TIDMRTO
RNS Number : 1565T
Rentokil Initial PLC
16 March 2023
2022 Preliminary Results
Strong Organic Revenue growth and margin expansion
Excellent early progress on Terminix integration and cost
synergy guidance raised
Well positioned to deliver at least 5.0% medium term Organic
Revenue growth and >19.0% Group Adjusted Operating Margins in FY
25, up from c.15% pre Terminix
Financial Results AER CER
-------------------------- -----------------------
GBPm 2022 2021 Change 2022 2021 Change
GBPm GBPm % GBPm GBPm %
------------------------ ------- ------- -------- ------ ------ -------
Revenue 3,714 2,957 25.6% 3,522 2,957 19.1%
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Adjusted EBITDA 859 676 27.1%
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Adjusted Operating
Profit 571 442 29.4% 542 442 22.7%
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Adjusted Profit before
Tax 532 416 27.7% 515 416 23.5%
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Free Cash Flow 374 353 5.9%
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Diluted Adjusted
EPS 21.22p 17.99p 18.0%
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Statutory Results
------- ------- -------- ------ ------ -------
Revenue 3,714 2,957 25.6%
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Operating Profit 317 347 (8.4%)
------- ------- -------- ------ ------ -------
Profit before Tax 296 325 (9.1%)
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EPS 11.57p 14.16p (18.3%)
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Dividend Per Share 7.55p 6.39p 18.2%
------------------------ ------- ------- -------- ------ ------ -------
2022 Highlights (Unless otherwise stated, all financials include
Terminix from the date of transaction completion and are presented
at constant exchanges rates. Organic Revenue growth figures exclude
COVID disinfection.)
-- Revenue up 19.1% , reflecting benefit of M&A, including Terminix,
and strong Organic Revenue(1) growth of 6.6% , driven by
resilient demand and effective price progression. Statutory
Revenue up 25.6% to GBP3,714m at AER. As expected, COVID
disinfection revenue reduced to GBP20m (FY 21: GBP117m),
with GBP6m in H2
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- Organic Revenue growth of 5.7% in North America, with
Terminix and Rentokil North America(2) delivering similar
rates of growth
---------------------------------------------------------------
- Organic Revenue up 9.1% in Europe, the Group's second
largest region
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- Strong broad-based Organic Revenue growth across all business
categories: 5.6% in Pest Control; 9.3% in Hygiene & Wellbeing;
and 16.6% in France Workwear
---------------------------------------------------------------
-- Adjusted Operating Profit increased 22.7%; 23.5% growth in
Adjusted PBT. Statutory PBT down 9.1% to GBP296m at AER due
to one-off and adjusting items, and interest related to the
Terminix transaction
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- Group Adjusted Operating Margin up 45bps to 15.4%(3) ,
the highest for 20 years
---------------------------------------------------------------
- Margin improvement driven by 26bps improvement in underlying
trading performance and 19bps net impact from Terminix
transaction
---------------------------------------------------------------
-- Free Cash Flow of GBP374m leading to 91.8% Adjusted Free
Cash Flow conversion
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-- Pro forma net debt to Adjusted EBITDA of less than 3.2x at
31 December 2022, as expected. Net debt at GBP3.3bn in line
with Q3 guidance
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-- Excellent progress on Terminix integration with cost synergy
guidance increased to at least $200m
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- $13m pre-tax net P&L cost synergies achieved in FY 22,
ahead of $4m guidance. On track to deliver a further $60m
in FY 23, with total synergy target increased from at
least $150m to at least $200m in FY 25
---------------------------------------------------------------
- Additional non-cash benefit of $18m in FY 22, reflecting
application of IFRS accounting for termite provisions
and LTIPs; a further $32m of non-cash benefits expected
in FY 23
---------------------------------------------------------------
-- Continued strong execution on M&A:
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- 52 acquisitions (excluding Terminix) completed in 2022
for an aggregate consideration of GBP259m.
Robust pipeline of high-quality M&A in place. Guidance
on targeted spend in FY 23 of c.GBP250m
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-- Recommended final dividend of 5.15p to bring total dividend
for 2022 to 7.55p per share, an increase of 18.2%, in line
with our progressive policy
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-- Successful integration of Terminix and ongoing execution
of our strategy will enable the enlarged Group to deliver
a highly attractive investment proposition:
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- Medium term Organic Revenue growth target increased to
at least 5.0%
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- Group Adjusted Operating Margin for FY 23 of c.16.5%,
with North America Adjusted Operating Margin of c.19.5%
---------------------------------------------------------------
- Group Adjusted Operating Margin greater than 19.0% and
Free Cash Flow conversion of at least 90% in FY 25
---------------------------------------------------------------
- Net debt to EBITDA of less than 3x by the end of FY 24,
falling rapidly to 2-2.5x thereafter
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- Continued progressive dividend policy
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________________________________________________________________________________________________________
Andy Ransom, Chief Executive of Rentokil Initial plc, said:
"Our strong financial results, with Organic Revenue growth of
6.6%, demonstrate the resilience of our business model. We continue
to successfully manage cost inflation, while driving investment in
our services and people to sustain high levels of customer and
colleague retention.
All of this has been achieved alongside the landmark acquisition
of Terminix, reinforcing Rentokil Initial as the largest pest
control company in the world. Early progress on integration has
been excellent. I am especially pleased with today's announcement
of an increase in expectations for total cost synergies to at least
$200m that evidences our strong conviction in the enlarged Group's
financial and strategic opportunities going forward."
2023 Outlook
We start the new calendar year with confidence in our plans,
both operational and strategic. This is underpinned by the
Company's inherently resilient business model as we continue to
offset inflation with pricing and the early headway made in
delivery of Terminix acquisition benefits. For the full year,
notwithstanding the prevailing macroeconomic challenges, we expect
continued good underlying trading momentum.
The Group's expectations for annual pre-tax net cost synergies
achievable from the Terminix acquisition are increased from at
least $150m to at least $200m by the end of FY 25, with $60m of
incremental pre-tax net cost synergies expected to be delivered in
FY 23. In-line with the increase in annualised go-forward cost
synergies, total one-time cost to achieve synergies are expected to
be c.$200m. In addition, we expect to benefit from $32m of further
non-cash benefits in FY 23 arising from the application of IFRS
accounting of termite provisions and LTIPs.
With margin protection from continued proactive cost inflation
management and margin accretion from strategy execution, synergy
delivery and IFRS accounting adjustments, Group Adjusted Operating
Margin in FY 23 is expected to increase to c.16.5% and North
America Adjusted Operating Margin to c.19.5%.
Our anticipated spend on M&A in FY 23 is c.GBP250m and Free
Cash Flow conversion is expected to be 80-90%, primarily reflecting
the impact of accounting adjustments.
The Group remains on track to achieve mid-teens EPS accretion in
FY 23.
Medium term Guidance
As a result of our ongoing operational and strategic plans,
combined with the benefits from the acquisition and integration of
Terminix, we are increasing our medium term guidance for Organic
Revenue growth from 4.0%-5.0% to at least 5.0%. In FY 25, we expect
to deliver a Group Adjusted Operating Margin of greater than
19.0%.
As the impact of accounting adjustments phases out, Free Cash
Flow conversion should increase back to at least 90% by FY 25.
As previously guided, we expect leverage to be consistent with
BBB rating by the end of FY 24. Net debt to EBITDA is expected to
be less than 3x by the end of FY 24 and we remain on plan to
deliver net debt to EBITDA of 2.0x to 2.5x in the medium term. The
Group is on track for ROIC to exceed WACC by FY 25.
Our progressive dividend policy remains unchanged.
Enquiries:
Rentokil Initial
Investors / Analysts: Peter Russell plc 07795 166506
Rentokil Initial
Media: Malcolm Padley plc 07788 978199
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A presentation for investors and analysts will be held today, 16
March at 9.15am in the Bartholomew Suite Conference Room, The
Leonardo Royal Hotel, 45 Prescot Street, London E1 8GP. This will
be available via a live audio webcast at
www.rentokil-initial.com.
________________________________________________________________________________________________________
Notes
1 Organic Revenue growth represents the growth in Revenue
excluding the effect of businesses acquired during the year.
Acquired businesses are included in organic measures in the year
following acquisition, and the comparative period is adjusted to
include an estimated full year performance for growth calculations
(pro forma revenue). The Terminix acquisition is treated
differently to other acquisitions for Organic Revenue growth
purposes. The full pre-acquisition results of the Terminix business
are included for the comparative period and Organic Revenue growth
is calculated as the growth in Revenue compared to the comparative
period.
2 Rentokil North America refers to the Rentokil Initial business
in North America not inclusive of Terminix.
3 Includes net synergy benefit but excludes costs to achieve
which are one-off by nature..
AER - actual exchange rates; CER - constant 2021 exchange
rates
Non-GAAP measures - This statement presents certain non-GAAP
measures, which should not be viewed in isolation as alternatives
to the equivalent IFRS measure, rather they should be read in
conjunction with the equivalent IFRS measure. These include revenue
and profit measures presented at constant exchange rates ("CER"),
Organic Revenue Growth (including and excluding disinfection),
Adjusted Operating Profit and Adjusted Operating Profit at CER,
Adjusted Operating Margin at CER, Adjusted Profit Before Tax and
Adjusted Profit Before Tax at CER, Adjusted Profit After Tax,
EBITDA, Free Cash Flow, Adjusted Free Cash Flow, Adjusted Free Cash
Flow Conversion, Adjusted Cash Flow (previously named Operating
Cash Flow), Adjusted Earnings Per Share and Diluted Adjusted
Earnings Per Share. These measures may not be calculated in the
same way as similarly named measures reported by other companies.
Management believes that these measures provide valuable additional
information for users of Rentokil Initial's Financial Statements in
order to better understand the underlying trading performance in
the year from activities and businesses that will contribute to
future performance. The Group's internal strategic planning process
is also based on these measures and they are used for incentive
purposes. They should be viewed as complements to, and not
replacements for, the comparable IFRS measures.
Adjusted Operating Profit represent the performance of the
continuing operations of the Group (including acquisitions), and
enable 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 the measures used along with reconciliation to the nearest IFRS
measures is provided in Note 2 on page 22.
Summary of financial performance (at CER)
Regional Performance
Revenue Adjusted Operating
Profit
------------------------ ------------------------
2022 2021 Change 2022 2021 Change
GBPm GBPm % GBPm GBPm %
---------------------- ------ ------ -------- ------ ------ --------
North America 1,675 1,291 29.7% 286 216 32.7%
------ ------ -------- ------ ------ --------
Pest Control 1,581 1149 37.7% 269 187 44.1%
------ ------ -------- ------ ------ --------
Hygiene & Wellbeing 94 142 (34.2%) 17 29 (41.5%)
------ ------ -------- ------ ------ --------
Europe (inc. LATAM) 942 832 13.2% 187 163 14.8%
------ ------ -------- ------ ------ --------
Pest Control 425 350 21.5% 103 92 12.7%
------ ------ -------- ------ ------ --------
Hygiene & Wellbeing 324 316 2.4% 53 54 (2.7%)
------ ------ -------- ------ ------ --------
France Workwear 193 166 16.6% 31 17 81.6%
------ ------ -------- ------ ------ --------
UK & Sub Saharan
Africa 370 359 2.9% 96 95 1.7%
------ ------ -------- ------ ------ --------
Pest Control 187 176 6.2% 48 46 5.5%
------ ------ -------- ------ ------ --------
Hygiene & Wellbeing 183 183 (0.2%) 48 49 (1.8%)
------ ------ -------- ------ ------ --------
Asia & MENAT 308 271 13.4% 43 36 17.5%
------ ------ -------- ------ ------ --------
Pest Control 222 187 18.8% 32 25 26.5%
------ ------ -------- ------ ------ --------
Hygiene & Wellbeing 86 84 1.4% 11 11 (2.9%)
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Pacific 221 197 12.8% 46 39 19.7%
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Pest Control 101 90 12.9% 15 14 8.3%
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Hygiene & Wellbeing 120 107 12.7% 31 25 26.2%
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Central 6 7 (10.3%) (105) (97) (8.9%)
------ ------ -------- ------ ------ --------
Restructuring costs (11) (10) (12.7%)
---------------------- ------ ------ -------- ------ ------ --------
Total at CER 3,522 2,957 19.1% 542 442 22.7%
---------------------- ------ ------ -------- ------ ------ --------
Total at AER 3,714 2,957 25.6% 571 442 29.4%
---------------------- ------ ------ -------- ------ ------ --------
Category Performance
Revenue Adjusted Operating
Profit
------------------------ ------------------------
2022 2021 Change 2022 2021 Change
GBPm GBPm % GBPm GBPm %
--------------------- ------ ------ -------- ------ ------ --------
Pest Control 2,516 1,952 29.0% 467 364 28.7%
------ ------ -------- ------ ------ --------
Hygiene & Wellbeing 807 832 (3.2%) 160 168 (4.9%)
------ ------ -------- ------ ------ --------
France Workwear 193 166 16.6% 31 17 81.6%
------ ------ -------- ------ ------ --------
Central 6 7 (10.3%) (105) (97) (8.9%)
------ ------ -------- ------ ------ --------
Restructuring costs (11) (10) (12.7%)
--------------------- ------ ------ -------- ------ ------ --------
Total at CER 3,522 2,957 19.1% 542 442 22.7%
--------------------- ------ ------ -------- ------ ------ --------
Total at AER 3,714 2,957 25.6% 571 442 29.4%
--------------------- ------ ------ -------- ------ ------ --------
Note: Hygiene & Wellbeing year on year performance reflects
the anticipated decrease in COVID disinfection revenues from
GBP117m in FY 21 to GBP20m in FY 22.
In order to help understand the underlying trading performance,
unless otherwise stated, figures below are presented at constant
exchanges rates and Organic Revenue growth figures exclude the
COVID disinfection business.
Revenue
The Group delivered a strong topline performance, with Revenue
rising 19.1% to GBP3,522m and Organic Revenue up 6.6%. Statutory
Revenue was up 25.6% to GBP3,714m at AER. Revenue growth in North
America was up 29.7%, benefiting from the Terminix acquisition.
Europe, the Group's second largest region, was up strongly by
13.2%, while Asia & MENAT was up 13.4%. Organic Revenue growth
including COVID disinfection was 4.2%. Full year revenues from
COVID disinfection services amounted to GBP20m (FY 21: GBP117m),
GBP6m of which was generated in the second half of the year. Future
revenues from disinfection services are anticipated to be
non-material.
Our Pest Control category grew Revenue by 29.0% (5.6% Organic)
to GBP2,516m, underpinned by strong price progression and good
customer retention. Hygiene & Wellbeing Revenue decreased by
3.2% (9.3% Organic) to GBP807m. This was supported by resilient
demand for washroom services, offset by the anticipated year on
year reduction in COVID disinfection business. Improved year on
year market conditions were reflected in the stronger contribution
from our France Workwear business with Revenue up by 16.6% to
GBP193m (16.6% Organic).
Profit
Adjusted Operating Profit rose by 22.7% during the year to
GBP542m, reflecting core business growth across all major regions
and categories, in addition to effective capture of early synergies
from the Terminix transaction. This led to a 45bps increase year on
year in Adjusted Operating Margins to 15.4%, despite the reduction
in COVID disinfection revenues. This represented the Group's
highest margin for 20 years. Underlying trading contributed 26bps
to Group margin. Terminix overall contributed a net benefit of
19bps, made up of a 64bps increase from synergies and accounting
adjustments with a 45bps offset from the underlying Terminix
business. 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,
with further price increases initiated for 2023. The extent to
which the Group has been able to offset inflationary pressures
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 flat year on year at 18.6%. Hygiene & Wellbeing
Adjusted Operating Margin decreased slightly by 30bps year on year
to 19.8% (FY 21: 20.1%). Full-year restructuring costs of GBP11m at
CER (GBP12m at AER) were up GBP1m on the prior year, consisting
mainly of costs in respect of initiatives focused on our North
America transformation programme. Adjusted profit before tax (at
AER) of GBP532m, which excludes one-off and adjusting items and
amortisation costs, increased by 27.7%. Adjusted interest of GBP48m
at actual exchange rates was higher year on year, partly reflecting
GBP44m of interest charges relating to financing of the Terminix
transaction and a GBP19m offsetting reduction from the impacts of
hyperinflation. One-off and adjusting items (operating) at AER of
GBP136m includes GBP78m of deal costs and GBP52m of integration
costs related to the Terminix acquisition ("Costs to Achieve") and
GBP6m of other costs. Statutory profit before tax at AER was
GBP296m, a decrease of 9.1% on the prior year (FY 21: GBP325m), due
to one-off and adjusting items and increased interest costs
relating to the Terminix transaction.
Cash (at AER)
Adjusted Cash Flow was previously titled Operating Cash Flow and
has been amended for the sake of clarity, no changes have been made
to the definition of this Alternative Performance Measure.
Adjusted Cash Flow of GBP490m was GBP31m higher than in FY 21.
Higher trading profits resulted from organic and acquisitive
growth. Adjusted EBITDA was GBP859m, up 27.1% versus 2021. One-off
and adjusting items (non-cash) of GBP77m outflow (FY 21: GBP6m
inflow) were largely due to deal and integration related costs of
the Terminix acquisition. The Group had a GBP9m working capital
inflow in FY 22 due to tight management of payables and
receivables, partially offset by higher levels of inventory in the
year to protect against potential supply chain challenges.
Capital expenditure of GBP190m was incurred in the period (FY
21: GBP160m), reflecting a more normal pattern of spend post
pandemic and the inclusion of Terminix capital expenditure in the
final quarter of the year. Lease payments were up 18.2%.
Cash interest payments of GBP39m were only GBP2m higher than in
the prior year, reflecting the timing of interest charge payments
relating to financing of the Terminix transaction. At the year end,
GBP42m of interest was accrued on the balance sheet for payment in
2023. Cash tax payments for the period were GBP77m, an increase of
GBP8m compared with the corresponding period last year. Free Cash
Flow was GBP374m (FY 21: GBP353m), with Adjusted Free Cash Flow
Conversion of 91.8%.
Acquisition and Integration of Terminix
Value creation opportunity confirmed; synergy guidance
raised
The Terminix transaction closed on 12 October 2022. The
completion of this landmark deal reinforces Rentokil Initial as the
largest pest control company in the world. In total, Rentokil
Initial's operations now span 91 countries, made up of nearly
59,000 colleagues, with 21,000 of those in North America. The
Group's industry-leading scale and resource gives power to more
investment in services, training, technology and innovation.
Extensive due diligence previously furnished us with a deep
understanding of the Terminix operations and those early
assumptions about the health of the business, both operational and
financial, have remained intact. Terminix is a high-quality
business with engaged employees, who have helped build a leadership
position in North America residential and termite pest control. Our
integration planning has confirmed the strong potential of the
combination, which is both synergistic and complementary. The
combined group will enjoy the benefits of scale as well as higher
density in our operations that will enable margin acceleration.
There is also a strong cultural fit between Terminix and Rentokil
Initial - the businesses have a very similar playbook that is
appropriately focused on people, customer service, sustainability
and shareholder value - enabling effective collaboration and
knowledge sharing.
In addition to the significant benefits for our customers and
colleagues, our confidence is reinforced that the transaction will
create significant value for shareholders. This is notwithstanding
the shift to a higher interest rate environment since announcement
of the deal in December 2021 that has prevented the capture of the
previously anticipated $11m in financing synergies. However, there
was strong early delivery on cost synergies with $13m of pre-tax
P&L net cost synergies achieved from transaction completion to
31 December 2022. There was an additional non-cash P&L benefit
of $18m from the application of IFRS accounting for termite
provisions and LTIPs. Clear validation of our operational
assumptions has given us heightened confidence in the overall
opportunity. We have therefore increased our estimate of annual
pre-tax net cost synergies achievable from the acquisition, from at
least $150m by the third full year post completion to at least
$200m by the end of 2025, based principally on greater
opportunities to drive operational efficiencies and improve service
productivity. This figure is net of $75m of total investment. We
expect c.$150m of gross synergies to be delivered from Selling,
General and Administrative (SG&A) Expenses and c.$125m of gross
synergies to be delivered from field operations. In addition, we
expect to benefit from $32m of further non-cash P&L benefits in
FY 23 from the application of IFRS accounting of termite provisions
and LTIPs.
Synergies and Approximate Phasing
We now expect to achieve at least $200 of annual pre-tax net
cost synergies by the end of FY 25, c.95% of which are from North
America.
Incremental P&L Impact
by Year
--------- ------------------------- -----------
Achieved 2023 2024-25 Cumulative
2022 2022-25
------------------------------- --------- ----------- ------------ -----------
SG&A Expenses $15m $80m $55m $150m
Field Operations - $10m $115m $125m
------------------------------- --------- ----------- ------------ -----------
Gross Synergies $15m $90m $170m $275m
Investments $(2)m $(30)m $(43)m $(75)m
------------------------------- --------- ----------- ------------ -----------
Synergies Net of Investments $13m $60m $127m $200m
Accounting Adjustments $18m $32m - $50m
------------------------------- --------- ----------- ------------ -----------
Net Synergies plus Accounting
Adjustments $31m $92m $127m $250m
SG&A expenses include sales productivity, procurement, fleet
depreciation and support functions, and are expected to be 85% in
cash over the period.
Field Operations are primarily related to branch consolidation,
density benefits and productivity, and are expected to be 100% in
cash.
Investments relate to salary and benefits harmonisation, SHE and
Innovation centre, IT and branding, as well as additional SOX,
audit and listing. They are expected to be 100% in cash.
The non-cash Accounting Adjustments are in relation to termite
litigation and LTIPs.
Total one-time cost to achieve synergies are expected to be
c.$200m, increased by $50m, in line with the increase in annual net
cost synergies. Phasing of $77m in FY 22 (including $30m of
non-cash), c.$85m in FY 23 and c.$38m in FY 24-FY 25.
Excellent early integration
Excellent early progress has been made on delivering the
integration plan to ensure use of the most effective systems,
processes and technology from each organisation. Likewise, we have
made strong progress in building a joint team that is based on the
best of talent and with a shared mission, vision and values. Both
employee and customer reaction to the combination has been
positive. Seven key workstreams are at the heart of the integration
plan: field operations; back office field support; procurement and
fleet; marketing and innovation; sales; human resources; and
finances. Each of these are underpinned by investments in IT
capabilities. These workstreams are critical to optimising the
opportunities of the combination, reducing risks of integration,
following a best-of-breed approach and delivering the cost
synergies and financial benefits of the transaction.
With over 600 branches combined across Rentokil and Terminix,
branch integration and the opportunity for accelerating route
density are intrinsic to the overall plan, with a three-year
programme to create an optimal network, comprising in total of
c.400 branches. That consolidation involves not only the physical
locations, but also the IT systems and other office infrastructure,
the brands, the service offering and technicians and sales teams.
We aim to create a back office field support function of the future
through process integration and efficiency improvements, drawing on
existing best practice capabilities. We're very fortunate to have
two power brands. Terminix is the leading residential and termite
brand in North America with strong consumer recognition. Rentokil
is a global brand leader in commercial pest control. Between the
two companies in North America, there is also a large number of
regional and local brands. The three-year period will see
convergence of the vast majority of the smaller brands.
Residential, termite and SME commercial business will take the
Terminix brand, while larger commercial and national account
customers will enjoy the Rentokil name. Outside of North America,
we'll retain Rentokil as the main brand for pest control.
The integration process will be disciplined and well paced in
order to reduce risk. Rentokil Initial has a well-earned reputation
for service quality. We will remain sharply focused on continuing
to meet the high expectations of our customers, both within North
America and across our global operations.
North America Reporting Structure
There has been a strong start to delivery of the integration
plan, including with regard to SG&A functions and field
operations. Consolidation makes it increasingly difficult to
extricate the respective performances of the Rentokil North America
and Terminix businesses. All financial and operational performance
will therefore necessarily be reported on a fully combined
basis.
Rentokil Initial has a geographic organisational structure.
North America is one of the five geographic regions to which the
Group provides a wide range of services to customers. In each of
these regions, different service lines share branch networks and
back office administration, as well as functional support such as
procurement and HR. In North America, we will continue to refer to
our two business categories: Pest Control and Hygiene &
Wellbeing. Pest Control comprises residential, termite and
commercial pest management, pest control product distribution, and
mosquito control and invasive aquatic control services. Since the
vast majority of our Pest Control business is run on an integrated
basis (often from the same branch location), the constituent parts
are not separately reported. Hygiene & Wellbeing comprises the
Ambius range of products and services including air purification,
hand sanitisation, plants, green walls and scenting.
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
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 1,675 29.7% 5.7% 3.2% 1,849 43.3%
------ -------- -------------- -------------- ------ --------
Disinfection 2 -96.8% 2 -97.4%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 286 32.7% 315 46.6%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 17.1% 0.4% 17.1% 0.4%
------ -------- -------------- -------------- ------ --------
Operating Profit 161 -2.3% 178 7.9%
-------------------- ------ -------- -------------- -------------- ------ --------
In North America, Organic Revenue grew 5.7%, with Terminix's
annualised run rate from date of acquisition completion similar to
Rentokil North America's full-year growth rate. Revenue was up
29.7%, benefiting from the Terminix acquisition. Organic Revenue in
the Pest Control category grew by 5.3% for the year and by 5.6% in
Q4. The full-year organic performance reflected an increasing
contribution from price rises to offset increased input costs. This
was supported by the distribution business, which delivered good
growth overall. There was a modest headwind in the year from
intermittent, extreme weather events. As previously stated at our
interim results, we lapped strong COVID disinfection revenues of
GBP63m from 2021. These considerably reduced in the year to just
GBP2m, as COVID-related market conditions faded.
Adjusted Operating Profit growth of 32.7% reflects the combined
impact from higher revenues and the Terminix acquisition. Strong
price realisation across all channels has successfully offset
expected inflationary pressures. We continue to monitor fuel,
labour and direct cost inflation to adjust our pricing strategy on
a regular basis. Adjusted Operating Margins in North America were
up 40bps year on year to 17.1%, despite the strong anticipated
reduction of COVID disinfection business. We estimate that Rentokil
North America delivered a full year Adjusted Operating Margin above
17.0%. This includes a Q4 margin above 18.0%, meeting the target to
deliver an 18% margin by the end of the year. Despite labour market
pressures, Rentokil North America colleague retention increased to
80.9% (FY 21: 80.7%). The Group continued to make investments in
being an Employer of Choice. We are seeing ongoing success with our
virtual recruiting events, with time-to-fill rates decreasing by 8%
over the year and applicants per vacancy also slightly improved.
Despite price increases, customer retention at Rentokil North
America reduced only slightly to 82.7% (FY 21: 84.1%).
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 around GBP38m in the year prior to purchase.
As we integrate Terminix, we will continue to selectively pursue
high quality M&A assets in the North America region.
Europe (incl. LATAM)
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 942 13.2% 9.1% 6.3% 941 13.1%
------ -------- -------------- -------------- ------ --------
Disinfection 8 -73.3% 8 -71.4%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 187 14.8% 187 14.5%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 19.9% 0.3% 19.9% 0.3%
------ -------- -------------- -------------- ------ --------
Operating Profit 154 6.1% 156 7.8%
-------------------- ------ -------- -------------- -------------- ------ --------
The region has enjoyed stronger performance in 2022, with
momentum in the first half of the year carried into the second half
of the year. This has resulted in higher revenue and profitability,
driven by both effective price increases and resilience in overall
demand. Revenue grew by 13.2% in the year to GBP942m (9.1%
Organic). Revenue growth in Pest Control was 21.5%, with a strong
contribution from larger markets like Benelux and France. Hygiene
& Wellbeing grew Revenue by 2.4% in the period. There has been
stabilisation of relationships across customer sectors post-COVID,
with the business back to providing full contractual service terms
in the majority of its markets. Ambius, particularly in northern
Europe, benefited from good sales of green products. This was
partly offset by some disruption to the hospitality market
affecting Specialist Hygiene and in our dental recycling business
where the lag from reduced dental visits during COVID impacted
collection volumes. France Workwear Revenue was up 16.6%. Improving
market conditions were reflected in its stronger contribution
business, which overall is back to pre-COVID levels and supported
by robust pricing.
Adjusted Operating Profit in the region grew by 14.8% to
GBP187m. Adjusted Operating Margins increased by 30bps to 19.9%.
While there have been rising inflationary pressures throughout the
period, we have been successful at protecting margins with
pass-through pricing. Customer retention has nevertheless remained
strong at 88.5% (FY 21: 87.5%.) While labour markets throughout the
region remain tight, colleague retention rates remained very high
across the region at 90.2% (FY 21: 93.4%), with both service and
sales colleagues trending well. The business has had continued good
results on senior hiring and a renewed emphasis on regional
recruitment.
M&A continued strongly in Europe and Latin America. 18
business acquisitions were completed in total with annualised
revenues of GBP62m in the year prior to purchase.
UK & Sub-Saharan Africa
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 370 2.9% 4.7% 2.9% 370 3.0%
------ -------- -------------- -------------- ------ --------
Disinfection 0 -100.0% 0 -98.8%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 96 1.7% 96 1.8%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 26.0% -0.4% 26.0% -0.4%
------ -------- -------------- -------------- ------ --------
Operating Profit 91 6.4% 91 6.4%
-------------------- ------ -------- -------------- -------------- ------ --------
The region delivered a resilient trading performance against
strong comparators in the prior year, which had provided strong
growth opportunities in both the medical waste and disinfection
business streams. As anticipated, revenue in these lines of
business was significantly lower with the universal lifting of
restrictions. Revenue for the region increased by 2.9% (4.7%
Organic). Good revenue growth was delivered in both the Pest
Control business and core Hygiene & Wellbeing operations. Pest
Control grew by 6.2%, while Hygiene & Wellbeing decreased by
0.2% owing to the anticipated reduction in COVID disinfection
services. This was accompanied by an improved performance year on
year in our Ambius business, which benefited from a comparatively
supportive operating environment in the hospitality, office and
travel sectors. There was a modest headwind on the UK Property Care
business from domestic property services, where growth slowed in
line with the housing market.
Regional Adjusted Operating Profit increased by 1.7% to GBP96m.
The rate of improvement was dampened by GBP4m lower bad debt and
credit note provision releases than in the previous year (FY 21:
GBP14m). Adjusted Operating Margins reduced by 40bps to 26.0%.
Regional cash performance has been good in the year, with debtor
days 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 an improved customer
retention rate, up over 1 percentage point to 86.6% (FY 21: 85.4%).
The UK labour market has faced marked labour shortages, yet owing
to the sustained investment in our people, colleague retention
continued to markedly strengthen in the second half of last year to
81.9% for the full year (FY 21: 80.7%). The region acquired 1
business in the year with annualised revenues in the year prior to
purchase of GBP2m.
Asia & MENAT
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 308 13.4% 11.0% 6.8% 321 18.3%
------ -------- -------------- -------------- ------ --------
Disinfection 10 -41.2% 10 -38.9%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 43 17.5% 45 24.3%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 13.9% 0.5% 14.1% 0.7%
------ -------- -------------- -------------- ------ --------
Operating Profit 17 -41.5% 24 -16.0%
-------------------- ------ -------- -------------- -------------- ------ --------
Asia delivered a strong 2022 performance. Revenue rose by 13.4%,
of which 11.0% was Organic. Pricing was complemented with volume
growth, which benefited from post-COVID market reopening. Recovery
was led by two of the region's largest markets, Indonesia and
Malaysia, while China and Hong Kong continued to experience COVID
disruption. As expected, disinfection sales unwound markedly.
Adjusted Operating Profit in Asia increased 17.5% to GBP43m and
Adjusted Operating Margin was up 50bps to 13.9%. Customer retention
was 81.3% (FY 21: 80.8%). Regional operations have benefited from a
stable, high colleague retention rate of 86.1% (FY 21: 89.0%),
while the average time to fill vacancies has remained stable year
on year. Asia acquired 12 businesses in the year with annualised
revenues in the year prior to purchase of GBP13m.
Pacific
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 221 12.8% 7.9% 7.5% 227 15.2%
------ -------- -------------- -------------- ------ --------
Disinfection 0 -100.0% 0 -98.6%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 46 19.7% 48 21.9%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 20.9% 1.2% 20.8% 1.1%
------ -------- -------------- -------------- ------ --------
Operating Profit 39 13.0% 39 15.0%
-------------------- ------ -------- -------------- -------------- ------ --------
The Pacific region was also a strong performer, seeing increased
demand for services as it benefited from reopened markets,
international travel and a return to offices. Revenue grew by 12.8%
to GBP221m (7.9% Organic growth), underpinned by contractual
activity. The customer retention rate remained in the high 80s at
88.8% (FY 21: 89.0%). Pest Control delivered 12.9% Revenue growth,
with notable strength in commercial services. Robust sales and
customer retention also buoyed Hygiene & Wellbeing, where
Revenue growth was 12.7%. The region saw good demand for Ambius
services and new air hygiene solutions.
Adjusted Operating Profit in the Pacific grew by 19.7% to GBP46m
and Adjusted Operating Margins rose by 120bps to 20.9% as cost
inflation continued to be mitigated. Colleague retention in the
region was 72.9% (FY 21: 79.6%), reflecting tight labour markets,
though this has started to alleviate. The region acquired 8
businesses, comprised of 7 in Pest Control (5 in Australia, 2 in
New Zealand) and 1 in Hygiene & Wellbeing (Australia). These
acquisitions had total annualised revenues in the year prior to
purchase of GBP11m.
Category performance review
Pest Control
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 2,516 29.0% 5.6% 5.6% 2,695 38.2%
------ -------- -------------- -------------- ------ --------
Disinfection
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 467 28.7% 498 37.1%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 18.6% 0.0% 18.5% -0.1%
------ -------- -------------- -------------- ------ --------
Operating Profit 288 0.8% 313 9.8%
-------------------- ------ -------- -------------- -------------- ------ --------
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. Rentokil Initial is a leading global player
in a resilient and non-cyclical industry characterised by strong
long-term structural growth drivers. We operate in 97 of the
world's 100 leading cities by GDP. We have strengthened our
position through increased organic growth and by establishing
stronger market positions, through the introduction of innovative
products and services, acquisitions to build scale and density, and
our determination to be an Employer of Choice across our global
operations.
Our Pest Control business overall delivered good growth in the
year, underpinned by the critical nature of its services. Revenue
was up by 29.0% (5.6% Organic) to GBP2,516m. Performance has been
supported by both pricing and volumes, led by the Commercial Pest
Control business, which has a high proportion of contractual
activity and has benefited overall from continued good customer
retention rates. Adjusted Operating Profit was up by 28.7% to
GBP467m. For FY 22, Pest Control represented 71% of Group Revenue
and 71% of Group Adjusted Operating Profit (excluding central and
restructuring costs).
M&A has continued to be strong this year, and we have
acquired 46 pest control businesses in the period, excluding
Terminix, with annualised revenues in the year prior to acquisition
of GBP121m.
Hygiene & Wellbeing
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 807 -3.2% 9.3% -4.0% 821 -1.5%
------ -------- -------------- -------------- ------ --------
Disinfection 20 -82.9% 21 -82.4%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 160 -4.9% 162 -3.2%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 19.8% -0.3% 19.8% -0.3%
------ -------- -------------- -------------- ------ --------
Operating Profit 154 -2.1% 157 -0.3%
-------------------- ------ -------- -------------- -------------- ------ --------
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. Customer sectors range from public sector (schools,
government buildings) and facilities management through to hotels,
bars and restaurants, industrials and retail.
Hygiene & Wellbeing Revenue decreased by 3.2% to GBP807m,
reflecting the anticipated reduction in COVID disinfection
business. A year on year ramp-up in activity across service sectors
such as offices, shops, schools and hospitality supported
performance. Organic Revenue growth was 9.3%. In 2022, COVID
disinfection services generated GBP20m of revenues (FY 21:
GBP117m). As expected, as conditions post-COVID normalised, there
has been a large reduction in customers' need for these one-time
services. 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. Organic
Revenue growth in core washrooms was 10.4%, while Organic Revenue
growth in premises and enhanced environments was 8.8%. Category
growth was accompanied by an increase in customer satisfaction with
Net Promoter Score in Hygiene & Wellbeing up 3.7 points year on
year and ahead of pre-COVID levels.
We have acquired 6 hygiene businesses this year with annualised
revenues of c.GBP5m in the year prior to purchase.
France Workwear
Organic Organic
2022 Growth Growth 2022
CER CER excl incl AER AER
GBPm Growth Disinfection Disinfection GBPm Growth
-------------------- ------ -------- -------------- -------------- ------ --------
Revenue 193 16.6% 16.6% 16.6% 192 15.6%
------ -------- -------------- -------------- ------ --------
Disinfection
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Profit 31 81.6% 31 80.1%
------ -------- -------------- -------------- ------ --------
Adjusted Operating
Margin 16.0% 5.7% 16.0% 5.7%
------ -------- -------------- -------------- ------ --------
Operating Profit 30 82.7% 30 81.1%
-------------------- ------ -------- -------------- -------------- ------ --------
Improved market conditions supported the strong contribution
from our France Workwear business where Revenue, all of which was
organic, rose by 16.6% to GBP193m. Continued investment in plant
and machinery along with the opening of a new depot in the Lyon
area supported a strong rebound in volumes. Inflation was fully
covered with successful price increases, alongside strong customer
retention rates in line with pre-COVID levels.
Innovation and Technology
The Company's investment in innovation and technology continues
to drive profitable growth in the business. It strengthens our
brand and cements our leadership position, enabling us to provide
enhanced service to customers and target key growth sectors, while
lowering our operating costs and improving our sustainability
credentials.
In the pest control industry, technology-enabled innovations
have been especially important in helping to differentiate us from
our industry competitors. To the backdrop of an investment pipeline
of more than 50 projects across major pest sectors and 17 patent
applications during 2022, we've seen development on a number of key
initiatives:
-- Our Pest Control self-service portal is now operational in
50 countries, supporting 1.2m customer sites. The 24/7 customer
portal enables scheduling of service visits, online payment
of bills and viewing of documents.
-- There has been further roll-out of PestConnect, which provides
a real-time, early warning digital system for monitoring
and controlling rodents. We now have 290,000 units in operation
(up 30,000 in the six months to Dec. 2022) across 16,000
sites.
-------------------------------------------------------------------
-- Lumnia, our award-winning range of LED insect light traps,
is now available in over 60 countries. Partnering with Vodafone
and Google, we have been developing a partner app for Lumnia,
to improve the accuracy and efficiency of counting and identifying
trends using machine learning.
-------------------------------------------------------------------
-- We introduced our latest intelligent bird scare device. The
device recognises different bird species and identifies the
best scare tool from a broad range to deter each of them.
-------------------------------------------------------------------
-- We started the global delivery across 20 markets of our expanded
Flexi Armour Rodent Proofing Range, which applies impenetrable
barriers to reduce the risk of rodent infestations to premises,
while lessening the need to use rodenticides.
-------------------------------------------------------------------
-- Working with Vodafone and Google, we've conducted effective
field trials of our connected cameras, which monitors premises
and identifies pests with the use of AI technology. 40 individual
cameras were trialled on customer sites in the UK during
2022, with 28,000 photos taken, transmitted over Vodafone's
network and processed on our platform. The technology supports
faster control of pest problems and the reduction of unnecessary
visits.
-------------------------------------------------------------------
In the Hygiene & Wellbeing category, we have continued with
product initiatives for both the core washroom and premises
hygiene, as well as how we connect with the customer:
-- A new and enhanced version of our myInitial customer portal
was launched in 2022 and rolled out to c.20 countries. Total
registered users have now reached more than 100,000.
-- We started the global roll-out of Luna Dry and Luna Mini
Dry products, following the H1 launch in Europe. These feature
the latest brushless motor technology, a hygienic HEPA 13
filter and long-life performance.
---------------------------------------------------------------------
-- We continued to invest in our high-quality dispenser ranges
to add differentiation and build upsell, significantly increasing
usage of our Signature suite of units.
---------------------------------------------------------------------
-- The Group sustained its focus on the high-growth air care
market, already with a product range that features air purification,
air sterilisation and air scenting products.
---------------------------------------------------------------------
-- We added a new air filtration product, Aeramax Pro 3, which
was introduced in Europe. This is a wall-mounted or floor-standing
HEPA and carbon filter air purifier with allergy-friendly
accreditation.
---------------------------------------------------------------------
-- We are extending the clean air and wellbeing portfolio into
air quality monitoring with data analysis and actionable
insights. Pilots have taken place in Asia and Europe to assess
and benchmark the quality of air in customer premises and
partnership opportunities with third-party solutions were
developed.
---------------------------------------------------------------------
Continued strength of M&A
In addition to the historic Terminix deal, we continued to
acquire companies at a rate of about one every week, including our
first operations in Pakistan, Argentina and Israel. Rentokil
Initial is focused on building scale in the Cities of the Future -
those urban areas that are expected to grow at materially higher
rates - and during the year we added scale in around 40 of these
cities, including Delhi, Lahore, Islamabad, and Santiago. The Group
now operates in a total of 91 countries.
We acquired 52 new businesses, excluding Terminix, comprising of
46 in Pest Control and 6 in Hygiene & Wellbeing. An aggregate
consideration of GBP259m was paid for these acquired businesses
with total annualised revenues of GBP125m in the year prior to
purchase. We have added 13 new businesses in North America during
the period with GBP38m revenues acquired. There was also a good
performance in Europe (inc. LATAM) with 18 deals and GBP62m of
revenues acquired. 12 acquisitions were made in Asia and MENAT, 8
acquisitions in the Pacific region and 1 in the UK & SSA
region.
M&A remains central to our strategy for growth. We will
continue to seek attractive bolt-on deals, both in Pest Control and
with an increased focus on Hygiene & Wellbeing, to build
density in existing markets, and pursue acquisitions in new markets
and the major Cities of the Future. Our pipeline of prospects
remains strong and our guidance on spend on M&A for FY 23 is
c.GBP250m.
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. As an organisation,
we strongly believe that creating a diverse and inclusive workforce
that reflects the business environment in which we operate will
increase colleague engagement and customer satisfaction, as well as
drive increased innovation, enhance our reputation and therefore
boost our financial performance.
The global labour market remained tight through the course of
the year, fuelled by candidate shortages. Nevertheless, we are
seeing good results from our ongoing recruitment programme with
more people than ever before applying to work for the Company.
Colleague retention (excluding Terminix) remained good at 82.6% (FY
21: 84.4%), with a stable performance in the second half of the
year. Retention was supported with our largest ever training and
development 'Festival' for colleagues in September 2022. Terminix
colleague retention for 2022 was 63.9% on a like-for-like basis, up
from 62.9% in 2021, reflecting the opportunity to improve this KPI
as part of our Employer of Choice programme in 2023.
Financial review
Central and regional overheads
Central and regional overheads of GBP105m at CER (GBP108m at
AER) were up GBP8m on the prior year (FY 21: GBP97m at CER and
AER).
Restructuring costs
With the exception of integration costs for significant
acquisitions, the Company reports restructuring costs within
Adjusted Operating Profit. Costs associated with significant
acquisitions are reported as one-off and adjusting items, and are
excluded from Adjusted Operating Profit.
Full-year restructuring costs of GBP11m at CER (GBP12m at AER)
were up GBP1m on the prior year (FY 21: GBP10m at CER and AER),
consisting mainly of costs in respect of initiatives focused on our
North America transformation programme, together with integration
costs of smaller acquisitions.
Interest (at AER)
Adjusted interest was GBP48m. This is an increase of GBP15m
versus 2021 reflecting higher interest charges of GBP44m relating
to the Terminix transaction with a partial GBP19m offset from the
2022 impacts of hyper-inflation accounting in Lebanon, Argentina
and Turkey (FY 22: GBP22m, FY 21: GBP3m) and lower other interest
of GBP10m. Cash interest was GBP39m (FY 21: GBP37m).
In Appendix 1 we have shown a summary P&L interest table
demonstrating how the components of our financing drive interest
costs and income for 2022 and the expected range for 2023 at
constant exchange rates. Changes in variable interest rates,
exchange rates and CPI rates in hyper-inflationary economies during
2023 will impact the reporting of interest costs for 2023.
Tax
The income tax charge for the period at actual exchange rates
was GBP64m on the reported profit before tax of GBP296m, giving an
effective tax rate of 21.6% (FY 21: 19.0%). The Group's ETR before
amortisation of intangible assets (excluding computer software),
one-off and adjusting items and the net interest adjustments for
2022 was 19.7% (FY 21: 19.4%). This compares with a blended rate of
tax for the countries in which the Group operates of 24% (FY 21:
24%). The Group's low tax rate is primarily attributable to net
prior-year tax credits of GBP9m (FY 21: GBP16m).
The Group's tax charge and 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.
In December 2021, the OECD published a framework for the
introduction of a global minimum effective tax rate of 15%,
applicable to large multinational groups. HM Treasury has published
draft legislation to implement these 'Pillar Two' rules for
accounting periods starting on or after 31 December 2023. The Group
is reviewing these draft rules, which have not been substantively
enacted, to understand any potential impacts.
Net debt and cash flow
Year to Date
-------------------------------------------- -------- ------------------
2022 2021 Change
GBPm at actual exchange rates GBPm GBPm GBPm
-------------------------------------------- -------- -------- --------
Adjusted Operating Profit 571 442 129
-------- -------- --------
Depreciation 276 224 52
-------- -------- --------
Other 12 10 2
-------------------------------------------- -------- -------- --------
Adjusted EBITDA 859 676 183
-------- -------- --------
One-off and adjusting items (non-cash) (77) 6 (83)
-------- -------- --------
Working capital 9 23 (14)
-------- -------- --------
Movement on provisions (12) (5) (7)
-------- -------- --------
Capex - additions (190) (160) (30)
-------- -------- --------
Capex - disposals 5 7 (2)
-------- -------- --------
Capital of lease payments and
initial direct costs incurred (104) (88) (16)
-------------------------------------------- -------- -------- --------
Adjusted Cash Flow 490 459 31
-------- -------- --------
Interest (39) (37) (2)
-------- -------- --------
Tax (77) (69) (8)
-------------------------------------------- -------- -------- --------
Free Cash Flow 374 353 21
-------- -------- --------
Acquisitions (1,018) (463) (555)
-------- -------- --------
Disposal of companies and businesses 1 - 1
-------- -------- --------
Dividends (122) (139) 17
-------- -------- --------
Cost of issuing new shares (16) - (16)
-------- -------- --------
Cash impact of one-off and adjusting
items (59) (27) (32)
-------- -------- --------
Debt related cash flows
-------- -------- --------
Acquisition of shares from non-controlling
interest - (9) 9
-------- -------- --------
Cash outflow on settlement of
debt related foreign exchange
forward contracts 26 (19) 45
-------- -------- --------
Net investment in term deposits 1 171 (170)
-------- -------- --------
Proceeds from new debt 2,383 5 2,378
-------- -------- --------
Debt repayments (844) (167) (677)
-------------------------------------------- -------- -------- --------
Debt related cash flows 1,566 (19) 1,585
-------- -------- --------
Net increase/(decrease) in cash
and cash equivalents 726 (295) 1,021
-------------------------------------------- -------- -------- --------
Cash and cash equivalents at the
beginning of the year 242 551 (309)
-------- -------- --------
Exchange losses on cash and cash
equivalents (89) (14) (75)
-------------------------------------------- -------- -------- --------
Cash and cash equivalents at end
of the financial year 879 242 637
-------------------------------------------- -------- -------- --------
Net increase/(decrease) in cash
and cash equivalents 726 (295) 1,021
-------- -------- --------
Debt related cash flows (1,566) 19 (1,585)
-------- -------- --------
IFRS 16 liability movement (34) (2) (32)
-------- -------- --------
Debt acquired (964) (12) (952)
-------- -------- --------
Bond interest accrual (42) 1 (43)
-------- -------- --------
Foreign exchange translation and
other items (131) 19 (150)
-------------------------------------------- -------- -------- --------
Increase in net debt (2,011) (270) (1,741)
-------- -------- --------
Opening net debt (1,285) (1,015) (270)
-------------------------------------------- -------- -------- --------
Closing net debt (3,296) (1,285) (2,011)
-------------------------------------------- -------- -------- --------
Adjusted Cash Flow of GBP490m was GBP31m higher than in FY 21.
Higher trading profits were a result of organic and acquisitive
growth. Adjusted EBITDA was GBP859m, up 27.1% versus 2021. One-off
and adjusting items (non-cash) of GBP77m outflow (FY 21: GBP6m
inflow) were largely due to deal costs and costs to achieve related
to the Terminix acquisition. The Group had a GBP9m working capital
inflow in FY 22 due to tight management of payables and
receivables, partially offset by higher levels of inventory in the
year to protect against potential supply chain challenges.
Capital expenditure of GBP190m was incurred in the period (FY
21: GBP160m), reflecting a more normal pattern of spend post
pandemic and the inclusion of Terminix capital expenditure in the
final quarter of the year. Lease payments were up 18.2%.
Cash interest payments of GBP39m were only GBP2m higher than in
the prior year, reflecting the timing of interest payments relating
to financing of the Terminix transaction. At the year end, GBP42m
of interest was accrued on the balance sheet for payment in 2023.
Cash tax payments for the period were GBP77m, an increase of GBP8m
compared with the corresponding period last year. Free Cash Flow
was GBP374m (FY 21: GBP353m), with Adjusted Free Cash Flow
Conversion of 91.8%.
Cash spend on current and prior year acquisitions of GBP1,018m,
dividend payments of GBP122m, proceeds from new debt of GBP2,383m,
cash outflow on settlement of debt of GBP844m, the cash impact of
one-off and adjusting items of GBP59m (largely due to deal costs
and costs to achieve related to the Terminix acquisition) and the
cost of issuing new shares of GBP16m have contributed to an
underlying change in net debt of GBP1,880m. Foreign exchange
translation and other items of GBP131m is primarily due to the
strengthening of the Dollar against Sterling. Overall, this led to
an increase in net debt of GBP2,011m and closing net debt of
GBP3,296m, in line with guidance provided at the Q3 Trading
Update.
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.
Funding
In June 2022, Rentokil Initial successfully issued three bonds:
EUR850m 5-year at 3.875%; EUR600m 8-year at 4.375%; and GBP400m
10-year at 5.0%. These bonds fully covered the $1.34bn cash element
of the Terminix transaction consideration. The balance of the bonds
alongside the Company's $700m three-year term loan covered the
refinancing of Terminix debt and transaction costs. As at 30 June
2022, Terminix held two bonds: 7.45% $186m notes maturing in 2027
and 7.25% $48m notes maturing in 2038; and a Senior Secured Term
Loan facility maturing in 2026 with an interest rate of 3.365%. The
term loan facility was settled on 12 October 2022 and the two bonds
were redeemed on 7 November 2022. Following closing of the Terminix
transaction, S&P affirmed Rentokil Initial's BBB investment
grade credit rating with a stable outlook.
As at 31 December 2022, the Group had liquidity headroom in the
region of GBP1,700m, including GBP827m of undrawn RCF, with a
maturity date of 12 October 2027, plus two one-year extension
options. The pro forma net debt to Adjusted EBITDA ratio was less
than 3.2x at 31 December 2022, in line with expectations. The net
debt to Adjusted EBITDA ratio was 3.8x at 31 December 2022,
reflecting 81 days of Terminix trading. We remain committed to
maintaining a BBB investment grade credit rating and are confident
of doing so.
Dividend
The Board is recommending a final dividend in respect of 2022 of
5.15p per share, payable to shareholders on the register at the
close of business on 11 April 2023, to be paid on 17 May 2023. This
equates to a full-year dividend of 7.55p per share, an increase of
18.2% compared to 2021. The last day for DRIP elections is 25 April
2023.
Technical guidance for 2023
P&L
Restructuring costs ex Terminix: c.GBP7m
Deal related costs and costs to achieve*: c.GBP75-GBP90m
Incremental c.$32m of accounting benefit for termite and LTIPs
in FY 23
Central and regional overheads: c.GBP150m including Terminix
related investments
P&L adjusted interest costs c.GBP125-GBP135m, incl.
GBP20-GBP25m of hyperinflation
Estimated Adjusted Effective Tax Rate: 25-26%
Share of Profits from Associates: GBP8m
Impact of FX within range of +GBP15m to GBP25m**
Intangibles amortisation: GBP155-GBP165m
Cash Flow
Overall exceptional items: c.GBP135-GBP150m***
Working Capital: c.$40m outflow including termite provision
payments but excluding exceptional items
Capex excluding ROU asset lease payments: GBP235-GBP245m
Cash interest: c.GBP150-GBP160m, reflecting c.75% of interest
costs at fixed rates
Cash tax payments: GBP115-GBP125m
Anticipated spend on M&A in 2023 of c.GBP250m
* Reported as one-off and adjusting items and excluded from
Adjusted Operating Profit and Adjusted PBT
** Based on maintenance of current FX rates. All technical items
are also subject to FX
*** c.GBP40-45m of 2022 exceptional items remained in creditors
at December 2022
Appendix 1
2022 AER 2023 CER
---------------------- --------------------------
Swap Total Swap Total
Cost Cost Cost Cost Cost Cost
Amount Rate Fixed/Floating GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Legacy Bonds
------- ------- --------------- ------ ------ ------ ------- ------ ---------
EUR 400 0.95% Fixed 3 (3) - 3 (3) -
------- ------- --------------- ------ ------ ------ ------- ------ ---------
EUR 500 0.88% Fixed 4 (2) 2 4 (4) -
------- ------- --------------- ------ ------ ------ ------- ------ ---------
EUR 600 0.50% Fixed 3 (1) 2 3 (3) -
------- ------- --------------- ------ ------ ------ ------- ------ ---------
Amortised
Cost Fixed 1 - 1 1 - 1
------- ------- --------------- ------ ------ ------ ------- ------ ---------
2.85%
Swaps (avg) Fixed - 15 15 28 28
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Total 1,500 11 9 20 11 18 29
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
New Bonds
------- ------- --------------- ------ ------ ------ ------- ------ ---------
EUR 850 3.88% Fixed 14 (3) 11 28 (14) 14
------- ------- --------------- ------ ------ ------ ------- ------ ---------
EUR 600 4.38% Fixed 12 - 12 22 - 22
------- ------- --------------- ------ ------ ------ ------- ------ ---------
GBP 400 5.00% Fixed 10 - 10 20 - 20
------- ------- --------------- ------ ------ ------ ------- ------ ---------
Amortised
Cost Fixed 1 - 1 3 - 3
------- ------- --------------- ------ ------ ------ ------- ------ ---------
3.53%
Swaps (avg) Fixed - 4 4 - 15 15
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Total 37 1 38 73 - 74
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Term Loan
------- ------- --------------- ------ ------ ------ ------- ------ ---------
USD 700 4-6% Float 5 - 5 27-33 - 27-33
------- ------- --------------- ------ ------ ------ ------- ------ ---------
Fixed/
Lease Interest Float - 10 - 18
------- ------- --------------- ------ ------ ------ ------- ------ ---------
Fixed/
Other Interest Float - 2 - 4
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Total Other 12 22
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Finance Cost 75 152-158
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Interest received (5) (3)
------- ------- --------------- ------ ------ ------ ------- ------ ---------
Hyper-Inflation (22) (20-24)
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Finance Income (27) (23-27)
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
Adjusted Interest 48 125-135
------------------- ------- ------- --------------- ------ ------ ------ ------- ------ ---------
2022 average FX rate for GBP/EUR: 1.1717 and GBP/$: 1.2421
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
For the year ended 31 December
2022 2021 2020
Note GBPm GBPm GBPm
----- -------- -------- --------
Revenue 2 3,714 2,957 2,803
----- -------- -------- --------
Operating expenses (3,373) (2,610) (2,509)
----- -------- -------- --------
Net impairment losses on financial
assets (24) - -
---------------------------------------------- ----- -------- -------- --------
Operating profit 317 347 294
----- -------- -------- --------
Finance income 4 49 4 6
----- -------- -------- --------
Finance cost 3 (79) (34) (78)
----- -------- -------- --------
Share of profit from associates net
of tax 9 8 8
---------------------------------------------- ----- -------- -------- --------
Profit before income tax 296 325 230
----- -------- -------- --------
Income tax expense(1) 5 (64) (62) (44)
---------------------------------------------- ----- -------- -------- --------
Profit for the year 232 263 186
---------------------------------------------- ----- -------- -------- --------
Profit for the year attributable
to:
----- -------- -------- --------
Equity holders of the Company 232 263 186
----- -------- -------- --------
Non-controlling interests - - -
---------------------------------------------- ----- -------- -------- --------
Other comprehensive income:
----- -------- -------- --------
Items that are not reclassified subsequently
to the income statement:
----- -------- -------- --------
Remeasurement of net defined benefit
liability 2 1 (13)
----- -------- -------- --------
Items that may be reclassified subsequently
to the income statement:
----- -------- -------- --------
Net exchange adjustments offset in
reserves (232) (18) (35)
----- -------- -------- --------
Net (loss)/gain on net investment
hedge (68) 15 (17)
----- -------- -------- --------
Cost of hedging (2) (1) (1)
----- -------- -------- --------
Effective portion of changes in fair
value of cash flow hedge (6) 13 (5)
----- -------- -------- --------
Tax related to items taken to other
comprehensive income 11 2 4
---------------------------------------------- ----- -------- -------- --------
Other comprehensive income for the
year (295) 12 (67)
---------------------------------------------- ----- -------- -------- --------
Total comprehensive income for the
year (63) 275 119
---------------------------------------------- ----- -------- -------- --------
Total comprehensive income for the
year attributable to:
----- -------- -------- --------
Equity holders of the Company (63) 275 119
----- -------- -------- --------
Non-controlling interests - - -
---------------------------------------------- ----- -------- -------- --------
Earnings per share attributable to
the Company's equity holders:
----- -------- -------- --------
Basic 6 11.57p 14.16p 10.03p
----- -------- -------- --------
Diluted 6 11.51p 14.10p 9.98p
---------------------------------------------- ----- -------- -------- --------
1. Taxation includes GBP58m (2021: GBP50m; 2020: GBP40m) in
respect of overseas taxation.
All profit is from continuing operations.
Consolidated Balance Sheet
At 31 December
2022 2021
Note GBPm GBPm
----- -------- --------
Assets
----- -------- --------
Non-current assets
----- -------- --------
Intangible assets 9 7,319 2,164
----- -------- --------
Property, plant and equipment 10 495 398
----- -------- --------
Right-of-use assets 454 228
----- -------- --------
Investments in associated undertakings 53 30
----- -------- --------
Other investments 23 -
----- -------- --------
Deferred tax assets 43 42
----- -------- --------
Contract costs 182 75
----- -------- --------
Retirement benefit assets 3 19
----- -------- --------
Trade and other receivables 90 14
----- -------- --------
Derivative financial instruments 21 10
---------------------------------------- ----- -------- --------
8,683 2,980
---------------------------------------- ----- -------- --------
Current assets
----- -------- --------
Other investments 1 2
----- -------- --------
Inventories 200 136
----- -------- --------
Trade and other receivables 832 527
----- -------- --------
Current tax assets 36 9
----- -------- --------
Derivative financial instruments - 2
----- -------- --------
Cash and cash equivalents 11 2,170 668
---------------------------------------- ----- -------- --------
3,239 1,344
---------------------------------------- ----- -------- --------
Liabilities
----- -------- --------
Current liabilities
----- -------- --------
Trade and other payables (1,162) (764)
----- -------- --------
Current tax liabilities (60) (61)
----- -------- --------
Provisions for liabilities and charges 17 (133) (27)
----- -------- --------
Bank and other short-term borrowings (1,355) (459)
----- -------- --------
Lease liabilities (135) (78)
----- -------- --------
Derivative financial instruments - (1)
---------------------------------------- ----- -------- --------
(2,845) (1,390)
---------------------------------------- ----- -------- --------
Net current assets/(liabilities) 394 (46)
---------------------------------------- ----- -------- --------
Non-current liabilities
----- -------- --------
Other payables (81) (72)
----- -------- --------
Bank and other long-term borrowings (3,574) (1,256)
----- -------- --------
Lease liabilities (332) (139)
----- -------- --------
Deferred tax liabilities (511) (108)
----- -------- --------
Retirement benefit obligations 16 (30) (27)
----- -------- --------
Provisions for liabilities and charges 17 (359) (34)
----- -------- --------
Derivative financial instruments (92) (34)
---------------------------------------- ----- -------- --------
(4,979) (1,670)
---------------------------------------- ----- -------- --------
Net assets 4,098 1,264
---------------------------------------- ----- -------- --------
Equity
----- -------- --------
Capital and reserves attributable to
the Company's equity holders
----- -------- --------
Share capital 18 25 19
----- -------- --------
Share premium 9 7
----- -------- --------
Other reserves 763 (1,927)
----- -------- --------
Retained earnings 3,302 3,166
---------------------------------------- ----- -------- --------
4,099 1,265
----- -------- --------
Non-controlling interests (1) (1)
---------------------------------------- ----- -------- --------
Total equity 4,098 1,264
---------------------------------------- ----- -------- --------
Consolidated Statement of Changes in Equity
For the year ended 31 December
Attributable to equity
holders of the Company
--------------------------------------------
Non-
Share Share Other Retained controlling Total
capital premium reserves earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- ---------- ---------- ------------- --------
At 1 January 2020 18 7 (1,868) 2,844 1 1,002
------------------------------------ --------- --------- ---------- ---------- ------------- --------
Profit for the year - - - 186 - 186
--------- --------- ---------- ---------- ------------- --------
Other comprehensive income:
--------- --------- ---------- ---------- ------------- --------
Net exchange adjustments
offset in reserves - - (35) - - (35)
--------- --------- ---------- ---------- ------------- --------
Net loss on net investment
hedge - - (17) - - (17)
--------- --------- ---------- ---------- ------------- --------
Net loss on cash flow hedge(1) - - (5) - - (5)
--------- --------- ---------- ---------- ------------- --------
Cost of hedging - - (1) - - (1)
--------- --------- ---------- ---------- ------------- --------
Remeasurement of net defined
benefit liability - - - (13) - (13)
--------- --------- ---------- ---------- ------------- --------
Tax related to items taken
directly to other comprehensive
income - - - 4 - 4
------------------------------------ --------- --------- ---------- ---------- ------------- --------
Total comprehensive income
for the year - - (58) 177 - 119
--------- --------- ---------- ---------- ------------- --------
Transactions with owners:
--------- --------- ---------- ---------- ------------- --------
Cost of equity-settled share-based
payment plans - - - 6 - 6
--------- --------- ---------- ---------- ------------- --------
Tax related to items taken
directly to equity - - - 3 - 3
--------- --------- ---------- ---------- ------------- --------
Movement in the carrying
value of put options - - - 1 - 1
------------------------------------ --------- --------- ---------- ---------- ------------- --------
At 31 December 2020 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 hedge(1) - - 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 hedge(1) - - (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
------------------------------------ --------- --------- ---------- ---------- ------------- --------
1. GBP6m net loss (2021: GBP13m net gain, 2020: GBP5m net loss)
on cash flow hedge includes GBP137m gain (2021: GBP15m loss; 2020:
GBP15m gain) from the effective portion of changes in fair value
offset by reclassification to the cost of acquisition of GBP118m
gain (2021: GBPnil; 2020: GBPnil) and reclassification to the
income statement of GBP25m gain (2021: GBP28m loss; 2020: GBP20m
gain) due to changes in foreign exchange rates.
Shares of GBPnil (2021: GBPnil; 2020: GBPnil) have been netted
against retained earnings. This represents 19.6m (2021: 9.4m; 2020:
7.7m) shares held by the Rentokil Initial Employee Share Trust. The
market value of these shares at 31 December 2022 was GBP100m (2021:
GBP55m; 2020: GBP39m). Dividend income from, and voting rights on,
the shares held by the Trust have been waived.
Analysis of other reserves
Cash
Capital Merger flow
reduction relief Legal hedge Translation Cost
reserve reserve reserve reserve reserve of hedging Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- --------- --------- --------- ------------ ------------ --------
At 1 January 2020 (1,723) - 10 1 (156) - (1,868)
------------------------------ ----------- --------- --------- --------- ------------ ------------ --------
Net exchange adjustments
offset in reserves - - - - (35) - (35)
----------- --------- --------- --------- ------------ ------------ --------
Net loss on net investment
hedge - - - - (17) - (17)
----------- --------- --------- --------- ------------ ------------ --------
Net loss on cash flow
hedge(1) - - - (5) - - (5)
----------- --------- --------- --------- ------------ ------------ --------
Cost of hedging - - - - - (1) (1)
------------------------------ ----------- --------- --------- --------- ------------ ------------ --------
Total comprehensive
income for the year - - - (5) (52) (1) (58)
------------------------------ ----------- --------- --------- --------- ------------ ------------ --------
At 31 December 2020 (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
hedge(1) - - - 13 - - 13
----------- --------- --------- --------- ------------ ------------ --------
Transfer between reserves - - (10) - - - (10)
----------- --------- --------- --------- ------------ ------------ --------
Cost of hedging - - - - - (1) (1)
------------------------------ ----------- --------- --------- --------- ------------ ------------ --------
Total 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
hedge(1) - - - (6) - - (6)
----------- --------- --------- --------- ------------ ------------ --------
Cost of hedging - - - - - (2) (2)
------------------------------ ----------- --------- --------- --------- ------------ ------------ --------
Total 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
------------------------------ ----------- --------- --------- --------- ------------ ------------ --------
1. GBP6m net loss (2021: GBP13m net gain, 2020: GBP5m net loss)
on cash flow hedge includes GBP137m gain (2021: GBP15m loss; 2020:
GBP15m gain) from the effective portion of changes in fair value
offset by reclassification to the cost of acquisition of GBP118m
gain (2021: GBPnil; 2020: GBPnil) and reclassification to the
income statement of GBP25m gain (2021: GBP28m loss; 2020: GBP20m
gain) 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. GBPnil (2021: GBP10m, 2020: GBPnil) has been 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
2022 2021 2020
Note GBPm GBPm GBPm
----- -------- ------ --------
Cash flows from operating activities
----- -------- ------ --------
Cash generated from operating activities 15 716 669 653
----- -------- ------ --------
Interest received 13 5 8
----- -------- ------ --------
Interest paid(1) (52) (42) (49)
----- -------- ------ --------
Income tax paid (77) (69) (64)
---------------------------------------------- ----- -------- ------ --------
Net cash flows from operating activities 600 563 548
---------------------------------------------- ----- -------- ------ --------
Cash flows from investing activities
----- -------- ------ --------
Purchase of property, plant and equipment (153) (128) (130)
----- -------- ------ --------
Purchase of intangible fixed assets (37) (32) (23)
----- -------- ------ --------
Proceeds from sale of property, plant
and equipment 5 7 6
----- -------- ------ --------
Acquisition of companies and businesses,
net of cash acquired 8 (1,018) (463) (194)
----- -------- ------ --------
Disposal of companies and businesses 1 - 2
----- -------- ------ --------
Dividends received from associates 4 4 12
----- -------- ------ --------
Net change to cash flow from investment
in term deposits 1 171 (170)
---------------------------------------------- ----- -------- ------ --------
Net cash flows from investing activities (1,197) (441) (497)
---------------------------------------------- ----- -------- ------ --------
Cash flows from financing activities
----- -------- ------ --------
Dividends paid to equity shareholders 7 (122) (139) -
----- -------- ------ --------
Acquisition of shares from non-controlling
interest - (9) -
----- -------- ------ --------
Capital element of lease payments (104) (88) (85)
----- -------- ------ --------
Cost of issuing new shares (16) - -
----- -------- ------ --------
Cash inflow/(outflow) on settlement
of debt-related foreign exchange forward
contracts 26 (19) (24)
----- -------- ------ --------
Proceeds from new debt 2,383 5 1,690
----- -------- ------ --------
Debt repayments (844) (167) (1,352)
---------------------------------------------- ----- -------- ------ --------
Net cash flows from financing activities 1,323 (417) 229
---------------------------------------------- ----- -------- ------ --------
Net increase/(decrease) in cash and
cash equivalents 726 (295) 280
----- -------- ------ --------
Cash and cash equivalents at beginning
of year 242 551 274
----- -------- ------ --------
Exchange losses on cash and cash equivalents (89) (14) (3)
---------------------------------------------- ----- -------- ------ --------
Cash and cash equivalents at end
of the financial year 11 879 242 551
---------------------------------------------- ----- -------- ------ --------
1. Interest paid includes the interest element of lease payments
of GBP10m (2021: GBP6m; 2020: GBP7m).
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 2021.
The Group has adopted the following new standards and amendments
to standards, including any consequential amendments to other
standards, with effect from 1 January 2022:
-- amendments to IAS 16 Property, Plant and Equipment;
-- amendments to IFRS 3 Reference to the Conceptual Framework;
-----------------------------------------------------------
-- amendments to IAS 37 Onerous Contracts; and
-----------------------------------------------------------
-- annual improvements to IFRS Standards 2018-2020.
-----------------------------------------------------------
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
2021.
Certain new accounting standards, amendments to accounting
standards and interpretations have been published that are not
mandatory for 31 December 2022 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.
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 GBP182m (2021: GBP75m; 2020: GBP68m). The amount of
amortisation recognised in the period was GBP39m (2021: GBP30m;
2020: GBP28m) and impairment losses were GBPnil (2021: GBPnil;
2020: GBPnil).
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.
Up to the end of 2021 the Group operated three business
segments: Pest Control, Hygiene and Protect & Enhance. In
response to the rising importance of hygiene and wellbeing
services, Rentokil Initial reorganised its business segments,
primarily expanding the former Hygiene segment to become Hygiene
& Wellbeing and allocating the businesses in its former Protect
& Enhance segment, effective from 1 January 2022. The Protect
& Enhance segment had included five businesses: Ambius,
Property Care, Dental Services, Cleanroom Services and Workwear
(France). The Ambius, Dental Services and Cleanroom Services
businesses have been added to the enlarged segment, now called
Hygiene & Wellbeing, the Property Care business has been added
to the Pest Control segment, and Workwear (France) has been left as
a standalone segment. At the same time, changes were made to the
regional structure, designed to provide clearer geographic links
and align growth strategies, as follows:
-- North America: Puerto Rico joined the Latin America (LATAM)
region
-- Europe: Includes Nordics (Norway, Sweden, Finland, Denmark
and Poland), previously in UK & Rest of World region. Also
continues to include LATAM(1) which has been expanded to
include Caribbean (formerly in UK & Rest of World) and Puerto
Rico (formerly in North America)
---------------------------------------------------------------
-- UK & Sub-Saharan Africa: No change to UK, Ireland & Baltics.
Sub-Saharan Africa remained in this region. Other Rest of
World countries (MENAT and Caribbean) moved to other regions
---------------------------------------------------------------
-- Asia & MENAT: Enlarged region includes Asia and MENAT countries
---------------------------------------------------------------
-- Pacific: No change
---------------------------------------------------------------
1. The LATAM region is combined with Europe. It is the Group's
smallest region and not considered reportable under the
quantitative thresholds in IFRS 8. It is combined with Europe as it
historically reported through this region, it is similar in nature
to the Europe businesses and has language and cultural
alignment.
The financial information presented has been retrospectively
adjusted to reflect these changes.
Disaggregated revenue under IFRS 15 is the same as the segmental
analysis below. Restructuring costs 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.
Adjusted profit measures
Adjusted profit measures are used to give management and other
users of the accounts a clear understanding of the underlying
profitability of the business over time. Adjusted profit measures
are calculated by adding the following items back to the equivalent
GAAP 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
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 property-related provisions (environmental liabilities),
and payments or receipts as a result of legal disputes.
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. These adjustments are made to aid year-on-year
comparability.
Revenue and profit from continuing operations
Operating Operating Operating
Revenue Revenue(1) Revenue(1) profit profit(1) profit(1)
2022 2021 2020 2022 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
--------- ----------- ----------- ----------- ----------- -----------
North America(2)
--------- ----------- ----------- ----------- ----------- -----------
Pest Control 1,746 1,149 979 297 187 131
--------- ----------- ----------- ----------- ----------- -----------
Hygiene & Wellbeing 103 142 218 18 29 78
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
1,849 1,291 1,197 315 216 209
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Europe (incl LATAM)
--------- ----------- ----------- ----------- ----------- -----------
Pest Control 427 350 324 103 92 75
--------- ----------- ----------- ----------- ----------- -----------
Hygiene & Wellbeing 322 316 330 53 54 59
--------- ----------- ----------- ----------- ----------- -----------
France Workwear 192 166 173 31 17 19
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
941 832 827 187 163 153
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
UK & Sub-Saharan Africa
--------- ----------- ----------- ----------- ----------- -----------
Pest Control 187 176 163 48 46 37
--------- ----------- ----------- ----------- ----------- -----------
Hygiene & Wellbeing 183 183 164 48 49 22
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
370 359 327 96 95 59
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Asia & MENAT
--------- ----------- ----------- ----------- ----------- -----------
Pest Control 231 187 171 34 25 20
--------- ----------- ----------- ----------- ----------- -----------
Hygiene & Wellbeing 90 84 92 11 11 16
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
321 271 263 45 36 36
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Pacific
--------- ----------- ----------- ----------- ----------- -----------
Pest Control 104 90 81 16 14 15
--------- ----------- ----------- ----------- ----------- -----------
Hygiene & Wellbeing 123 107 97 32 25 20
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
227 197 178 48 39 35
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Central and regional overheads 6 7 11 (108) (97) (95)
--------- ----------- ----------- ----------- ----------- -----------
Restructuring costs - - - (12) (10) (13)
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Revenue and Adjusted Operating
Profit 3,714 2,957 2,803 571 442 384
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Adjusted Operating Profit
Margin 15.4% 14.9% 13.7%
--------- ----------- ----------- ----------- ----------- -----------
One-off and adjusting items (136) (21) (8)
--------- ----------- ----------- ----------- ----------- -----------
Amortisation and impairment
of intangible assets(3) (118) (74) (82)
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Operating Profit 317 347 294
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Operating Profit Margin 8.5% 11.7% 10.5%
--------- ----------- ----------- ----------- ----------- -----------
Share of profit from associates
(net of tax) 9 8 8
--------- ----------- ----------- ----------- ----------- -----------
Net adjusted interest payable (48) (34) (37)
--------- ----------- ----------- ----------- ----------- -----------
Net interest adjustments 18 4 (35)
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Profit Before Tax 296 325 230
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Net interest adjustments (18) (4) 35
--------- ----------- ----------- ----------- ----------- -----------
One-off and adjusting items 136 21 8
--------- ----------- ----------- ----------- ----------- -----------
Amortisation and impairment
of intangible assets(3) 118 74 82
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
Adjusted Profit Before Tax 532 416 355
--------------------------------- --------- ----------- ----------- ----------- ----------- -----------
1. During 2022, internal management reporting structures changed
and revenue and profit have been represented for 2020 and 2021
under the new structure.
2. During 2022 there were impairment losses recognised in North
America of GBP17m (2020: GBPnil; 2019: GBPnil) related to ROU
assets and GBP8m (2020: GBPnil; 2019: GBPnil) related to property,
plant and equipment.
3. Excluding computer software.
Organic Revenue measures
Acquisitions are a core part of the Group's growth strategy.
Organic Revenue growth measures are used to help understand the
underlying performance of the Group. Organic Revenue growth
represents the growth in Revenue excluding the effect of businesses
acquired during the year. Acquired businesses are included in
organic measures in the year following acquisition, and the
comparative period is adjusted to include an estimated full-year
performance for growth calculations (pro forma revenue). The
Terminix acquisition is treated differently to other acquisitions
for Organic Revenue growth purposes, with the growth in Revenue not
being excluded. The full pre-acquisition results of the Terminix
business are included for the comparative period and Organic
Revenue growth calculated as the growth in Revenue compared with
the comparative period.
Organic Revenue Organic Revenue
growth growth
excluding disinfection including disinfection
-------------------------- --------------------------
2022 2021 2022 2021
% % % %
------------------------- ------------ ------------ ------------ ------------
North America 5.7% 8.7% 3.2% 1.5%
------------ ------------ ------------ ------------
Europe (incl LATAM) 9.1% 4.7% 6.3% 1.9%
------------ ------------ ------------ ------------
UK & Sub-Saharan Africa 4.7% 12.3% 2.9% 9.9%
------------ ------------ ------------ ------------
Asia & MENAT 11.0% 5.8% 6.8% 4.9%
------------ ------------ ------------ ------------
Pacific 7.9% 6.4% 7.5% 6.3%
------------------------- ------------ ------------ ------------ ------------
Group 6.6% 7.0% 4.2% 2.9%
------------------------- ------------ ------------ ------------ ------------
Pest Control 5.6% 8.2% 5.6% 8.2%
------------ ------------ ------------ ------------
Hygiene & Wellbeing 9.3% 7.2% (4.0)% (5.7)%
------------ ------------ ------------ ------------
France Workwear 16.6% 1.5% 16.6% 1.5%
------------------------- ------------ ------------ ------------ ------------
Group 6.6% 7.0% 4.2% 2.9%
------------------------- ------------ ------------ ------------ ------------
One-off and adjusting items - operating
One-off
One-off One-off and adjusting
and adjusting and adjusting items
items items cash inflow/(outflow)
cost/(income) tax impact GBPm
GBPm GBPm
---------------- ---------------- -----------------------
2020
---------------- ---------------- -----------------------
Acquisition and integration costs 15 (3) (15)
---------------- ---------------- -----------------------
Pension scheme closure in North
America (7) 2 -
---------------- ---------------- -----------------------
UK pension scheme - return of surplus(1) - - 9
---------------- ---------------- -----------------------
Other - (1) 4
----------------------------------------- ---------------- ---------------- -----------------------
Total 8 (2) (2)
----------------------------------------- ---------------- ---------------- -----------------------
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(1) - - 22
---------------- ---------------- -----------------------
Other 1 - 2
----------------------------------------- ---------------- ---------------- -----------------------
Total 136 (20) (59)
----------------------------------------- ---------------- ---------------- -----------------------
1. More information about the UK pension scheme buy-out can be
found in Note 16.
Other segment items included in the consolidated income
statement are as follows:
Amortisation Amortisation Amortisation
and and and
impairment impairment impairment
of of of
intangibles(1) intangibles(1) intangibles(1)
2022 2021 2020
GBPm GBPm GBPm
---------------- ---------------- ----------------
North America 59 34 30
---------------- ---------------- ----------------
Europe (incl. LATAM) 29 14 15
---------------- ---------------- ----------------
UK & Sub-Saharan Africa - 9 9
---------------- ---------------- ----------------
Asia & MENAT 20 7 17
---------------- ---------------- ----------------
Pacific 4 4 4
---------------- ---------------- ----------------
Central and regional 6 6 7
---------------- ---------------- ----------------
Disposed businesses - - -
------------------------- ---------------- ---------------- ----------------
Total 118 74 82
------------------------- ---------------- ---------------- ----------------
Tax effect (25) (18) (18)
------------------------- ---------------- ---------------- ----------------
Total after tax effect 93 56 64
------------------------- ---------------- ---------------- ----------------
1. Excluding computer software.
3. Finance cost
2022 2021 2020
GBPm GBPm GBPm
------ ------ ------
Hedged interest payable on medium-term
notes issued(1) 39 10 16
------ ------ ------
Interest payable on bank loans and overdrafts(1) 5 3 3
------ ------ ------
Interest payable on RCF(1) 1 1 5
------ ------ ------
Interest payable on foreign exchange swaps(2) 19 14 9
------ ------ ------
Interest payable on leases 10 6 7
------ ------ ------
Amortisation of discount on provisions 3 - -
------ ------ ------
Fair value loss on hedge ineffectiveness 2 - 8
------ ------ ------
Fair value adjustment on debt repayment - - 4
------ ------ ------
Fair value loss on other derivatives(3) - - 26
-------------------------------------------------- ------ ------ ------
Total finance cost 79 34 78
-------------------------------------------------- ------ ------ ------
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 GBP26m (2021: GBP17m). GBP8m has
been reported in other comprehensive income due to hedge accounting
(2021: GBP4m).
3. Fair value loss on other derivatives relates to $335m SBU
entered into since February 2019 ($170m in February 2019 and $165m
in July 2019) which did not qualify for hedge accounting. The
instrument provided an annual interest benefit of 1.9% of the
outstanding principal and was closed out in August 2020 with a
full-year loss of GBP26m excluding interest accrued.
4. Finance income
2022 2021 2020
GBPm GBPm GBPm
------ ------ ------
Bank interest received 5 1 2
------ ------ ------
Interest receivable on foreign exchange
swaps - - 3
------ ------ ------
Fair value gain on hedge ineffectiveness 22 - -
------ ------ ------
Hyperinflation accounting adjustment 22 3 -
------ ------ ------
Interest on net defined benefit asset - - 1
------------------------------------------ ------ ------ ------
Total finance income 49 4 6
------------------------------------------ ------ ------ ------
Adjusted interest
Adjusted interest is calculated by adjusting the reported
finance income and costs by the net interest from amortisation of
discount on legacy provisions and by hedge accounting recognised in
other comprehensive income. Fair value is equal to carrying value
for all cash and cash equivalents.
2022 2021
AER AER
GBPm GBPm
------ ------
Finance cost 79 34
------ ------
Finance income (49) (4)
------ ------
Add back:
------ ------
Amortisation of discount on legacy provisions (3) -
------ ------
Gain on hedge accounting recognised in finance
income/cost 21 4
------------------------------------------------ ------ ------
Adjusted interest 48 34
------------------------------------------------ ------ ------
5. Income tax expense
Analysis of charge in the year:
2022 2021 2020
GBPm GBPm GBPm
------ ------ ------
UK corporation tax at 19.0% (2021: 19.0%;
2020: 19.0%) 17 9 9
------ ------ ------
Overseas taxation 59 48 61
------ ------ ------
Adjustment in respect of previous periods 2 (3) (3)
------------------------------------------- ------ ------ ------
Total current tax 78 54 67
------------------------------------------- ------ ------ ------
Deferred tax (credit)/expense (3) 21 (17)
------ ------ ------
Deferred tax adjustment in respect of
previous periods (11) (13) (6)
------------------------------------------- ------ ------ ------
Total deferred tax (14) 8 (23)
------------------------------------------- ------ ------ ------
Total income tax expense 64 62 44
------------------------------------------- ------ ------ ------
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 GBP23m has been recognised in respect of
losses (2021: GBP14m), of which GBP18m (2021: GBP12m) relates to UK
losses carried forward at 31 December 2022. 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 GBP120m (2021: GBP41m) have not been recognised as at 31
December 2022 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 GBP230m
(2021: GBP82m) 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, GBP74m (2021: GBP8m) will expire at
various dates between 2022 and 2039.
The cash tax paid for the year was GBP77m (2021: GBP69m, 2020:
GBP64m). The cash tax paid is expected to increase in future
periods due to the acquisition of Terminix.
Effective tax rate
Effective tax rate is calculated by dividing adjusted income tax
expense by adjusted profit before tax, expressed as a percentage.
The measure is used by management to assess the rate of tax applied
to the Group's adjusted profit before tax from continuing
operations.
2022 2022 2021
AER CER AER/CER
GBPm GBPm GBPm
------ ------ ---------
Unadjusted income tax expense 64 63 62
------ ------ ---------
Tax adjustments on:
------ ------ ---------
Amortisation and impairment
of intangible assets (excluding
computer software) 24 22 18
------ ------ ---------
One-off and adjusting items
- operating 20 19 1
------ ------ ---------
Net interest adjustments (3) (3) (1)
----------------------------------- ------ ------ ---------
Adjusted income tax expense
(a) 105 101 80
------ ------ ---------
Adjusted profit before tax
(b) 532 515 416
----------------------------------- ------ ------ ---------
Effective Tax Rate (a/b) 19.7% 19.7% 19.4%
----------------------------------- ------ ------ ---------
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.
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.
For the calculation of diluted earnings per share, 1,290,294
share options were anti-dilutive and not included in the
calculation of the dilutive effect as at 31 December 2022 (31
December 2021: nil).
Details of the adjusted earnings per share are set out
below:
2022 2021 2020
GBPm GBPm GBPm
------- ------- -------
Profit from continuing operations attributable
to equity holders of the Company 232 263 186
------- ------- -------
One-off and adjusting items 136 21 8
------- ------- -------
Amortisation and impairment of intangibles(1) 118 74 82
------- ------- -------
Net interest adjustments(2) (18) (4) 35
------- ------- -------
Tax on above items(3) (41) (18) (26)
------------------------------------------------ ------- ------- -------
Adjusted profit from continuing operations
attributable to equity holders of the
Company 427 335 285
------------------------------------------------ ------- ------- -------
Weighted average number of ordinary shares
in issue (million) 2,002 1,858 1,853
------- ------- -------
Adjustment for potentially dilutive shares
(million) 12 8 10
------------------------------------------------ ------- ------- -------
Weighted average number of ordinary shares
for diluted earnings per share (million) 2,014 1,866 1,863
------------------------------------------------ ------- ------- -------
Basic earnings per share 11.57p 14.16p 10.03p
------- ------- -------
Diluted earnings per share 11.51p 14.10p 9.98p
------- ------- -------
Basic adjusted earnings per share 21.34p 18.07p 15.37p
------- ------- -------
Diluted adjusted earnings per share 21.22p 17.99p 15.29p
------------------------------------------------ ------- ------- -------
1. Excluding computer software.
2. Includes: net interest credit from pensions GBPnil (2021:
GBPnil; 2020: GBP1m); finance costs from hedge accounting
recognised in other comprehensive income GBPnil (2021: GBP4m; 2020:
GBP5m); IFRS 16 interest adjustment GBPnil (2021: GBPnil; 2020:
GBP(2)m); interest fair value adjustment GBP21m (2021: GBPnil;
2020: GBP(38)m); discount unwind GBP(3)m (2021: GBPnil; 2020:
GBPnil).
3. One-off and adjusting items - operating GBP20m (2021: GBP2m;
2020: GBP2m); amortisation and impairment of intangibles GBP25m
(2021: GBP18m; 2020: GBP18m); net interest adjustments GBP(3)m
(2021: GBP(1)m; 2020: GBP6m).
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.
2022 2021 2020
GBPm GBPm GBPm
------ ------ ------
2020 final dividend paid - 5.41p per share - 100 -
------ ------ ------
2021 interim dividend paid - 2.09p per - 39 -
share
------ ------ ------
2021 final dividend paid - 4.30p per share 80 - -
------ ------ ------
2022 interim dividend paid - 2.40p per 42 - -
share
-------------------------------------------- ------ ------ ------
Total 122 139 -
-------------------------------------------- ------ ------ ------
An interim dividend of 2.40p per share was paid on 12 September
2022 amounting to GBP42m. A final dividend in respect of 2022 of
5.15p per share is to be proposed at the Annual General Meeting on
10 May 2023.
The aggregate amount of the proposed dividend to be paid out of
retained earnings at 31 December 2022, but not recognised as a
liability at year end, is GBP130m (2021: GBP80m).
8. Business combinations
During the year the Group purchased 100% of the share capital or
trade and assets of 53 companies and businesses (2021: 52). The
total consideration in respect of these acquisitions was GBP4,369m
(2021: GBP314m) and the cash outflow from current and past period
acquisitions net of cash acquired, was GBP1,018m (2021:
GBP463m).
Acquisition of Terminix Global Holdings, Inc.
On 12 October the Group purchased 100% of the share capital of
Terminix Global Holdings, Inc. (Terminix) based primarily in the
USA. Terminix is the most recognised brand in US termite and pest
management services and is a singularly focused pest management
company. The transaction combined two of the world's leading pest
control businesses to create the leading global pest control
company, with approximately 4.9 million customers and 58,600
employees globally. The combined group is set up to enhance
shareholder value by creating an enlarged platform for growth,
particularly in North America.
Fair value of the purchase consideration was GBP4,110m,
comprising Rentokil Initial ADSs of GBP3,007m, cash of GBP1,087m
and replacement employee share awards of GBP16m.
Loans and borrowings of GBP749m acquired with Terminix were
repaid in full shortly following completion of the acquisition.
Costs related to the acquisition of Terminix Global Holdings,
Inc. recognised as an expense amounted to GBP68m recognised in
operating costs and GBP16m recognised as the cost of issuing new
shares in equity.
Goodwill 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:
Terminix
Global Individually
Holdings, immaterial
Inc. acquisitions Total
2022 2022 2022 2021
GBPm GBPm GBPm GBPm
----------- -------------- -------- ------
Purchase consideration
----------- -------------- -------- ------
- Cash paid 1,087 214 1,301 273
----------- -------------- -------- ------
- Deferred and contingent consideration - 45 45 41
----------- -------------- -------- ------
- Equity interests(1) 3,023 - 3,023 -
----------------------------------------- ----------- -------------- -------- ------
Total purchase consideration 4,110 259 4,369 314
----------- -------------- -------- ------
Fair value of net assets acquired (934) (87) (1,021) (83)
----------------------------------------- ----------- -------------- -------- ------
Goodwill from current-year acquisitions 3,176 172 3,348 231
----------------------------------------- ----------- -------------- -------- ------
Goodwill expected to be deductible
for tax purposes - 60 60 146
----------------------------------------- ----------- -------------- -------- ------
1. Equity interests in Rentokil Initial plc issued to
shareholders of GBP3,007m and replacement employee share awards of
GBP16m.
Deferred consideration of GBP22m and contingent consideration of
GBP23m are payable in respect of the above acquisitions (2021:
GBP13m and GBP28m 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 GBP10m (2021: GBP1m).
The provisional fair values(1) of assets and liabilities arising
from acquisitions in the year are as follows:
Terminix
Global Individually
Holdings, immaterial
Inc. acquisitions Total
2022 2022 2022 2021
GBPm GBPm GBPm GBPm
----------- -------------- -------- ------
Non-current assets
----------- -------------- -------- ------
- Intangible assets(2) 2,027 74 2,101 71
----------- -------------- -------- ------
- Property, plant and equipment(3) 249 14 263 13
----------- -------------- -------- ------
- Other non-current assets 143 - 143 2
----------- -------------- -------- ------
Current assets(4) 701 28 729 37
----------- -------------- -------- ------
Current liabilities(5) (311) (11) (322) (26)
----------- -------------- -------- ------
Non-current liabilities(6) (1,875) (18) (1,893) (14)
------------------------------------ ----------- -------------- -------- ------
Net assets acquired 934 87 1,021 83
------------------------------------ ----------- -------------- -------- ------
1. The provisional fair values will be finalised in the 2023
Financial Statements. The fair values are provisional since the
acquisition accounting has not yet been finalised, primarily due to
the proximity of many acquisitions to the year end.
2. Includes GBP778m (2021: GBP70m) of customer lists, GBP1,292m
(2021: GBPnil) of indefinite-lived brands and GBP31m (2021: GBP1m)
of other intangibles.
3. Includes GBP200m (2021: GBP2m) of right-of-use assets.
4. Includes cash acquired of GBP322m (2021: GBP6m), inventory of
GBP48m (2021: GBP3m) and trade and other receivables of GBP359m
(2021: GBP28m).
5. Includes trade and other payables of GBP322m (2021:
GBP26m).
6. Includes GBP445m of deferred tax liabilities relating to
acquired intangibles (2021: GBP8m), GBP749m of debt that was
acquired with the Terminix business and repaid in November 2022
(2021: GBPnil), lease liabilities of GBP214m (2021: GBP2m), termite
damage claims provisions of GBP335m (2021: GBPnil) and other
provisions of GBP140m (2021: GBP2m).
The cash outflow from current and past acquisitions is as
follows:
Terminix
Global Individually
Holdings, immaterial
Inc. acquisitions Total
2022 2022 2022 2021
GBPm GBPm GBPm GBPm
----------- -------------- -------- ------
Total purchase consideration 4,110 259 4,369 314
----------- -------------- -------- ------
Equity interests (3,023) - (3,023) -
----------- -------------- -------- ------
Consideration payable in future
periods - (45) (45) (41)
--------------------------------------- ----------- -------------- -------- ------
Purchase consideration paid in
cash 1,087 214 1,301 273
----------- -------------- -------- ------
Cash and cash equivalents in acquired
companies and businesses (313) (9) (322) (6)
--------------------------------------- ----------- -------------- -------- ------
Cash outflow on current period
acquisitions 774 205 979 267
----------- -------------- -------- ------
Deferred consideration paid - 39 39 196
--------------------------------------- ----------- -------------- -------- ------
Cash outflow on current and past
acquisitions 774 244 1,018 463
--------------------------------------- ----------- -------------- -------- ------
From the dates of acquisition to 31 December 2022, these
acquisitions (including Terminix) contributed GBP422m to revenue
and GBP3m to operating profit (2021: GBP50m and GBP7m
respectively).
If the acquisitions had occurred on 1 January 2022, the revenue
and operating profit of the Group would have amounted to GBP5,109m
and GBP444m respectively (2021: GBP3,031m and GBP357m
respectively).
9. Intangible assets
A breakdown of intangible assets is as shown below:
Customer Indefinite-lived Other Product Computer
Goodwill lists brands intangibles development software Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- --------- ----------------- ------------- ------------- ---------- ------
Cost
--------- --------- ----------------- ------------- ------------- ---------- ------
At 1 January
2021 1,653 824 - 66 40 145 2,728
--------- --------- ----------------- ------------- ------------- ---------- ------
Exchange differences 4 (13) - - - (2) (11)
--------- --------- ----------------- ------------- ------------- ---------- ------
Additions - - - 4 6 21 31
--------- --------- ----------------- ------------- ------------- ---------- ------
Disposals/retirements - (4) - (3) - (1) (8)
--------- --------- ----------------- ------------- ------------- ---------- ------
Acquisition of
companies and
businesses(1) 228 69 - - - - 297
--------- --------- ----------------- ------------- ------------- ---------- ------
Hyperinflationary
adjustment 3 - - - - - 3
----------------------- --------- --------- ----------------- ------------- ------------- ---------- ------
At 31 December
2021 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
businesses(1) 3,352 779 1,292 23 - 11 5,457
--------- --------- ----------------- ------------- ------------- ---------- ------
Hyperinflationary
adjustment 14 3 - 1 - - 18
--------- --------- ----------------- ------------- ------------- ---------- ------
Disposal of companies
and businesses (1) - - - - - (1)
----------------------- --------- --------- ----------------- ------------- ------------- ---------- ------
At 31 December
2022 5,181 1,473 1,185 81 55 206 8,181
----------------------- --------- --------- ----------------- ------------- ------------- ---------- ------
Accumulated amortisation and impairment
At 1 January
2021 (45) (585) - (47) (27) (102) (806)
--------- --------- ----------------- ------------- ------------- ---------- ------
Exchange differences 1 10 - - - 1 12
--------- --------- ----------------- ------------- ------------- ---------- ------
Disposals/retirements - 4 - 4 - 1 9
--------- --------- ----------------- ------------- ------------- ---------- ------
Impairment charge - - - - - (2) (2)
--------- --------- ----------------- ------------- ------------- ---------- ------
Amortisation
charge - (64) - (5) (5) (15) (89)
----------------------- --------- --------- ----------------- ------------- ------------- ---------- ------
At 31 December
2021 (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)
----------------------- --------- --------- ----------------- ------------- ------------- ---------- ------
Net book value
--------- --------- ----------------- ------------- ------------- ---------- ------
At 1 January
2021 1,608 239 - 19 13 43 1,922
--------- --------- ----------------- ------------- ------------- ---------- ------
At 31 December
2021 1,844 241 - 19 14 46 2,164
----------------------- --------- --------- ----------------- ------------- ------------- ---------- ------
At 31 December
2022 5,116 900 1,185 37 18 63 7,319
----------------------- --------- --------- ----------------- ------------- ------------- ---------- ------
1. Includes current-year acquisitions of GBP5,449m (2021:
GBP301m) as well as adjustments to prior-year acquisitions within
the measurement period.
10. Property, plant and equipment
A breakdown of property, plant and equipment is shown below:
Other Vehicles
Land Service plant and
and contract and office
buildings equipment equipment equipment Total
GBPm GBPm GBPm GBPm GBPm
----------- ----------- ----------- ----------- ------
Cost
----------- ----------- ----------- ----------- ------
At 1 January 2021 87 524 186 200 997
----------- ----------- ----------- ----------- ------
Exchange differences (4) (27) (9) (5) (45)
----------- ----------- ----------- ----------- ------
Additions 3 94 13 19 129
----------- ----------- ----------- ----------- ------
Disposals (2) (73) (3) (18) (96)
----------- ----------- ----------- ----------- ------
Acquisition of companies
and businesses(1) 3 - 1 8 12
----------- ----------- ----------- ----------- ------
Reclassification from IFRS
16 ROU assets(2) - - - 6 6
---------------------------- ----------- ----------- ----------- ----------- ------
At 31 December 2021 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(1) 29 2 4 30 65
----------- ----------- ----------- ----------- ------
Reclassification from IFRS
16 ROU assets(2) - - - 8 8
---------------------------- ----------- ----------- ----------- ----------- ------
At 31 December 2022 127 587 215 255 1,184
---------------------------- ----------- ----------- ----------- ----------- ------
Accumulated depreciation
and impairment
----------- ----------- ----------- ----------- ------
At 1 January 2021 (30) (310) (132) (122) (594)
----------- ----------- ----------- ----------- ------
Exchange differences 1 16 7 3 27
----------- ----------- ----------- ----------- ------
Disposals 1 72 2 15 90
----------- ----------- ----------- ----------- ------
Depreciation charge (3) (92) (12) (21) (128)
---------------------------- ----------- ----------- ----------- ----------- ------
At 31 December 2021 (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)
---------------------------- ----------- ----------- ----------- ----------- ------
Net book value
----------- ----------- ----------- ----------- ------
At 1 January 2021 57 214 54 78 403
----------- ----------- ----------- ----------- ------
At 31 December 2021 56 204 53 85 398
---------------------------- ----------- ----------- ----------- ----------- ------
At 31 December 2022 83 231 64 117 495
---------------------------- ----------- ----------- ----------- ----------- ------
1. Includes current-year acquisitions of GBP64m (2021: GBP11m)
as well as adjustments to prior-year acquisitions within the
measurement period.
2. 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 GBP13m (2021: GBP7m) 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 GBP69m (2021: GBP66m) 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.
2022 2021
GBPm GBPm
-------- ------
Cash at bank and in hand 1,713 554
-------- ------
Money market funds 236 52
-------- ------
Short-term bank deposits 221 62
----------------------------------------------- -------- ------
Cash and cash equivalents in the Consolidated
Balance Sheet 2,170 668
-------- ------
Bank overdraft (1,291) (426)
----------------------------------------------- -------- ------
Cash and cash equivalents in the Consolidated
Cash Flow Statement 879 242
----------------------------------------------- -------- ------
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:
Non-cash
(fair Non-cash
value (foreign
changes, exchange
Opening Cash accruals and Closing
2022 flows and acquisitions) other) 2022
GBPm GBPm GBPm GBPm GBPm
-------- -------- ------------------- ---------- --------
Bank and other short-term
borrowings (459) (121) (771) (4) (1,355)
-------- -------- ------------------- ---------- --------
Bank and other long-term
borrowings (1,256) (2,257) - (61) (3,574)
-------- -------- ------------------- ---------- --------
Lease liabilities (217) 114 (225) (139) (467)
-------- -------- ------------------- ---------- --------
Other investments 1 - - - 1
-------- -------- ------------------- ---------- --------
Fair value of debt-related
derivatives (22) (7) 19 (61) (71)
------------------------------ -------- -------- ------------------- ---------- --------
Gross debt (1,953) (2,271) (977) (265) (5,466)
-------- -------- ------------------- ---------- --------
Cash and cash equivalents
in the Consolidated Balance
Sheet 668 1,591 - (89) 2,170
------------------------------ -------- -------- ------------------- ---------- --------
Net debt (1,285) (680) (977) (354) (3,296)
------------------------------ -------- -------- ------------------- ---------- --------
Non-cash
(fair
value Non-cash
changes, (foreign
Opening Cash accruals exchange Closing
2021 flows and acquisitions) and other) 2021
GBPm GBPm GBPm GBPm GBPm
-------- -------- ------------------- ------------ --------
Bank and other short-term
borrowings (1,591) 1,135 (12) 9 (459)
-------- -------- ------------------- ------------ --------
Bank and other long-term
borrowings (1,338) 15 (12) 79 (1,256)
-------- -------- ------------------- ------------ --------
Lease liabilities (215) 94 (5) (91) (217)
-------- -------- ------------------- ------------ --------
Other investments 172 (171) - - 1
-------- -------- ------------------- ------------ --------
Fair value of debt-related
derivatives 7 31 (3) (57) (22)
------------------------------ -------- -------- ------------------- ------------ --------
Gross debt (2,965) 1,104 (32) (60) (1,953)
-------- -------- ------------------- ------------ --------
Cash and cash equivalents
in the Consolidated Balance
Sheet 1,950 (1,267) - (15) 668
------------------------------ -------- -------- ------------------- ------------ --------
Net debt (1,015) (163) (32) (75) (1,285)
------------------------------ -------- -------- ------------------- ------------ --------
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 - unadjusted quoted prices in active markets for identical
1 assets or liabilities;
Level - inputs other than quoted prices that are observable for
2 the asset or liability either directly as prices or indirectly
through modelling based on prices; and
---------------------------------------------------------------
Level - inputs for the asset or liability that are not based
3 on observable market data.
---------------------------------------------------------------
Hierarchy
Financial instrument level Valuation method
---------- ------------------------------
Financial assets traded 1 Current bid price
in active markets
---------- ------------------------------
Financial liabilities traded 1 Current ask price
in active markets
---------- ------------------------------
Listed bonds 1 Quoted market prices
---------- ------------------------------
Money market funds 1 Quoted market prices
---------- ------------------------------
Interest rate/currency 2 Discounted cash flow based
swaps on market swap rates
---------- ------------------------------
Forward foreign exchange 2 Forward exchange market rates
contracts
---------- ------------------------------
Borrowings not traded in 2 Nominal value
active markets (term loans
and uncommitted facilities)
---------- ------------------------------
Money market deposits 2 Nominal value
---------- ------------------------------
2 Nominal value less estimated
Trade payables and receivables credit adjustments
---------- ------------------------------
Contingent consideration 3 Discounted cash flow using
(including put option liability) 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:
Drawn Interest
Facility at rate
year at year
amount end Headroom end
2022 2022 2022 2022
GBPm GBPm GBPm %
---------- ------- ---------- ----------
Non-current
---------- ------- ---------- ----------
$700m term loan due October 2025 579 579 - 4.9
---------- ------- ---------- ----------
$1.0bn RCF due October 2027 827 - 827 0.14
---------------------------------- ---------- ------- ---------- ----------
Interest
rate
Drawn
Facility at at year
year
amount end Headroom end
2021 2021 2021 2021
GBPm GBPm GBPm %
--------- ------ --------- ---------
Non-current
--------- ------ --------- ---------
GBP550m RCF due August 2025 550 - 550 0.14
----------------------------- --------- ------ --------- ---------
During the year the Group amended, extended and increased its
RCF with 16 relationship banks from GBP550m to $1.0bn in order to
provide additional liquidity headroom in relation to the
acquisition of Terminix Global Holdings, Inc. The RCF was undrawn
throughout 2021 and 2022.
In addition, the Group entered into a GBP120m uncommitted RCF
facility with ING Bank N.V. which was drawn down in full and repaid
during the period. This facility was cancelled on 30 June 2022.
In June 2022, the Group issued three new bonds: EUR850m 5-year
at 3.875%; EUR600m 8-year at 4.375%; and GBP400m 10-year at 5.0%.
These bonds fully covered the $1.3bn cash element of the Terminix
transaction consideration.
In October 2022 the Group drew down $700m on its term loan at
floating interest rate based on SOFR plus a 60bps margin.
Medium-term notes and bond debt comprises:
Effective Effective
hedged hedged
Bond interest interest Bond interest interest
coupon rate coupon rate
2022 2022 2021 2021
--------------- ---------- -------------- ------------
Non-current
--------------- ---------- -------------- ------------
EUR400m bond due November Fixed Fixed
2024 0.95% 3.21% Fixed 0.95% Fixed 3.08%
--------------- ---------- -------------- ------------
Fixed Fixed
EUR500m bond due May 2026 0.875% 1.78% Fixed 0.875% Fixed 1.54%
--------------- ---------- -------------- ------------
Fixed Fixed
EUR850m bond due June 2027 3.875% 3.98% - -
--------------- ---------- -------------- ------------
EUR600m bond due October Fixed Fixed
2028 0.5% 1.3% Fixed 0.50% Fixed 1.08%
--------------- ---------- -------------- ------------
Fixed Fixed
EUR600m bond due June 2030 4.375% 4.38% - -
--------------- ---------- -------------- ------------
Fixed Fixed
GBP400m bond due June 2032 5.0% 5.11% - -
---------------------------- --------------- ---------- -------------- ------------
Average cost of bond debt at year-end
rates 3.28% 1.78%
--------------------------------------------- ---------- -------------- ------------
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.
15. Operating cash and Free Cash Flow
2022 2021 2020
GBPm GBPm GBPm
------ ------ ------
Operating Profit 317 347 294
Adjustments for:
- Depreciation and impairment of property,
plant and equipment 148 128 132
- Depreciation and impairment of leased
assets 106 78 78
- Amortisation and impairment of intangible
assets (excluding computer software) 118 74 82
- Amortisation and impairment of computer
software 22 17 19
- Other non-cash items 8 6 (1)
--------------------------------------------- ------ ------ ------
Changes in working capital (excluding
the effects of acquisitions and exchange
differences on consolidation):
- Inventories (4) (3) (23)
- Contract costs (10) (5) (2)
- Trade and other receivables 37 59 (19)
- Accrued income (32) - 2
- Trade and other payables and provisions (75) (43) 78
--------------------------------------------- ------ ------ ------
- Contract liabilities 81 11 13
--------------------------------------------- ------ ------ ------
Cash generated from operating activities 716 669 653
--------------------------------------------- ------ ------ ------
Purchase of property, plant and equipment (153) (128) (130)
--------------------------------------------- ------ ------ ------
Purchase of intangible fixed assets (37) (32) (23)
--------------------------------------------- ------ ------ ------
Capital element of lease payments and
initial direct costs incurred (104) (88) (83)
--------------------------------------------- ------ ------ ------
Proceeds from sale of property, plant
and equipment 5 7 6
--------------------------------------------- ------ ------ ------
Cash impact of one-off and adjusting items 59 27 7
------ ------ ------
Dividends received from associates 4 4 12
--------------------------------------------- ------ ------ ------
Adjusted Cash Flow 490 459 442
--------------------------------------------- ------ ------ ------
Interest received 13 5 8
--------------------------------------------- ------ ------ ------
Interest paid (52) (42) (49)
--------------------------------------------- ------ ------ ------
Income tax paid (77) (69) (64)
--------------------------------------------- ------ ------ ------
Free Cash Flow 374 353 337
--------------------------------------------- ------ ------ ------
Free Cash Flow
The Group aims to generate sustainable cash flow (Free Cash
Flow) in order to support its acquisition programme and to fund
dividend payments to shareholders. Free Cash Flow is measured as
net cash from operating activities, adjusted for cash flows related
to the purchase and sale of property, plant, equipment and
intangible fixed 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. A
reconciliation of Free Cash Flow from net cash from operating
activities is provided in the table below:
2022 2021
AER AER
GBPm GBPm
------ ------
Net cash from operating activities 600 563
------ ------
Purchase of property, plant, equipment and intangible
fixed assets (190) (160)
------ ------
Capital element of lease payments and initial
direct costs incurred (104) (88)
------ ------
Proceeds from sale of property, plant, equipment
and software 5 7
------ ------
Cash impact of one-off and adjusting items 59 27
------ ------
Dividends received from associates 4 4
------------------------------------------------------- ------ ------
Free Cash Flow 374 353
------------------------------------------------------- ------ ------
Adjusted Free Cash Flow conversion
Adjusted Free Cash Flow conversion 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.
2022 2021
AER AER
GBPm GBPm
------ -------
Adjusted Profit After Tax 427 336
-------------------------------------------------- ------ -------
Free Cash Flow 374 353
------ -------
Product development additions 10 7
------ -------
Net investment hedge cash interest through Other
Comprehensive Income 8 4
-------------------------------------------------- ------ -------
Adjusted Free Cash Flow 392 364
-------------------------------------------------- ------ -------
Free Cash Flow conversion 91.8% 108.3%
-------------------------------------------------- ------ -------
16. Retirement benefit obligations
Apart from contributions to legally required social security
state schemes, the Group operates a number of pension schemes
around the world covering many of its employees.
The principal pension scheme in the Group is the UK Rentokil
Initial 2015 Pension Scheme (RIPS) which has a defined contribution
section and a number of defined benefit sections, the largest of
which has now been wound up following a buy-out agreement with
Pension Insurance Corporation plc (PIC) to take over the payment of
the liabilities in the scheme.
The largest retirement benefit obligation in the Group is now
the Rentokil Initial Irish Pension Scheme (which is in a surplus
position).
A number of much smaller defined benefit and defined
contribution schemes operate elsewhere which are also funded
through payments to trustee-administered funds or insurance
companies.
Defined benefit schemes are reappraised annually by independent
actuaries based upon actuarial assumptions. Judgement is required
in determining these actuarial assumptions, but this is not
considered by management to be a significant accounting judgement
as defined under IAS 1.
RIPS
On 4 December 2018 the Trustee entered into a binding agreement
with PIC to insure the liabilities of the RIPS, known as a buy-in.
In December 2021 the final true-up premium was paid to PIC and on
24 February 2022 the insurance policy with PIC was transferred to
the individual members of the scheme and buy-out was completed.
Accordingly in 2022 both the Scheme's assets and liabilities have
been reduced by the policy value (GBP1,159m). The wind-up of the
scheme was completed in December 2022 and the remaining surplus of
GBP22m was refunded to the Company.
The defined benefit schemes of the RIPS were reappraised
semi-annually by independent actuaries based upon actuarial
assumptions in accordance with IAS 19R requirements (including
schemes which are insured under a buy-in contract). The assumptions
used for the RIPS are shown below:
24 February 31 December
2022 2021
------------ ------------
Weighted average %
------------ ------------
Discount rate 2.6% 2.0%
------------ ------------
Future salary increases n/a n/a
------------ ------------
Future pension increases 3.6% 3.3%
------------ ------------
RPI inflation 3.7% 3.4%
------------ ------------
CPI inflation 3.0% 2.7%
-------------------------- ------------ ------------
The movement in the net defined benefit obligation for all Group
pension schemes over the accounting period is as follows:
Fair Fair
value value
Present of Present of
value plan value plan
of obligation assets Total of obligation assets Total
2022 2022 2022 2021 2021 2021
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- ------ --------------- -------- ------
At 1 January (1,313) 1,305 (8) (1,481) 1,461 (20)
-------------------------------- --------------- -------- ------ --------------- -------- ------
Current service costs(1) (2) - (2) (1) - (1)
--------------- -------- ------ --------------- -------- ------
Past service costs(1) (1) - (1) 1 - 1
--------------- -------- ------ --------------- -------- ------
Settlement gain 4 - 4 22 (21) 1
--------------- -------- ------ --------------- -------- ------
Transfer of RIPS annuity
policies (buy-out) 1,159 (1,159) - - - -
--------------- -------- ------ --------------- -------- ------
Administration expenses(1) 4 (4) - - - -
--------------- -------- ------ --------------- -------- ------
Interest on defined
benefit obligation/asset(1) (5) 5 - (21) 21 -
--------------- -------- ------ --------------- -------- ------
Exchange difference (3) 2 (1) 2 (1) 1
-------------------------------- --------------- -------- ------ --------------- -------- ------
Total pension income/(expense) 1,156 (1,156) - 3 (1) 2
-------------------------------- --------------- -------- ------ --------------- -------- ------
Remeasurements:
--------------- -------- ------ --------------- -------- ------
- Remeasurement gain/(loss)
on scheme assets - (79) (79) - (78) (78)
--------------- -------- ------ --------------- -------- ------
- Remeasurement gain/(loss)
on obligation(2) 81 - 81 79 - 79
--------------- -------- ------ --------------- -------- ------
Contributions:
--------------- -------- ------ --------------- -------- ------
- Employers (1) - (1) (1) 8 7
--------------- -------- ------ --------------- -------- ------
- Benefit payments 12 (10) 2 87 (85) 2
--------------- -------- ------ --------------- -------- ------
- Refund of surplus - (22) (22) - - -
-------------------------------- --------------- -------- ------ --------------- -------- ------
At 31 December (65) 38 (27) (1,313) 1,305 (8)
-------------------------------- --------------- -------- ------ --------------- -------- ------
Retirement benefit
obligation schemes(3) (49) 19 (30) (63) 36 (27)
--------------- -------- ------ --------------- -------- ------
Retirement benefit
asset schemes(4) (16) 19 3 (1,250) 1,269 19
-------------------------------- --------------- -------- ------ --------------- -------- ------
1. Service costs and administration expenses are charged to
operating expenses, and interest cost and return on plan assets to
finance cost and finance income.
2. The actuarial movement on the UK RIPS comprises remeasurement
gain arising from changes in demographic assumptions of GBPnil
(2021: gain of GBP3m, 2020: gain of GBP16m), remeasurement gain
arising from changes in financial assumptions of GBP82m (2021: gain
of GBP75m, 2020: loss of GBP117m) and a remeasurement loss arising
from experience of GBP7m (2021: loss of GBP1m, 2020: gain of
GBP25m).
3. Benefit plans in an obligation position include plans
situated in Thailand, the UK, Martinique, Trinidad and Tobago,
Norway, South Africa, Germany, Austria, France, Italy, South Korea,
Philippines, India, Hong Kong and Saudi Arabia.
4. Benefit plans in an asset position include plans situated in
Australia, Barbados and Ireland.
Included in the table above is a net defined benefit surplus in
relation to the UK RIPS of GBPnil (2021: GBP18m, 2020: GBP18m)
recognised as defined benefit obligation of GBPnil (2021:
GBP1,248m, 2020: GBP1,369m) and plan assets of GBPnil (2021:
GBP1,266m, 2020: GBP1,388m). Of the GBP65m (2021: GBP1,313m, 2020:
GBP1,481m) of obligations, GBP20m (2021: GBP17m, 2020: GBP18m) is
unfunded.
Total contributions payable to defined benefit pension schemes
in 2023 are expected to be less than GBP1m.
The fair value of plan assets at the balance sheet date is
analysed as follows:
2022 2021
GBPm GBPm
------ ------
Equity instruments 2 3
------ ------
Debt instruments - unquoted 15 16
------ ------
Insurance policies - 1,239
------ ------
Other 21 47
----------------------------- ------ ------
Total plan assets 38 1,305
----------------------------- ------ ------
17. 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. This year the US is the only country
where the effect of discounting is material. The discount rates
used are based on government bond rates in the country of the cash
flows, and were between 3.5% and 5.875% (2021: 0.9%) for the
US.
Termite
damage Self-
claims insurance Environmental Other Total
GBPm GBPm GBPm GBPm GBPm
-------- ----------- -------------- ------ ------
At 1 January 2021 - 32 14 18 64
-------- ----------- -------------- ------ ------
Exchange differences - - (1) - (1)
-------- ----------- -------------- ------ ------
Additional provisions - 18 - 6 24
-------- ----------- -------------- ------ ------
Used during the year - (14) (2) (9) (25)
-------- ----------- -------------- ------ ------
Unused amounts reversed - (1) - (2) (3)
-------- ----------- -------------- ------ ------
Acquisition of companies
and businesses - 2 - - 2
-------------------------- -------- ----------- -------------- ------ ------
At 31 December 2021 - 37 11 13 61
-------------------------- -------- ----------- -------------- ------ ------
At 1 January 2022 - 37 11 13 61
-------- ----------- -------------- ------ ------
Exchange differences (28) (7) - - (35)
-------- ----------- -------------- ------ ------
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 businesses 335 136 3 1 475
-------- ----------- -------------- ------ ------
Unwinding of discount on
provisions 3 1 - - 4
-------------------------- -------- ----------- -------------- ------ ------
At 31 December 2022 303 165 12 12 492
-------------------------- -------- ----------- -------------- ------ ------
2022 2021
Total Total
GBPm GBPm
------- -------
Analysed as follows:
------- -------
Non-current 359 34
------- -------
Current 133 27
---------------------- ------- -------
Total 492 61
---------------------- ------- -------
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 rate and cost 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. 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 provisions are also likely
to change.
The sensitivity of the liability balance to changes in the
inputs is illustrated as follows:
-- Discount rate - this exposure is largely based within the
United States, therefore measurement is based on a US risk-free
rate. As we have seen during 2022, interest rates (and therefore
discount rates) have moved up and are at their highest in
over a decade. Rates could move in either direction and management
has modelled that an increase/decrease of 5% in yields (from
4.31% to 4.53%) would reduce/increase the provisions by GBP3m.
Over the 12 months to 31 December 2022, as a result, inter
alia, of the conflict in Ukraine, risk-free rate yields have
risen from c.0.9% to 4.31%.
-- Claim cost - claim cost forecasts have been based on the
latest available historical settled Terminix claims. Claims
costs 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
6 months and 5 years, 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
costs and therefore future material changes in provisions.
Management has modelled that a structural increase/decrease
of 5% in total claim costs would increase/decrease the provision
by c.GBP14m. Over the 12 months to 31 December 2022, as a
result of supply chain issues caused by the COVID pandemic
and other macro-economic factors, in year costs per claim
rose by c.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, used by Terminix over
many years, 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
provisions by c.GBP14m, accordingly. Over the 12 months to
31 December 2022 claim rates fell by c.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, used by Terminix over many years, 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 macro-economic factors and to the performance
of the Group. A 1% movement in customer churn rates, up or
down, would change the provisions by c.GBP10m up or down,
accordingly. On average over the last 10 years churn rates
move by +/- c.1.2% per annum.
--------------------------------------------------------------------
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 50% to 75% of claims should settle within the next
five years.
Environmental
The Group owns a number of properties in Europe and the US where
there is land contamination. Provisions are held for the
remediation of such contamination. These provisions 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 properties the Group no longer occupies such as security,
utilities and insurance. Existing provisions are expected to be
substantially utilised within the next five years.
18. Share capital
During the year, 656,206,920 new shares were issued in relation
to the acquisition of Terminix Global Holdings, Inc. and 4,500,000
new shares were issued in relation to employee share schemes.
2022 2021
GBPm GBPm
------ ------
Issued and fully paid
------ ------
At 31 December - 2,520,039,885 shares (2021:
1,859,332,965) 25 19
---------------------------------------------- ------ ------
19. Post balance sheet events
There have been no other significant post balance sheet events
affecting the Group since 31 December 2022.
20. Legal statements
The financial information for the year ended 31 December 2022
contained in this preliminary announcement has been approved by the
Board and authorised for release on 16 March 2022.
The financial information in this statement does not constitute
the Company's statutory accounts for the years ended 31 December
2022 or 2021. The financial information for 2021 and 2022 is
derived from the statutory accounts for 2021 (which have been
delivered to the registrar of companies) and 2022 (which will be
delivered to the registrar of companies following the AGM in May
2023). The auditors have reported on the 2021 and 2022 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 2022 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 2021 Annual
Report. A full list of policies will be presented in the 2022
Annual Report. For details of new policies applicable to the Group
in 2022 and their impact please refer to Note 1.
21. 2022 Annual Report
Copies of the 2022 Annual Report will be sent to shareholders
who have elected to receive hard copies on or around 4 April 2023
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.
22. 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 3.00pm on 10 May 2023.
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.
23. 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 2022 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,
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
16 March 2023
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
2022), 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; 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;
cybersecurity breaches, attacks and other similar incidents;
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; failure to maintain effective internal
control over financial reporting in accordance with 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; 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, as well as
contractual obligations, relating to 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR SFWSFMEDSEDD
(END) Dow Jones Newswires
March 16, 2023 03:00 ET (07:00 GMT)
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