TIDMRTO
RNS Number : 1023R
Rentokil Initial PLC
04 March 2021
2020 Preliminary Results
In a challenging year for our colleagues and customers, we have
grown revenue, profit and cash in 2020.
Results FY 2020 Growth
GBPm AER AER CER
Ongoing Revenue 2,809.6 5.0% 6.3%
Revenue 2,823.5 4.0% 5.3%
Ongoing Operating
Profit 383.8 4.3% 5.4%
Adjusted Operating
Profit 384.0 5.1% 6.3%
Adjusted profit before
tax 355.2 4.2% 5.3%
Profit before tax 229.8 (32.1%) (31.9%)
Free Cash Flow 336.8
Adjusted EPS 15.37p 6.5% 7.8%
EPS 10.03p (34.6%) (34.3%)
2020 Highlights (at CER unless otherwise stated)
-- 6.3% increase in Ongoing Revenue; meeting our medium-term
growth target despite significant challenges
* 1.0% growth in Pest Control (H1: +1.0%, H2: +0.9%),
reflecting our essential service status and ability
to continue to serve customers. Strongly positioned
for structural growth as we transition out of the
pandemic
* 36.8% growth in Hygiene (H1: +10.5%, H2: +62.6%), a
very strong performance reflecting continued high
demand for hygiene products and disinfection services
which have more than offset washrooms service
declines from temporary business closures
* Revenue from disinfection services of GBP225.1m (H1:
GBP48.8m, H2: GBP176.3m)
* 12.0% decline in Protect & Enhance (H1: -12.9%, H2:
-11.1%), principally driven by COVID-impacted
performance from France Workwear (down 10.4% year on
year)
-- 5.4% increase in Ongoing Operating Profit; reflecting significant
actions to mitigate COVID-related revenue reductions, and
despite an increased GBP34m bad debt provision and GBP25m
of additional costs of personal protective equipment (PPE)
-- Strong Free Cash Flow of GBP336.8m; representing 123% cash
conversion, delivered through tight controls over costs,
capex and working capital
-- $1.5bn North America revenue target surpassed at $1,585.7m
revenues, good progress towards 18% margin with 2020 margins
at 17.3%, IT re-platforming on track to complete in 2021
-- International expansion of Hygiene category into 20 new
markets in 2020; including North America, Latin America,
Europe and the Middle East. Hygiene medium-term organic growth
target up weighted to 4% - 6% p.a. from 2022. 'Hygiene: the
Next Pest Control?' Capital Markets Day planned for 28 September
2021
-- Liquidity headroom in excess of GBP1.2bn at 31 December
2020; including GBP550m of undrawn RCF, Net Debt/EBITDA ratio
at 1.6x (down from 1.8x at the start of 2020)
-- A good year of M&A despite suspension in Q2:
* 23 businesses acquired in 2020: 21 Pest Control, 1
Hygiene and 1 Protect & Enhance (Ambius)
* Acquisition of Environmental Pest Service (EPS LLP)
in December: 15(th) largest North American pest
control business
* Acquired combined annualised revenues of c.GBP158m
(incl. EPS LLP). Cash spend in 2020 of GBP201.9m
(excl. EPS LLP)
* Anticipated spend in 2021 of c.GBP400m (incl.
consideration for EPS LLP paid in January 2021)
-- Recommended dividend payment of 5.41p for 2020 , reflecting
the strength of our performance in 2020 and confidence in
outlook for 2021
Andy Ransom, CEO of Rentokil Initial plc, said:
"In an extraordinary year, we have demonstrated the inherent
strength of our business, growing revenue, profit and cash. We have
shown great agility by launching new disinfection services in 60
countries to address a critical need for customers, accelerated the
international expansion of our Hygiene business and have acquired
23 high quality businesses to build density, particularly in our
key North America Pest Control market.
"In addition, we have continued to deliver record levels of
colleague safety, training and retention, and our leadership in
innovation and digital has contributed to our underlying success in
Pest and Hygiene during the year. Having recognised at an early
stage that we faced a global crisis, we acted swiftly to protect
all our stakeholders - our people, shareholders, customers and
suppliers, and the communities we serve.
"Notwithstanding the impact from business closures in lockdown,
Pest Control continues to exhibit good structural growth drivers.
As the world's largest commercial pest control company, Rentokil is
ideally placed to capitalise on the opportunities presented in a
post-vaccine world. The medium-term prospects for our Hygiene
business have never looked more promising as the demand for global
hygiene services is sustained post the pandemic, and its
innovation, digital leadership and expertise - inside and outside
of the washroom - mean we are targeting medium-term underlying
organic growth in core Hygiene comparable to that in Pest Control,
at 4% to 6% from 2022.
"2021 will be a year of transition as we cross the bridge from
the worst of the crisis in 2020 to, hopefully, a post-pandemic
2022. Thanks to the significant and swift actions we took in 2020,
we are strongly positioned for the coming year, and expect to see
further progress from our core Pest Control, Hygiene and Protect
& Enhance categories. We will continue to provide disinfection
services as part of the crisis response, but expect volumes and
prices to significantly unwind as the year progresses and the
crisis hopefully abates.
"While the obvious uncertainty presented by the ongoing COVID-19
pandemic remains, we are confident of delivering further
operational and financial progress in 2021.
"On behalf of the Board, I would like to thank all of our
colleagues for their outstanding response this year. It is their
commitment and sacrifice that has ensured that Rentokil Initial
moved quickly from the Crisis phase to Recovery, and is now able to
explore fully the opportunities presented to us in a post-vaccine
world."
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Non-GAAP measures
This statement includes certain financial performance measures
which are not GAAP measures as defined under International
Financial Reporting Standards (IFRS). These include Ongoing
Revenue, Ongoing Operating Profit, Adjusted profit before tax and
Free Cash Flow. Management believes these measures provide valuable
additional information for users of the financial statements in
order to understand the underlying trading performance. Ongoing
Revenue and Ongoing Operating Profit represent the performance of
the continuing operations of the Group (including acquisitions)
after removing the effect of disposed or closed businesses, 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. Ongoing Operating Profit and
Adjusted profit before tax exclude certain items that could distort
the underlying trading performance. Ongoing Revenue and Ongoing
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 13 on page 24.
Joint ventures: the term 'joint venture' is used to describe the
Company's 57% ownership of Rentokil PCI, however our interest in
PCI has been consolidated in our Financial Statements.
Summary of financial performance (at CER)
Ongoing Revenue rose by 6.3% to GBP2,845.6m (H1: +1.0%, H2:
+11.2%). Total Revenue of GBP2,859.5m grew by 5.3% and by 4.0% at
actual exchange rates. Ongoing Operating Profit rose by 5.4% during
the year to GBP388.1m, reflecting swift action to mitigate lower
revenues, and despite an increased bad debt provision of GBP34m and
additional costs of personal protective equipment of GBP25m. We
delivered a very strong Free Cash Flow performance for the year of
GBP336.8m reflecting tight control over costs, capex and working
capital.
Our Pest Control category was designated as an essential service
in the majority of our markets and performed well in 2020, growing
Ongoing Revenue by 1.0%. Performance has varied by geography and
reflects the severity and duration of local, regional and country
lockdowns. Customer segments have been impacted differently by the
crisis - while offices and the HORECA segment have been the most
affected, demand from others, including food retail, pharmaceutical
companies, transport and residential customers, has increased. At
the end of December, service provision to 0.7% of Pest Control
customer premises remained suspended, versus c.7% at the peak of
the crisis in April, reflecting improving trends in Q3 and Q4,
albeit with some markets deteriorating at the end of the year and
into early 2021, particularly in the UK and Ireland. J obbing work
was strong in 2020, aided in part by warmer weather in the northern
hemisphere and also by residential customers seeking swift
resolution to pest issues during lockdowns.
Hygiene revenues grew by 36.8% in 2020, driven by GBP225.1m of
revenue from disinfection services launched rapidly across the
world in Q2. Our core global Hygiene operations have been more
impacted by the crisis, principally due to an inability to deliver
regular washroom services to customers (particularly in the HORECA
sector) which have been forced to temporarily close their
operations. Excluding disinfection, Ongoing Revenue declined by
4.6%. Like Pest Control, performance has varied by geography and
lockdown regime and performance improvements in the second half can
be attributed to an easing of lockdown conditions in certain, but
not all, countries. By year end, service provision to c.4.4% of
Hygiene customer premises remained suspended, versus c.22% in
April.
Ongoing Revenue in our Protect & Enhance category declined
by 12.0% in 2020 (H1: -12.9%, H2: -11.1%), principally driven by
France Workwear which was significantly impacted by disruption in
the HORECA sector, and which delivered a revenue decline of 10.4%
for the year. By December, service provision to c.6% of France
Workwear customers remained closed, versus c.30% in April. Our
Ambius and Property Care businesses also declined during the period
by 15.5% and 16.1% respectively, reflecting the more discretionary
nature of Ambius products and the continued weakness in the UK
commercial housing market impacting our Property Care business.
Profit (at CER)
In a very challenging year we still achieved growth in profits,
with Ongoing Operating Profit increasing by 5.4% in 2020.
Significant actions were taken to mitigate revenue reductions with
cost savings for the full year of GBP121.8m (H1: GBP87m, H2:
GBP34.8m). These savings were offset however by an increased bad
debt provision of GBP34m (GBP23m in H1 and GBP11m in H2), increased
costs of personal protective equipment of GBP25m (predominantly
driven by the need for comprehensive PPE during the provision of
disinfection services) and increased restructuring costs (of
GBP13.3m versus GBP7.7m in the prior year). While we have not seen
any major customer insolvencies to date, we continue to adopt a
prudent approach with regards to ongoing risk, and our bad debt
provision increase of GBP34m in 2020 (GBP4m lower than guidance at
the half year) reflects the increased risk of bad debts as a result
of the COVID-19 crisis.
Adjusted profit before tax at actual exchange rates of
GBP355.2m, which excludes the impact of one-off items, increased by
4.2%. Adjusted interest of GBP37.1m at actual exchange rates was
GBP5.0m lower than in the prior year, reflecting the impact of our
2019 refinancing, despite the impact of temporarily drawing down
our RCF in full at the start of the COVID-19 pandemic.
One-off items (operating) of GBP7.7m includes GBP14.7m of
acquisition and integration costs, a cash receipt of GBP2.2m
related to a prior year disposal, a non-cash credit of GBP7.3m
relating to the closure of a pension scheme in North America,
profit on the sale and leaseback of a property of GBP2.0m, a charge
for disposal of faulty PPE stock of GBP2.9m and a charge for legacy
payroll costs in France of GBP3.3m, partially offset by release of
smaller legacy provisions of GBP3.0m.
Cost reduction, cash preservation and liquidity (at AER)
Our key financial priority at the peak of the crisis was the
preservation of cash flow and the measures we took have enabled us
to be highly cash generative in 2020. Given the resilience of our
trading position in the first half and our strong balance sheet, we
reinstated our capital allocation model in Q3 to invest in the
Recovery phase of the crisis, steadily increasing our levels of
capex and resuming M&A. Cash spent on current and prior year
acquisitions totalled GBP201.9m, excluding EPS LLP (2019:
GBP316.5m), with proceeds from disposals of GBP2.2m (2019:
GBP391.9m).
Cost savings of GBP121.8m in the year (H1: GBP87.0m, H2:
GBP34.8m) included salary reductions across management in Q2,
cancellation of H1 bonus schemes and postponement of the 2020 LTIP
grant to the second half of the year, as well as tight control over
discretionary spend. Cash savings included withdrawal of dividend
payments and suspension of our M&A programme, reduced cash tax
payments in accordance with local statutory schemes and reduced
capital expenditure. In line with local schemes we deferred
GBP88.0m of payments for taxes and social security costs in H1, but
the majority of these amounts were paid in H2. Going forward, while
we are likely to generate some savings in respect of our property
footprint and reduced travel and accommodation costs, the majority
of cost savings in 2020 will not repeat in 2021.
As outlined in our interim statement, we heightened our focus
this year on working capital management in order to optimise
inventory levels and to try to mitigate the increased risk around
the delay and non-payment of receivables. Collection of receivables
has remained strong during the crisis due to significant focus at
all levels and our collection rate by the end of 2020 was up 30% on
the prior year, with some variation across the regions.
The full year impact of trading, as well as the additional
measures, delivered Free Cash Flow of GBP336.8m (2019: GBP250.7m),
leading to an underlying decrease in net debt of GBP137.1m after
net M&A spend of GBP199.7m. Adverse foreign exchange
translation and other items of GBP58.4m are primarily due to the
weakening impact of sterling against the euro and dollar, as well
as the impact of the closure of an instrument designed to reduce US
interest rates on our US dollar debt. Combined, these movements led
to a decrease in net debt of GBP78.7m and closing net debt of
GBP994.3m.
Dividend
In view of our performance in 2020, and our confidence for 2021
and beyond, the Board is recommending resuming dividends with a
dividend payment of 5.41p, payable to shareholders on the register
at the close of business on 9 April 2021, to be paid on 19 May
2021. The last day for DRIP elections is 27 April 2021.
Funding
On 7 October 2020 the Group raised EUR600m at 0.50% for eight
years in the Euro-bond market. The proceeds of the bond will be
used partly for liquidity headroom and partly for the repayment of
the EUR350m bond that matures in 2021. In November 2020, the Group
announced a tender offer for the early repurchase of the 2021
EUR350m bond and 49.8% of the outstanding bond was repurchased
leaving c.EUR175m for settlement in July 2021 when the bond can be
settled at par. As at 31 December, the Group had liquidity headroom
in excess of GBP1.2bn, including GBP550m of undrawn RCF, with a
maturity date of August 2025. The net debt to EBITDA ratio was 1.6x
at 31 December 2020, below both the 1.8x ratio reported at 31
December 2019 and the 1.9x reported at 30 June 2020. We remain
committed to maintaining a BBB investment grade and are confident
of doing so.
M&A
While the COVID-19 pandemic is ongoing, we moved from Crisis
phase in Q2 to Recovery phase in Q3, reinstating our capital
allocation model and recommencing M&A. We acquired 23
businesses in 2020 - 21 in Pest Control, one in Hygiene and one in
Protect & Enhance (Ambius) - generating annualised revenues of
c.GBP158m in the year prior to purchase. This includes the
acquisition in December of Environmental Pest Service (EPS LLP) in
Florida. Total spend, including prior year acquisitions, was
GBP201.9m (excluding the consideration for EPS LLP which was paid
in January 2021). Countries in which we have acquired new
businesses include Australia, Canada, Chile, Colombia, Ghana,
Netherlands, Peru, Singapore, Spain, Tanzania and the US. Peru and
Ghana were new country entries in 2020.
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, to build density in existing
markets, pursue acquisitions in new markets and the major cities of
the future, and seek medium-sized transactions. Our pipeline of
prospects remains strong and our anticipated spend on M&A in
the coming year is expected to be in the region of c.GBP400m
(including the consideration for EPS LLP which was paid in January
2021).
Enquiries:
Investors Katharine Rentokil
/ Analysts: Rycroft Initial plc 07811 270734
Malcolm Rentokil
Media: Padley Initial plc 07788 978199
A presentation of the Company's 2020 Preliminary results will be
held today via a webcast at 9.00am. To access the webcast, please
go to our website, www.rentokil-initial.com.
The formal presentation of results will be followed by Q&A
at 10.00am. To join, please dial:
From the UK: 020 3936 2999
All other locations : +44 20 3936 2999
Access code : 023212
An operator will register your details and, should you wish to
ask a question, will put you through in turn. Alternatively, to
listen only, please either remain on the webcast until 10.00am, or
dial back in once again at start time.
(1) Ongoing Revenue represents the performance of the continuing
operations of the Group (including acquisitions) after removing the
effect of disposed or closed businesses.
(2) Due to the impact of the COVID-19 crisis, we suspended
reporting Organic Revenue and revenue from M&A in 2020,
focusing instead on Ongoing Revenue and associated impacts from the
crisis. We will report Organic Revenue growth metrics from Q1
2021.
AER - actual exchange rates; CER - constant 2019 exchange
rates
This announcement contains statements that are, or may be,
forward-looking regarding the Group's financial position and
results, business strategy, plans and objectives. Such statements
involve risk and uncertainty because they relate to future events
and circumstances and there are accordingly a number of factors
which might cause actual results and performance to differ
materially from those expressed or implied by such statements.
Forward-looking statements speak only as of the date they are made
and no representation or warranty, whether expressed or implied, is
given in relation to them, including as to their completeness or
accuracy or the basis on which they were prepared. Other than in
accordance with the Company's legal or regulatory obligations
(including under the Listing Rules and the Disclosure Guidance and
Transparency Rules), the Company does not undertake any obligation
to update or revise publicly any forward-looking statement, whether
as a result of new information, future events or otherwise.
Information contained in this announcement relating to the Company
or its share price, or the yield on its shares, should not be
relied upon as an indicator of future performance. Nothing in this
announcement should be construed as a profit forecast.
REGIONAL PERFORMANCE
Due to the international nature of the Group, foreign exchange
movements can have a significant impact on regional performance. In
order to help understand the underlying trading performance, unless
otherwise stated, percentage movements in Ongoing Revenue and
Ongoing Operating Profit are presented at constant exchange
rates.
North America was our best performing region in 2020, with
revenues supported by high sales of disinfection services launched
in Q2 (amounting to GBP144.4m) and a good performance from Pest
Control. Demand for Residential pest control (which accounts for
40% of Pest services revenue) has been good throughout the crisis,
but Commercial pest services have been impacted to an extent by
temporary business closures. While Q2 was the most challenging
quarter for Commercial pest control, performance improved from Q3
and into Q4. Ambius and Brand Standards have also seen significant
disruption to services, reflecting the more discretionary nature of
Ambius products and Brand Standards' exposure to the fast food
sector, which has also suffered from temporary business
suspensions.
Ongoing Revenue in the region grew by 14.5% to GBP1,239.8m in
2020 ($1,585.7m). Revenues from total Pest Control (including
Distribution and Lake Management) increased by 3.1% to GBP1,018.4m,
with Pest services revenue increasing by 6.5%, reflecting good
demand from Residential customers. Ongoing Operating Profit growth
of 39.9% reflects revenue growth in Pest Control, launch of new
disinfection services and rapid and effective cost control to
offset the impact of the COVID-19 crisis. Despite suspension of
M&A activity during Q2, the region acquired 15 businesses (14
Pest Control and one Ambius) in the region with combined annualised
revenues of c.GBP142m (including EPS LLP) in the year prior to
purchase.
Our stated ambition for our North America business has been for
it to surpass $1.5bn revenues in 2020 and to achieve 18% Net
Operating Margins by the end of 2021. Despite the impact from the
pandemic on our overall regional performance, we have nevertheless
exceeded our target revenue of $1.5bn by $85.7m this year,
delivering North America revenues of $1,585.7m.
We have also made good progress towards 18% margins, growing
this by 310 basis points in 2020 to 17.3%. This is a result of
short-term cost actions taken to mitigate the revenue impact of
COVID-19, additional revenues from new disinfection sales launched
in Q2, the mix effect due to a lower contribution from our
lower-margin Ambius and Brand Standards operations, and benefits
from our IT-enabled Best of Breed Programme, which we restarted in
Q3. Although suspension of this programme resulted in a pause to a
number of IT initiatives designed to improve sales and service
productivity, as well as the migration of acquisitions onto the
core operating system, we were pleased with the progress made in
the second half.
Looking ahead to 2021, we are expecting a gradual return to more
normal levels of growth from our core North American Pest Control
operations and a recovery of the lower-margin Brand Standards and
Ambius businesses. While we anticipate revenues from disinfection
to continue in 2021, we expect volumes and prices to progressively
unwind throughout the year. We expect to see margin improvements
from cost savings and the implementation of our core Best of Breed
Programme, which is on track to complete by the end of 2021. In
addition, margins of acquired businesses are typically lower than
those of our existing operations and, as such, the businesses
acquired in 2020 will have a short-term dilutive impact on margins
for the region. Taking the above into the account, we would expect
North America margins for 2021 to be within the range of 16.5% to
17%, leaving us on track to achieve our 18% margin target by the
end of 2022.
Our Europe region has seen a mixed impact from the COVID-19
crisis. While some countries were less impacted by the crisis due
to early and effective lockdowns, such as Germany, other countries
including France and parts of Southern Europe were more severely
impacted. In Latin America, while revenues in Pest Control
declined, overall performance for the year was aided by
disinfection sales. Hygiene was the region's best performing
category, with good contributions from disinfection and products.
Pest Control delivered a robust performance in 2020, while France
Workwear was most impacted by the crisis, being particularly
affected by temporary business closures in the HORECA sector.
Regional Ongoing Revenue rose by 2.5% in 2020, reflecting
revenue growth in Germany (+10.7%), Latin America (+15.2%),
Southern Europe (+5.3%) and Benelux (+0.5%), but held back by
revenue decline of 3.2% in France (principally France Workwear,
which declined by 10.4%). Hygiene grew by 22.3% in 2020, while Pest
Control declined by 0.4%. Ongoing Operating Profit declined by
4.1%, with good growth in Germany (+24.5%) offset by declines
elsewhere, most notably France. The region acquired two businesses
in Europe in 2020 (one in Pest Control and one in Hygiene) and two
businesses in Latin America (both Pest Control) with annualised
revenues of c.GBP6m and GBP3.5m respectively in the year prior to
purchase.
Our UK and ROW region was significantly impacted by the crisis,
particularly in April, which was the peak of the crisis for the
Group as a whole. Our UK and Ireland Hygiene businesses have been
unable to service customers within many sectors, but primarily the
HORECA sector which has been subjected to government restrictions
and lockdowns throughout the year. UK Pest Control also saw revenue
declines in 2020, reflecting temporary business closures and
suspensions. In contrast, our Specialist Hygiene, Medical and
Products businesses have performed well, benefiting from increased
disinfection services. Ambius and Property Care were the most
severely impacted of all our regional operations as a result of
customers cutting their spend on more discretionary services such
as interior landscaping and plants, with Property Care being
impacted by weakness in the UK commercial housing market.
Ongoing Revenue for the UK and ROW region decreased by 2.2%,
with declines in UK and Ireland Hygiene and Pest Control (down
20.2% and 8.5% respectively) partially offset by growth in our ROW
operations, which grew by 5.3% in the year (Nordics: +8.7%, MENAT:
+12.8% and Sub-Saharan South Africa: +4.4%) reflecting the benefit
of disinfection sales. In the UK, revenues have been supported by
new products and services and contract wins for provision of
connected pest control systems. This includes our largest
PestConnect contract to date for Tesco, for whom we have installed
units across the majority of its UK footprint. Regional Ongoing
Operating Profit reduced by 16.2% in 2020, reflecting bad debt
provisions and the costs of increased PPE for frontline
technicians. Our Rest of World operations acquired two small pest
control business in Dar es Salaam (Tanzania) and Accra (Ghana) with
annualised revenues in the year prior to purchase of c.GBP2m.
In our Asia region, China, Hong Kong and South Korea were among
the first countries to be impacted by the COVID-19 crisis and, as a
result, were the first to recover, with strong demand for
disinfection and hygiene product sales offsetting falls in contract
revenue from other countries. Country performance across Asia was
mixed in 2020, with Singapore, Indonesia, Thailand, South Korea and
Sri Lanka performing well, but with India and Malaysia experiencing
the worst impacts from the crisis.
Regional Ongoing Revenue rose by 3.7% in 2020, aided by very
strong performances from Indonesia (+28.1%), Hong Kong (+18.4%) and
South Korea (+21.9%), but held back by India (down 15.8%) and
Malaysia (down 5.2%). Ongoing Operating Profit increased by 10.1%.
The region made one acquisition during H1, acquiring a pest control
business in Singapore with annualised revenues in the year prior to
purchase of c.GBP3.5m.
In the Pacific region, Ongoing Revenue decreased by 2.6%, with
all operations impacted by the crisis as a result of government
restrictions, particularly in New Zealand which entered into
extreme lockdown in late March. Pest Control revenue in the region
fell by 1.3% in the year, while Hygiene declined by 2.6%. Ongoing
Operating Profit in the region reduced by 8.7%, reflecting lower
revenues. The region acquired one small pest control business in
Australia in 2020 with annualised revenues of c.GBP0.5m.
Our share of Profits from Associates at AER amounted to GBP8.3m
(2019: GBP15.2m) related to our Japanese associate (2019 included
GBP8.2m related to our stake in the CWS-boco joint venture, which
was disposed in July 2019).
STRATEGIC REVIEW
Our approach to managing through the COVID-19 crisis has been to
address the challenge through three phases: 1. Crisis; 2. Recovery;
and 3. Medium-term Strategic Opportunities. We provide a summary of
these phases below.
Crisis phase
2020 started well, with Ongoing Revenues ahead of the prior
year. However, the effects of the pandemic began to be felt widely
across the Group from March. April was, for us, the peak of the
crisis, with Ongoing Revenues falling by just over 12%. However,
the rate of revenue decline improved in May to 5.7% and we returned
to positive growth of 4.2% in June.
One of our first actions was to ensure our key services were
designated as 'essential'. Government and state level liaison
across the world allowed our technicians in Pest Control, Hygiene,
Medical and disinfection to continue to serve customers, including
supermarkets, hospitals, food producers and pharmaceuticals. In the
US, all 50 states designated Pest Control as an essential
service.
We took decisive actions to protect our colleagues and customers
and support our financial stability. We moved 8,500 colleagues to
home working and implemented strict protocols and additional PPE
for frontline technicians to enable them to safely serve our
customers. Pay waivers were implemented across the Board and all
senior management grades, with H1 bonus schemes cancelled and the
2020 LTIP grant postponed. C.40% of our colleagues were also
affected by pay waivers, suspension of bonus payments and the
Company's LTIP scheme, and use of government employment-support
schemes internationally.
We took swift action to reduce costs, conserve cash and boost
liquidity, identifying c.GBP100m+ of cost savings and c.GBP400m of
cash preservation measures, suspending our M&A and dividend
programmes, and applying for the Bank of England's COVID Corporate
Financing Facility (CCFF).
Over a four-week period from mid-March to mid-April, we trained
approximately 7,000 colleagues to carry out disinfection services
across 60 countries and this is one of the achievements of which we
are most proud (see page 14 for more details).
In May, we took the opportunity to demonstrate our values and
commitment to the communities we serve, holding 276 local events
across the world to publicly thank health and other public sector
workers. Amongst other things, we donated disinfection services to
emergency services, pest control treatments to care homes and
sanitiser and care packages to hospital staff.
Recovery phase
We moved into the Recovery phase at the beginning of Q3. As
customers began to reopen their premises, we saw an increased
requirement for our Pest Control and Hygiene services and we
supported them during restart by offering pre-opening specialist
disinfection and hand hygiene services, as well as advice on how to
adhere to stricter hygiene protocols.
At our Interim results in July, we announced 1% growth in
Ongoing Revenue, Free Cash Flow of GBP143.5m, GBP87m of cost
savings and liquidity headroom in excess of GBP800m, following the
repayments of the Group's GBP550m revolving credit facility (RCF)
and GBP600m borrowed under the CCFF.
Q3 delivered Ongoing Revenue growth of 9.8%, reflecting
exceptional growth in Hygiene from continued high demand for
disinfection services and a return to growth in Pest Control.
Further improvements in Q4 led to a 6.3% increase in Ongoing
Revenue for the full year - an excellent performance in highly
challenging conditions.
We resumed M&A at the beginning of Q3, completing six
acquisitions in North America, Latin America, Pacific and Rest of
World with combined annualised revenues of c.GBP27m, and further
supplemented this in Q4 with nine further pest control acquisitions
with combined annualised revenues of c.GBP112m. Throughout the
crisis we continued to engage with high-quality targets in areas
where we can build density, building a substantial pipeline for Q4
and into 2021.
In It Together - protecting our colleagues and business during
the pandemic
Despite major disruption from the COVID-19 crisis, we have
delivered growth in revenue, profit and cash in 2020. This is
thanks to immense collaboration from all our colleagues to protect
our business. We are particularly proud of the way our people
worked together to ensure we could continue to serve our customers
throughout the pandemic, including sharing information about how to
establish essential service status quickly, learning how to most
effectively navigate the crisis from our country operations that
experienced the virus outbreak early in the year (China, for
example) and creating detailed templates (such as technical
criteria, necessary equipment and contractual documentation) for
establishing and rolling out global disinfection services.
As described on page 6, the collective sacrifice of our people
enabled us to protect our financial stability. Temporary pay
waivers put in place in Q2 for 5,080 of our managers expired at the
end of June and by 30 September, virtually all colleagues had
returned to work. In return, we have taken action to protect our
colleagues, implementing the financial measures described above and
protecting those (primarily in Africa and India) who did not have
access to government or state support by setting up an Employee
Support Fund. Donations included personal contributions from
Non-Executive Directors and senior management, including our CEO,
who donated the remaining 65% of his Q2 salary (after his earlier
35% pay waiver) into the fund.
While the financial performance against the original full year
annual bonus targets for revenue, profit and cash were all met and
would have resulted in a bonus pay out above threshold for the CEO,
given the impact of the COVID crisis on colleagues, customers and
shareholders, and in agreement with the Board, the CEO proposed
that he receive no annual bonus for 2020. Similarly, the CFO also
volunteered to receive no bonus in relation to the period since his
appointment.
Prioritising the health and safety of our colleagues, while
maintaining back-office effectiveness and reducing costs, has been
our aim throughout the crisis. We protected our operational
colleagues by implementing strict safety protocols and providing
additional PPE and protected our back-office colleagues by enabling
them to work from home.
We achieved another record safety and training performance in
2020, with a 26% improvement in Lost Time Accidents and a 23%
improvement in Working Days Lost from the already world-class
levels of the previous year. Online training was at an all-time
high, with a record 3.2 million content views (2019: 1.8 million)
of new courses and the development of a new virtual classroom.
Overall colleague retention reached record levels in 2020,
increasing by 1.7% to 88.6%. We also conducted a UK survey to
assess whether colleagues felt safe, productive, and sufficiently
supported by their managers and systems to enable them to
effectively fulfil their roles during the crisis, and received a
c.90% positive response rate.
Strategic Opportunities in the medium term
As the world emerges from the crisis, we have a strategic hand
to play that is stronger than before - particularly in Hygiene -
and are ideally placed to provide services that a post-pandemic
world will require. We will present some of these strategic
opportunities over the following pages.
Rentokil Pest Control
Organic growth target
Pest Control is a non-discretionary and essential service and
the long-term structural growth drivers and our medium-term
opportunities are undiminished by the COVID-19 crisis. We maintain
our organic growth target for our Pest Control category of 4% to 6%
p.a.
Background
Our Pest Control category represents 62% of Group Ongoing
Revenue and 57% of Ongoing Operating Profit in 2020. Rentokil is
the world's largest commercial pest control company with an
unrivalled global position in a non-cyclical industry characterised
by strong structural growth drivers. Pest control is a route-based
business where profit growth is driven by a fundamental
understanding of the importance of density. We have strengthened
our position as global leaders in pest control through high
customer retention, increased organic growth and by establishing
stronger market positions, particularly in Emerging and Growth
markets, through the introduction of innovative products and
services, acquisitions and our determination to be an Employer of
Choice across our global operations. The business has delivered a
seven-year CAGR of 13.1%. Pest Control's five-year average Net
Operating Margin is 17.7%.
Pest Control continues to be a service with growing demand
despite current market volatility
Many positive macroeconomic trends continue to drive growth in
the pest control industry. While the economic landscape is
challenging and many customer groups have been impacted by the
pandemic, Pest control remains a critical service requirement for
both commercial and residential customers. In addition, the pest
control market continues to consolidate, presenting strong M&A
opportunities for active industry participants.
Navigating the customer landscape to maximise the opportunity in
targeted growth sectors, whilst protecting our position in more
vulnerable customer groups, will be critical as we go forward.
While our pest control offer is strong and compelling, brand trust,
differentiated expert service delivery (including innovation), and
an increasing desire for digital customer engagement solutions, are
all areas in which we will both focus and invest.
As we begin to transition out of the global pandemic, our core
strategy remains on course. The key components are:
-- Growing our business in our key North America market, organically
and through acquisitions, leveraging scale and building
density;
-- Differentiation through our innovation pipeline, increasingly
through use of non-toxic, sustainable solutions;
-- Maximising National and International customer accounts
capability;
-- Targeting key growth sectors and markets, Commercial Pest
Control in particular;
-- Pursuing medium-term growth opportunities in emerging markets,
building strong positions in key cities of the future;
-- Building margins, leveraging our scale and building density,
particularly in North America; and
-- Continuing our M&A strategy to expand our city footprint
and density.
In this statement, we will discuss four key pillars to continued
growth in Pest Control. They are:
1. Brand strength and digital customer engagement
2. M&A
3. Digital infrastructure and capability
4. Sustainable innovation
Brand strength
Our Rentokil brand is of central importance to us. We want it to
be seen as synonymous with the highest quality and trusted levels
of service delivery, market-leading innovation and digital
solutions that protect people and enhance lives. Our aim is to be
recognised as the world's leading expert provider of pest control
and the voice of authority to our customers, potential customers
and influencers.
The global pandemic of 2020 has resulted in a step-change in the
importance of brand trust for customers. In addition, the
environment and use of sustainably and ethically sourced materials
are emerging as top-ten customer priorities. Our focus is on
raising greater awareness of our brand through a global brand voice
campaign focused on key trust and expertise messaging to:
high-dependency customers such as food suppliers; employee
locations such as offices and manufacturing facilities; and guest
locations such as leisure, hotels, education and food and
beverage.
Digital customer engagement
We are strongly positioned to capitalise on a 'digital first'
approach post the pandemic and to use our expertise in digital
sales and customer engagement in a more socially distanced world.
During the year we conducted a series of sector-specific digital
marketing campaigns to highlight the services we can offer to
customers as part of their restart programmes and for a post
pandemic world. This included sending 2.9 million emails in the UK
with a very high 'open rate' of over 60% (versus an average
services sector rate of 22%) in certain sectors In the US, visits
to our Western and JC Ehrlich websites rose by 34% and 14%
respectively. We also undertook a series of webinars to build
engagement with customers on key pest control and hygiene topics
and these have proven to be very successful in 2020.
Our focus on delivering new content and localisation is driving
record levels of traffic to our websites across the Group. Overall
total Rentokil web traffic grew by c.18% in 2020, with total visits
reaching c.33.2 million visits (2019: 28.1 million). In 2020 we
launched a series of online marketing campaigns focused on how our
leadership in technology and innovation helps our customers 'stay
one step ahead of pests' through industry-leading levels of
monitoring, reporting and insight.
In July we launched our first Rentokil website 'chat bot' in the
UK to make us more effective, handle enquiries faster and reduce
the 'hassle factor' for customers and prospects. People contact us
via our websites for a variety of reasons, but the majority of
inbounds are sales enquiries. Since launch, 99.7% of enquires to
the chat bot have come from new customers, approximately two thirds
of which are from residential customers and with just under half of
all chats conducted outside working hours. The chat bot is reducing
the volume and duration of calls to our Contact Centre, freeing up
time for our sales colleagues to focus on higher-value
activities.
M&A
Acquisitions are core to our Pest Control strategy - they enable
us to build further scale and density and increase our competitive
positioning. We have the in-house capability to identify, evaluate
and execute acquisitions at pace and have built a long track record
of successful delivery. Our model for value-creating M&A is
structured around disciplined evaluation of targets, execution of
detailed integration programmes and careful stewardship of new
businesses under our ownership.
Despite taking the decision to suspend our M&A activity in
Q2, the progress we made in Q1, combined with a very strong M&A
performance in Q4, has resulted in 23 acquisitions in 2020. We
acquired businesses in 11 countries: Australia, Canada, Chile,
Colombia, Ghana, Netherlands, Peru, Singapore, Spain, Tanzania and
the US, entering Peru and Ghana for the first time.
We had a very strong Q4 in North America, acquiring nine pest
control companies, including EPS LLP, ranked 15th in the PCT
Magazine 2020 Top 100 listing of leading US pest control companies
and which generated annualised revenues of c.$82m (GBP60m) in 2020.
EPS LLP employs c.640 people (of which 386 are in service roles) in
30 branches across four separate regions: East Florida, West
Florida, North Georgia and North Carolina.
Our pipeline of opportunities in both Growth and Emerging
markets is strong and we are confident of further high-quality
acquisitions in 2021. Our strategy for pest control M&A is
predicated on continuing to target acquisitions in key markets to
build density, targeting acquisitions in mega and large cities and
also seeking opportunities in new countries where the industry and
economy supports expansion. Based on our most recent analysis, our
M&A programme continues to meet expectations and to deliver in
line with, or above, our targeted returns.
Digital infrastructure and capability
Digital innovation in Pest Control is necessary to meet the
needs of an evolving world. Macro trends (including pandemic driven
trends) are increasing demand for digital solutions and these
include demand for more remote monitoring solutions due to
COVID-19, smart technology becoming a norm driven by younger
generations, and customers demanding increased transparency of
data. Rentokil has developed the world's leading digital pest
control platform, providing an unmatched level of monitoring,
reporting and insight for our customers who face the risk of
increased fines and censure without effective pest management and
reporting.
PestConnect , the "world's smartest mousetrap", is the world's
most advanced digital pest control system. It provides our
customers with a complete remote pest detection solution and full
traceability. We have seen increased demand for the product in 2020
as customers (including hospitals such as London's Nightingale
Hospital, which was specially constructed to support all NHS London
hospitals in the event of a surge of COVID-19) have sought to
minimise physical on-site interactions with service providers and
prevent the spread of Coronavirus.
This year also saw our largest commercial PestConnect contract
to date with Tesco, for whom we have installed tens of thousands of
PestConnect units across the majority of its UK estate. Since
launch in 2016, we have installed over 150,000 PestConnect units
across 7,684 customer locations in 26 countries. In addition,
12,000 frontline colleagues in 25 countries now have access to our
PestConnect floorplan app to manage PestConnect at scale across
customer sites. We continue to develop and expand our product
range, and in Q4 we launched our newest unit, Multi-Mouse Riddance.
We will add to our growing range in 2021 with the launch of six
additional new products for rodents, crawling insects, birds and
flies.
Our myRentokil online customer portal provides secure 24/7
access to real time information that provides easy access to
documentation required for pest control, including reviewing
service recommendations and responding to audits. Currently 1.1
million customer sites and 95% of our commercial customers use
myRentokil in 44 countries.
CommandCentre is our central information hub containing data
compiled from over 50 countries with 7 billion records, populated
with historic and current data to track pest trends and identify
emerging risks. 9 million messages were sent or received across our
digital pest control network every day in 2020, recorded on the
central CommandCentre and stored on the Google Cloud Platform.
Sustainable innovation
Innovation is a core component of growth and embedded within our
cultural DNA. We encourage and empower all our colleagues to
innovate with the desire to improve customer service. We deploy
innovation consistently, targeted at key pest sectors and with
potential for new non-toxic and sustainable solutions, which are
increasingly becoming an important source of differentiation.
Innovation provides a significant opportunity for organic growth,
and in 2019 this contributed 25% of our GBP74m of organic growth.
Our core innovation categories are stored product infestation
(SPI), rodents, birds, crawling and flying insects.
Rodents
Rodent control accounts for c.$2bn of the global pest control
market and continues to grow at c.4% p.a. (source: Allied
Analytics). Recent new product innovations include Dual AutoGate
Connect, Riddance Connect, Rodent Ceiling Trap (a ceiling solution
for rodent control in gaps above ceilings and which provides
indicator alerts to a capture) and our Multi-Mouse Trap product - a
monitoring sensor that can be attached to several live catch
products for real-time reporting, allowing for early technician
support.
In 2020, and after three years of development, we piloted
Eradico, our new Global Bait Box in 22 countries with launch
planned for Q3 2021. Eradico is an innovative, single-solution,
flexible, technology-enabled rodent solution which addresses 57
different needs and market requirements. A connected version of the
system, called RADAR X, a next generation mouse riddance unit that
uses CO(2) , will also be launched later this year.
In our quest for ever better pest control we are adding to our
range of proofing solutions with our FlexiArmour range that is
designed for ever better protection of customer premises, by
reducing access points into buildings for rats and mice. A number
of solutions in this range will be introduced through 2021.
Bird control
Birds can become a nuisance if they are allowed to congregate on
business premises. They can dislodge roof tiles, block guttering,
encourage insect infestations and their detritus can drive away
customers and spread diseases. Certain nuisance bird species can be
dealt with but others, such as wild birds, are protected by law in
many countries. Laser technology is now being used for bird
management in industrial, aerospace and urban areas as an effective
dispersal technique - birds perceive the laser beam as an
approaching danger and so move away from the area. In 2020 we added
to our range of bird control solutions with the Agrilaser Autonomic
deterrent system, securing a GBP650,000 contract with a major US
customer.
Flying insects
We have sold c.168,000 Lumnia solutions across 58 countries
since launch in 2017, with 2020 accounting for 32% of the sales
volume. Lumnia is the world's first range of illuminated fly traps
to use patented LED lighting technology rather than traditional
fluorescent tubes and we were proud and delighted to win this year
The Queen's Award for Innovation for the development and launch of
Lumnia. Lumnia attracts, kills and encapsulates insects
hygienically - eliminating the risks of contamination - and is
suitable for a wide range of internal environments. It is also more
environmentally friendly than traditional units, reducing energy
output by c.70% and carbon emissions by 62%. Our products include
Lumnia Standard (offices, shops, food retailers) and Lumnia
Ultimate (which uses second generation lamps for high-dependency
customers). We have now added to this range with Lumnia Colour
(offering customers a choice of coloured units to match interior
décor) and Lumnia Slim. In 2021 we will launch our new Lumnia
Connect model, fitted with camera technology for better risk
management and greater audit trail transparency, and Crawling
Insect Connect, which will be positioned in no-tolerance areas in
customer food processing sites to primarily target moths and
cockroaches.
Non-toxic solutions
Customer and regulatory requirements are leading to an
increasing demand for innovative, non-toxic solutions in pest
control. Our aim is to become the leaders in sustainable pest
control and to do this we need to find better ways to exclude,
remove, destroy and monitor pests with the lowest possible impact
on the environment. This impact must be sustainable, taking into
account the impact of the hardware we use, consumables required and
cost of service to the environment. Sustainable innovations are
required both internally, where premises require safer pest control
from lower toxic solutions using biological and physical methods
and lower waste management and externally - where we need to
develop and promote solutions and service cycles to reduce our
environmental footprint. Across all pest types we continue to
expand and develop our range of sustainable, non-toxic and humane
solutions.
Initial Hygiene
Organic growth target
In recent years, our organic growth expectation for our Hygiene
category has been broadly correlated to GDP, at around 2-3% p.a.
Like Pest Control, Hygiene is an essential, non-discretionary
business and we believe its medium-term opportunities are enhanced
by rising demand for global hygiene services. From 2022 onwards, we
are now targeting medium-term underlying organic growth in core
Hygiene services comparable to that in Pest Control, at 4% to
6%.
Background
In 2020, our Hygiene category represented 26% of Group Ongoing
Revenue and 36% of Ongoing Operating Profit. Initial Hygiene is a
strong, complementary business to Pest Control. Both businesses
service the same types of customers and also share country
management, technology, infrastructure and back office services.
They are also route-based businesses where profit growth is driven
by deep understanding of the importance of density. The megatrends
in the hygiene industry - and the importance of being able to
prevent the spread of diseases, germs and bacteria - are fueling
demand for our services, as is the COVID-19 crisis. Over the past
few years our Hygiene business has delivered a significant
improvement in revenue growth, established a strong product range,
launched the myInitial customer portal for enhanced customer
insight and engagement and has begun to acquire bolt-on businesses
to build scale and density. The category has delivered a seven-year
CAGR of 11.6%. Hygiene's five-year average Net Operating Margin is
16.2% excluding disinfection services.
Reshaping our hygiene business for future growth
The COVID-19 crisis is accelerating changes in the way the world
views hygiene - it has gone from being seen as a basic requirement
to an essential part of daily life. Without high standards of
hygiene, our customers cannot protect their people or their
customers from illness. While vaccines against the virus will
hopefully enable the world to recover from the crisis, fear of
other pathogens that may emerge in the future and the severity of
this particular pandemic, is likely to have a lasting effect on
global hygiene standards over and above pre-existing trends driving
rising hygiene standards.
Our core offer in our Initial Hygiene business has been based
around the provision of regular washroom services to customer
premises. We have grown the business through broad-based
operational improvements in our product range, density (both
product penetration and post code density), service quality,
productivity, innovation, digital applications and products, sales
capability and highly-targeted M&A.
We are now seeking to expand our Hygiene business beyond the
washroom into new, higher growth areas and into new areas at
customer premises. This can be illustrated by the fact that while
our ability to provide regular washrooms services to customers
during the pandemic was negatively impacted by the pandemic, we
were able to support revenues through new disinfection services and
other services such as air, surface and hand hygiene offerings
which have more than offset washroom service shortfalls.
We anticipate that both volumes and prices for disinfection
services will progressively unwind during 2021 as the world
hopefully recovers from the pandemic. Other non-washrooms hygiene
services, however, are more likely to be sustainable long-term.
These include air care, surface hygiene, route-based service
extensions (such as first aid) and digital products and
applications.
Our success in growing our Hygiene category in a post-COVID
world will be underpinned by:
-- Being the Experts in Hygiene & Wellbeing, through service,
product innovation and sales capability;
-- Having a compelling proposition that covers the three key
areas of washrooms, premises and environments;
-- Creating differentiated propositions, such as our Rapid
range of smart hygiene products;
-- Targeting sales growth in sectors less impacted by the
pandemic (e.g. logistics, food, health and education);
-- Investing in our brand in order to be recognised in all
our markets as the global leader;
-- Leading sustainable provision of hygiene and wellbeing
services; and
-- Investing in digital infrastructure to capture future opportunities.
We have identified four main opportunities for growth for our
Hygiene category. They are:
1. Inside washrooms
2. Digital leadership
3. International expansion
4. Expanding our expertise outside the washroom
Inside washrooms
Washrooms are high risk areas for COVID-19 and other viruses -
they are small spaces, with smooth surfaces and high levels of
traffic. 'No touch' washrooms are the most effective way to avoid
cross-contamination, particularly within cubicle settings. Toilet
paper dispensers that seal away paper until use, 'no-touch'
feminine hygiene units and toilet seat cleaners all prevent
cross-contamination. Our Signature Range of washrooms products have
antimicrobial surfaces which helps reduce cross contamination, as
do our 'no touch' auto-lift lids on bins and auto dispense of paper
towels and soaps. Air care quality is also an important indicator
of washroom cleanliness, with air sterilisers providing an ongoing
method of removing potentially harmful pathogens from the air.
Unprecedented demand for hand hygiene products in 2020
As the world adopts increasingly high standards of hygiene,
customer demand for soaps, hand drying products and sanitisers is
rising significantly. This year we sold c.540,500 dispensers (soaps
and sanitisers) during the year, three times that of our total
sales in 2019, while refills of soaps and hand sanitisers were 17
times greater than in the prior year. Hand sanitiser revenues of
c.GBP21m increased by just under GBP15m in 2020.
Digital leadership
We believe the COVID-19 pandemic will provide a potential
springboard for increased use of digital hygiene services and we
are taking our digital expertise from Pest Control and expanding it
into Hygiene. Increased regulations and the threat of fines and
reputational damage drove early take up of digital pest control and
we anticipate the same trend will occur within hygiene.
Digital products
The global smart washrooms market is estimated to deliver an
11.5% CAGR to 2027, reaching a value of some $6.5bn (Grand View
Research, August 2020). In 2020 we launched our first range of
digital 'no-touch' products which includes taps, soap dispensers,
hand wash monitoring and cubicle sanitisers. Digital monitoring of
consumables enables more efficient washroom operations at lower
cost, with a reduced environmental impact and offering a better
guest experience. We are expanding our Rapid Smart Washroom range
into new customers and regions, with customer trials currently
underway in offices, retail malls, airports, leisure facilities and
tourist attractions across five countries.
Digital sales and service tools
Our digital sales and service tools are also increasing
productivity and are being used to build customer awareness of
Initial's multiple product offerings. Our online Hygiene customer
portal, myInitial, is being developed to highlight the full
spectrum of Hygiene solutions on its home page and is now used by
22,300 customers in 18 countries. In addition, we now track sales
leads per driver on a monthly basis and the current average across
the Hygiene category is 1.29 leads up from 1.07 last year (a 17%
increase) per technician per month, with our Denmark colleagues
performing particularly well and averaging 5.76 leads.
Our smartphone field service app, ServiceTrak, also improves
productivity and leads to better colleague retention, higher gross
margins achieved through greater service productivity and cost
savings, and more professional service delivery. Across 30
countries, our technicians use the app to record service visits -
for example, start time, services performed, customer
recommendations, customer signatures and end time. New for this
year, we have received over 2.6 million responses to our digital
customer satisfaction surveys, with an average score of 4.8 out of
5 in both Pest Control and Hygiene.
Digital channels - building the sales funnel in Hygiene
We focus on driving continuous improvements to our web estate
around the world to increase customer traffic to our sites and
generate new business leads. During 2020 total web traffic to
Initial websites increased by 60% on 2019 and can be attributed to
a number of successful, targeted cross-sell, up-sell and email
campaigns to increase customer visits.
International expansion
In 2020 we launched Hygiene in 20 new countries, and now operate
in 65 countries, with top three positions in 38 markets. We
launched our first hygiene services in North America in June with
hand, surface and air hygiene products. Initially, this is being
delivered through Ambius which has considerable expertise in
wellbeing and is an existing business of scale. We also launched
hygiene services in Curaçao (Caribbean) and expanded our footprint
in Latin and Central America, building on our position in 10
markets to provide hygiene services (including hand sanitisers,
surface wipes and air care) in Mexico, Dominican Republic, Costa
Rica, Brazil, Guatemala, Honduras, El Salvador and Uruguay. We also
commenced operations in Belgium, Germany, Jordan, the
Netherlands, Poland, Sweden, Switzerland, Saudi Arabia, Turkey and the UAE.
Growth through targeted M&A
As our confidence in our Hygiene model grows, so too has our
focus on securing attractive hygiene acquisitions and we have
acquired 24 hygiene businesses since 2014. While the pandemic has
slowed M&A progress this year, we acquired one small business
in Spain and will continue to pursue attractive bolt-on deals in
2021. Our focus will be on building our density across our cities
and regions, and additions to our portfolio will focus on extension
areas that we have defined as key to growth including air care,
surface hygiene, safety and digital monitoring.
Expanding our expertise outside the washroom
From a relatively low interest sector, hygiene has now become
one of the world's most important, presenting opportunities for us
to expand outside of the washroom into high growth areas including
air care, route-based service extensions (such as first aid) and
digital products and applications. We can provide hand, air and
surface hygiene products in multiple environments, including
offices, kitchens and reception areas.
Service innovations
The pandemic has driven increased demand for hand hygiene and we
are developing service innovations to satisfy long-term social
behaviour change with a range of new solutions which include new
hand hygiene products that enable positioning outside the washroom,
new consumables for hand and surface, and larger capacity soap and
sanitiser dispensers. In addition, we are developing additional
service solutions to provide a compelling offer to new target
customer sectors, such as food processing and healthcare, which
require specific hardware and consumables to comply with higher
hygiene standards.
Air Care
The global air care market is estimated to reach revenues of
over $90bn by 2025 and is expected to deliver a 42% CAGR to 2025
(source: Arizton Advisory and Intelligence, July 2020). There is no
safe level of airborne pollutants and, according to the WHO, 68% of
all diseases are related to air pollution. In addition, the
pandemic has raised awareness of how viruses are transmitted in
aerosol form via droplets produced by coughs and sneezes. Our
current air care product range features air purification, air
sterilisation and air scenting products and in 2020 we launched two
important new air filtration products: InspireAir72 which utilises
a medical grade, multi-layer HEPA filter to capture 99.97% of
harmful particulates and which can clean a 36m(2) office space in
10 minutes, and the VIRUSKILLER(TM) Air Purifier which uses its
patented UV technology to kill 99.9999% of viruses with a single
air pass, including the COVID-19 virus.
Disinfection services
One of our great successes in 2020 was disinfection and our
people pivoted at great speed to provide these services in more
than 60 countries this year. In addition to our existing c.1,000
Specialist Hygiene colleagues, we trained c.7,000 Hygiene, Pest
Control and Ambius technicians to perform the service in those 60
countries, sourced PPE and began selling disinfection to customers
in under four weeks. GBP225.1m of revenues were generated in 2020
with Net Operating Margins broadly comparable to those in Pest
Control. Multiple customer sectors have utilised the service this
year including offices, shops, schools, airports, emergency
vehicles and public transport. Key customers include a global
customer requiring weekly disinfection of its distribution centres
at specific times of the night and a public transport customer in
France requiring daily disinfection services across its network. By
the end of December, we had made approximately 1 million service
visits to this customer, disinfecting 4,000 buses every day, seven
days a week.
As experts in hygiene, we have developed Standard Operating
Procedures to ensure maximum service efficacy and consistent global
standards. These included, for example, a 19-stage donning sequence
for PPE and removal of all waste from sites in line with guidance
set out by public health authorities in order to prevent cross
contamination.
In our experience, there is a strong correlation between high
levels of COVID-19 and a market requirement for disinfection
services, and this can be illustrated by our experience in
Australia. At the height of COVID-19 case levels, we responded to
significant market need for disinfection services. However,
Australia was one of the first countries to achieve to a very low
incident rate of COVID-19 transmission and, as a result, we have
seen a significant reduction in demand for ongoing disinfection
services in 2020. In addition, in countries where demand for
disinfection remains high, other service providers have inevitably
entered the market, offering lower-quality service provision at
lower price points.
Going forward, we will continue to provide disinfection services
as part of the crisis response but expect volumes and prices to
significantly unwind as the year progresses and the pandemic
hopefully abates.
Adapting and enhancing our sales capability
As our Hygiene offer evolves post the pandemic, we are evolving
our sales model to enable better conversion of some of the more
complex solutions we have described in this review. Historically,
we have found that dedicated sales specialists demonstrate a higher
payback than generalist sales colleagues and therefore we are
putting in place additional dedicated 'experts' who understand the
science, proposition and customer needs of new products, giving
them certified training to enhance their knowledge and
capability.
Protect & Enhance
Our Protect & Enhance category represents 12% of Group
Ongoing Revenue and 7% of Ongoing Operating Profit. In 2020,
category Ongoing Revenue and Ongoing Operating Profit declined by
12.0% and 29.7% respectively. Net Operating Margins declined by 240
basis points to 9.5%. The businesses within the category are
Workwear (France), Ambius (Global), Property Care (UK) and Dental
Waste (Germany and Sweden). Our strategy for the category has been
focused on protecting the businesses - quality, service, retention
and operational efficiency.
The businesses within Protect & Enhance have a high exposure
to the HORECA sector - for which we supply interior plants, ambient
scenting and workwear - and hotels, bars and restaurant chains have
been predominantly closed during the crisis and in many places,
will be the last to be reopened. Our UK Property Care business was
impacted by both ongoing weakness in the property market and also
by customers unwilling to allow external service providers into
their homes.
Approximately half of category revenue is generated from our
France Workwear business, which specialises primarily in the supply
and laundering of workwear, uniforms, cleanroom garments and
personal protective wear. The business was significantly impacted
by disruption caused by the pandemic in 2020 and delivered a
revenue decline of 10.4% for the year. However, the rate of decline
improved in the second half, down 4.9%, as business reopened due to
the lifting of COVID-19 restrictions.
Recovery of the business is likely to take longer than our other
operations, notably reflecting continued customer closures within
the HORECA sector. As with our other categories, April was the
weakest month for France Workwear, with May and June seeing
progressive improvements in performance. Q4 volumes were once again
affected but not to the same extent as the first wave of the
pandemic. Actions taken by the business to protect costs and cash
have included reducing working hours for around 1,500 employees and
reducing spend on capital expenditure by 16% (c.GBP9m) on the prior
year.
Notwithstanding the difficult conditions this year, our project
to separate the Hygiene and Workwear businesses in France completed
in 2020, with the remaining Washrooms services portfolio
transferred from Workwear to Hygiene in H2. We also opened five
dedicated Hygiene branches in France, which completes national
coverage of hygiene services in the country.
Financial Review
Central and regional overheads
Central and regional overheads of GBP91.1m at CER were GBP12.6m
higher than prior year (2019: GBP78.5m), due to increased bad debt
provisions and centrally sourced PPE costs.
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 items and excluded from
adjusted operating profit.
Restructuring costs of GBP13.3m at CER (2019: GBP7.7m) consisted
mainly of costs in respect of initiatives focused on our North
America transformation programme from Q1, together with severance
costs as a result of the COVID-19 crisis.
One-off items and amortisation (at AER)
One-off items -operating of GBP7.7m includes GBP14.7m of
acquisition and integration costs, a cash receipt of GBP2.2m
related to a prior year disposal, a non-cash credit of GBP7.3m
relating to the closure of a pension scheme in North America,
profit on the sale and leaseback of a property of GBP2.0m, a charge
for disposal of faulty PPE stock of GBP2.9m and a charge for legacy
payroll costs in France of GBP3.3m, partially offset by release of
smaller legacy provisions of GBP3.0m.
The amortisation charge of GBP82.5m for the period includes
goodwill impairments of GBP8.1m related to the Rentokil PCI cash
generating unit (CGU) and GBP2.5m related to the Brazil CGU. Both
impairments arose mainly due to an increase in the discount rates
used as a result of external economic conditions in each country
due to the COVID-19 pandemic.
UK defined benefit pension scheme buy-out
In December 2018, the Company reached agreement for a bulk
annuity insurance buy-in for its UK Defined Benefit Pension Scheme
("the Scheme") with Pensions Insurance Corporation. The buy-in had
been secured in contemplation of a full buy-out and winding up of
the Scheme with an expected pre-tax cash surplus of c.GBP30m. The
timing of the wind-up is uncertain, following the recent High Court
judgement that ruled that trustees of defined benefit schemes that
provided Guaranteed Minimum Pensions should revisit and, where
necessary, top-up historic cash equivalent transfer values paid
since 1990. The Trustee may therefore need to revisit these before
the wind-up can be completed. This may mean that the wind-up is
delayed until 2022.
However, following consultation with members, the Trustee agreed
a pre-tax partial refund of surplus of GBP13.0m, which was paid in
December 2020. The balance of the refund of the surplus will be
paid when the buy-out is complete.
Interest (at AER)
Adjusted interest of GBP37.1m was GBP5.0m lower than in the
prior year, reflecting the impact of our 2019 refinancing, and
despite the impact of temporarily drawing down our RCF at the start
of the COVID-19 pandemic.
Tax
The income tax charge for the year at actual exchange rates was
GBP43.5m on the reported profit before tax of GBP229.8m. After
adjusting the reported profit before tax for the amortisation and
impairment of intangible assets (excluding computer software),
one-off items and net interest adjustments, the Adjusted Effective
Tax Rate for 2020 at AER was 19.7% (2019: 21.6%). This compares
with a blended rate of tax for the countries in which the Group
operates of 24% (2019: 23%).
Net debt and cash flow
GBPm at actual exchange rates Year to Date
--------------------------------
2020 FY 2019 FY Change
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- --------
Adjusted Operating Profit 384.0 365.4 18.6
One-off items - operating (7.7) (14.6) 6.9
Depreciation 228.8 219.8 9.0
Other 11.1 26.1 (15.0)
---------- ---------- --------
EBITDA 616.2 596.7 19.5
Working capital 41.0 (7.0) 48.0
Movement on provisions 4.6 (4.0) 8.6
Capex - additions (225.4) (245.8) 20.4
Capex - disposals 6.3 3.2 3.1
---------- ---------- --------
Operating cash flow 442.7 343.1 99.6
Interest (41.0) (48.1) 7.1
Tax (64.4) (43.2) (21.2)
Special pension contributions (0.5) (1.1) 0.6
Free Cash Flow 336.8 250.7 86.1
Acquisitions (201.9) (316.5) 114.6
Disposal of companies and businesses 2.2 391.9 (389.7)
Dividends - (85.8) 85.8
---------- ---------- --------
Underlying decrease in net debt 137.1 240.3 (103.2)
Foreign exchange translation and
other items (58.4) 24.2 (82.6)
IFRS 16 lease obligations on transition - (184.0) 184.0
Decrease in net debt 78.7 80.5 (1.8)
Opening net debt (1,073.0) (1,153.5) 80.5
---------- ---------- --------
Closing net debt (994.3) (1,073.0) 78.7
========== ========== ========
Operating cash flow (GBP442.7m at AER for continuing operations)
was GBP99.6m higher than in 2019, driven by a GBP18.6m increase in
Adjusted Operating Profit, favourable working capital of GBP48.0m
and reduced capex of GBP20.4m as a result of a freeze on any
non-essential capex from the second quarter onwards.
Interest payments of GBP41.0m are GBP7.1m lower than in the
prior year, due to the 2019 bond refinancing. Tax increased by
GBP21.2m, due to higher US tax payments, a payment relating to a
legacy issue in the UK and the non-repeat of certain tax repayments
received in 2019.
The full year impact of trading, as well as additional measures,
is Free Cash Flow delivery of GBP336.8m (2019: GBP250.7m), leading
to an underlying decrease in net debt of GBP137.1m after net
M&A spend of GBP199.7m. Adverse foreign exchange translation
and other items of GBP58.4m are primarily due to the weakening
impact of sterling against the euro and dollar, as well as the
impact of the closure of an instrument designed to reduce US
interest rates on our US dollar debt. Combined, these movements led
to a decrease in net debt of GBP78.7m and closing net debt of
GBP994.3m.
Going Concern
The Directors continue 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, or 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.
Outlook for 2021
Despite obvious uncertainty presented by the ongoing COVID-19
pandemic, we expect our Pest Control, Hygiene and Protect &
Enhance categories to demonstrate further operational and financial
progress in 2021. We will continue to provide disinfection services
as part of the crisis response but expect volumes and prices to
significantly unwind as the year progresses and the crisis
hopefully abates. Taking the above into account, we are confident
of another year of good delivery in 2021.
Foreign exchange continues to have an impact on the presentation
of our financial performance and remains volatile, with sterling
strengthening recently versus the euro and US dollar. At the
current rate, this would have an estimated GBP15m to GBP20m
negative impact on our profits in 2021. However, this translation
effect is offset by our stronger than expected exit rate from 2020
and as a result, is already reflected in current market
expectations for 2021.
Technical guidance for 2021
P&L
-- Medium-term growth targets maintained:
o Ongoing Revenue growth target 5% to 8% (3% to 4% Organic)
o Ongoing Operating Profit growth c.10%
o Free Cash Flow conversion c.90%
-- Restructuring costs c.GBP10m;
-- Central and regional overheads GBP10m to GBP15m lower than
2020, principally reflecting lower bad debt charges which, given
our prudent provisions at the end of 2020, we expect to
normalise;
-- P&L interest costs c.GBP2.5m higher than 2020, cash
interest costs c.GBP2.0m lower than 2020;
-- Estimated Adjusted Effective Tax Rate expected to return to 2019 levels at 22%; and
-- Share of Profits from Associates in line with 2020, dividend
from our Japanese associate of c.GBP8m.
Cash Flow
-- Cash conversion likely to be slightly lower than our targeted
c.90% as some of the effects we have seen in 2020 unwind;
-- Working capital outflows up to GBP30m, reflecting some
reversal of our strong working capital management in 2020;
-- GBP270m to GBP290m net capex, reflecting some catch up on capex deferred from 2020;
-- Cash interest c.GBP38m to GBP40m, cash tax payments GBP65m to GBP75m;
-- We expect to receive the remainder of the GBP30m pre-tax
surplus from the buy-out of the UK pension scheme (GBP13m received
in 2020). Due to the recent pensions judgement in the High Court
however, this may be delayed until 2022; and
-- Spend on 2021 M&A of c.GBP400m (includes the
consideration paid for EPS LLP in January 2021).
Our expectations for 2021 have taken the items above into
account and, notwithstanding continued uncertainty, we expect to
deliver further operational and financial progress in the coming
year.
Quarterly regional analysis of Ongoing Revenue performance in
2020 (at CER)
Ongoing Revenue at CER
Q1 Q2 Q3 Q4 FY2020
GBPm GBPm GBPm GBPm GBPm % YOY
====== ====== ====== ====== ======== ======
France 74.5 57.4 78.9 89.6 300.4 (3.2)
====== ====== ====== ====== ======== ======
Benelux 23.1 22.6 24.8 25.3 95.8 0.5
====== ====== ====== ====== ======== ======
Germany 26.3 29.1 30.9 32.7 119.0 10.7
====== ====== ====== ====== ======== ======
Southern Europe 33.6 33.3 37.1 37.7 141.7 5.3
====== ====== ====== ====== ======== ======
Latin America 15.5 15.2 17.6 18.2 66.5 15.2
====== ====== ====== ====== ======== ======
Total Europe 173.0 157.6 189.3 203.5 723.4 2.5
====== ====== ====== ====== ======== ======
UK & Ireland 77.3 59.6 80.2 70.2 287.3 (6.0)
====== ====== ====== ====== ======== ======
Rest of World 41.0 37.6 41.9 44.4 164.9 5.3
====== ====== ====== ====== ======== ======
UK & Rest of
World 118.3 97.2 122.1 114.6 452.2 (2.2)
====== ====== ====== ====== ======== ======
Asia 63.6 56.2 64.6 64.8 249.2 3.7
====== ====== ====== ====== ======== ======
North America 241.6 299.8 343.4 355.0 1,239.8 14.5
====== ====== ====== ====== ======== ======
Pacific 47.9 39.5 45.3 48.3 181.0 (2.6)
====== ====== ====== ====== ======== ======
Ongoing operations 644.4 650.3 764.7 786.2 2,845.6 6.3
====== ====== ====== ====== ======== ======
Quarterly category analysis of Ongoing Revenue performance in
2020 (at CER)
Ongoing Revenue at CER
Q1 Q2 Q3 Q4 FY2020
GBPm GBPm GBPm GBPm GBPm % YOY
====== ====== ====== ====== ======== =======
Pest Control 411.6 424.2 469.7 446.2 1,751.7 1.0
====== ====== ====== ====== ======== =======
- Growth 345.8 373.6 405.0 382.2 1,506.6 1.6
====== ====== ====== ====== ======== =======
- Emerging 65.8 50.6 64.7 64.0 245.1 (2.4)
====== ====== ====== ====== ======== =======
Hygiene 139.8 157.4 210.6 236.0 743.8 36.8
====== ====== ====== ====== ======== =======
- Core Hygiene 139.8 108.6 136.0 134.3 518.7 (4.6)
====== ====== ====== ====== ======== =======
- Disinfection - 48.8 74.6 101.7 225.1 -
====== ====== ====== ====== ======== =======
Protect & Enhance 93.0 68.7 84.4 104.0 350.1 (12.0)
====== ====== ====== ====== ======== =======
Ongoing operations 644.4 650.3 764.7 786.2 2,845.6 6.3
====== ====== ====== ====== ======== =======
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
For the year ended 31 December
2020 2019
Notes GBPm GBPm
=========================================================================================== ======= ======= =======
Revenue 2 2,823.5 2,714.4
Operating profit 293.8 265.6
Net gain on disposals - 103.8
Profit before interest and income tax 293.8 369.4
Finance income 4 6.2 10.7
Finance cost 3 (78.5) (56.8)
Share of profit from associates, net of tax of GBP4.8m (2019: GBP7.0m) 8.3 15.2
=========================================================================================== ======= ======= =======
Profit before income tax 229.8 338.5
Income tax expense(1) 5 (43.5) (54.7)
=========================================================================================== ======= ======= =======
Profit for the year attributable to the Company's equity holders (including non-controlling
interests of GBP0.4m (2019: GBP0.3m)) 186.3 283.8
=========================================================================================== ======= ======= =======
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Re-measurement of net defined benefit liability (13.1) (5.9)
Tax related to items taken to other comprehensive income 3.9 0.1
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves (52.6) (38.9)
Cost of hedging (1.0) -
Cumulative exchange recycled to income statement on disposal of foreign operations - (4.1)
Effective portion of changes in fair value of cash flow hedge (4.9) (0.5)
------------------------------------------------------------------------------------------- ------- ------- -------
Total comprehensive income for the year (including non-controlling interests of 0.4m (2019:
GBP0.3m)) 118.6 234.5
------------------------------------------------------------------------------------------- ------- ------- -------
Earnings per share attributable to the Company's equity holders:
Basic 6 10.03p 15.33p
Diluted 6 9.98p 15.24p
------------------------------------------------------------------------------------------- ------- ------- -------
All profit is from continuing operations.
1. Taxation includes GBP40.0m (2019: GBP48.1m) in respect of overseas taxation.
Non-GAAP measures shown below are explained in further detail in Note 21 Alternative Performance
Measures.
======================================================================================================================
Non-GAAP measures
Operating profit 293.8 265.6
Adjusted for:
Amortisation and impairment of intangible assets (excluding computer software) 2 82.5 85.2
One-off items - operating 2 7.7 14.6
Adjusted operating profit 384.0 365.4
Finance income 4 6.2 10.7
Finance cost 3 (78.5) (56.8)
Net interest adjustments 4 35.2 4.0
Share of profit from associates, net of tax of GBP4.8m (2019: GBP7.0m) 8.3 15.2
One-off items - associates - 2.4
=========================================================================================== ======= ======= =======
Adjusted profit before income tax 355.2 340.9
Basic adjusted earnings per share attributable to the Company's equity holders 6 15.37p 14.43p
Diluted adjusted earnings per share attributable to the Company's equity holders 6 15.29p 14.34p
------------------------------------------------------------------------------------------- ------- ------- -------
Consolidated Balance Sheet
At 31 December
2020 2019(1)
Notes GBPm GBPm
============================================= ======= ========= =========
Assets
Non-current assets
Intangible assets 8 1,922.1 1,673.4
Property, plant and equipment 9 402.7 391.7
ROU assets 217.5 221.2
Investments in associated undertakings 27.2 29.7
Other investments 0.2 0.3
Deferred tax assets 37.7 29.3
Contract costs 2 67.8 65.4
Retirement benefit assets 13 19.0 37.4
Other receivables 13.1 12.7
Derivative financial instruments 37.0 7.6
============================================= ======= ========= =========
2,744.3 2,468.7
============================================= ======= ========= =========
Current assets
Other investments 172.2 1.7
Inventories 131.3 106.5
Trade and other receivables 548.6 500.7
Current tax assets 10.6 7.0
Derivative financial instruments 5.6 0.2
Cash and cash equivalents(1) 11 2,225.6 1,169.2
============================================= ======= ========= =========
3,093.9 1,785.3
============================================= ======= ========= =========
Liabilities
Current liabilities
Trade and other payables (925.0) (660.7)
Current tax liabilities (80.0) (72.9)
Provisions for other liabilities and charges 14 (30.1) (25.1)
Bank and other short-term borrowings(1) (1,846.6) (944.2)
Current lease liabilities (72.7) (72.0)
Derivative financial instruments (3.5) (0.5)
============================================= ======= ========= =========
(2,957.9) (1,775.4)
============================================= ======= ========= =========
Net current assets 136.0 9.9
============================================= ======= ========= =========
Non-current liabilities
Other payables (70.4) (57.7)
Bank and other long-term borrowings (1,337.6) (1,059.3)
Non-current lease liabilities (141.8) (144.7)
Deferred tax liabilities (94.7) (110.8)
Retirement benefit obligations 13 (38.8) (37.5)
Provisions for other liabilities and charges 14 (34.1) (34.0)
Derivative financial instruments (32.3) (32.3)
============================================= ======= ========= =========
(1,749.7) (1,476.3)
============================================= ======= ========= =========
Net assets 1,130.6 1,002.3
============================================= ======= ========= =========
Equity
Capital and reserves attributable to the Company's equity holders
Share capital 15 18.5 18.5
Share premium account 6.8 6.8
Other reserves (1,926.2) (1,867.7)
Retained profits 3,030.6 2,844.1
============================================= ======= ========= =========
1,129.7 1,001.7
Non-controlling interests 0.9 0.6
============================================= ======= ========= =========
Total equity 1,130.6 1,002.3
============================================= ======= ========= =========
1. Both cash and cash equivalents and bank and other short-term
borrowings have been restated in 2019, to gross up the effect of
overdrafts (GBP859.6m) and cash (GBP859.6m), see Note 11.
Consolidated Statement of Changes in Equity
For the year ended 31 December
Attributable to equity holders of the Company
Called up
share Share Other Non- Total
capital premium account reserves Retained earnings controlling interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- ---------------- --------- ------------------- ---------------------- -------
At 1 January 2019 18.4 6.8 (1,824.2) 2,631.2 0.4 832.6
======================== ========= ================ ========= =================== ====================== =======
Profit for the year - - - 283.5 0.3 283.8
Other comprehensive
income:
Net exchange adjustments
offset in reserves - - (38.9) - - (38.9)
Re-measurement of net
defined benefit
liability - - - (5.9) - (5.9)
Effective portion of
changes in fair value
of cash flow hedge - - (0.5) - - (0.5)
Cumulative exchange
recycled to income
statement on disposal
of foreign operations - - (4.1) - - (4.1)
Tax related to items
taken directly to other
comprehensive income - - - 0.1 - 0.1
Total comprehensive
income for the year - - (43.5) 277.7 0.3 234.5
Transactions with
owners:
Shares issued in the
year 0.1 - - (0.1) - -
Dividends paid to equity
shareholders - - - (85.8) - (85.8)
Dividends paid to
non-controlling
interests - - - - (0.1) (0.1)
Cost of equity-settled
share-based payment
plans - - - 5.3 - 5.3
Tax related items taken
directly to equity - - - 2.4 - 2.4
Movement in the carrying
value of put options - - - 13.4 - 13.4
At 31 December 2019 18.5 6.8 (1,867.7) 2,844.1 0.6 1,002.3
======================== ========= ================ ========= =======
Profit for the year - - - 185.9 0.4 186.3
Other comprehensive
income:
Net exchange adjustments
offset in reserves - - (52.6) - - (52.6)
Cost of hedging - - (1.0) - - (1.0)
Re-measurement of net
defined benefit
liability - - - (13.1) - (13.1)
Effective portion of
changes in fair value
of cash flow hedge - - (4.9) - - (4.9)
Tax related to items
taken directly to other
comprehensive income - - - 3.9 - 3.9
======================== ========= ================ ========= =================== ====================== =======
Total comprehensive
income for the year - - (58.5) 176.7 0.4 118.6
Transactions with
owners:
Dividends paid to
non-controlling
interests - - - - (0.1) (0.1)
Cost of equity-settled
share-based payment
plans - - - 5.5 - 5.5
Tax related items taken
directly to equity - - - 3.2 - 3.2
Movement in the carrying
value of put options - - - 1.1 - 1.1
At 31 December 2020 18.5 6.8 (1,926.2) 3,030.6 0.9 1,130.6
======================== ========= ================ ========= =======
Shares of GBP0.1m (2019: GBP0.1m) have been netted against
retained earnings. This represents 7.7m (2019: 7.7m) shares held by
the Rentokil Initial Employee Share Trust. The market value of
these shares at 31 December 2020 was GBP39.0m (2019: GBP35.1m).
Dividend income from, and voting rights on, the shares held by the
Trust have been waived.
Consolidated Statement of Changes in Equity (continued)
For the year ended 31 December
Analysis of other reserves
Capital
reduction Cash flow Translation
reserve Legal reserve hedge reserve reserve Cost of hedging Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========== ============= ============== =========== =============== =========
At 1 January 2019 (1,722.7) 10.4 1.0 (112.9) - (1,824.2)
================================== ========== ============= ============== =========== =============== =========
Net exchange adjustments offset in
reserves - - - (38.9) - (38.9)
Effective portion of changes in
fair value of cash flow hedge - - (0.5) - - (0.5)
Cumulative exchange recycled to
income statement on disposal of
foreign operations - - - (4.1) - (4.1)
Total comprehensive expense for
the year - - (0.5) (43.0) - (43.5)
================================== ========== ============= ============== =========== =============== =========
At 31 December 2019 (1,722.7) 10.4 0.5 (155.9) - (1,867.7)
================================== ========== ============= ============== =========== =============== =========
Net exchange adjustments offset in
reserves - - - (52.6) - (52.6)
Effective portion of changes in
fair value of cash flow hedge - - (4.9) - - (4.9)
Cost of hedging - - - - (1.0) (1.0)
Total comprehensive income for the
year - - (4.9) (52.6) (1.0) (58.5)
================================== ========== ============= ============== =========== =============== =========
At 31 December 2020 (1,722.7) 10.4 (4.4) (208.5) (1.0) (1,926.2)
================================== ========== ============= ============== =========== =============== =========
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.
Consolidated Cash Flow Statement
For the year ended 31 December
Notes 2020 2019
GBPm GBPm
================================================================================== ========= =======
Cash flows from operating activities
Cash generated from operating activities 17 649.6 554.2
Interest received 7.6 10.8
Interest paid(1) (48.6) (58.9)
Income tax paid (64.4) (43.2)
============================================================================== ========= =======
Net cash flows from operating activities 544.2 462.9
============================================================================== ========= =======
Cash flows from investing activities
Purchase of property, plant and equipment (129.9) (140.1)
Purchase of intangible fixed assets (22.6) (30.8)
Proceeds from sale of property, plant and equipment 6.3 3.2
Acquisition of companies and businesses, net of cash acquired 18 (194.7) (315.7)
Disposal of companies and businesses 2.2 391.9
Dividends received from associates 11.7 30.4
============================================================================== ========= =======
Net cash flows from investing activities (327.0) (61.1)
============================================================================== ========= =======
Cash flows from financing activities
Dividends paid to equity shareholders 7 - (85.8)
Capital element of lease payments (85.4) (86.3)
Cash outflow on settlement of debt related foreign exchange forward contracts (23.7) (11.7)
Net investment in term deposits (170.5) 0.7
Proceeds from new debt 1,694.0 433.8
Bond repayments (1,352.2) (472.0)
============================================================================== ========= =======
Net cash flows from financing activities 62.2 (221.3)
============================================================================== ========= =======
Net increase in cash and cash equivalents 279.4 180.5
Cash and cash equivalents at beginning of year 273.9 100.9
Exchange losses on cash and cash equivalents (2.5) (7.5)
============================================================================== ========= =======
Cash and cash equivalents at end of the financial year 550.8 273.9
============================================================================== ========= =======
1. Interest paid includes interest on lease payments of GBP6.8m
(2019: GBP8.1m).
Notes to the financial statements
1. Changes in accounting policies
The Group has adopted the following new standards and amendments
to standards, including any consequential amendments to other
standards, with effect from 1 January 2020:
-- Amendments to IAS 1 Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting Estimates;
-- Amendment to IFRS 3 Business Combinations;
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform.
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
2019.
The Group has not early-adopted any standard, interpretation or
amendment that was issued but is not yet effective.
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 sale 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.
There are no circumstances in which the Group acts as an
agent.
Disaggregation of revenue into category, region and major type
of revenue stream is shown below under segmental reporting and in
Note 21.
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. The expected length of contracts
across the Group and associated amortisation periods are between
three and six years.
The contract costs recognised in the balance sheet at the period
end amounted to GBP67.8m (2019: GBP65.4m). The amount of
amortisation recognised in the period was GBP28.1m (2019: GBP25.9m)
and impairment losses were GBPnil (2019: 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 assets
Contract assets relate to the Group's right to consideration for
performance obligations satisfied but where the customer has yet to
be invoiced. The contract assets are transferred to receivables
when the rights become unconditional. This usually occurs when the
Group issues an invoice to the customer. All opening balances have
been invoiced in the year.
2. Revenue recognition and operating segments (continued)
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.
Segmental reporting
Segmental information has been presented in accordance with IFRS
8 Operating Segments. Reporting segments reflect the internal
management reporting structures. Each segment 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 operating
businesses within each segment report to the Regional Managing
Directors.
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.
Revenue and profit are from Ongoing operations which is defined and
reconciled to the nearest equivalent GAAP measure in Note 21.
Operating Operating
Revenue Revenue profit profit
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
===================================== ======== ======= ========= =========
France 303.2 310.4 33.7 46.0
Benelux 96.7 95.3 27.9 27.9
Germany 120.6 107.5 42.1 33.4
Southern Europe 143.0 134.6 21.8 22.2
Latin America 57.7 57.7 5.5 6.6
===================================== ======== ======= ========= =========
Europe 721.2 705.5 131.0 136.1
===================================== ======== ======= ========= =========
UK & Ireland 287.5 305.6 50.1 65.6
Rest of World 157.3 156.6 33.7 35.7
===================================== ======== ======= ========= =========
UK & Rest of World 444.8 462.2 83.8 101.3
===================================== ======== ======= ========= =========
Asia 242.0 240.2 26.9 24.9
North America 1,224.1 1,082.5 211.9 153.4
Pacific 177.5 185.8 34.5 38.6
Central and regional overheads - - (91.1) (78.5)
Restructuring costs - - (13.2) (7.7)
===================================== ======== ======= ========= =========
Ongoing operations at AER 2,809.6 2,676.2 383.8 368.1
Disposed businesses(1, 2) 13.9 38.2 0.2 (2.7)
===================================== ======== ======= ========= =========
Continuing operations at AER 2,823.5 2,714.4 384.0 365.4
===================================== ======== ======= ========= =========
One-off items - operating (7.7) (14.6)
Amortisation of intangible assets(3) (82.5) (85.2)
Operating profit 293.8 265.6
===================================== ======== ======= ========= =========
1. Disposed businesses for 2019 is restated to include
businesses that were disposed in 2020 to aid year on year
comparability.
2. Includes revenue of GBP7.1m (2019: GBP10.7m) from product
sales by the Group to CWS-boco International GmbH. Prior to 30th
June 2017, this revenue was classified as intergroup revenue and
eliminated on consolidation.
3. Excluding computer software.
2. Revenue recognition and operating segments (continued)
One-off items operating:
One-off cost/(income) One-off tax impact One-off cash inflow/(outflow)
2020 2020 2020
GBPm GBPm GBPm
============================================ ===================== ================== =============================
Acquisition and integration costs 14.7 (3.0) (14.7)
Prior year disposal of business - cash
receipt (2.2) - 2.2
Pension scheme closure in North America (7.3) 2.0 -
Profit on property sale and leaseback (2.0) 0.5 4.4
Disposal charge for faulty PPE 2.9 (0.5) -
Legacy payroll costs 3.3 (1.1) (1.1)
Release of legacy provisions (3.0) - -
UK pension scheme - partial refund of
surplus - - 8.5
Other 1.3 (0.3) (1.6)
============================================ ===================== ================== =============================
At 31 December 7.7 (2.4) (2.3)
============================================ ===================== ================== =============================
Other segment items included in the consolidated income
statement are as follows:
Amortisation and
Amortisation and impairment of
impairment of intangibles(1) intangibles(1)
========================
2020 2019
GBPm GBPm
======================== ============================== =================
Europe 13.3 10.1
UK & Rest of World 12.4 19.6
Asia 15.1 8.6
North America 30.9 35.0
Pacific 3.6 3.9
Central and regional 7.2 6.0
Disposed businesses - 2.0
======================== ============================== =================
Total 82.5 85.2
======================== ============================== =================
Tax effect (17.5) (19.6)
======================== ============================== =================
Total after tax effect 65.0 65.6
======================== ============================== =================
1. Excluding computer software.
3. Finance cost
2020 2019
GBPm GBPm
======================================================= ===== =====
Hedged interest payable on medium term notes issued(1) 15.6 23.8
Interest payable on bank loans and overdrafts(1) 3.0 2.7
Interest payable on revolving credit facility(1) 5.4 3.6
Interest payable on foreign exchange swaps 13.8 16.1
Interest payable on leases 6.8 8.1
Amortisation of discount on provisions 0.3 0.2
Fair value loss on hedge ineffectiveness(2) 3.6 -
Fair value adjustment on debt repayment 4.1 -
Fair value loss on other derivatives(3) 25.9 2.3
Total finance cost 78.5 56.8
======================================================= ===== =====
1. Interest expense on financial liabilities held at amortised
cost.
2. Fair value loss on hedge ineffectiveness includes GBP7.6m
foreign exchange loss on euro bonds not reclassified to reserves
due to book value of the euro subsidiaries' net assets being lower
than the designated bond liability (2019: GBP3.1m loss). The fair
value gain on hedge ineffectiveness also includes GBP4.0m interest
of the net investment hedge accounting of the EUR400m bond hedge
reported in the interest payable of foreign exchange (2019:
GBP4.1m).
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 do not qualify for hedge accounting. The
instrument provides an annual interest benefit of 1.9% of the
outstanding principal and was closed out in August 2020 with the
full year loss of GBP26.2m excluding interest accrued.
4. Finance income
2020 2019
GBPm GBPm
============================================== ===== =====
Bank interest 2.3 4.1
Interest receivable on foreign exchange swaps 3.4 5.1
Fair value gain on hedge ineffectiveness(1) - 0.8
Interest on net defined benefit asset 0.5 0.7
=============================================== ===== =====
Total finance income 6.2 10.7
=============================================== ===== =====
5. Income tax expense
Analysis of charge in the year:
2020 2019
GBPm GBPm
======================================================= ====== =====
UK corporation tax at 19.0% (2019: 19.0%) 8.8 8.3
Overseas taxation 60.9 41.6
Adjustment in respect of previous periods (3.1) 8.8
======================================================= ====== =====
Total current tax 66.6 58.7
Deferred tax (credit)/expense (17.0) 0.7
Deferred tax adjustment in respect of previous periods (6.1) (4.7)
======================================================= ====== =====
Total deferred tax (23.1) (4.0)
======================================================= ====== =====
Total income tax expense 43.5 54.7
======================================================= ====== =====
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.
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 Company'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 difference relates 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 UK losses,
management have estimated the quantum of future UK taxable profits
over the next five years as this is the period over which it is
considered that profits can be reasonably estimated.
A deferred tax asset of GBP16.0m (2019: GBP14.4m) has been
recognised in respect of UK losses carried forward at 31 December
2020. This amount has been calculated by estimating the future UK
taxable profits, against which the UK tax losses will be utilised,
and applying the tax rates (substantively enacted at the balance
sheet date) applicable for each year. Remaining UK tax losses of
GBP48.6m have not been recognised as at 31 December 2020 as it is
not considered probable that future taxable profits will be
available against which the tax losses can be offset. The increase
in the deferred tax asset recognised on the UK tax losses is due to
UK corporate tax rate reduction from 19% to 17% not coming into
effect.
At the balance sheet date the Group has tax losses of GBP105.0m
(2019: GBP120.4m) 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 GBP14.6m (2019: GBP15.5m) will
expire at various dates between 2021 and 2031.
5. Income tax expense (continued)
In addition, the Group has UK capital losses carried forward of
GBP276.3m (2019: GBP276.9m) on which no deferred tax asset is
recognised. These losses have no expiry date but management
considers the future utilisation of these losses to be
unlikely.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of shares in issue during the year, excluding those
held in the Rentokil Initial Employee Share Trust for UK employees
(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.
Adjusted earnings per share is earnings per share adjusted for
the after-tax effects of one-off items, amortisation and impairment
of intangibles and net interest adjustments.
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 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.
Details of the adjusted earnings per share are set out
below:
2020 2019
GBPm GBPm
========================================================================================= ====== =======
Profit from continuing operations attributable to equity holders of the Company 185.9 283.5
One-off items - operating 7.7 14.6
One-off items - associates - 2.4
Net gain on disposals - (103.8)
Amortisation and impairment of intangibles(1) 82.5 85.2
Net interest adjustments 35.2 4.0
Tax on above items(2) (26.4) (19.1)
Adjusted profit from continuing operations attributable to equity holders of the Company 284.9 266.8
========================================================================================= ====== =======
Weighted average number of ordinary shares in issue 1,853.2 1,849.0
Adjustment for potentially dilutive shares 9.7 11.5
========================================================================== ======= =======
Weighted average number of ordinary shares for diluted earnings per share 1,862.9 1,860.5
========================================================================== ======= =======
Basic earnings per share 10.03p 15.33p
Diluted earnings per share 9.98p 15.24p
Basic adjusted earnings per share 15.37p 14.43p
Diluted adjusted earnings per share 15.29p 14.34p
==================================== ====== ======
1. Excluding computer software.
2. One-off items operating GBP2.4m (2019: GBP(1.1)m),
amortisation and impairment of intangibles GBP17.5m (2019:
GBP19.6m), net interest adjustments GBP6.5m (2019: GBP0.6m).
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.
2020 2019
GBPm GBPm
============================================= ===== =====
2018 final dividend paid - 3.16p per share - 58.1
2019 interim dividend paid - 1.51p per share - 27.7
============================================= ===== =====
- 85.8
============================================= ===== =====
No interim dividend was declared for 2020 due to temporary
suspension of the progressive dividend policy as a result of the
global COVID-19 pandemic. A final dividend in respect of 2020 of
5.41p per share amounting to GBP100.3m is to be proposed at the
Annual General Meeting on 12 May 2021. These financial statements
do not reflect this recommended dividend.
8. Intangible assets
Customer
lists and Computer 2020 2019
Goodwill relationships Brands Product development software Total Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ========= ============== ======= =================== ========= ======= =======
Cost
At 1 January 1,376.7 782.8 66.7 33.7 135.1 2,395.0 2,170.3
Exchange differences (45.2) (5.5) (0.7) - 0.5 (50.9) (93.2)
Additions - - - 5.7 16.8 22.5 30.8
Disposals/retirements - (7.7) - - (7.4) (15.1) (3.2)
Acquisition of companies and
businesses 322.3 56.7 0.1 - - 379.1 331.6
Disposal of companies and
businesses (0.4) (1.9) - - (0.2) (2.5) (44.8)
Transfers - - - - - - 3.5
At 31 December 1,653.4 824.4 66.1 39.4 144.8 2,728.1 2,395.0
================================ ========= ============== ======= =================== ========= ======= =======
Accumulated amortisation and impairment
At 1 January (34.2) (534.1) (42.9) (20.0) (90.4) (721.6) (661.2)
Exchange differences (0.2) (0.3) 0.9 - (0.4) - 27.0
Disposals/retirements - 7.7 - - 6.8 14.5 3.1
Disposal of companies and
businesses - 1.9 - - 0.2 2.1 8.3
Impairment charge (10.6) - - (0.5) (1.9) (13.0) (5.0)
Amortisation charge - (60.5) (4.6) (6.3) (16.6) (88.0) (93.8)
At 31 December (45.0) (585.3) (46.6) (26.8) (102.3) (806.0) (721.6)
================================ ========= ============== ======= =================== ========= ======= =======
Net book value
At 1 January 1,342.5 248.7 23.8 13.7 44.7 1,673.4 1,509.1
================================ ========= ============== ======= =================== ========= ======= =======
At 31 December 1,608.4 239.1 19.5 12.6 42.5 1,922.1 1,673.4
================================ ========= ============== ======= =================== ========= ======= =======
1. Includes current year acquisitions of GBP374.3m as well as
adjustments to prior year acquisitions within the measurement
period.
9. Property, plant and equipment
Vehicles
Land and Other plant and and office 2020 2019
buildings Service contract equipment equipment equipment Total Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========== ========================== =============== =========== ======= =======
Cost
At 1 January 84.1 485.3 169.6 185.3 924.3 984.6
IAS 17 finance leases
transferred - - - - - (60.1)
Exchange differences 3.0 19.6 6.6 (0.4) 28.8 (49.3)
Additions 2.0 93.0 11.5 20.6 127.1 141.9
Disposals (1.8) (74.8) (1.8) (13.2) (91.6) (109.1)
Acquisition of companies and
businesses(1) - 0.4 0.3 4.9 5.6 16.5
Disposal of companies and
businesses - - (0.1) (0.1) (0.2) (0.2)
Reclassification from IFRS 16
ROU assets(2) - - - 3.3 3.3 -
At 31 December 87.3 523.5 186.1 200.4 997.3 924.3
============================== ========== ========================== =============== =========== ======= =======
Accumulated depreciation and
impairment
At 1 January (27.1) (273.2) (116.7) (115.6) (532.6) (547.7)
IAS 17 finance leases
transferred - - - - - 18.4
Exchange differences (1.1) (11.9) (4.7) (0.1) (17.8) 29.6
Disposals 1.1 73.4 1.6 11.9 88.0 94.4
Disposals of companies and
businesses - - - 0.1 0.1 -
Impairment charge (0.1) (0.3) - - (0.4) -
Depreciation charge (3.0) (97.6) (12.3) (19.0) (131.9) (127.3)
At 31 December (30.2) (309.6) (132.1) (122.7) (594.6) (532.6)
============================== ========== ========================== =============== =========== ======= =======
Net book value
At 1 January 57.0 212.1 52.9 69.7 391.7 436.9
============================== ========== ========================== =============== =========== ======= =======
At 31 December 57.1 213.9 54.0 77.7 402.7 391.7
============================== ========== ========================== =============== =========== ======= =======
1. Includes current year acquisitions of GBP5.7m 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.
10. Financing
Fair value estimation
All financial instruments held at fair value are classified by
reference to the source of inputs used to derive the fair value.
The following hierarchy is used:
Level 1 - unadjusted quoted prices in active markets for
identical assets or liabilities;
Level 2 - inputs other than quoted prices that are observable
for the asset or liability either directly as prices or indirectly
through modelling based on prices;
Level 3 - inputs for the asset or liability that are not based
on observable market data. Fair value is equal to carrying value
for all instruments at level 3.
The Group uses the following methods to estimate fair value of
its financial instruments:
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
Long-term debt 1 Quoted market prices
Liquidity fund 1 Quoted market prices or dealer
quotes for similar instruments
Interest rate/currency 2 Market swap rates at the balance
swaps sheet date
Forward foreign exchange 2 Forward exchange market rates
contracts at the balance sheet date
Borrowings not traded in 2 Cash flows discounted at current
active markets market rates
Financial instruments not 2 or Valuation assumptions based
traded in active markets 3 on market conditions at the
balance sheet date
Trade payables and receivables 3 Nominal value less estimated
credit adjustments
Other financial instruments 3 Variety of techniques including
discounted cash flows
------------------------------- ---------- ---------------------------------
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 GBP6.7m (2019: GBP9.0m) 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 GBP51.0m
(2019: GBP45.6m) of cash held in countries with foreign exchange
regulations. This cash is repatriated to UK where possible, if not
required for operational purposes in country.
Fair value is equal to carrying value for all cash and cash
equivalents.
The Group operates pooling arrangements whereby cash balances
and overdrafts held within the same bank have a legal right of
offset. However the Group did not net down the year end balances
after the reporting date in the prior period and therefore has
restated both the cash and cash equivalents in the Consolidated
Balance Sheet and the bank and other short term borrowings to show
these amounts gross. This GBP859.6m restatement has no effect on
the profit or loss, net assets or the cash flow statement. These
cash and bank overdraft figures are shown in the table below:
GBPm
================================================================== =========
At 31 December 2020
Cash at bank and in hand 2,219.5
Short-term bank deposits 6.1
================================================================== =========
Cash and cash equivalents in the consolidated balance sheet 2,225.6
Bank overdraft (1,674.8)
================================================================== =========
Cash and cash equivalents in the consolidated cash flow statement 550.8
================================================================== =========
At 31 December 2019
Cash at bank and in hand 1,099.1
Short-term bank deposits 70.1
================================================================== =========
Cash and cash equivalents in the consolidated balance sheet 1,169.2
Bank overdraft (895.3)
================================================================== =========
Cash and cash equivalents in the consolidated cash flow statement 273.9
================================================================== =========
12. 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 at Interest rate
Facility amount year end Headroom at year end
GBPm GBPm GBPm %
============================ =============== ========= ========== =============
Non-current
GBP550m RCF due August 2025 550.0 - 550.0 0.14
---------------------------- --------------- --------- ---------- -------------
In August 2020 the Group extended its main revolving credit
facility (RCF) until August 2025 with a one-year extension option.
At the year end the RCF was undrawn.
Medium-term notes and bond debt comprises:
Bond interest coupon Effective hedged interest rate
============================================ ===================== ==============================
Current
EUR175 bond due October 2021 Fixed 3.25% Fixed 3.41%
Non-current
EUR400m bond due November 2024 Fixed 0.95% Fixed 2.31%
EUR500m bond due May 2026 Fixed 0.875% Fixed 1.40%
EUR600m bond due October 2028 Fixed 0.50% Fixed 0.58%
Average cost of bond debt at year end rates 1.72%
=================================================================== ==============================
The effective hedged interest rate reflects the interest rate
after the impact of interest due from currency swaps. The Group's
hedging strategy is to hold foreign currency debt in proportion to
the foreign currency profit and cash flows which are mainly 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.
In November, following a successful tender offer, the Group
repaid 49.8% of the EUR350m bond that is due in October 2021. The
bond has a three months at par call option, which means that the
bond can be repaid on 7 July 2021 without additional premium. In
October 2020, the Group issued a new EUR600m eight year bond with a
coupon of 0.50% under its EMTN Programme.
The Group considers the fair value of other current liabilities
to be equal to the carrying value.
13. Retirement benefit obligations
Apart from the 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 which are now
closed to new entrants and future accrual of benefits. On 4
December 2018 the Group signed an agreement with Pension Insurance
Corporation plc (PIC) to take over the payment of the liabilities
in the scheme via a buy-in, which is anticipated to convert to a
full buy-out before the end of 2022.
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. Significant judgement
is required in determining these actuarial assumptions.
The Group achieved buy-in within the value of the assets held by
the scheme and was not required to make any further contributions.
There is still some uncertainty regarding the final adjustments to
the price that will be paid to PIC on full buy-out of the scheme,
and therefore the final surplus that will be available to the
Group. However, in December 2020 the Trustee made a partial refund
of surplus to the Group of GBP13.0m. The remaining surplus is
recognised as a retirement benefit asset at management's estimate
of the value that will be returned to the Group on wind-up of the
Scheme.
13. Retirement benefit obligations (continued)
The defined benefit schemes are 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
scheme are shown below:
2020 2019
========================= ==== ====
Weighted average %
Discount rate 1.4% 2.0%
Future salary increases N/A N/A
Future pension increases 3.0% 3.1%
RPI inflation 3.0% 3.2%
CPI inflation 2.3% 2.2%
========================= ==== ====
The movement in the net defined benefit obligation for all
pension schemes over the accounting period is as follows:
Present value of Present value of Fair value of plan
obligation Fair value of plan Total obligation assets Total
2020 assets 2020 2020 2019 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm
=================== =================== ================== ====== =================== =================== ======
At 1 January (1,443.9) 1,443.8 (0.1) (1,342.0) 1,337.3 (4.7)
=================== =================== ================== ====== =================== =================== ======
Current service
costs(1) (1.6) - (1.6) (1.2) - (1.2)
Past service
costs(1) 7.1 - 7.1 0.6 - 0.6
Settlement of
defined benefit
obligation(1) - - - - 17.4 17.4
Administration
expenses(1) (0.1) - (0.1) (0.4) - (0.4)
Interest on net
defined benefit
asset(1) (28.2) 28.7 0.5 (35.6) 36.3 0.7
Exchange difference (0.1) (0.4) (0.5) 3.6 (2.3) 1.3
=================== =================== ================== ====== =================== =================== ======
Total pension
income (22.9) 28.3 5.4 (33.0) 51.4 18.4
=================== =================== ================== ====== =================== =================== ======
Remeasurements:
Remeasurement gain
on scheme assets - 70.2 70.2 - 90.8 90.8
Remeasurement loss
on obligation(2) (83.3) - (83.3) (96.7) - (96.7)
Transfers
Transferred on
acquisition of
business - - - (46.0) 35.2 (10.8)
Contributions:
Employers (0.3) 0.5 0.2 - 1.2 1.2
Participants (0.2) 0.2 - (0.2) 0.1 (0.1)
Benefit payments 69.4 (68.7) 0.7 73.6 (72.2) 1.4
Refund of surplus - (13.0) (13.0) - - -
Administration
costs 0.1 - 0.1 0.4 - 0.4
=================== =================== ================== ====== =================== =================== ======
At 31 December (1,481.1) 1,461.3 (19.8) (1,443.9) 1,443.8 (0.1)
=================== =================== ================== ====== =================== =================== ======
Retirement benefit
obligation
schemes(3) (110.6) 71.8 (38.8) (106.6) 69.1 (37.5)
Retirement benefit
asset schemes(4) (1,370.5) 1,389.5 19.0 (1,337.3) 1,374.7 37.4
=================== =================== ================== ====== =================== =================== ======
1. Service costs, settlement and administration expenses are
charged to operating expenses, and interest cost and return on plan
assets to finance cost and finance income respectively.
2. The actuarial movement on the UK RIPS scheme comprises
remeasurement gain arising from changes in demographic assumptions
of GBP16.1m (2019: gain GBP16.5m), remeasurement loss arising from
changes in financial assumptions of GBP117.1m (2019: GBP129.3m) and
remeasurement gains arising from experience of GBP25.0m (2019:
GBP20.9m).
3. Benefit plans in an obligation position include plans
situated in Ireland, the UK, Martinique, Barbados, Trinidad,
Norway, South Africa, Germany, Austria, France, Italy, South Korea,
Philippines, India, Hong Kong and the US.
4. Benefit plans in an asset position include plans situated in
UK and Australia.
Included in the table above is a net defined benefit surplus in
relation to the UK RIPS scheme of GBP18.2m (2019: GBP36.6m)
recognised as defined benefit obligation of GBP1,369.3m (2019:
GBP1,333.3m) and plan assets of GBP1,387.5m (2019: GBP1,369.9m). Of
the GBP1,481.1m (2019: GBP1,443.9m) of obligations, GBP18.3m (2019:
GBP16.7m) is unfunded.
13. Retirement benefit obligations (continued)
Total contributions payable to defined benefit pension schemes
in 2021 are expected to be less than GBP1m.
The fair value of plan assets at the balance sheet date is
analysed as follows:
2020 2019
GBPm GBPm
============================ ======= =======
Equity instruments 37.3 38.6
Debt instruments - unquoted 16.7 14.8
Property 0.7 0.6
Insurance policies 1,343.6 1,335.6
Other 63.0 54.2
Total plan assets 1,461.3 1,443.8
================================ ======= =======
14. Provisions for other liabilities and charges
The Group has environmental, self-insurance and other
provisions. 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 0.9% (2019: 0.9%) for the US.
Judgement is required in determining the worldwide provision for
environmental restoration. These provisions tend to be long-term in
nature and the use of an appropriate market discount rate and
forecast future utilisation based upon management's best estimate
determines the level of provision required at the balance sheet
date. The phasing and actual cash spend may be different from the
forecast on which the provision is based.
Self- 2020 2019
Environmental insurance Other Total Total
GBPm GBPm GBPm GBPm GBPm
============================================= ============== ========== ====== ====== ======
At 1 January 14.2 29.3 15.6 59.1 71.2
Adjustment on initial application of IFRS 16 - - - - (6.4)
Exchange differences 0.7 (0.9) 0.3 0.1 (2.1)
Additional provisions 0.4 14.7 13.0 28.1 18.8
Used during the year (1.8) (10.7) (6.7) (19.2) (21.2)
Unused amounts reversed - (0.2) (4.1) (4.3) (1.6)
Acquisition of companies and businesses 0.1 - - 0.1 0.2
Unwinding of discount on provisions - 0.3 - 0.3 0.2
At 31 December 13.6 32.5 18.1 64.2 59.1
============================================= ============== ========== ====== ====== ======
Analysed as follows:
Non-current 34.1 34.0
Current 30.1 25.1
============================================= ============== ========== ====== ====== ======
Total 64.2 59.1
============================================= ============== ========== ====== ====== ======
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.
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.
Other
Other provisions principally comprise amounts required to cover
obligations arising and costs relating to disposed businesses and
restructuring costs. Other provisions also includes costs relating
to onerous lease contracts on properties it no longer occupies such
as security, utilities and insurance. Existing provisions are
expected to be substantially utilised within the next five
years.
15. Share capital
2020 2019
GBPm GBPm
============================================================ ===== =====
Issued and fully paid
At 31 December - 1,854,332,965 shares (2019: 1,849,332,965) 18.5 18.5
============================================================ ===== =====
16. Reconciliation of net change in cash and cash equivalents to
net debt
Non-cash (fair value Non-cash (foreign
Opening 2020 (1) Cash flows changes) exchange and other) Closing 2020
GBPm GBPm GBPm GBPm GBPm
Cash and cash
equivalents in the
consolidated balance
sheet(1) 1,169.2 1,058.9 - (2.5) 2,225.6
Other investments -
loans and receivables 1.8 170.5 - (0.1) 172.2
Fair value of
debt-related
derivatives (23.8) 30.3 (39.7) 39.8 6.6
Bank and other
short-term
borrowings(1) (944.2) (565.3) (21.1) (316.0) (1,846.6)
Bank and other long-term
borrowings (1,059.3) (537.7) (1.3) 260.7 (1,337.6)
Leases (216.7) 92.3 - (90.1) (214.5)
======================== ================ ========== ======================= ======================= ============
(1,073.0) 249.0 (62.1) (108.2) (994.3)
======================== ================ ========== ======================= ======================= ============
1. Both cash and cash equivalents in the consolidated balance
sheet and bank and other short-term borrowings have been restated
in 2019 to gross up the effect of overdrafts (GBP859.6m), cash
(GBP859.6m) (Note 11).
17. Operating cash and Free Cash Flow
2020 2019(1)
GBPm GBPm
==============================================================
Operating profit 293.7 369.4
Adjustments for:
- Depreciation and impairment of property, plant
and equipment 132.3 127.3
- Depreciation of leased assets 78.0 78.9
- Amortisation and impairment of intangible assets
(excluding computer software) 82.5 85.2
- Amortisation and impairment of computer software 18.5 13.6
- Other non-cash items (0.5) (4.3)
- Net profit on sale of businesses - (103.8)
Changes in working capital (excluding the effects
of acquisitions and exchange differences on consolidation):
- Inventories (23.3) (3.6)
- Contract costs (1.9) (6.3)
- Trade and other receivables (22.5) (32.4)
- Contract assets 2.4 (5.8)
- Trade and other payables and provisions 78.2 20.2
- Contract liabilities 12.7 16.9
============================================================== ======== ========
Cash generated from operating activities before
special pension contributions 650.1 555.3
Special pension contributions (0.5) (1.1)
-------------------------------------------------------------- -------- --------
Cash generated from operating activities 649.6 554.2
-------------------------------------------------------------- -------- --------
Add back: special pension contributions 0.5 1.1
============================================================== ======== ========
Purchase of property, plant and equipment (129.9) (140.1)
Purchase of intangible fixed assets (22.6) (30.8)
Additions of ROU assets (75.4) (74.9)
Disposals of ROU assets 2.5 -
Proceeds from sale of property, plant and equipment 6.3 3.2
Dividends received from associates 11.7 30.4
============================================================== ======== ========
442.7 343.1
-------------------------------------------------------------- -------- --------
Interest received 7.6 10.8
Interest paid (48.6) (58.9)
Income tax paid (64.4) (43.2)
Special pension contributions (0.5) (1.1)
-------------------------------------------------------------- -------- --------
Free Cash Flow from continuing operations 336.8 250.7
============================================================== ======== ========
18. Business combinations
During the year the Group purchased 100% of the share capital or
trade and assets of 23 companies and businesses. The total
consideration in respect of these acquisitions was GBP367.3m and
the cash outflow from current and past period acquisitions, net of
cash acquired, was GBP194.7m.
Details of goodwill and the fair value of net assets acquired
are as follows:
2020 2019
GBPm GBPm
======================================== ====== ======
Purchase consideration:
- Cash paid 156.9 290.3
- Deferred and contingent consideration 210.4 38.3
Total purchase consideration 367.3 328.6
Fair value of net assets acquired (49.9) (62.8)
========================================= ====== ======
Goodwill from current year acquisitions 317.4 265.8
========================================= ====== ======
Goodwill represents the synergies, workforce and other benefits
expected as a result of combining the respective businesses.
Deferred consideration of GBP192.3m and contingent consideration
of GBP18.1m is payable in respect of the above acquisitions.
Contingent consideration is payable based on a variety of
conditions including revenue and profit targets being met. Both
deferred and contingent consideration are payable over the next
five years. The Group has recognised the contingent and deferred
consideration based on the fair value of the consideration 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 deferred consideration liabilities
not paid of GBP1.6m (2019: GBP1.1m).
The provisional fair value(1) of assets and liabilities arising
from acquisitions in the year are as follows:
2020 2019
GBPm GBPm
=================================== ====== ======
Non-current assets
- Intangible assets(2) 56.9 70.5
- Property, plant and equipment(3) 9.9 17.0
Current assets(4) 20.4 14.3
Current liabilities (20.0) (20.8)
Non-current liabilities(5) (17.3) (18.2)
==================================== ====== ======
Net assets acquired 49.9 62.8
==================================== ====== ======
1. The provisional fair values will be finalised in the 2021
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 GBP56.8m (2019: GBP67.9m) of customer lists and
relationships and GBP0.1m (2019: GBP2.6m) of other intangibles.
3. Includes GBP4.2m (2019: GBP0.7m) of right-of-use assets.
3. Includes trade and other receivables of GBP11.2m (2019:
GBP5.9m) which represents the gross and fair value of the assets
acquired.
4. Includes GBP(5.1)m of deferred tax relating to acquired
intangibles (2019: GBP(4.2)m).
The cash outflow from current and past acquisitions are as
follows:
2020 2019
GBPm GBPm
=============================================================== ======= ======
Total purchase consideration 367.3 328.6
Consideration payable in future periods (210.4) (38.3)
=============================================================== ======= ======
Purchase consideration paid in cash 156.9 290.3
Cash and cash equivalents in acquired companies and businesses (6.1) (6.0)
=============================================================== ======= ======
Cash outflow on current period acquisitions 150.8 284.3
Deferred consideration paid 43.9 31.4
Cash outflow on current and past acquisitions 194.7 315.7
=============================================================== ======= ======
From the dates of acquisition to 31 December 2020, these
acquisitions contributed GBP22.2m to revenue and GBP2.3m to
operating profit.
If the acquisitions had occurred on 1 January 2020 the estimated
revenue and operating profit of the Group would have amounted to
GBP2,961.6m and GBP303.1m respectively.
19. Related party transactions
The Group operates in a number of joint ventures which the Group
controls and includes in its Consolidated Financial Statements. All
transactions between these entities and the Group were transacted
at arm's length during the ordinary course of business and have
been eliminated on consolidation. Nippon Calmic Ltd (49%) was an
associate during 2019 and 2020. There are no significant
transactions between Nippon Calmic Ltd and other Group
companies.
The Group bears the costs of administration and independent
pension advice of the Rentokil Initial 2015 Pension Scheme. The
total amount of costs in the year ended 31 December 2020 was
GBP0.2m (2019: GBP0.3m) of which GBP0.2m (2019: GBP0.3m) was
recharged to the Scheme. At 31 December 2020, GBPnil (2019:
GBP0.1m) remained outstanding.
20. Events occurring after the balance sheet date
There were no significant post balance sheet events affecting
the Group since 31 December 2020.
21. Alternative performance measures
Definitions and reconciliation of non-GAAP measures to GAAP
measures
The Group uses a number of measures to present the financial
performance of the business which are not GAAP measures as defined
under IFRS. Management believes these measures provide valuable
additional information for users of the financial statements in
order to understand the underlying trading 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 GAAP
measures.
Constant exchange rates (CER)
Given the international nature of the Group's operations,
foreign exchange movements can have a significant impact on the
reported results of the Group when they are translated into
sterling (the functional reporting currency of the Group). In order
to help understand the underlying trading performance of the
business, revenue and profit measures are often presented at CER.
CER is calculated by retranslating current year reported numbers at
the full year average exchange rates for the prior year, in order
to give management and other users of the accounts better
visibility of underlying trading performance against the prior
period. The major exchange rates used are GBP/$ FY 2020 1.2951 (FY
2019 1.2790) and GBP/EUR FY 2020 1.1315 (FY 2019 1.1419).
Comparisons are to the year ended 31 December 2019 unless otherwise
stated.
Ongoing Revenue and Ongoing Operating Profit
Ongoing Revenue and Ongoing Operating Profit represent the
performance of the continuing operations of the Group (including
acquisitions) after removing the effect of disposed or closed
businesses. Ongoing Operating Profit is an adjusted measure and is
presented before amortisation and impairment of intangible assets
(excluding computer software), one-off items and net profit on
disposal of businesses (see below).
Ongoing measures enable the users of the accounts to focus on
the performance of the businesses retained by the Group and that
will therefore contribute to future performance. Ongoing Revenue
and Ongoing Operating Profit are presented at CER unless otherwise
stated. A reconciliation of Ongoing Revenue and Ongoing Operating
Profit measures to the equivalent GAAP measure is provided in the
table below and in the segmental analysis in Note 2.
Adjusted profit and earnings per share 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 items (operating and associates); and
- Net interest adjustments
Intangible assets (excluding computer software) are recognised
on acquisition of businesses which, by their nature, can vary by
size and amount each 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 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
(including aborted acquisitions), 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.
Other non-cash gains and losses that can cause material
fluctuations and distort understanding of the performance of the
business are net interest on pension schemes, interest fair value
adjustments and the excess IFRS 16 interest above the operating
profit benefit reported in the year. These adjustments are made to
aid year on year comparability.
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. Note 6 shows the adjustments made in arriving at adjusted
profit from continuing operations attributable to equity holders of
the Company.
21. Alternative performance measures (continued)
A reconciliation of non-GAAP measures to the comparable GAAP
equivalents is provided below at both AER and CER:
% change
========
2020 2020 2019
AER CER
GBPm GBPm GBPm AER CER
========
Ongoing Revenue 2,809.6 2,845.6 2,676.2 5.0% 6.3%
Revenue - disposed and closed
businesses(1) 13.9 13.9 38.2 (63.5%) (63.7%)
================================= ======== ======== ======== ========= =========
Revenue 2,823.5 2,859.5 2,714.4 4.0% 5.3%
================================= ======== ======== ======== ========= =========
Ongoing Operating Profit 383.8 388.1 368.1 4.3% 5.4%
Operating Profit - disposed
and closed businesses 0.2 0.2 (2.7) 107.1% 106.9%
================================= ======== ======== ======== ========= =========
Adjusted Operating Profit 384.0 388.3 365.4 5.1% 6.3%
================================= ======== ======== ======== ========= =========
One-off items - Operating (7.7) (7.7) (14.6) 47.5% 47.5%
Amortisation and impairment
of intangible assets(2) (82.5) (85.3) (85.2) 3.2% 0.0%
================================= ======== ======== ======== ========= =========
Operating profit 293.8 295.3 265.6 10.6% 11.2%
================================= ======== ======== ======== ========= =========
Net gain on disposals - - 103.8 (100.0%) (100.0%)
Share of profit from associates
(net of tax) 8.3 8.2 15.2 (45.6%) (46.2%)
Net interest payable (excluding
pensions/IFRS 16) (37.1) (37.3) (42.1) 11.9% 11.4%
Net interest adjustments (35.2) (35.6) (4.0) (785.5%) (795.2%)
================================= ======== ======== ======== ========= =========
Profit before tax 229.8 230.6 338.5 (32.1%) (31.9%)
================================= ======== ======== ======== ========= =========
Net interest adjustments 35.2 35.6 4.0 785.5% 795.2%
Net gain on disposals - - (103.8) 100.0% 100.0%
One-off items - operating 7.7 7.7 14.6 (47.5%) (47.5%)
One-off items - associates(3) - - 2.4 (100.0%) (100.0%)
Amortisation and impairment
of intangible assets(2) 82.5 85.3 85.2 (3.2%) (0.0%)
================================= ======== ======== ======== ========= =========
Adjusted profit before tax 355.2 359.2 340.9 4.2% 5.3%
================================= ======== ======== ======== ========= =========
Basic earnings per share 10.03p 10.07p 15.33p (34.6%) (34.3%)
Basic adjusted earnings per
share 15.37p 15.56p 14.43p 6.5% 7.8%
================================= ======== ======== ======== ========= =========
1. Includes revenue of GBP7.1m (2019: GBP10.7m) from product
sales by the Group to CWS-boco International GmbH. Prior to 30th
June 2017, this revenue was classified as intergroup revenue and
eliminated on consolidation.
2. Excluding computer software.
3. Rentokil Initial Group's post tax share of one-off items and
amortisation of intangibles of the CWS-boco International GmbH
associated undertaking (disposed on 30(th) July 2019).
21. Alternative performance measures (continued)
Regional Analysis
Ongoing Revenue Ongoing Operating Profit
======================= ==================================
Change from Change from
2020 FY 2019 2020 FY 2019
======================= ================== ================ ================ ================
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
======================= ======== ======== ======= ======= ======= ======= ======= =======
France 303.2 300.4 (2.3) (3.2) 33.7 33.4 (26.8) (27.5)
Benelux 96.7 95.8 1.4 0.5 27.9 27.6 (0.2) (1.1)
Germany 120.6 119.0 12.1 10.7 42.1 41.5 26.3 24.5
Southern Europe 143.0 141.7 6.3 5.3 21.8 21.6 (1.7) (2.6)
Latin America 57.7 66.5 (0.1) 15.2 5.5 6.3 (16.8) (4.2)
======================= ======== ======== ======= ======= ======= ======= ======= =======
Total Europe 721.2 723.4 2.2 2.5 131.0 130.4 (3.7) (4.1)
======================= ======== ======== ======= ======= ======= ======= ======= =======
UK & Ireland 287.5 287.3 (5.9) (6.0) 50.1 49.6 (23.7) (24.5)
Rest of World 157.3 164.9 0.4 5.3 33.7 35.3 (5.4) (1.0)
======================= ======== ======== ======= ======= ======= ======= ======= =======
UK & Rest of World 444.8 452.2 (3.8) (2.2) 83.8 84.9 (17.3) (16.2)
======================= ======== ======== ======= ======= ======= ======= ======= =======
Asia 242.0 249.2 0.8 3.7 26.9 27.4 7.9 10.1
North America 1,224.1 1,239.8 13.1 14.5 211.9 214.6 38.1 39.9
Pacific 177.5 181.0 (4.5) (2.6) 34.5 35.2 (10.5) (8.7)
Central and regional
overheads - - - - (91.1) (91.1) (16.0) (16.0)
Restructuring costs - - - - (13.2) (13.3) (72.5) (74.4)
Ongoing operations 2,809.6 2,845.6 5.0 6.3 383.8 388.1 4.3 5.4
======================= ======== ======== ======= ======= ======= ======= =======
Disposed businesses 13.9 13.9 (63.5) (63.7) 0.2 0.2 107.1 106.9
======================= ======== ======== ======= ======= ======= ======= ======= =======
Continuing operations 2,823.5 2,859.5 4.0 5.3 384.0 388.3 5.1 6.3
======================= ======== ======== ======= ======= ======= ======= ======= =======
Category Analysis
Ongoing Revenue Ongoing Operating Profit
======================= ==================================
Change from Change from
2020 FY 2019 2020 FY 2019
======================= ================== ================ ================ ================
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
======================= ======== ======== ======= ======= ======= ======= ======= =======
Pest Control 1,724.1 1,751.7 (0.6) 1.0 281.7 283.7 (9.2) (8.5)
- Growth 1,492.2 1,506.6 0.6 1.6 257.5 259.1 (6.6) (6.0)
- Emerging 231.9 245.1 (7.6) (2.4) 24.2 24.6 (29.5) (28.4)
Hygiene 735.0 743.8 35.2 36.8 172.8 175.5 78.5 81.4
- Core Hygiene 513.6 518.7 (5.5) (4.6)
- Disinfection(1) 221.4 225.1 - -
Protect & Enhance 350.5 350.1 (11.9) (12.0) 33.6 33.3 (29.1) (29.7)
Central and regional
overheads - - - - (91.1) (91.1) (16.0) (16.0)
Restructuring
costs - - - - (13.2) (13.3) (72.5) (74.4)
Ongoing operations 2,809.6 2,845.6 5.0 6.3 383.8 388.1 4.3 5.4
======================= ======== ======== ======= ======= ======= ======= =======
Disposed businesses 13.9 13.9 (63.5) (63.7) 0.2 0.2 107.1 106.9
======================= ======== ======== ======= ======= ======= ======= ======= =======
Continuing operations 2,823.5 2,859.5 4.0 5.3 384.0 388.3 5.1 6.3
======================= ======== ======== ======= ======= ======= ======= ======= =======
1. Sales of disinfection services in 2019 were immaterial.
21. Alternative performance measures (continued)
Operating Margin
Operating Margin is calculated by dividing Ongoing Operating
Profit by Ongoing Revenue, expressed as a percentage. Net operating
margin by region and category is shown in the tables below (on a
trailing 12 month basis):
2020 2019 Variance
% % % points
========================== ===== ====== ==========
France 11.1 14.8 (3.7)
Benelux 28.8 29.3 (0.5)
Germany 34.9 31.0 3.9
Southern Europe 15.3 16.5 (1.2)
Latin America 9.4 11.4 (2.0)
========================== ===== ====== ==========
Total Europe 18.0 19.3 (1.3)
========================== ===== ====== ==========
UK & Ireland 17.2 21.5 (24.3)
Rest of World 21.4 22.8 (1.4)
========================== ===== ====== ==========
UK & Rest of World 18.8 21.9 (3.1)
========================== ===== ====== ==========
Asia 11.0 10.4 0.6
North America 17.3 14.2 3.1
Pacific 19.5 20.8 (1.3)
Ongoing operations(1) 13.6 13.8 (0.2)
========================== ===== ====== ==========
Disposed businesses 1.3 (7.0) 8.3
========================== ===== ====== ==========
Continuing operations(1) 13.6 13.5 0.1
========================== ===== ====== ==========
2020 2019 Variance
% % % points
========================== ===== ====== ==========
Pest Control 16.2 17.9 (1.7)
- Growth 17.2 18.6 (1.4)
- Emerging 10.0 13.7 (3.7)
Hygiene 23.6 17.8 5.8
Protect & Enhance 9.5 11.9 (2.4)
Ongoing operations(1) 13.6 13.8 (0.2)
========================== ===== ====== ==========
Disposed businesses 1.3 (7.0) 8.3
========================== ===== ====== ==========
Continuing operations(1) 13.6 13.5 0.1
========================== ===== ====== ==========
1. Operating Margin for ongoing operations and continuing
operations is calculated after central and regional overheads and
restructuring costs.
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, 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:
2020 2019
AER AER
GBPm GBPm
======================================== ======== ========
Net cash from operating activities 544.2 462.9
Purchase of property, plant, equipment
and intangible fixed assets (152.5) (170.9)
Additions of ROU assets (75.4) (74.9)
Disposals of ROU assets 2.5 -
Proceeds from sale of property, plant,
equipment and software 6.3 3.2
Dividends received from associates 11.7 30.4
======================================== ======== ========
Free Cash Flow 336.8 250.7
======================================== ======== ========
21. Alternative performance measures (continued)
Free Cash Flow Conversion
Free Cash Flow Conversion is calculated by dividing Adjusted
Profit from continuing operations attributable to equity holders of
the Company (further adjusted for any post tax profits and one-offs
from the CWS-boco International GmbH associate) by Adjusted Free
Cash Flow, expressed as a percentage. Adjusted Free Cash Flow is
measured as Free Cash Flow adjusted for one-off items - operating
and product development additions.
2020 2019
AER AER
GBPm GBPm
====================================================== ======= =======
Adjusted profit after tax from continuing operations
attributable to equity holders of the Company 284.9 266.8
Share of profit of CWS-boco International GmbH
associate (net of tax) - (7.0)
One-off items - associates - (2.4)
====================================================== ======= =======
284.9 257.4
====================================================== ======= =======
Free Cash Flow from continuing operations 336.8 250.7
Dividend received from CWS-boco International
GmbH - (26.4)
One-off items - operating(1) 6.7 23.9
Product development additions 5.7 5.6
====================================================== ======= =======
349.2 253.8
====================================================== ======= =======
Free Cash Flow Conversion 122.6% 98.6%
====================================================== ======= =======
1. A breakdown of one-off items -operating can be seen in Note
1. Excludes GBP4.4m related to gain on sale and leaseback which is
already included in Free Cash Flow from continuing operations.
Effective Tax Rate
Effective Tax Rate is calculated by dividing adjusted income tax
expense by adjusted profit before income 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.
2020 2020 2019
AER CER
GBPm GBPm GBPm
=========================================== ====== ====== ======
Unadjusted income tax expense 43.5 43.7 54.7
Tax adjustments on:
Amortisation and impairment of intangible
assets (excluding computer software) 17.5 17.9 19.6
One-off items - operating 2.4 2.2 (1.1)
Net interest adjustments 6.5 6.6 0.6
Adjusted income tax expense (a) 69.9 70.4 73.8
Adjusted profit before income tax (b) 355.2 359.2 340.9
=========================================== ====== ====== ======
Adjusted Effective Tax Rate (a/b) 19.7% 19.6% 21.6%
=========================================== ====== ====== ======
22. Legal statements
The financial information for the year ended 31 December 2020
contained in this preliminary announcement was approved by the
Board on 3 March 2021.
The financial information in this statement does not constitute
the Company's statutory accounts for the years ended 31 December
2020 or 2019. The financial information for 2019 and 2020 is
derived from the statutory accounts for 2019 (which have been
delivered to the registrar of companies) and 2020 (which will be
delivered to the registrar of companies following the AGM in May
2021). The auditors have reported on the 2019 and 2020 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 2020 are prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted for
use in the European Union. The accounting policies (that comply
with IFRS) used by Rentokil Initial plc ("the Group") are
consistent with those set out in the 2019 Annual Report. A full
list of policies will be presented in the 2020 Annual Report. For
details of new policies applicable to the Group in 2020 and their
impact please refer to Note 1.
23. 2020 Annual Report
Copies of the 2020 Annual Report will be sent to shareholders
who have elected to receive hard copies on 31 March 2021 and will
also be avai lable from the Company's registered office by
contacting the Company Secretariat (
secretariat@rentokil-initial.com ) and at www.rentokil-initial.com
in PDF format.
24. Financial calendar
The Company's Annual General Meeting will be held at, and be
broadcast via live webcast from, the Company's offices at the Power
Centre, A1 & A2, Link 10, Napier Way, Crawley, RH10 9RA from
2.00pm on 12 May 2021. 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, including restrictions on
attendance in person.
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END
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