profit for the year
|
|
381
|
232
|
263
|
|
Profit for the year attributable to:
|
|
|
|
|
|
Equity holders of the Company
|
|
381
|
232
|
263
|
|
Non-controlling interests
|
|
-
|
-
|
-
|
|
Other comprehensive income:
|
|
|
|
|
|
Items that are not reclassified subsequently to the income
statement:
|
|
|
|
|
|
Remeasurement of net defined benefit liability
|
|
-
|
2
|
1
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to the income
statement:
|
|
|
|
|
|
Net exchange adjustments offset in reserves
|
|
(352)
|
(232)
|
(18)
|
|
Net gain/(loss) on net investment hedge
|
|
109
|
(68)
|
15
|
|
Cost of hedging
|
|
9
|
(2)
|
(1)
|
|
Effective portion of changes in fair value of cash flow
hedge
|
|
3
|
(6)
|
13
|
|
Tax related to items taken to other comprehensive
income
|
|
6
|
11
|
2
|
|
Other comprehensive income for the year
|
|
(225)
|
(295)
|
12
|
|
Total comprehensive income for the year
|
|
156
|
(63)
|
275
|
|
Total comprehensive income for the year attributable
to:
|
|
|
|
|
|
Equity holders of the Company
|
|
156
|
(63)
|
275
|
|
Non-controlling interests
|
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Earnings per share attributable to the Company's equity
holders:
|
|
|
|
|
|
Basic
|
6
|
15.14p
|
11.57p
|
14.16p
|
|
Diluted
|
6
|
15.07p
|
11.51p
|
14.10p
|
1. Taxation includes £106m (2022: £58m; 2021: £50m)
in respect of overseas taxation.
All profit is from continuing operations.
Consolidated Balance Sheet
At 31 December
|
|
Note
|
2023
£m
|
Retrospectively
adjusted
20221
£m
|
|
Assets
|
|
|
|
|
Non-current assets
|
|
|
|
|
Intangible assets1
|
9
|
7,042
|
7,303
|
|
Property, plant and equipment
|
10
|
499
|
495
|
|
Right-of-use assets1
|
|
452
|
449
|
|
Investments in associated undertakings1
|
|
44
|
63
|
|
Other investments
|
|
21
|
23
|
|
Deferred tax assets
|
|
43
|
43
|
|
Contract costs1
|
|
224
|
215
|
|
Retirement benefit assets
|
|
3
|
3
|
|
Trade and other receivables
|
|
45
|
90
|
|
Derivative financial instruments
|
|
57
|
21
|
|
|
|
8,430
|
8,705
|
|
Current assets
|
|
|
|
|
Other investments
|
|
1
|
1
|
|
Inventories
|
|
207
|
200
|
|
Trade and other receivables1
|
|
880
|
830
|
|
Current tax assets
|
|
33
|
36
|
|
Derivative financial instruments
|
|
14
|
-
|
|
Cash and cash equivalents
|
11
|
1,562
|
2,170
|
|
|
|
2,697
|
3,237
|
|
Liabilities
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade and other payables1
|
|
(1,144)
|
(1,166)
|
|
Current tax liabilities
|
|
(48)
|
(60)
|
|
Provisions for liabilities and charges
|
17
|
(94)
|
(133)
|
|
Bank and other short-term borrowings1
|
|
(1,134)
|
(1,345)
|
|
Lease liabilities
|
|
(127)
|
(135)
|
|
Derivative financial instruments
|
|
(32)
|
-
|
|
|
|
(2,579)
|
(2,839)
|
|
Net current assets
|
|
118
|
398
|
|
Non-current liabilities
|
|
|
|
|
Other payables1
|
|
(71)
|
(90)
|
|
Bank and other long-term borrowings
|
|
(3,153)
|
(3,574)
|
|
Lease liabilities1
|
|
(318)
|
(325)
|
|
Deferred tax liabilities1
|
|
(517)
|
(513)
|
|
Retirement benefit obligations
|
16
|
(28)
|
(30)
|
|
Provisions for liabilities and charges1
|
17
|
(357)
|
(381)
|
|
Derivative financial instruments
|
|
(16)
|
(92)
|
|
|
|
(4,460)
|
(5,005)
|
|
Net assets
|
|
4,088
|
4,098
|
|
Equity
|
|
|
|
|
Capital and reserves attributable to the Company's equity
holders
|
|
|
|
|
Share capital
|
18
|
25
|
25
|
|
Share premium
|
|
14
|
9
|
|
Other reserves
|
|
532
|
763
|
|
Retained earnings
|
|
3,518
|
3,302
|
|
|
|
4,089
|
4,099
|
|
Non-controlling interests
|
|
(1)
|
(1)
|
|
Total equity
|
|
4,088
|
4,098
|
1. Goodwill, right-of-use assets, investments in associated
undertakings, contract costs, accrued income, accruals, loans,
long-term liabilities, lease liabilities, deferred tax liabilities,
and provisions have been retrospectively adjusted in 2022, in
accordance with IFRS 3, to reflect measurement period adjustments
made relating to the Terminix acquisition (see note
8).
Consolidated Statement of Changes in Equity
For the year ended 31 December
|
|
Attributable to equity holders of the Company
|
|
|
|||
|
|
Share
capital
£m
|
Share
premium
£m
|
Other
reserves
£m
|
Retained
earnings
£m
|
Non-
controlling
interests
£m
|
Total
equity
£m
|
|
At 1 January 2021
|
18
|
7
|
(1,926)
|
3,031
|
1
|
1,131
|
|
Profit for the year
|
-
|
-
|
-
|
263
|
-
|
263
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Net exchange adjustments offset in reserves
|
-
|
-
|
(18)
|
-
|
-
|
(18)
|
|
Net gain on net investment hedge
|
-
|
-
|
15
|
-
|
-
|
15
|
|
Net gain on cash flow hedge1
|
-
|
-
|
13
|
-
|
-
|
13
|
|
Cost of hedging
|
-
|
-
|
(1)
|
-
|
-
|
(1)
|
|
Remeasurement of net defined benefit liability
|
-
|
-
|
-
|
1
|
-
|
1
|
|
Transfer between reserves
|
-
|
-
|
(10)
|
10
|
-
|
-
|
|
Tax related to items taken directly to other comprehensive
income
|
-
|
-
|
-
|
2
|
-
|
2
|
|
Total comprehensive income for the year
|
-
|
-
|
(1)
|
276
|
-
|
275
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
Shares issued in the year
|
1
|
-
|
-
|
(1)
|
-
|
-
|
|
Acquisition of non-controlling interests
|
-
|
-
|
-
|
(8)
|
(2)
|
(10)
|
|
Dividends paid to equity shareholders
|
-
|
-
|
-
|
(139)
|
-
|
(139)
|
|
Cost of equity-settled share-based payment plans
|
-
|
-
|
-
|
10
|
-
|
10
|
|
Tax related to items taken directly to equity
|
-
|
-
|
-
|
5
|
-
|
5
|
|
Movement in the carrying value of put options
|
-
|
-
|
-
|
(8)
|
-
|
(8)
|
|
At 31 December 2021
|
19
|
7
|
(1,927)
|
3,166
|
(1)
|
1,264
|
|
Profit for the year
|
-
|
-
|
-
|
232
|
-
|
232
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Net exchange adjustments offset in reserves
|
-
|
-
|
(232)
|
-
|
-
|
(232)
|
|
Net loss on net investment hedge
|
-
|
-
|
(68)
|
-
|
-
|
(68)
|
|
Net loss on cash flow hedge1
|
-
|
-
|
(6)
|
-
|
-
|
(6)
|
|
Cost of hedging
|
-
|
-
|
(2)
|
-
|
-
|
(2)
|
|
Remeasurement of net defined benefit liability
|
-
|
-
|
-
|
2
|
-
|
2
|
|
Tax related to items taken directly to other comprehensive
income
|
-
|
-
|
-
|
11
|
-
|
11
|
|
Total comprehensive income for the year
|
-
|
-
|
(308)
|
245
|
-
|
(63)
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
Shares issued in the year
|
6
|
-
|
-
|
-
|
-
|
6
|
|
Merger relief on acquisition of Terminix Global Holdings,
Inc.
|
-
|
-
|
3,014
|
-
|
-
|
3,014
|
|
Gain on stock options
|
-
|
2
|
-
|
-
|
-
|
2
|
|
Cost of issuing new shares
|
-
|
-
|
(16)
|
-
|
-
|
(16)
|
|
Dividends paid to equity shareholders
|
-
|
-
|
-
|
(122)
|
-
|
(122)
|
|
Cost of equity-settled share-based payment plans
|
-
|
-
|
-
|
18
|
-
|
18
|
|
Tax related to items taken directly to equity
|
-
|
-
|
-
|
(2)
|
-
|
(2)
|
|
Movement in the carrying value of put options
|
-
|
-
|
-
|
(3)
|
-
|
(3)
|
|
At 31 December 2022
|
25
|
9
|
763
|
3,302
|
(1)
|
4,098
|
|
Adjustment on initial application of IFRS17
|
-
|
-
|
-
|
(1)
|
-
|
(1)
|
|
Adjusted balance as at 1 January 2023
|
25
|
9
|
763
|
3,301
|
(1)
|
4,097
|
|
Profit for the year
|
-
|
-
|
-
|
381
|
-
|
381
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Net exchange adjustments offset in reserves
|
-
|
-
|
(352)
|
-
|
-
|
(352)
|
|
Net gain on net investment hedge
|
-
|
-
|
109
|
-
|
-
|
109
|
|
Net gain on cash flow hedge1
|
-
|
-
|
3
|
-
|
-
|
3
|
|
Cost of hedging
|
-
|
-
|
9
|
-
|
-
|
9
|
|
Tax related to items taken directly to other comprehensive
income
|
-
|
-
|
-
|
6
|
-
|
6
|
|
Total comprehensive income for the year
|
-
|
-
|
(231)
|
387
|
-
|
156
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
Gain on stock options
|
-
|
5
|
-
|
-
|
-
|
5
|
|
Dividends paid to equity shareholders
|
-
|
-
|
-
|
(201)
|
-
|
(201)
|
|
Cost of equity-settled share-based payment plans
|
-
|
-
|
-
|
27
|
-
|
27
|
|
Movement in the carrying value of put options
|
-
|
-
|
-
|
4
|
-
|
4
|
|
At 31 December 2023
|
25
|
14
|
532
|
3,518
|
(1)
|
4,088
|
1. £3m net gain (2022 £6m net loss; 2021: £13m net
gain) on cash flow hedge includes £28m loss (2022: £137m
gain; 2021: £15m loss) from the effective portion of changes
in fair value offset by reclassification to the cost of acquisition
of £nil (2022: £118m gain; 2021: £nil) and
reclassification to the income statement of £31m loss (2022:
£25m gain; 2021: £28m loss) due to changes in foreign
exchange rates.
Shares of £nil (2022: £nil; 2021: £nil) have been
netted against retained earnings. This represents 13.0m (2022:
19.6m; 2021: 9.4m) shares held by the Rentokil Initial Employee
Share Trust, which is not consolidated. The market value of these
shares at 31 December 2023 was £57m (2022: £100m; 2021:
£55m). Dividend income from, and voting rights on, the shares
held by the Trust have been waived.
Analysis of other reserves
|
|
Capital reduction reserve£m
|
Merger
relief
reserve
£m
|
Legal reserve£m
|
Cash flow hedge reserve£m
|
Translation reserve£m
|
Cost of hedging£m
|
Total£m
|
|
At 1 January 2021
|
(1,723)
|
-
|
10
|
(4)
|
(208)
|
(1)
|
(1,926)
|
|
Net exchange adjustments offset in reserves
|
-
|
-
|
-
|
-
|
(18)
|
-
|
(18)
|
|
Net gain on net investment hedge
|
-
|
-
|
-
|
-
|
15
|
-
|
15
|
|
Net gain on cash flow hedge1
|
-
|
-
|
-
|
13
|
-
|
-
|
13
|
|
Transfer between reserves
|
-
|
-
|
(10)
|
-
|
-
|
-
|
(10)
|
|
Cost of hedging
|
-
|
-
|
-
|
-
|
-
|
(1)
|
(1)
|
|
Total other comprehensive income for the year
|
-
|
-
|
(10)
|
13
|
(3)
|
(1)
|
(1)
|
|
At 31 December 2021
|
(1,723)
|
-
|
-
|
9
|
(211)
|
(2)
|
(1,927)
|
|
Net exchange adjustments offset in reserves
|
-
|
-
|
-
|
-
|
(232)
|
-
|
(232)
|
|
Net loss on net investment hedge
|
-
|
-
|
-
|
-
|
(68)
|
-
|
(68)
|
|
Net loss on cash flow hedge1
|
-
|
-
|
-
|
(6)
|
-
|
-
|
(6)
|
|
Cost of hedging
|
-
|
-
|
-
|
-
|
-
|
(2)
|
(2)
|
|
Total other comprehensive income for the year
|
-
|
-
|
-
|
(6)
|
(300)
|
(2)
|
(308)
|
|
Transactions with owners:
|
|
|
|
|
|
|
|
|
Merger relief on acquisition of Terminix Global Holdings,
Inc.
|
-
|
3,014
|
-
|
-
|
-
|
-
|
3,014
|
|
Cost of issuing new shares
|
-
|
(16)
|
-
|
-
|
-
|
-
|
(16)
|
|
At 31 December 2022
|
(1,723)
|
2,998
|
-
|
3
|
(511)
|
(4)
|
763
|
|
Net exchange adjustments offset in reserves
|
-
|
-
|
-
|
-
|
(352)
|
-
|
(352)
|
|
Net loss on net investment hedge
|
-
|
-
|
-
|
-
|
109
|
-
|
109
|
|
Net gain on cash flow hedge1
|
-
|
-
|
-
|
3
|
-
|
-
|
3
|
|
Cost of hedging
|
-
|
-
|
-
|
-
|
-
|
9
|
9
|
|
Total other comprehensive income for the year
|
-
|
-
|
-
|
3
|
(243)
|
9
|
(231)
|
|
At 31 December 2023
|
(1,723)
|
2,998
|
-
|
6
|
(754)
|
5
|
532
|
1. £3m net gain (2022 £6m net loss; 2021: £13m net
gain) on cash flow hedge includes £28m loss (2022: £137m
gain; 2021: £15m loss) from the effective portion of changes
in fair value offset by reclassification to the cost of acquisition
of £nil (2022: £118m gain; 2021: £nil) and
reclassification to the income statement of £31m loss (2022:
£25m gain; 2021: £28m loss) due to changes in foreign
exchange rates.
The capital reduction reserve arose in 2005 as a result of the
scheme of arrangement of Rentokil Initial 1927 plc, under section
425 of the Companies Act 1985, to introduce a new holding company,
Rentokil Initial plc, and the subsequent reduction in capital
approved by the High Court whereby the nominal value of each
ordinary share was reduced from 100p to 1p.
The legal reserve represents amounts set aside in compliance with
local laws in certain countries in which the Group operates. An
assessment of this reserve was completed during 2021 and determined
that these amounts are no longer required to be set aside.
Accordingly, the balance of £10m was transferred back to the
retained earnings reserve.
The excess of the fair value of shares issued to fund the
acquisition of Terminix over their par value gave rise to a new
reserve called a Merger Relief Reserve. Under section 612 of the
Companies Act 2006, merger relief is available if certain
circumstances are met when a business is acquired by issuing shares
to replace already issued shares. This reserve is unrealised (and
therefore not distributable), but it may become realised at a later
date, for example on disposal of the investment to which it relates
or on impairment of that investment (which may occur after payment
of a dividend by the investment).
Consolidated Cash Flow Statement
For the year ended 31 December
|
|
Note
|
2023£m
|
2022£m
|
2021£m
|
|
Cash flows from operating
activities1
|
|
|
|
|
|
Operating profit
|
|
625
|
317
|
347
|
|
Adjustments for:
|
|
|
|
|
|
- Depreciation and impairment of property, plant and
equipment
|
|
154
|
148
|
128
|
|
- Depreciation and impairment of leased assets
|
|
120
|
106
|
78
|
|
- Amortisation and impairment of intangible assets (excluding
computer software
|
|
175
|
118
|
74
|
|
- Amortisation and impairment of computer software
|
|
26
|
22
|
17
|
|
- Other non-cash items
|
|
26
|
8
|
6
|
|
Changes in working capital (excluding the effects of acquisitions
and exchange differences on consolidation):
|
|
|
|
|
|
- Inventories
|
|
(15)
|
(4)
|
(3)
|
|
- Contract costs
|
|
(19)
|
(10)
|
(5)
|
|
- Trade and other receivables
|
|
(29)
|
5
|
59
|
|
- Trade and other payables and provisions
|
|
(60)
|
6
|
(32)
|
|
Interest received
|
|
25
|
13
|
5
|
|
Interest paid2
|
|
(191)
|
(52)
|
(42)
|
|
Income tax paid
|
|
(100)
|
(77)
|
(69)
|
|
Net cash flows from operating activities
|
|
737
|
600
|
563
|
|
Cash flows from investing activities
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(167)
|
(153)
|
(128)
|
|
Purchase of intangible assets
|
|
(44)
|
(37)
|
(32)
|
|
Proceeds from sale of property, plant and equipment
|
|
14
|
5
|
7
|
|
Acquisition of companies and businesses, net of cash
acquired
|
8
|
(242)
|
(1,018)
|
(463)
|
|
Disposal of companies and businesses
|
|
-
|
1
|
-
|
|
Disposal of investment in associate
|
|
19
|
-
|
-
|
|
Dividends received from associates
|
|
4
|
4
|
4
|
|
Net change to cash flow from investment in term
deposits
|
|
-
|
1
|
171
|
|
Net cash flows from investing activities
|
|
(416)
|
(1,197)
|
(441)
|
|
Cash flows from financing activities
|
|
|
|
|
|
Dividends paid to equity shareholders
|
7
|
(201)
|
(122)
|
(139)
|
|
Acquisition of shares from non-controlling interest
|
|
-
|
-
|
(9)
|
|
Capital element of lease payments
|
|
(157)
|
(104)
|
(88)
|
|
Cost of issuing new shares
|
|
-
|
(16)
|
-
|
|
Cash (outflow)/inflow on settlement of debt-related foreign
exchange forward contracts
|
|
(3)
|
26
|
(19)
|
|
Proceeds from new debt
|
|
-
|
2,383
|
5
|
|
Debt repayments
|
|
-
|
(844)
|
(167)
|
|
Net cash flows from financing activities
|
|
(361)
|
1,323
|
(417)
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
(40)
|
726
|
(295)
|
|
Cash and cash equivalents at beginning of year
|
|
879
|
242
|
551
|
|
Exchange losses on cash and cash equivalents
|
|
(7)
|
(89)
|
(14)
|
|
Cash and cash equivalents at end of the financial year
|
11
|
832
|
879
|
242
|
1. Cash flows from operating activities has been revised in 2023 to
show a reconciliation from operating profit to net cash flows from
operating activities - part of this reconciliation was previously
shown in a separate table in the notes to the financial
statements.
2. Interest paid includes the interest element of lease payments of
£25m (2022: £10m; 2021: £6m).
Notes to the financial statements
1. Changes in accounting policies
Except as described below, the accounting policies applied in these
Financial Statements are the same as those applied in the Group's
Consolidated Financial Statements for the year ended 31 December
2022.
The Group has adopted the following new standards and amendments to
standards, including any consequential amendments to other
standards, with effect from 1 January 2023:
|
●
|
introduction of IFRS 17 Insurance contracts (for
non-issuers);
|
|
●
|
amendments to IAS 8 Definition of accounting
estimates;
|
|
●
|
amendments to IAS 1 Disclosure of accounting policies;
and
|
|
●
|
amendments to IAS 12 Deferred tax.
|
The application of these amendments has had no material impact on
the disclosures of the amounts recognised in the Group's
Consolidated Financial Statements. Consequently, no adjustment has
been made to the comparative financial information at 31 December
2022.
Certain new accounting standards, amendments to accounting
standards and interpretations have been published that are not
mandatory for 31 December 2023 reporting periods and have not been
early adopted by the Group. These standards, amendments or
interpretations are not expected to have a material impact on the
entity in the current or future reporting periods and on
foreseeable future transactions.
Retrospective adjustments to prior year comparatives
In accordance with the requirements of IFRS 3 Business
Combinations, 2022 comparative information has been retrospectively
adjusted to show the effect of measurement period adjustments
arising on the Terminix acquisition during 2023. Further details
can be found in note 8.
2. Revenue recognition and operating segments
Revenue recognition
Revenue
represents the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the Group
expects to be entitled. All revenue is considered revenue from
contracts with customers as defined by IFRS 15, including job work
and sales of goods. Under IFRS 15, revenue is recognised when a
customer obtains control of goods or services in line with
identifiable performance obligations. In the majority of cases the
Group considers that the contracts it enters into are contracts for
bundled services which are accounted for as a single performance
obligation. Accordingly the majority of revenue across the Group is
recognised on an output basis evenly over the course of the
contract because the customer simultaneously receives and consumes
the benefits provided by the Group's performance as it performs.
Job work is short-term contract revenue whereby the period of
service is typically less than one month in duration. The
performance obligations linked to this revenue type are individual
to each job due to their nature, with revenue being recognised at a
point in time on completion. Where consumables are supplied
separately from the service contract, revenue is recognised at the
point the goods transfer.
The transaction price reported for all contracts is the price
agreed in the contract and there are no material elements of
variable consideration, financing component or non-cash
consideration. The Group applies the practical expedient in
paragraph 121 of IFRS 15 and does not disclose information about
remaining performance obligations because the Group has a right to
consideration from customers in an amount that corresponds directly
with the value to the customer of the performance obligations
completed to date.
Disaggregation of revenue into category, region and major type of
revenue stream is shown below under segmental
reporting.
Contract costs
Contract
costs are mainly incremental costs of obtaining contracts
(primarily sales commissions directly related to contracts
obtained), and to a lesser extent costs to fulfil contracts which
are not within the scope of other standards (mainly incremental
costs of putting resources in place to fulfil
contracts).
It is anticipated that these costs are recoverable over the life of
the contract to which they relate. Accordingly, the Group
capitalises them as contract costs and amortises them over the
expected life of the contracts. Management takes a portfolio
approach to recognising contract costs, and the expected length of
contracts across the Group and associated amortisation periods are
between three and seven years.
The contract costs recognised in the balance sheet at the period
end amounted to £224m (2022 retrospectively adjusted:
£215m; 2021: £75m). The amount of amortisation recognised
in the period was £121m (2022: £39m; 2021: £30m) and
impairment losses were £nil (2022: £nil; 2021:
£nil).Applying the practical expedient in paragraph 94 of IFRS
15, the Group recognises the incremental costs of obtaining
contracts as an expense when incurred if the amortisation period of
the assets that the Group otherwise would have recognised is one
year or less.
Contract liabilities
Contract
liabilities relate to advance consideration received from customers
where the performance obligations have yet to be satisfied. All
opening balances have subsequently been satisfied in the year. In
most business categories where revenue is recognised over time,
customers are invoiced in advance or simultaneously with
performance obligations being satisfied.
Segment reporting
Segmental
information has been presented in accordance with IFRS 8 Operating
Segments. The Group's operating segments are regions and this
reflects the internal management reporting structures and the way
information is reviewed by the chief operating decision maker (the
Chief Executive). Each region is headed by a Regional Managing
Director who reports directly to the Chief Executive and is a
member of the Group's Executive Leadership Team responsible for the
review of Group performance. The businesses within each operating
segment operate in a number of different countries and sell
services across three business segments.
The LATAM region is combined with Europe in the Group's segment
reporting. It is the Group's smallest region and not considered
reportable under the quantitative thresholds in IFRS 8. It is
combined with Europe as they are similar with respect to economic
characteristics, the nature of services provided, the type of
customers, methods used to provide services, and language and
cultural similarities.
Disaggregated revenue under IFRS 15 is the same as the segmental
analysis below. Restructuring costs, one-off and adjusting items,
amortisation and impairment of intangible assets (excluding
computer software), and central and regional costs are presented at
a Group level as they are not targeted or managed at reportable
segment level. The basis of presentation is consistent with the
information reviewed by internal management.
Revenue and profit from continuing operations
|
|
Revenue
2023
£m
|
Revenue1
2022
£m
|
Revenue1
2021
£m
|
Operating
profit
2022
£m
|
Operating
profit1
2022
£m
|
Operating
profit1
2021
£m
|
|
North America2
|
|
|
|
|
|
|
|
Pest Control
|
3,201
|
1,746
|
1,149
|
599
|
297
|
187
|
|
Hygiene & Wellbeing
|
105
|
103
|
142
|
18
|
18
|
29
|
|
|
3,306
|
1,849
|
1,291
|
617
|
315
|
216
|
|
Europe (incl LATAM)
|
|
|
|
|
|
|
|
Pest Control
|
516
|
427
|
350
|
124
|
103
|
92
|
|
Hygiene & Wellbeing
|
344
|
322
|
316
|
52
|
53
|
54
|
|
France Workwear
|
221
|
192
|
166
|
39
|
31
|
17
|
|
|
1,081
|
941
|
832
|
215
|
187
|
163
|
|
UK & Sub-Saharan Africa
|
|
|
|
|
|
|
|
Pest Control1
|
195
|
182
|
171
|
51
|
47
|
45
|
|
Hygiene & Wellbeing
|
195
|
183
|
183
|
43
|
48
|
49
|
|
|
390
|
365
|
354
|
94
|
95
|
94
|
|
Asia & MENAT
|
|
|
|
|
|
|
|
Pest Control
|
250
|
231
|
187
|
34
|
34
|
25
|
|
Hygiene & Wellbeing
|
89
|
90
|
84
|
11
|
11
|
11
|
|
|
339
|
321
|
271
|
45
|
45
|
36
|
|
Pacific
|
|
|
|
|
|
|
|
Pest Control
|
124
|
104
|
90
|
22
|
16
|
14
|
|
Hygiene & Wellbeing
|
125
|
123
|
107
|
33
|
32
|
25
|
|
|
249
|
227
|
197
|
55
|
48
|
39
|
|
Central and regional overheads
|
10
|
11
|
12
|
(121)
|
(107)
|
(96)
|
|
Restructuring costs
|
-
|
-
|
-
|
(7)
|
(12)
|
(10)
|
|
Revenue and Adjusted Operating Profit
|
5,375
|
3,714
|
2,957
|
898
|
571
|
442
|
|
One-off and adjusting items
|
|
|
|
(98)
|
(136)
|
(21)
|
|
Amortisation and impairment of intangible assets3
|
|
|
|
(175)
|
(118)
|
(74)
|
|
Operating Profit
|
|
|
|
625
|
317
|
347
|
1. Central and regional overheads revenue relates to the wholesale
of metalwork and consumables including hygiene and pest control
products. It is managed centrally rather than in any region. During
2023, internal management reporting structures changed and revenue
and profit have been represented for 2022 and 2021 under the new
structure. As a result of this change revenue of £5m and
operating profit of £1m was moved from UK & Sub-Saharan
Africa - Pest Control to central and regional overheads for each
year..
2. During 2023 there were impairment losses recognised in North
America related to ROU assets of £nil (2022: £17m; 2021:
£nil) and related to property, plant and equipment of
£nil (2022: £8m; 2021: £nil).
3. Excluding computer software.
Other segment items included in the consolidated income statement
are as follows:
|
|
Amortisation and
impairment of
intangibles1
2023
£m
|
Amortisation and
impairment of
intangibles1
2022
£m
|
Amortisation and
impairment of
intangibles1
2021
£m
|
|
North America
|
118
|
59
|
34
|
|
Europe (incl. LATAM)
|
24
|
29
|
14
|
|
UK & Sub-Saharan Africa
|
8
|
-
|
9
|
|
Asia & MENAT
|
11
|
20
|
7
|
|
Pacific
|
6
|
4
|
4
|
|
Central and regional
|
8
|
6
|
6
|
|
Total
|
175
|
118
|
74
|
|
Tax effect
|
(44)
|
(25)
|
(18)
|
|
Total after tax effect
|
131
|
93
|
56
|
1. Excluding computer software.
3. Finance cost
|
|
2023
£m
|
2022
£m
|
2021
£m
|
|
Hedged interest payable on medium-term notes
issued1
|
61
|
39
|
10
|
|
Interest payable on bank loans and overdrafts1
|
42
|
5
|
3
|
|
Interest payable on RCF1
|
3
|
1
|
1
|
|
Interest payable on foreign exchange swaps2
|
44
|
19
|
14
|
|
Interest payable on leases
|
25
|
10
|
6
|
|
Amortisation of discount on provisions
|
14
|
3
|
-
|
|
Fair value loss on hedge ineffectiveness
|
-
|
2
|
-
|
|
Total finance cost
|
189
|
79
|
34
|
1. Interest expense on financial liabilities held at amortised
cost.
2. Interest payable on foreign exchange swaps including coupon
interest payable for the year was £55m (2022: £26m).
£12m has been reported in other comprehensive income due to
hedge accounting (2022: £8m).
4. Finance income
|
|
2023
£m
|
2022
£m
|
2021
£m
|
|
Bank interest received
|
25
|
5
|
1
|
|
Fair value gain on hedge ineffectiveness
|
1
|
22
|
-
|
|
Foreign exchange gain on translation of foreign
assets/liabilities
|
11
|
-
|
-
|
|
Hyperinflation accounting adjustment
|
11
|
22
|
3
|
|
Total finance income
|
48
|
49
|
4
|
5. Income tax expense
Analysis of charge in the year:
|
|
2023
£m
|
2022
£m
|
2021
£m
|
|
Current tax expense
|
94
|
76
|
57
|
|
Adjustment in respect of previous periods
|
(8)
|
2
|
(3)
|
|
Total current tax
|
86
|
78
|
54
|
|
Deferred tax expense/(credit)
|
30
|
(3)
|
21
|
|
Deferred tax adjustment in respect of previous periods
|
(4)
|
(11)
|
(13)
|
|
Total deferred tax
|
26
|
(14)
|
8
|
|
Total income tax expense
|
112
|
64
|
62
|
The income tax expense for the period comprises both current and
deferred tax. Current tax expense represents the amount payable on
this year's taxable profits and any adjustment relating to prior
years. Deferred tax is an accounting adjustment to provide for tax
that is expected to arise in the future due to differences between
accounting and tax bases. Deferred tax is determined using tax
rates that are expected to apply when the timing difference
reverses based on tax rates which are enacted or substantively
enacted at the balance sheet date. Tax is recognised in the income
statement, except to the extent that it relates to items recognised
in other comprehensive income or equity. In this case the tax is
also recognised in other comprehensive income or equity as
appropriate.
The current income tax charge is calculated on the basis of the tax
laws enacted or substantively enacted at the balance sheet date in
the countries where the Group's subsidiaries and associates operate
and generate taxable income.
Deferred income tax is provided on temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the Consolidated Financial Statements. The following
temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities in
transactions other than a business combination that at the time of
the transactions affect neither the accounting nor taxable profit
or loss; and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable
future. The amount of deferred income tax is determined using tax
rates (and laws) that have been enacted (or substantively enacted)
at the balance sheet date, and are expected to apply when the
related deferred income tax asset is realised or the deferred
income tax liability is settled. Deferred tax balances are not
discounted.
Deferred tax assets and liabilities are offset against each other
when the timing differences relate to income taxes levied by the
same tax authority on an entity or different entities which are
part of a tax consolidation and there would be the intention to
settle on a net basis.
Deferred income tax assets are recognised to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilised. The amount of
deferred tax assets recognised at each balance sheet date is
adjusted to reflect changes in management's assessment of future
taxable profits that will enable the tax losses to be recovered. In
recognising the deferred tax asset in respect of losses, management
has estimated the quantum of future taxable profits over the next
ten years as this is the period over which it is considered that
profits can be reasonably estimated.
A deferred tax asset of £38m has been recognised in respect of
losses (2022: £23m), of which £28m (2022: £18m)
relates to UK losses carried forward at 31 December 2023. This
amount has been calculated by estimating the future UK taxable
profits, against which the UK tax losses will be utilised,
progressively risk weighted, and applying the tax rates
(substantively enacted as at the balance sheet date) applicable for
each year. Remaining UK tax losses of £34m (2022: £120m)
have not been recognised as at 31 December 2023 as it is not
considered probable that future taxable profits will be available
against which the tax losses can be offset. Deferred tax assets are
expected to be substantially utilised in the next 10
years.
At the balance sheet date the Group had tax losses of £169m
(2022: £230m) on which no deferred tax asset is recognised
because it is not considered probable that future taxable profits
will be available in certain jurisdictions to be able to benefit
from those tax losses. Of the losses, £95m (2022: £74m)
will expire at various dates between 2024 and 2040.
The cash tax paid for the year was £100m (2022: £77m,
2021: £69m). The cash tax paid is expected to increase in
future periods due to the acquisition of Terminix.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit after
tax attributable to equity holders of the Company by the weighted
average number of shares in issue during the year, excluding those
held in the Rentokil Initial Employee Share Trust (see note at the
bottom of the Consolidated Statement of Changes in Equity) which
are treated as cancelled, and including share options for which all
conditions have been met.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to include all potential
dilutive ordinary shares. The Group's potentially dilutive ordinary
shares relate to the contingent issuable shares under the Group's
long-term incentive plans (LTIPs) to the extent that the
performance conditions have been met at the end of the period.
These share options are issued for nil consideration to employees
if performance conditions are met.
For the calculation of diluted earnings per share, 18,422 share
options were anti-dilutive and not included in the calculation of
the dilutive effect as at 31 December 2023 (31 December 2022:
1,290,294; 31 December 2021: nil).
Details of the calculation of earnings per share are set out
below:
|
|
2023
£m
|
2022
£m
|
2021
£m
|
|
Profit attributable to equity holders of the Company
|
381
|
232
|
263
|
|
|
|
|
|
|
Weighted average number of ordinary shares in issue
(million)
|
2,516
|
2,002
|
1,858
|
|
Adjustment for potentially dilutive shares (million)
|
11
|
12
|
8
|
|
Weighted average number of ordinary shares for diluted earnings per
share (million)
|
2,527
|
2,014
|
1,866
|
|
|
|
|
|
|
Basic earnings per share
|
15.14p
|
11.57p
|
14.16p
|
|
Diluted earnings per share
|
15.07p
|
11.51p
|
14.10p
|
7. Dividends
Dividend distribution to the Company's shareholders is recognised
as a liability in the Group's Financial Statements in the period in
which the dividends are approved by the Company's shareholders.
Interim dividends are recognised when paid.
|
|
2023
£m
|
2022
£m
|
2021
£m
|
|
2020 final dividend paid - 5.41p per share
|
-
|
-
|
100
|
|
2021 interim dividend paid - 2.09p per share
|
-
|
-
|
39
|
|
2021 final dividend paid - 4.30p per share
|
-
|
80
|
-
|
|
2022 interim dividend paid - 2.40p per share
|
-
|
42
|
-
|
|
2022 final dividend paid - 5.15p per share
|
131
|
-
|
-
|
|
2023 interim dividend paid - 2.75p per share
|
70
|
-
|
-
|
|
Total
|
201
|
122
|
139
|
An interim dividend of 2.75p per share was paid on 11 September
2023 amounting to £70m. A final dividend in respect of 2023 of
5.93p per share is to be proposed at the Annual General Meeting on
8 May 2024.
The aggregate amount of the proposed dividend to be paid out of
retained earnings at 31 December 2023, but not recognised as a
liability at year end, is £150m (2022: £130m; 2021:
£80m).
8. Business combinations
During the year the Group purchased 100% of the share capital or
trade and assets of 41 companies and businesses (2022: 53). The
total consideration in respect of these acquisitions was £261m
(2022: £4,369m) and the cash outflow from current and past
period acquisitions net of cash acquired, was £242m (2022:
£1,018m).
During the year, measurement period adjustments have been made in
relation to the Terminix acquisition. These have been reflected as
a retrospective adjustment of 2022 comparatives in accordance with
IFRS 3 as follows:
|
|
As
reported
£m
|
Measurement
period
adjustment
£m
|
Retrospectively
adjusted
£m
|
|
Non-current assets
|
|
|
|
|
- Intangible assets
|
2,027
|
-
|
2,027
|
|
- Property, plant and equipment1
|
249
|
(5)
|
244
|
|
- Other non-current assets
|
143
|
47
|
190
|
|
Current assets
|
701
|
(3)
|
698
|
|
Current liabilities
|
(311)
|
(5)
|
(316)
|
|
Non-current liabilities
|
(1,875)
|
(18)
|
(1,893)
|
|
Net assets acquired
|
934
|
16
|
950
|
|
Goodwill
|
3,176
|
(16)
|
3,160
|
1. Includes ROU assets
Goodwill on all acquisitions represents the synergies and other
benefits expected to be realised from integrating acquired
businesses into the Group, such as improved route density,
expansion in use of best-in-class digital tools and back office
synergies. Details of goodwill and the fair value of net assets
acquired in the year are as follows:
|
|
Total
2023
£m
|
Terminix Global Holdings, Inc.1
2022
£m
|
Individually immaterial acquisitions
2022
£m
|
Retrospectively
adjusted
Total1
2022
£m
|
|
Purchase consideration
|
|
|
|
|
|
- Cash paid
|
203
|
1,087
|
214
|
1,301
|
|
- Deferred and contingent consideration
|
58
|
-
|
45
|
45
|
|
- Equity interests
|
-
|
3,023
|
-
|
3,023
|
|
Total purchase consideration
|
261
|
4,110
|
259
|
4,369
|
|
Fair value of net assets acquired1
|
(88)
|
(950)
|
(87)
|
(1,037)
|
|
Goodwill from current-year
acquisitions1
|
173
|
3,160
|
172
|
3,332
|
|
Goodwill expected to be deductible for tax purposes
|
76
|
-
|
60
|
60
|
1. Goodwill (decrease £16m), contract costs (increase
£36m), investments in associates (increase £11m), ROU
assets (decrease £5m), provisions (increase £24m), lease
liabilities (decrease £8m), loans (decrease £11m),
long-term liabilities (increase £11m), deferred tax
liabilities (increase £2m), accrued income (decrease £3m)
and accruals (increase £5m) have been retrospectively adjusted
in 2022, in accordance with IFRS 3, to reflect measurement period
adjustments made relating to the Terminix acquisition.
Deferred consideration of £15m and contingent consideration of
£43m are payable in respect of the above acquisitions (2022:
£22m and £23m respectively). Contingent consideration is
payable based on a variety of conditions including revenue and
profit targets being met. Amounts for both deferred and contingent
consideration are payable over the next five years. The Group has
recognised contingent and deferred consideration based on fair
value at the acquisition date. A range of outcomes for contingent
consideration payments cannot be estimated due to the variety of
performance conditions and the volume of businesses the Group
acquires. During the year there were releases of contingent
consideration liabilities not paid of £nil (2022:
£10m).
The fair values7 of
assets and liabilities arising from acquisitions in the year are as
follows:
|
|
Total
2023
£m
|
Terminix Global Holdings, Inc.1
2022
£m
|
Individually immaterial acquisitions
2022
£m
|
Retrospectively
adjusted
Total1
2022
£m
|
|
Non-current assets
|
|
|
|
|
|
- Intangible assets2
|
80
|
2,027
|
74
|
2,101
|
|
- Property, plant and equipment3
|
12
|
244
|
14
|
258
|
|
- Other non-current assets
|
-
|
190
|
-
|
190
|
|
Current assets4
|
22
|
698
|
28
|
726
|
|
Current liabilities5
|
(12)
|
(316)
|
(11)
|
(327)
|
|
Non-current liabilities6
|
(14)
|
(1,893)
|
(18)
|
(1,911)
|
|
Net assets acquired
|
88
|
950
|
87
|
1,037
|
1. Contract costs (increase £36m), investments in associates
(increase £11m), ROU assets (decrease £5m), provisions
(increase £24m), lease liabilities (decrease £8m), loans
(decrease £11m), long-term liabilities (increase £11m),
deferred tax liabilities (increase £2m), accrued income
(decrease £3m) and accruals (increase £5m) have been
retrospectively adjusted in 2022, in accordance with IFRS 3, to
reflect measurement period adjustments made relating to the
Terminix acquisition.
2. Includes £69m (2022: £778m) of customer lists,
£nil (2022: £1,292m) of indefinite-lived brands and
£11m (2022: £31m) of other intangibles.
3. Includes £1m (2022: £195m) of right-of-use
assets.
4. Includes cash acquired of £8m (2022: £322m), inventory
of £2m (2022: £48m) and trade and other receivables of
£12m (2022: £357m).
5. Includes trade and other payables of £10m (2022:
£326m).
6. Includes £12m of deferred tax liabilities relating to
acquired intangibles (2022: £447m), £nil of debt that was
acquired with the Terminix business and repaid in November 2022
(2022: £749m), lease liabilities of £1m (2022:
£207m), termite damage claims provisions of £nil (2022:
£353m) and other provisions of £1m (2022:
£144m).
7. The fair values of assets and liabilities from acquisitions in
the current year will be finalised in the 2024 Financial
Statements. These fair values are provisional as the acquisition
accounting has not yet been finalised, primarily due to the
proximity of many acquisitions to the year end.
The cash outflow from current and past acquisitions is as
follows:
|
|
Total
2023
£m
|
Terminix Global Holdings, Inc.
2022
£m
|
Individually immaterial acquisitions
2022
£m
|
Retrospectively
adjusted
Total
2022
£m
|
|
Total purchase consideration
|
261
|
4,110
|
259
|
4,369
|
|
Equity interests
|
-
|
(3,023)
|
-
|
(3,023)
|
|
Consideration payable in future periods
|
(58)
|
-
|
(45)
|
(45)
|
|
Purchase consideration paid in cash
|
203
|
1,087
|
214
|
1,301
|
|
Cash and cash equivalents in acquired companies and
businesses
|
(8)
|
(313)
|
(9)
|
(322)
|
|
Cash outflow on current period acquisitions
|
195
|
774
|
205
|
979
|
|
Deferred and contingent consideration paid
|
47
|
-
|
39
|
39
|
|
Cash outflow on current and past acquisitions
|
242
|
774
|
244
|
1,018
|
From the dates of acquisition to 31 December 2023, new acquisitions
contributed £75m to revenue and £10m to operating profit
(2022: £422m and £3m respectively).
If the acquisitions had occurred on 1 January 2023, the revenue and
operating profit of the combined Group would have amounted to
£5,414m and £628m respectively (2022: £5,109m and
£444m respectively).
9. Intangible assets
A breakdown of intangible assets is as shown below:
|
|
Goodwill1
£m
|
Customer
lists
£m
|
Indefinite-lived brands
£m
|
Other
intangibles
£m
|
Product development
£m
|
Computer
software
£m
|
Total1
£m
|
|
Cost
|
|
|
|
|
|
|
|
|
At 1 January 2022
|
1,888
|
876
|
-
|
67
|
46
|
163
|
3,040
|
|
Exchange differences
|
(72)
|
(5)
|
(107)
|
2
|
(1)
|
6
|
(177)
|
|
Additions
|
-
|
-
|
-
|
-
|
10
|
27
|
37
|
|
Disposals/retirements
|
-
|
(180)
|
-
|
(12)
|
-
|
(1)
|
(193)
|
|
Acquisition of companies and businesses¹
|
3,336
|
779
|
1,292
|
23
|
-
|
11
|
5,441
|
|
Hyperinflationary adjustment
|
14
|
3
|
-
|
1
|
-
|
-
|
18
|
|
Disposal of companies and businesses
|
(1)
|
-
|
-
|
-
|
-
|
-
|
(1)
|
|
At 31 December 2022 (retrospectively adjusted)
|
5,165
|
1,473
|
1,185
|
81
|
55
|
206
|
8,165
|
|
Exchange differences
|
(269)
|
(70)
|
(58)
|
(5)
|
-
|
(3)
|
(405)
|
|
Additions
|
-
|
-
|
-
|
-
|
10
|
34
|
44
|
|
Disposals/retirements
|
(2)
|
(15)
|
-
|
(12)
|
-
|
(8)
|
(37)
|
|
Acquisition of companies and businesses
|
172
|
69
|
-
|
11
|
-
|
-
|
252
|
|
Hyperinflationary adjustment
|
14
|
3
|
-
|
1
|
-
|
-
|
18
|
|
At 31 December 2023
|
5,080
|
1,460
|
1,127
|
76
|
65
|
229
|
8,037
|
|
Accumulated amortisation and impairment
|
|||||||
|
At 1 January 2022
|
(44)
|
(635)
|
-
|
(48)
|
(32)
|
(117)
|
(876)
|
|
Exchange differences
|
1
|
(31)
|
-
|
(2)
|
-
|
(5)
|
(37)
|
|
Disposals/retirements
|
-
|
179
|
-
|
12
|
-
|
1
|
192
|
|
Hyperinflationary adjustment
|
-
|
(1)
|
-
|
-
|
-
|
-
|
(1)
|
|
Impairment charge
|
(22)
|
-
|
-
|
-
|
-
|
-
|
(22)
|
|
Amortisation charge
|
-
|
(85)
|
-
|
(6)
|
(5)
|
(22)
|
(118)
|
|
At 31 December 2022
|
(65)
|
(573)
|
-
|
(44)
|
(37)
|
(143)
|
(862)
|
|
Exchange differences
|
12
|
26
|
-
|
2
|
-
|
3
|
43
|
|
Disposals/retirements
|
2
|
15
|
-
|
12
|
-
|
7
|
36
|
|
Hyperinflationary adjustment
|
(10)
|
(1)
|
-
|
-
|
-
|
-
|
(11)
|
|
Impairment charge
|
(3)
|
(1)
|
-
|
-
|
-
|
-
|
(4)
|
|
Amortisation charge
|
-
|
(155)
|
-
|
(9)
|
(7)
|
(26)
|
(197)
|
|
At 31 December 2023
|
(64)
|
(689)
|
-
|
(39)
|
(44)
|
(159)
|
(995)
|
|
Net book value
|
|
|
|
|
|
|
|
|
At 1 January 2022
|
1,844
|
241
|
-
|
19
|
14
|
46
|
2,164
|
|
At 31 December 20221
|
5,100
|
900
|
1,185
|
37
|
18
|
63
|
7,303
|
|
At 31 December 2023
|
5,016
|
771
|
1,127
|
37
|
21
|
70
|
7,042
|
1. Goodwill has been retrospectively adjusted by a decrease of
£16m in 2022, in accordance with IFRS 3, to reflect
measurement period adjustments made relating to the Terminix
acquisition (see note 8).
10. Property, plant and equipment
A breakdown of property, plant and equipment is shown
below:
|
|
Land and
buildings
£m
|
Service contract equipment
£m
|
Other plant and
equipment
£m
|
Vehicles
and office
equipment
£m
|
Total
£m
|
|
Cost
|
|
|
|
|
|
|
At 1 January 2022
|
87
|
518
|
188
|
210
|
1,003
|
|
Exchange differences
|
5
|
27
|
11
|
15
|
58
|
|
Additions
|
7
|
112
|
19
|
19
|
157
|
|
Disposals
|
(1)
|
(72)
|
(7)
|
(27)
|
(107)
|
|
Acquisition of companies and businesses
|
29
|
2
|
4
|
30
|
65
|
|
Reclassification from IFRS 16 ROU assets1
|
-
|
-
|
-
|
8
|
8
|
|
At 31 December 2022
|
127
|
587
|
215
|
255
|
1,184
|
|
Exchange differences
|
(7)
|
(20)
|
(5)
|
(15)
|
(47)
|
|
Additions
|
7
|
123
|
14
|
23
|
167
|
|
Disposals
|
(9)
|
(77)
|
(9)
|
(25)
|
(120)
|
|
Acquisition of companies and businesses
|
-
|
1
|
1
|
8
|
10
|
|
Hyperinflationary adjustment
|
4
|
-
|
-
|
1
|
5
|
|
Reclassification from IFRS 16 ROU assets1
|
-
|
-
|
-
|
8
|
8
|
|
At 31 December 2023
|
122
|
614
|
216
|
255
|
1,207
|
|
Accumulated depreciation and impairment
|
|
|
|
|
|
|
At 1 January 2022
|
(31)
|
(314)
|
(135)
|
(125)
|
(605)
|
|
Exchange differences
|
(3)
|
(18)
|
(8)
|
(11)
|
(40)
|
|
Disposals
|
1
|
72
|
6
|
25
|
104
|
|
Impairment charge
|
(8)
|
-
|
-
|
-
|
(8)
|
|
Depreciation charge
|
(3)
|
(96)
|
(14)
|
(27)
|
(140)
|
|
At 31 December 2022
|
(44)
|
(356)
|
(151)
|
(138)
|
(689)
|
|
Exchange differences
|
2
|
14
|
5
|
7
|
28
|
|
Disposals
|
4
|
75
|
8
|
22
|
109
|
|
Hyperinflationary adjustment
|
(1)
|
-
|
-
|
(1)
|
(2)
|
|
Depreciation charge
|
(5)
|
(102)
|
(15)
|
(32)
|
(154)
|
|
At 31 December 2023
|
(44)
|
(369)
|
(153)
|
(142)
|
(708)
|
|
Net book value
|
|
|
|
|
|
|
At 1 January 2022
|
56
|
204
|
53
|
85
|
398
|
|
At 31 December 2022
|
83
|
231
|
64
|
117
|
495
|
|
At 31 December 2023
|
78
|
245
|
63
|
113
|
499
|
1. Certain leased assets become owned assets at the end of their
lease period and are therefore reclassified from ROU
assets.
11. Cash and cash equivalents
Cash and cash equivalents include cash in hand, short-term bank
deposits and other short-term highly liquid investments with
original maturities of three months or less (and subject to
insignificant changes in value). In the cash flow statement, cash
and cash equivalents are shown net of bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities on
the balance sheet.
Cash at bank and in hand includes £15m (2022: £13m) of
restricted cash. This cash is held in respect of specific contracts
and can only be utilised in line with terms under the contractual
arrangements.
Cash at bank and in hand also includes £70m (2022: £69m)
of cash held in countries with foreign exchange regulations. This
cash is repatriated to the UK where possible, if not required for
operational purposes in country.
Fair value is equal to carrying value for all cash and cash
equivalents.
|
|
Gross
amounts
2023
£m
|
Gross
amounts
2022
£m
|
|
Cash at bank and in hand
|
1,080
|
1,713
|
|
Money market funds
|
153
|
236
|
|
Short-term bank deposits
|
329
|
221
|
|
Cash and cash equivalents in the Consolidated Balance
Sheet
|
1,562
|
2,170
|
|
Bank overdraft
|
(730)
|
(1,291)
|
|
Cash and cash equivalents in the Consolidated Cash Flow
Statement
|
832
|
879
|
12. Reconciliation of net changes in cash and cash equivalents to
net debt
Reconciliation of net change in cash and cash equivalents to net
debt:
|
|
Opening
2023
£m
|
Cash
flows
£m
|
Non-cash
(fair value changes, accruals and acquisitions)
£m
|
Non-cash (foreign exchange
and other)
£m
|
Closing
2023
£m
|
|
Bank and other short-term borrowings
|
(1,345)
|
664
|
(106)
|
(347)
|
(1,134)
|
|
Bank and other long-term borrowings
|
(3,574)
|
-
|
-
|
421
|
(3,153)
|
|
Lease liabilities
|
(460)
|
182
|
(162)
|
(5)
|
(445)
|
|
Other investments
|
1
|
-
|
-
|
-
|
1
|
|
Fair value of debt-related derivatives
|
(71)
|
39
|
(1)
|
56
|
23
|
|
Gross debt
|
(5,449)
|
885
|
(269)
|
125
|
(4,708)
|
|
Cash and cash equivalents in the Consolidated Balance
Sheet
|
2,170
|
(601)
|
-
|
(7)
|
1,562
|
|
Net debt
|
(3,279)
|
284
|
(269)
|
118
|
(3,146)
|
|
|
Opening
2022
£m
|
Cash
flows
£m
|
Non-cash
(fair value changes, accruals and acquisitions)1
£m
|
Non-cash (foreign exchange
and other) 1
£m
|
Closing
2022 1
£m
|
|
Bank and other short-term borrowings1
|
(459)
|
(121)
|
(762)
|
(3)
|
(1,345)
|
|
Bank and other long-term borrowings
|
(1,256)
|
(2,257)
|
-
|
(61)
|
(3,574)
|
|
Lease liabilities1
|
(217)
|
114
|
(217)
|
(140)
|
(460)
|
|
Other investments
|
1
|
-
|
-
|
-
|
1
|
|
Fair value of debt-related derivatives
|
(22)
|
(7)
|
19
|
(61)
|
(71)
|
|
Gross debt1 (retrospectively
adjusted)
|
(1,953)
|
(2,271)
|
(960)
|
(265)
|
(5,449)
|
|
Cash and cash equivalents in the Consolidated Balance
Sheet
|
668
|
1,591
|
-
|
(89)
|
2,170
|
|
Net debt1 (retrospectively
adjusted)
|
(1,285)
|
(680)
|
(960)
|
(354)
|
(3,279)
|
1. Bank and other short-term borrowings (decrease £9m) and
lease liabilities (decrease £7m) have been retrospectively
adjusted in 2022, in accordance with IFRS 3, to reflect measurement
period adjustments made relating to the Terminix acquisition (see
note 8).
13. Fair value estimation
All financial instruments held at fair value are classified by
reference to the source of inputs used to derive the fair value.
The following hierarchy is used:
|
Level 1
|
- unadjusted quoted prices in active markets for identical
assets or liabilities;
|
|
Level 2
|
- inputs other than quoted prices that are observable for the asset
or liability either directly as prices or indirectly through
modelling based on prices; and
|
|
Level 3
|
- inputs for the asset or liability that are not based on
observable market data.
|
|
Financial instrument
|
Hierarchy level
|
Valuation method
|
|
Financial assets traded in active markets
|
1
|
Current bid price
|
|
Financial liabilities traded in active markets
|
1
|
Current ask price
|
|
Listed bonds
|
1
|
Quoted market prices
|
|
Money market funds
|
1
|
Quoted market prices
|
|
Interest rate/currency swaps
|
2
|
Discounted cash flow based on market swap rates
|
|
Forward foreign exchange contracts
|
2
|
Forward exchange market rates
|
|
Borrowings not traded in active markets (term loans and uncommitted
facilities)
|
2
|
Nominal value
|
|
Money market deposits
|
2
|
Nominal value
|
|
Trade payables and receivables
|
2
|
Nominal value less estimated credit adjustments
|
|
Contingent consideration (including put option
liability)
|
3
|
Discounted cash flow using WACC
|
14. Analysis of bank and bond debt
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are classified as current
liabilities unless the Group has a continuing right to defer
settlement of the liability for at least 12 months after the
balance sheet date.
The Group's bank debt comprises:
|
|
Facility
amount
2023
£m
|
Drawn at
year end
2023
£m
|
Headroom
2023
£m
|
Interest rate
at year end
2023
%
|
|
Non-current
|
|
|
|
|
|
$700m term loan due October 2025
|
550
|
550
|
-
|
5.94
|
|
$1.0bn RCF due October 2028
|
785
|
-
|
785
|
0.14
|
|
|
Facility
amount
2022
£m
|
Drawn at
year end
2022
£m
|
Headroom
2022
£m
|
Interest rate
at year end
2022
%
|
|
Non-current
|
|
|
|
|
|
$700m term loan due October 2025
|
579
|
579
|
-
|
4.9
|
|
$1.0bn RCF due October 2028
|
827
|
-
|
827
|
0.14
|
The RCF was undrawn throughout 2022 and 2023.
Medium-term notes and bond debt comprises:
|
|
Bond interest coupon
2023
|
Effective hedged interest rate
2023
|
Bond interest coupon
2022
|
Effective hedged interest rate
2022
|
|
Current
|
|
|
|
|
|
€400m bond due November 2024
|
Fixed 0.950%
|
Fixed 3.60%
|
Fixed 0.950%
|
Fixed 3.08%
|
|
Non-current
|
|
|
|
|
|
€500m bond due May 2026
|
Fixed 0.875%
|
Fixed 2.80%
|
Fixed 0.875%
|
Fixed 1.78%
|
|
€850m bond due June 2027
|
Fixed 3.875%
|
Fixed 5.01%
|
Fixed 3.875%
|
Fixed 3.98%
|
|
€600m bond due October 2028
|
Fixed 0.500%
|
Fixed 2.23%
|
Fixed 0.500%
|
Fixed 1.30%
|
|
€600m bond due June 2030
|
Fixed 4.375%
|
Fixed 4.48%
|
Fixed 4.375%
|
Fixed 4.38%
|
|
£400m bond due June 2032
|
Fixed 5.000%
|
Fixed 5.20%
|
Fixed 5.000%
|
Fixed 5.11%
|
|
Average cost of bond debt at year-end rates
|
3.97%
|
|
3.28%
|
|
The effective hedged interest rate reflects the interest rate
payable after the impact of interest due from cross-currency swaps.
The Group's hedging strategy is to hold foreign currency debt in
proportion to foreign currency profit and cash flows, which are
mainly in euro and US dollar. As a result, the Group has swapped a
portion of the bonds it has issued into US dollars, thus increasing
the effective hedged interest rate.
The Group considers the fair value of other current liabilities to
be equal to the carrying value.
16. Provisions for liabilities and charges
The Group has provisions for termite damage claims, self-insurance,
environmental, and other. Provisions are recognised when the Group
has a present obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and the amount is capable of being reliably estimated.
If such an obligation is not capable of being reliably estimated it
is classified as a contingent liability.
Future cash flows relating to these obligations are discounted when
the effect is material. The effect of discounting environmental
provisions and other provisions is not considered to be material
due to the low level of expected future cash flows. Termite damage
claim provisions and self-insurance provisions are discounted, and
the majority of these provisions are held in the US. The discount
rate used is based on US government bond rates, and was 5.25%
(2022: 3.5%-5.875%).
|
|
Termite damage
claims1
£m
|
Self-
insurance
£m
|
Environmental1
£m
|
Other
£m
|
Total1
£m
|
|
At 1 January 2022
|
-
|
37
|
11
|
13
|
61
|
|
Exchange differences1
|
(29)
|
(7)
|
-
|
-
|
(36)
|
|
Additional provisions
|
3
|
30
|
-
|
8
|
41
|
|
Used during the year
|
(10)
|
(26)
|
(2)
|
(8)
|
(46)
|
|
Unused amounts reversed
|
-
|
(6)
|
-
|
(2)
|
(8)
|
|
Acquisition of companies and businesses1
|
354
|
136
|
7
|
1
|
498
|
|
Unwinding of discount on provisions
|
3
|
1
|
-
|
-
|
4
|
|
At 31 December 20221(retrospectively
adjusted)
|
321
|
165
|
16
|
12
|
514
|
|
|
|
|
|
|
|
|
At 1 January 2023
|
321
|
165
|
16
|
12
|
514
|
|
Exchange differences
|
(14)
|
(8)
|
(1)
|
1
|
(22)
|
|
Additional provisions
|
15
|
56
|
3
|
7
|
81
|
|
Used during the year
|
(73)
|
(44)
|
(2)
|
(7)
|
(126)
|
|
Unused amounts reversed
|
-
|
(8)
|
-
|
(3)
|
(11)
|
|
Acquisition of companies and businesses
|
-
|
-
|
-
|
1
|
1
|
|
Unwinding of discount on provisions
|
11
|
3
|
-
|
-
|
14
|
|
At 31 December 2023
|
260
|
164
|
16
|
11
|
451
|
|
|
2023Total£m
|
Retrospectively
adjusted
2022Total1£m
|
|
Analysed as follows:
|
|
|
|
Non-current1
|
357
|
381
|
|
Current
|
94
|
133
|
|
Total
|
451
|
514
|
1. Termite damage claim provisions and environmental provisions
have been retrospectively adjusted in 2022 by an increase of
£18m and £4m respectively, in accordance with IFRS 3, to
reflect measurement period adjustments made relating to the
Terminix acquisition.
Termite damage claims
The Group holds provisions for termite damage claims covered by
contractual warranties. Termite damage claim provisions are subject
to significant assumptions and estimation uncertainty. The
assumptions included in valuing termite provisions are based on an
estimate of the volume and value of future claims (based on
historical and forecast information), customer churn rates and
discount rates. These provisions are expected to be substantially
utilised within the next 20 years at a declining rate. The trend of
volume and value of claims is monitored and reviewed over time
(with the support of external advisers) and as such the value of
the provision is also likely to change.
The sensitivity of the liability balance to changes in the inputs
is illustrated as follows:
|
●
|
Discount rate - The exposure to termite damage claims is largely
based within the United States, therefore measurement is based on a
seven-year US bond risk-free rate. During 2023, interest rates (and
therefore discount rates) have moved up and are at their highest
level in over a decade. Rates could move in either direction and
management has modelled that an increase/decrease of 5% in yields
(would decrease/increase the provision by £3m (2022:
£3m). Over the 12 months to 31 December 2023, seven-year
risk-free rate yields have decreased c.4% from 4.03% to
3.88%.
|
|
●
|
Claim value - Claim value forecasts have been based on the latest
available historical settled Terminix claims. Claims values are
dependent on a range of inputs including labour cost, materials
costs (e.g. timber), whether a claim becomes litigated or not, and
specific circumstances including contributory factors at the
premises. Management has determined the historical time period for
each material category of claim, between three months and one year,
to determine an estimate for costs per claim. Recent fluctuations
in input prices (e.g. timber prices) means that there is potential
for volatility in claim values and therefore future material
changes in provisions. Management has modelled that an
increase/decrease of 5% in claim values would increase/decrease the
provision by c.£15m (2022: £14m). Over the 12 months to
31 December 2023, as a result of accelerating the clear down of
legacy longstanding claims and other macroeconomic factors, in-year
costs per claim rose by c.32% (2022: 17%).
|
|
●
|
Claim rate - Management has estimated claim rates based on
statistical historical incurred claims. Data has been captured and
analysed by a third-party agency, to establish incidence curves
that can be used to estimate likely future cash outflows. Changes
in rates of claim are largely outside the Group's control and may
depend on litigation trends within the US, and other external
factors such as how often customers move property and how well they
maintain those properties. This causes estimation uncertainty that
could lead to material changes in provision measurement. Management
has modelled that an increase/decrease of 5% in overall claim rates
would increase/decrease the provision by c.£15m (2022:
£14m), accordingly. Over the 12 months to 31 December 2023
claim rates fell by c.7% (2022: 16%).
|
|
●
|
Customer churn rate - If customers choose not to renew their
contracts each year, then the assurance warranty falls away. As
such there is sensitivity to the assumption on how many customers
will churn out of the portfolio of customers each year. Data has
been captured and analysed by a third-party agency, to establish
incidence curves for customer churn, and forward looking
assumptions have been made based on these curves. Changes in churn
rates are subject to macroeconomic factors and to the performance
of the Group. A 1% movement in customer churn rates, up or down,
would change the provision by c.£11m up or down (2022:
£10m), accordingly. On average over the last 10 years churn
rates have moved by +/- c.1.8% per annum (2022:
+/-1.2%).
|
Self-insurance
The
Group purchases external insurance from a portfolio of
international insurers for its key insurable risks, mainly
employee-related risks. Self-insured deductibles within these
insurance policies have changed over time due to external market
conditions and scale of operations. These provisions represent
obligations for open claims and are estimated based on
actuarial/management's assessment at the balance sheet date. The
Group expects to continue self-insuring the same level of risks and
estimates that all pending claims should settle within the next
five years.
Environmental
The
Group owns, or formerly owned, a number of properties in Europe and
the US where environmental contamination is being managed. These
issues tend to be complex to determine and resolve and may be
material, although it is often not possible to accurately predict
future costs of management or remediation reliably. Provisions are
held where liability is probable and costs can be reliably
estimated. Contingent liabilities exist where the conditions for
recognising a provision under IAS 37 have not been met. The Group
monitors such properties to determine whether further provisions
are necessary. The provisions that have been recognised are
expected to be substantially utilised within the next five
years.
Other
Other
provisions principally comprise amounts required to cover
obligations arising and costs relating to disposed businesses and
restructuring costs. Other provisions also includes costs relating
to onerous contracts and property dilapidations settlements.
Existing provisions are expected to be substantially utilised
within the next five years.
17. Share capital
During the year, 2,500,000 new shares were issued in relation to
employee share schemes.
|
|
2023£m
|
2022£m
|
|
Issued and fully paid
|
|
|
|
At 31 December - 2,522,539,885 shares (2022:
2,520,039,885)
|
25
|
25
|
18. Post balance sheet events
There have been no significant post balance sheet events affecting
the Group since 31 December 2023.
19. Legal statements
The financial information for the year ended 31 December 2023
contained in this preliminary announcement has been approved by the
Board and authorised for release on 7 March 2024.
The financial information in this statement does not constitute the
Company's statutory accounts for the years ended 31 December 2023
or 2022. The financial information for 2022 and 2023 is derived
from the statutory accounts for 2022 (which have been delivered to
the registrar of companies) and 2023 (which will be delivered to
the registrar of companies following the AGM in May 2024). The
auditors have reported on the 2022 and 2023 accounts; their report
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
The statutory accounts for 2023 are prepared in accordance with
UK-adopted International Accounting Standards and International
Financial Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB). The accounting
policies (that comply with IFRS) used by Rentokil Initial plc ("the
Group") are consistent with those set out in the 2022 Annual
Report. A full list of accounting policies will be presented in the
2023 Annual Report. For details of new accounting policies
applicable to the Group in 2023 and their impact please refer to
Note 1.
20. 2023 Annual Report
Copies of the 2023 Annual Report will be sent to shareholders who
have elected to receive hard copies on or around 27 March 2024
and will also be available from the Company's registered office by
contacting the Company Secretariat
(secretariat@rentokil-initial.com) and at www.rentokil-initial.com
in PDF format.
21. Financial calendar
The Company's Annual General Meeting will be held at, and be
broadcast from, the Company's offices at Compass House, Manor
Royal, Crawley, West Sussex, RH10 9PY from 11.30am on 8 May 2024.
Shareholders should refer to the Notice of Meeting and the
Company's website at www.rentokil-initial.com/agm for further
information on the AGM.
22. Responsibility statements
The Directors consider that the Annual Report, which includes the
Financial Statements, complies with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority in respect of the requirement to produce an annual
financial report.
Each of the Directors, whose names and functions are set out in the
2023 Annual Report, confirms that, to the best of their
knowledge:
|
●
|
the Group Financial Statements, which have been prepared in
accordance with UK-adopted International Accounting Standards and
International Reporting Financial Standards as issued by the
International Accounting Standards Board, give a true and fair view
of the assets, liabilities, financial position and profit of the
Group;
|
|
●
|
the Company's Financial Statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS
101 'Reduced Disclosure Framework', give a true and fair view of
the assets, liabilities, financial position and profit of the
Company; and
|
|
●
|
the Annual Report includes a fair review of the development and
performance of the business and the position of the Group, together
with a description of the principal risks and uncertainties that it
faces.
|
By Order of the Board
Andy Ransom
Chief Executive
7 March 2024
Cautionary statement
In order to utilise the 'safe harbour' provisions of the U.S.
Private Securities Litigation Reform Act of 1995 (the "PSLRA") and
the general doctrine of cautionary statements, Rentokil Initial plc
("the Company") is providing the following cautionary statement:
This communication contains forward-looking statements within the
meaning of the PSLRA. Forward-looking statements can sometimes, but
not always, be identified by the use of forward-looking terms such
as "believes," "expects," "may," "will," "shall," "should,"
"would," "could," "potential," "seeks," "aims," "projects,"
"predicts," "is optimistic," "intends," "plans," "estimates,"
"targets," "anticipates," "continues" or other comparable terms or
negatives of these terms and include statements regarding Rentokil
Initial's intentions, beliefs or current expectations concerning,
amongst other things, the results of operations of the Company and
its consolidated entities ("Rentokil Initial" or "the Group")
(including preliminary results for the year ended 31 December
2023), financial condition, liquidity, prospects, growth,
strategies and the economic and business circumstances occurring
from time to time in the countries and markets in which Rentokil
Initial operates. Forward-looking statements are based upon current
plans, estimates and expectations that are subject to risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialise, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated
or anticipated by such forward-looking statements. The Company can
give no assurance that such plans, estimates or expectations will
be achieved and therefore, actual results may differ materially
from any plans, estimates or expectations in such forward-looking
statements. Important factors that could cause actual results to
differ materially from such plans, estimates or expectations
include: the Group's ability to integrate acquisitions
successfully, or any unexpected costs or liabilities from the
Group's disposals; difficulties in integrating, streamlining and
optimising the Group's IT systems, processes and technologies; the
availability of a suitably skilled and qualified labour force to
maintain the Group's business; the Group's ability to attract,
retain and develop key personnel to lead the business; the impact
of environmental, social and governance ("ESG") matters, including
those related to climate change and sustainability, on the Group's
business, reputation, results of operations, financial condition
and/or prospects; inflationary pressures, such as increases in
wages, fuel prices and other operating costs; supply chain issues,
which may result in product shortages or other disruptions to the
Group's business; weakening general economic conditions, including
changes in the global job market, or decreased consumer confidence
or spending levels especially as they may affect demand from the
Group's customers; the Group's ability to implement its business
strategies successfully, including achieving its growth objectives;
the Group's ability to retain existing customers and attract new
customers; the highly competitive nature of the Group's industries;
cyber security breaches, attacks and other similar incidents, as
well as disruptions or failures in the Group's IT systems or data
security procedures and those of its third-party service providers;
extraordinary events that impact the Group's ability to service
customers without interruption, including a loss of its third-party
distributors; the Group's ability to protect its intellectual
property and other proprietary rights that are material to the
Group's business; the Group's reliance on third parties, including
third-party vendors for business process outsourcing initiatives,
investment counterparties, and franchisees, and the risk of any
termination or disruption of such relationships or counterparty
default or litigation; the identification of material weaknesses in
the Group's internal control over financial reporting within the
meaning of Section 404 of the Sarbanes-Oxley Act; any future
impairment charges, asset revaluations or downgrades; failure to
comply with the many laws and governmental regulations to which the
Group is subject or the implementation of any new or revised laws
or regulations that alter the environment in which the Group does
business, as well as the costs to the Group of complying with any
such changes; termite damage claims and lawsuits related thereto
and any associated impacts on the termite provision; the Group's
ability to comply with safety, health and environmental policies,
laws and regulations, including laws pertaining to the use of
pesticides; any actual or perceived failure to comply with
stringent, complex and evolving laws, rules, regulations and
standards in many jurisdictions, as well as contractual
obligations, including data privacy and security; changes in tax
laws and any unanticipated tax liabilities; adverse credit and
financial market events and conditions, which could, among other
things, impede access to or increase the cost of financing; the
restrictions and limitations within the agreements and instruments
governing our indebtedness; a lowering or withdrawal of the
ratings, outlook or watch assigned to the Group's debt securities
by rating agencies; an increase in interest rates and the resulting
increase in the cost of servicing the Group's debt; and exchange
rate fluctuations and the impact on the Group's results or the
foreign currency value of the Company's ADSs and any dividends. The
list of factors presented here is representative and should not be
considered to be a complete statement of all potential risks and
uncertainties. Unlisted factors may present significant additional
obstacles to the realisation of forward-looking statements. The
Company cautions you not to place undue reliance on any of these
forward-looking statements as they are not guarantees of future
performance or outcomes and that actual performance and outcomes,
including, without limitation, the Group's actual results of
operations, financial condition and liquidity, and the development
of new markets or market segments in which the Group operates, may
differ materially from those made in or suggested by the
forward-looking statements contained in this communication. Except
as required by law, Rentokil Initial assumes no obligation to
update or revise the information contained herein, which speaks
only as of the date hereof.
Additional information concerning these and other factors can be
found in Rentokil Initial's filings with the U.S. Securities and
Exchange Commission ("SEC"), which may be obtained free of charge
at the SEC's website, http:// www.sec.gov, and Rentokil Initial's
Annual Reports, which may be obtained free of charge from the
Rentokil Initial website,
https://www.rentokil-initial.com
No statement in this announcement is intended to be a profit
forecast and no statement in this announcement should be
interpreted to mean that earnings per share of Rentokil Initial for
the current or future financial years would necessarily match or
exceed the historical published earnings per share of Rentokil
Initial.
This communication presents certain further non-IFRS measures,
which should not be viewed in isolation as alternatives to the
equivalent IFRS measure, rather they should be viewed as
complements to, and read in conjunction with, the equivalent IFRS
measure. These include revenue and profit measures presented at
actual exchange rates ("AER" - IFRS) and constant full year 2022
exchange rates ("CER" - Non-GAAP). Non-IFRS measures include
Adjusted Operating Profit, Adjusted Profit Before Tax, Adjusted
Profit After Tax, Adjusted EBITDA, Adjusted Interest, Adjusted
Earnings Per Share , Free Cash Flow, Adjusted Free Cash Flow,
Adjusted Free Cash Flow Conversion, Adjusted Effective Tax rate and
Organic Revenue, Adjusted Operating Profit represents the
performance of the continuing operations of the Group (including
acquisitions), and enables the users of the accounts to focus on
the performance of the businesses retained by the Group, and that
will therefore contribute to the future performance. Adjusted
Operating Profit and Adjusted profit before tax exclude certain
items that could distort the underlying trading performance. The
Group's internal strategic planning process is also based on these
measures, and they are used for incentive purposes. These measures
may not be calculated in the same way as similarly named measures
reported by other companies.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
Date:
07 March 2024
|
RENTOKIL INITIAL PLC
|
|
|
/s/ Stuart
Ingall-Tombs
|
|
|
Name:
Stuart Ingall-Tombs
|
|
|
Title:
Chief Financial Officer
|
|
|
|