REG - Rentokil Initial PLC - 2024 Interim Results
25/07/2024 07:00
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RNS Number : 7394X Rentokil Initial PLC 25 July 2024
2024 Interim Results
Good overall operational and financial performance
Improving Organic Growth Performance in North America Pest business
Financial Results1 AER CER
£m H1 2024 H1 2023 Change H1 2024 H1 2023 Change
£m
£m
%
£m
£m
%
Revenue 2,706 2,671 1.3% 2,756 2,650 4.0%
Adjusted EBITDA 611 602 1.5%
Adjusted Operating Profit 445 437 1.9% 455 434 4.7%
Adjusted Profit before Tax 383 377 1.8% 394 371 6.1%
Free Cash Flow 172 229 (24.9%)
Diluted Adjusted EPS 11.60p 11.41p
Statutory Results
Revenue 2,706 2,671 1.3%
Operating Profit 321 304 5.6%
Profit before Tax 253 240 5.6%
EPS 7.78p 7.35p
Dividend Per Share 3.16p 2.75p
Highlights (Unless otherwise stated, all financials are presented at constant
exchange rates)
● Revenue up 4.0% and up 1.3% on a statutory basis. Organic Revenue growth of
2.8%
● Early progress in North America growth plan with 50bps quarter-on-quarter
improvement in Pest Control services organic growth (1.0% in Q1, 1.5% in Q2).
Positive movement in leading indicators:
- Stronger North American sales colleague retention, up c.4ppts
- Better Terminix brand favourability from our advertising campaign that
delivered 685m views
- Improved inbound digital lead flow volumes, up each month in Q2
- Increased technician sales leads participation, up from c.50% to c.61.5%
- Total North America Organic Revenue up 1.3% in H1 with a drag from the
products distribution business
- Strong foundation laid for North America growth re-acceleration with more to
do in lead quality, sales close rates and customer retention. To harness the
growth opportunity $25m additional investment committed (c.$50m in total),
including c.$15m P&L spend in FY 24
● Good Organic Revenue growth of 4-6% in all other regions
● Within Group business categories, Organic Pest Control up 2.2% (5.7% excluding
North America), Hygiene and Wellbeing up 4.4%, France Workwear up 7.5%
● Adjusted Operating Profit up 4.7% and Statutory Operating Profit up 5.6%.
Group Adjusted Operating Margin up 10bps to 16.5%
- North America Adjusted Operating Margin up 10bps to 18.6%, slightly ahead of
guidance
● Terminix integration on plan with first branch integrations advancing. $162m
gross and $105m net cost synergies delivered to date: $58m gross and $23m net
in H1 24
● Free Cash Flow of £172m impacted by working capital balances at period end,
expected to unwind in H2
● Dividend Per Share up 14.9%
● Net Debt to EBITDA leverage flat at 2.8x, on track towards target range of
2-2.5x
● 23 acquisitions completed in H1 2024 with annualised revenues of c.£81m
Andy Ransom, Chief Executive of Rentokil Initial plc, said:
"We remain focused on our plans to create the world's leading pest control
company. Our business continues to benefit from global operations in
attractive, structural growth markets, enabling another good Group performance
in the first half of the year, with Revenue up 4.0% and Adjusted Operating
Profit up 4.7%. The North America integration has made strong progress, with
the first branch integrations and synergies delivered firmly on track. We are
focused on re-accelerating organic growth in the region. Four months into our
new Right Way 2 plan, we are now beginning to see encouraging early signs of
operational and financial improvement. Building on this foundation, we are
making an additional $25m investment as we prioritise organic growth
opportunities, alongside delivery of the integration. We look forward to
further progress on these and continued good Group momentum in the second half
of the year."
Full year outlook
We are encouraged by the positive quarterly momentum in our US pest control
business in H1 and anticipate further improvement through H2. We continue to
expect to grow Organic Revenue in North America within the guided 2-4% range
for the full year, albeit at the lower end. We expect a net c.$15m (c.£12m)
revision to Group Adjusted Operating Profit in the full year, which reflects,
amongst other items, the additional growth investment in H2. Group Adjusted
Operating Margin is expected to be marginally ahead of FY 23. Guidance for
Adjusted Free Cash Flow conversion remains in the range of 80-90%, with
further modest deleveraging of the balance sheet, as anticipated.
Enquiries:
Investors / Analysts: Peter Russell Rentokil Initial plc 07795 166506
Media: Malcolm Padley Rentokil Initial plc 07788 978199
A management presentation and Q&A for investors and analysts will be held
today, 25 July at 9.15am at the Leonardo Royal Hotel, 45 Prescot Street,
London E1 8GP. To register attendance please email
investor@rentokil-initial.com. The event will also be available via a live
audio webcast. Log in details will be provided on the Company's IR website
(https://www.rentokil-initial.com/investors). A recording will be made
available following the conclusion of the presentation.
Notes
1 Non-IFRS measures. This statement includes certain financial performance
measures which are non-IFRS measures as defined under International Financial
Reporting Standards (IFRS). These metrics include Adjusted Operating Profit,
Adjusted Profit Before Tax, Adjusted Profit After Tax, Adjusted EBITDA,
Adjusted Interest, Adjusted Earnings Per Share, Free Cash Flow, Adjusted Free
Cash Flow, Adjusted Free Cash Flow Conversion, Adjusted Effective Tax Rate and
Organic Revenue. Management believes these measures provide valuable
additional information for users of the financial statements in order to
understand the underlying trading performance. Adjusted Operating Profit
represents the performance of the continuing operations of the Group
(including acquisitions), and enables the users of the accounts to focus on
the performance of the businesses retained by the Group, and that will
therefore contribute to the future performance. Adjusted Operating Profit and
Adjusted profit before tax exclude certain items that could distort the
underlying trading performance. Revenue and Adjusted Operating Profit are
presented at CER unless otherwise stated. An explanation of all the above
non-IFRS measures used along with reconciliation from the nearest IFRS
measures is provided in note 14 to the financial statements.
AER - actual exchange rates; CER - constant 2023 exchange rates
This announcement contains statements that are, or may be, forward-looking
regarding the Group's financial position and results, business strategy, plans
and objectives. Such statements involve risk and uncertainty because they
relate to future events and circumstances and there are accordingly a number
of factors which might cause actual results and performance to differ
materially from those expressed or implied by such statements. Forward-looking
statements speak only as of the date they are made and no representation or
warranty, whether expressed or implied, is given in relation to them,
including as to their completeness or accuracy or the basis on which they were
prepared. Other than in accordance with the Company's legal or regulatory
obligations (including under the Listing Rules and the Disclosure Guidance and
Transparency Rules), the Company does not undertake any obligation to update
or revise publicly any forward-looking statement, whether as a result of new
information, future events or otherwise. Information contained in this
announcement relating to the Company or its share price, or the yield on its
shares, should not be relied upon as an indicator of future performance.
Nothing in this announcement should be construed as a profit forecast.
Summary of financial performance (at CER)
Regional Performance
Revenue Adjusted Operating Profit
H1 2024 H1 2023 Change H1 2024 H1 2023 Change
£m
£m
%
£m
£m
%
North America 1,662 1,643 1.1% 310 304 1.8%
Pest Control 1,614 1,598 1.0% 304 300 1.1%
Hygiene & Wellbeing 48 45 7.6% 6 4 51.5%
Europe (inc LATAM) 562 525 7.0% 106 97 9.1%
Pest Control 269 249 8.0% 61 57 6.9%
Hygiene & Wellbeing 177 168 5.2% 25 22 14.4%
France Workwear 116 108 7.5% 20 18 9.4%
UK & Sub Saharan Africa 213 189 13.2% 49 45 9.3%
Pest Control 101 96 5.2% 26 25 3.6%
Hygiene & Wellbeing 112 93 21.4% 23 20 16.6%
Asia & MENAT 178 165 7.5% 24 22 1.7%
Pest Control 133 121 9.2% 18 17 1.6%
Hygiene & Wellbeing 45 44 2.7% 6 5 2.2%
Pacific 135 123 10.4% 29 29 5.0%
Pest Control 69 62 12.6% 12 12 3.7%
Hygiene & Wellbeing 66 61 8.1% 17 17 5.9%
Central 6 5 8.0% (61) (58) (5.5%)
Restructuring costs - - - (2) (5) 66.6%
Total at CER 2,756 2,650 4.0% 455 434 4.7%
Total at AER 2,706 2,671 1.3% 445 437 1.9%
Business Category Performance
Revenue Adjusted Operating Profit
H1 2024 H1 2023 Change H1 2024 H1 2023 Change
£m
£m
%
£m
£m
%
Pest Control 2,186 2,126 2.8% 421 411 2.2%
Hygiene & Wellbeing 448 411 9.3% 77 68 14.3%
France Workwear 116 108 7.5% 20 18 9.4%
Central 6 5 8.0% (61) (58) (5.5%)
Restructuring costs - - - (2) (5) 66.6%
Total at CER 2,756 2,650 4.0% 455 434 4.7%
Total at AER 2,706 2,671 1.3% 445 437 1.9%
Group Overview
In order to help understand the underlying trading performance, unless
otherwise stated, the figures below are presented at constant exchange rates.
Revenue
The Group delivered good topline momentum in H1, with Revenue rising 4.0% to
£2,756m and Organic Revenue up 2.8%. Revenue was up 1.3% on a statutory basis
to £2,706m at AER. Total Revenue growth in North America was up 1.1% (Organic
Revenue +1.3%). There has been good early progress in our North America growth
plan with 50bps quarter-on-quarter improvement in Pest Control services
Organic Revenue growth (1.0% in Q1, 1.5% in Q2). Europe (inc. LATAM), the
Group's second largest region, delivered a 7.0% increase in Revenue. Revenue
in the UK & Sub Saharan Africa was up 13.2%, the Pacific region increased
by 10.4%, while Asia & MENAT was up 7.5%.
Our Pest Control category grew Revenue by 2.8% (2.2% Organic) to £2,186m,
underpinned by continued effective pricing. Hygiene & Wellbeing Revenue
increased by 9.3% (4.4% Organic) to £448m, led in general by resilient demand
for washroom services. There was a continued strong contribution from our
France Workwear business with Revenue up by 7.5% to £116m (7.5% Organic).
Profit
Adjusted Operating Profit rose by 4.7% during the first six months to £455m,
reflecting the benefit of topline growth across all major regions and
categories, in addition to ongoing capture of synergies from the Terminix
transaction. Group Adjusted Operating Margin was up slightly to 16.5% (H1 23:
16.4%). Gross synergies from the Terminix integration contributed 170bps to
Group margin and there was a 100bps reduction from investments including 60bps
from the additional marketing investment. Statutory Operating Profit at AER
was up 5.6% to £321m. We have continued to deliver on our strategy of driving
density improvements including through M&A integration to create long-term
efficiencies. Within business categories, Adjusted Operating Margin for Pest
Control was down modestly by 10bps year on year to 19.2% (H1 23: 19.3%).
Hygiene & Wellbeing Adjusted Operating Margin increased by 80bps
year-on-year to 17.2% (H1 23: 16.4%). France Workwear Adjusted Operating
Margin increased by 30bps year on year to 17.2% (H1 23: 16.9%).
Adjusted Profit before Tax (at AER) of £383m, which excludes one-off and
adjusting items and amortisation costs, increased by 1.8%. Adjusted interest
of £66m at actual exchange rates was £1m lower year on year. One-off and
adjusting items (operating) at AER of £37m includes £31m of integration
costs related to the Terminix acquisition ("Costs to Achieve") and £6m of
other M&A costs. Statutory Profit before Tax at AER was £253m, an
increase of 5.6% on the prior year (H1 23: £240m).
Cash (at AER)
Net cash flows from operating activities decreased 7.5% to £307m. Free Cash
Flow of £172m was £57m lower than in H1 23. Adjusted EBITDA was £611m, up
1.5% versus the prior year. One-off and adjusting items (non-cash) of £4m (H1
23: £32m).
The Group had a £97m working capital outflow in the first six months of the
year resulting from a slightly softer debtors' performance and improved
supplier payment processing at the end of H1. These in-period outputs have no
impact on the FY cash outlook. Previous FY 24 expectations for working capital
and cash generation remain unchanged. Capital expenditure of £105m was
incurred in the period (H1 23: £102m), reflecting organic growth.
Cash interest payments of £104m were £10m lower than in the prior year due
to higher interest received on deposits. For some of our bonds we pay a full
year of cash interest in H1 versus a P&L charge across the year, reducing
cash conversion in the first half by c.10%.
Cash tax payments for the period were £31m, a decrease of £27m compared with
the corresponding period in 2023. This was due to prior year one-off tax
payments, as well as H1 24 one-off US tax refunds mainly related to the
Terminix acquisition. FY 24 cash tax guidance has been improved to reflect the
one-time receipt of less than £10m that will not repeat in 2025. Adjusted
Free Cash Flow Conversion was 62.2%.
Regional performance review
Due to the international nature of the Group, foreign exchange movements can
have a significant impact on regional performance. Unless otherwise stated,
percentage movements in Revenue and Adjusted Operating Profit are presented at
constant exchange rates.
North America
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 1,632 (1.3%) 1,662 1.1% 1.3%
Operating Profit 243 1.4% 248 3.9%
Adjusted Operating Profit 304 (0.6%) 310 1.8%
Adjusted Operating Margin 18.6% 0.1% 18.6% 0.1%
In North America, Revenue was up 1.1%, with Organic Revenue up 1.3%. Organic
Revenue growth in Pest Control Services for our commercial, residential, and
termite customers was 1.3%, with positive quarterly momentum (1.5% in Q2, 1.0%
in Q1). Good growth in sales of core pest (rodents and insects) was offset by
lower termite and bed bug sales. As a result of our brand and marketing
initiatives, we saw an improvement in in-bound lead volumes, both from the
market and from our technicians. The average value of those leads was
marginally down, as was the sales conversion rate. The positive trend in Pest
Control services was offset by a weaker Q2 performance in the products
distribution business. This was due to some customer inventory loading in
2023 creating very strong prior year comparatives. Organic Revenue growth
for the Pest Control category overall was 1.1%. The underlying Pest Control
contract portfolio grew more than 2% in Q2.
Adjusted Operating Profit improved by 1.8% in North America. Statutory
Operating Profit was up 1.4% to £243m at AER. Good price realisation has
continued to successfully offset inflationary pressures. Adjusted Operating
Margin in North America was slightly up year on year at 18.6% (H1 23: 18.5%),
versus flat guidance for the period.
Total North America colleague retention increased 2.6ppts to 77.8% (FY 23:
75.2%), driven by improvement in retention of both technician and sales
colleague roles. Terminix colleague retention has seen continued improvement,
up to 73.1% (FY 23: 69.7%). Branch manager retention in H1 was 97.5% (FY 23:
89.0%). The Group continued to make investments in being an Employer of
Choice, including a revised Terminix compensation plan to be implemented for
new sales colleagues that will afford more training time and end 100%
commission contracts for new colleagues. We are seeing ongoing success with
our recruiting and onboarding initiatives. Customer retention in North America
was stable across the half year at 79.8% (FY 23: 79.5%).
Update on Right Way 2 Growth Plan
We exited the first quarter of the year with a set of targeted growth
priorities as laid out in our full year results in March 2024. We have laid
the foundations to support our ambition to re-accelerate growth, and are
focused on delivering the work we planned against these transformational
areas.
● People and Service. Good ongoing progress has been achieved on colleague
retention, with more training and support. Service colleague retention
increased to 74.3% (FY 23: 71.8%). Our renewed focus on sales colleague
retention in the period led to a 3.8ppts increase to 70.2% (FY 23: 66.4%).
This included an improvement in new sales colleague retention, especially at
Terminix, supported by the implementation of standardised talent acquisition
and onboarding processes. These trends are expected to have a positive impact
on leads-to-sales conversion rates over time as colleagues with more than one
year service time are typically about 50% more effective.
● Brand Advantage. Our New 'Terminix It' brand campaign has been well received
by target customers. The brand campaign, launched in mid-March, was built to
peak levels in H1, resulting in 685m views by 96m people. This has delivered
improved ratings in brand favourability. In Q2 there was a 29% increase in
Terminix branded searches on Google and 26% increase in sales lead forms
completed on Terminix.com from direct traffic.
● Customer Acquisition. In digital marketing we've been focused on optimising
the process to increase lead volume and improve lead quality. Sales leads in
the channel from new customers have shown signs of promise, starting in April
with year-on-year inbound lead growth and the trend continuing in May and
June. This is our best performance since August 2023.
● Technician Leads. Our 'Trusted Advisor' programme is making a positive
contribution to our sales performance, as we seek to drive up the volume,
value and conversion rate of technician leads. In H1 technician leads
participation rates increased by 11.5ppts to c.61.5%, supported by in-market
training, process upgrades and performance dashboards.
● Sales efficiency and Pricing. Improved sales efficiency remains an area of
opportunity. To improve sales conversion rates we are adding new dedicated
sales area managers and driving improvement in the sales response time from
initial customer contact. In H1 the work order completion rate exceeded its
target of 97%. Our pricing discipline also remains strong, and we are on track
to deliver target price increases through 2024.
Additional Investment for Growth
In H1, we spent approximately $21m of the $25m allocated to target growth
initiatives including digital search, web content, social platform
optimisation and brand advertising. Many of these elements are showing
positive signs. However, there is more to do to here, in addition to
opportunities in the areas of sales close rates and customer retention. We
plan to build on current activities and learnings to both increase new
customer acquisition and ensure we maximise the value of our existing base.
We are therefore investing further into growth by committing an additional
$25m, including c.$15m P&L spend in FY 24. Specifically, we are scaling up
spend on paid search, on brand advertising, on sales capability including new
areas sales managers, and importantly on customer retention initiatives. This
will be funded through the reinvestment of gross cost synergies realised in
the Terminix integration programme. In addition, we are also redirecting some
of the capability freed up from the completion of branch integration
preparation to support growth, as well as back-office efficiency initiatives.
Alongside driving customer acquisition through digital channels, we will focus
on the customer experience and the growth opportunity from higher customer
retention, recognising that a one percentage point increase in customer
retention on a full year basis delivers c.$27m in Organic Revenue. In H1 we
launched a new quality control programme (CSQP) to bring more consistency to
the customer experience. We are also expanding the Customer Saves team with 40
new colleagues and enhancing our marketing efforts geared towards at-risk
customers. We will also be increasing our use of data to identify and address
customer friction points.
Paragon Distribution Business
Following notification at the Preliminary Results in March, the small Paragon
distribution business was closed with effect from 1 April 2024, with a
correspondent reduction in North America regional Revenue and Adjusted
Operating Profit in 2024 of approximately $65m and $4m respectively. This
closure has been treated as the closure of a business line and therefore
excluded from current and prior year's revenue for the calculation of organic
growth from April 1 in each year.
Europe (incl. LATAM)
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 551 4.0% 562 7.0% 5.8%
Operating Profit 88 9.0% 90 9.2%
Adjusted Operating Profit 104 6.1% 106 9.1%
Adjusted Operating Margin 18.8% 0.4% 18.9% 0.4%
The region enjoyed another period of strong revenue performance, with Revenue
up by 7.0% in the first six months of the year to £562m. The business
delivered Organic Revenue growth of 5.8%, driven by both effective price
increases and resilience in overall demand. Revenue growth in Pest Control was
8.0%, with a strong contribution from larger markets like Germany and Italy
(which both delivered double-digit Organic Revenue growth), and Benelux.
Hygiene & Wellbeing grew Revenue by 5.2% in the period led by good
momentum in the Enhanced Environments business where there was an improved
performance in Specialist Hygiene and the Cleanroom business. France Workwear,
which continues to benefit from strong pricing, delivered Revenue growth of
7.5%.
Adjusted Operating Profit in the region grew by 9.1% to £106m. Statutory
Operating Profit was up 9.0% to £88m at AER. Adjusted Operating Margin
increased by 40 bps to 18.9%. Margin improvement has been underpinned by the
Hygiene & Wellbeing category, mainly in the core Hygiene business where
France and Italy have contributed strongly, and also in Cleanroom where higher
volumes at good margins have led to improved overhead recovery. While there
have been ongoing inflationary pressures throughout the period, we continue to
be successful at mitigating the impact of inflation on margin with
pass-through pricing.
Customer retention has remained very strong, up further to 88.5% (FY 23:
88.4%.) Colleague retention rates in the region are excellent, up to 90.7% (FY
23: 90.4%). Alongside this, time to hire has improved month-by-month.
UK & Sub-Saharan Africa
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 213 12.2% 213 13.2% 5.1%
Operating Profit 45 11.7% 45 12.6%
Adjusted Operating Profit 49 8.4% 49 9.3%
Adjusted Operating Margin 23.0% (0.9%) 23.0% (0.9%)
The region delivered a strong trading performance against a challenging macro
backdrop. Overall, Revenue for UK & Sub-Saharan Africa increased by 13.2%
to £213m with a positive contribution from both business categories, Pest
Control and Hygiene & Wellbeing. Organic Revenue growth was up 5.1%. Pest
Control Revenue was up 5.2% to £101m. Hygiene & Wellbeing Revenue
increased 21.4% to £112m.
Adjusted Operating Profit was up 9.3% to £49m. Statutory Operating Profit was
up 11.7% to £45m at AER. Adjusted Operating Margin remains strong at 23.0%,
despite a slight reduction of 90bps in the period, due to upfront short term
dilution from bolt-on M&A activity. The margin performance has been
underpinned by the UK's regional service performance (State of Service)
reaching an all-time high, reflected in an excellent Net Promoter Score of
70%. This also sustained the region's strong customer retention rate of 86.4%
(FY 23: 86.9%). The period saw an acceleration in the UK's innovation
programme with a further increase in the proportion of sales derived from new
service lines. In the UK Pest Control business, the strategic transition to
digitally connected solutions means over 100,000 devices are now serviced via
the PestConnect system. These strong service levels and service
differentiation continue to complement our pricing control systems and
processes, which have mitigated the ongoing heightened cost inflation
pressure.
Skill and resource constraints in the marketplace have been mitigated by
ongoing investment in our internal colleague development programme and
apprentice scheme, with Rentokil Initial remaining one of the leading
apprentice employers in the UK. Colleague retention in the region is 84.4%, up
1.0ppts.
Asia & MENAT
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 172 2.2% 178 7.5% 4.7%
Operating Profit 17 (3.6%) 18 1.6%
Adjusted Operating Profit 22 (3.4%) 24 1.7%
Adjusted Operating Margin 13.0% (0.7%) 13.0% (0.7%)
Asia & MENAT delivered a good performance in the first six months of 2024.
Revenue rose by 7.5%, of which 4.7% was organic, underpinned by contractual
activity. The positive performance was led by the Pest Control business and
the region's largest markets, including India and Indonesia. This was
partially offset by slower growth in Malaysia (lower one-time job work yet
good growth in contract revenue) and Hong Kong, which continued to be impacted
by macro events.
Adjusted Operating Profit in the region increased 1.7% to £24m. Adjusted
Operating Margin was modestly down by 70 bps to 13.0%, as a result of
additional growth investment in Singapore and Hong Kong. Pricing continued to
improve, supporting margin expansion in the growth markets of India and
Indonesia. Operating Profit was down 3.6% to £17m at AER. Customer retention
was up to 80.4% (FY 23: 78.7%). Regional operations have benefited from a
sustained high colleague retention rate, up further in the period to 93.5% (FY
23: 92.0%).
Pacific
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 132 5.8% 135 10.4% 4.1%
Operating Profit 25 (2.5%) 25 1.7%
Adjusted Operating Profit 29 0.6% 29 5.0%
Adjusted Operating Margin 21.8% (1.1%) 21.8% (1.1%)
The Pacific region overall delivered a good first half performance. Revenue
was up by 10.4% to £135m. Organic Revenue grew 4.1%. Pest Control delivered
12.6% Revenue growth, led by continued momentum in contractual work and
despite an impact from weather on the rural and track spray operations.
Hygiene & Wellbeing Revenue growth was 8.1%. The region saw strong demand
for Ambius services.
Adjusted Operating Profit in the Pacific grew by 5.0% to £29m while Adjusted
Operating Margin was 21.8%, impacted by phasing in rural pest control.
Operating Profit was down 2.5% to £25m at AER. The customer retention rate
remained strong at 85.7% (FY 23: 86.5%). Colleague retention in the region is
79.1% (FY 23: 77.5%), amid continued tight labour markets.
Category performance review
Pest Control
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 2,146 0.1% 2,186 2.8% 2.2%
Operating Profit 328 1.9% 334 3.8%
Adjusted Operating Profit 410 (0.4%) 421 2.2%
Adjusted Operating Margin 19.2% (0.1%) 19.2% (0.1%)
Our Pest Control business, now including Terminix, is the largest operator in
both the US, the world's biggest pest control market, and the world overall.
Revenue was up by 2.8% to £2,186m, benefiting from Organic Revenue growth of
2.2% and continued bolt-on M&A. Performance has been underpinned by both
pricing and volumes, led by the Commercial Pest Control business, which has a
high proportion of contractual activity. Pest Control Revenue in North America
at £1,614m was up 1.0%, while Revenue in the rest of the world at £572m was
up 8.3%.
Adjusted Operating Profit was up by 2.2% to £421m while Adjusted Operating
Margin was down slightly by 10bps to 19.2%. Operating Profit was up by 1.9% to
£328m at AER.
Hygiene & Wellbeing
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 440 6.3% 448 9.3% 4.4%
Operating Profit 71 10.2% 72 13.5%
Adjusted Operating Profit 78 11.1% 77 14.3%
Adjusted Operating Margin 17.2% 0.8% 17.2% 0.8%
Rentokil Initial offers a wide range of hygiene and wellbeing services. Inside
the washroom we provide hand hygiene (soaps and driers), air care, in-cubicle
(feminine hygiene units), no-touch products and digital hygiene services. In
addition to core washroom hygiene, we deliver specialist hygiene services such
as clinical waste management. We're also improving the customer experience
through premium scenting, plants, air quality monitoring and green walls.
Customer sectors range from public sector (schools, government buildings) and
facilities management through to hotels, bars and restaurants, industrials and
retail.
Hygiene & Wellbeing Revenue increased by 9.3% to £448m, driven by
supportive pricing and resilient demand. Overall, Organic Revenue growth was
4.4%, with core washrooms up 3.8% and premises and enhanced environments up
6.5%. Adjusted Operating Profit was up by 14.3% to £77m and Adjusted
Operating Margin increased by 80bps to 17.2%. Operating Profit was up by 10.2%
to £71m at AER.
France Workwear
H1 24 AER H1 24 CER Organic
AER
Growth
CER
Growth
£m
£m Growth
Revenue 114 5.1% 116 7.5% 7.5%
Operating Profit 19 8.1% 20 10.6%
Adjusted Operating Profit 20 7.0% 20 9.4%
Adjusted Operating Margin 17.2% 0.3% 17.2% 0.3%
The France Workwear business made another strong contribution with Revenue,
all of which was organic, up by 7.5% to £116m. High customer retention of
over 94.4% supported France Workwear's continued good volumes. Inflation was
successfully mitigated with price increases. Adjusted Operating Profit
increased by 9.4% to £20m and Adjusted Operating Margin increased by 30bps to
17.2%. Operating Profit was up by 8.1% to £19m at AER.
Integration of Terminix
Phase 2 - preparation of branch integrations - completed in H1
We remain firmly on course to deliver the benefits of the Terminix deal. In
the first six months of the year, we successfully delivered on the legal, IT
and operational goals previously articulated.
● Finalised merger of the legal entity, enabling branch integrations and unified
contracts.
● Developed 22 systems with over 190 features to enable integrations to commence
in June - all successfully tested and deployed.
● Harmonised multiple business processes, contracts and applications to support
cost synergy delivery.
● Designed and rolled out harmonised pay plans for field leadership as well as
the National Account sales team.
● Established aligned technician pay plans to enable harmonisation at re-route
state of each local integration.
● Harmonised all pest service lines of business and established a central
product and pricing tool.
● Launched consistent training and development plans for all sales and
operations colleagues.
● Rolled out upgraded and harmonised procurement tools.
● Established shared reporting and KPIs for field leadership.
● Launched a shared HR information system and harmonised policies.
● Updated financial systems to provide a shared view of financials for
management growth and reporting.
● Upgraded IT security for global standard adherence.
Phase 3 - branch integrations - launched on schedule in June
Phase 3 of our integration is focused on the migration of Terminix branches.
We are taking a methodical and disciplined approach, aided by a fully
comprehensive execution plan and playbook. The first branch integrations have
taken place and, following extensive planning and testing, these branches are
now operating on standard systems, data and processes.
● 9 branches, 160 technicians, c.10,500 Commercial customer locations, c.20,000
Residential customer locations, c.2000 National Accounts. Combined revenues of
c.$37m
● A single set of systems working well
● 100% of colleague and customer data ported across
● 100% of work orders completed by technicians
At these branches, sales lead flow is functioning well. While we initially
experienced a brief initial uptick in the level of communications from
customers, these returned to pre-integration levels within a few days.
Technician and sales colleague retention rates remain good. Currently, over
40% of our total North America service technicians are now on the new PestPac
system, and we expect this to reach over 50% by the end of 2024.
We have seven pest control regions in the US and each integration will be
executed over approximately 10 months in total from planning to rerouting.
Following the migration of branch systems and data, there follows a
three-month period of evaluation leading up to the final part of the branch
integration when branding, rerouting and the technician and sales pay plans
are standardised. We expect this final part of the integration process to
start in the first branches in Q4 2024. There will be extensive communications
throughout the process for colleagues, including around the new pay plans,
which will eliminate 100% commission-only contracts for new sales colleagues
and provide multiple opportunities to boost overall pay.
In H2, we plan to migrate over 25% of Terminix branches, revenue, and service
and sales colleagues onto the new PestPac platform.
Branch and Brand Strategies
The Group has a strong track record globally, including in the US, of
combining branch properties as part of its well established bolt-on programme
and we are confident in our ability to leverage that experience and expertise.
In H1, we continued to co-locate teams ahead of integration. We exited an
additional 33 properties in the period (c.75 properties to be exited in FY
2024). Our US branch network strategy is to move from the original count of
more than 600 total branches to an end state of approximately 400 optimally
located and sized branches. Our focus is on increasing the size of sub-scale
branches (operating at below $3m revenue) to provide greater overall scale and
density. There will be limited change to medium ($6m-$9m annual revenue) and
large (above $9m annual revenue) branches. The strategy is implemented in the
knowledge that organic growth rates at our large and small branches have
historically been similar, and with the significant opportunity that the
improved route density will deliver margin expansion.
At branch level, the service role will remain largely unaffected, since
technicians typically only visit the physical branch 3-4 times per month.
There will be no change to the span of control (number of direct reports a
supervisor is responsible for). Many branches will benefit from the
introduction of sales managers, enabling a greater focus on sales teams and
additional capacity for branch managers to attend to customers and other
service responsibilities.
Linked to the route integration is the brand strategy that will deliver a
combination of national, regional and local brands. As a leading brand for
commercial pest control in the US, 'Rentokil' will be retained as the brand
identity for large commercial and national accounts. The 'Terminix' brand name
will be used for US residential, termite and SME business. The Terminix
national brand, for example, will be accompanied by the continued use of a
number of large regional and local brands, such as Western Exterminator and
Ehrlich (to be co-branded Terminix Western and Terminix Ehrlich). This
streamlined brand portfolio will enable greater focus and targeted investment.
Synergy Delivery
There has been strong delivery on cost synergies in H1 24 with $58m of pre-tax
P&L gross cost synergies and $23m of net synergies achieved. This takes
the cumulative P&L benefit from gross and net synergies to $162m and $105m
respectively since completion of the transaction. Terminix integration Costs
to Achieve in FY 24 are lowered by c.$10m to $80-$90m (previously
c.$90m-$100m).
Achieved Incremental P&L Impact
2022-23 H1 Actual H2 Forecast FY 2024
Gross Synergies $104m $58m $54m $112m
Investments -$22m -$35m -$52m -$87m
Net Synergies $82m $23m $2m $25m
Continued strength of bolt-on M&A
In the first half of the year, we acquired a total of 23 new businesses,
comprising 16 in Pest Control and 7 in Hygiene & Wellbeing. A total
consideration of £112m was agreed for these acquired businesses with total
annualised revenues of £81m in the year prior to purchase.
Our pipeline of prospects remains strong. As we integrate Terminix, we
continue to selectively pursue high quality M&A assets. We slightly revise
our guidance on M&A spend for the full year to £200-£250m.
Business Category # Acquisitions Annualised Revenue (£m)
Pest Control 16 36
Hygiene & Wellbeing 7 45
Total 23 81
Region # Acquisitions Annualised Revenue (£m)
North America 9 22
Europe incl. LATAM 8 13
UK & SSA 1 30
Asia & MENAT 3 11
Pacific 2 5
Employer of Choice
Rentokil Initial is committed to being a world-class Employer of Choice, with
colleague safety and the attraction, recruitment and retention of the best
people from the widest possible pool of talent, being key business objectives
globally. As an organisation, we strongly believe that creating a diverse and
inclusive workforce that reflects the business environment in which we operate
will increase colleague engagement and customer satisfaction, as well as drive
increased innovation, enhance our reputation and therefore boost our financial
performance.
We continue to see good results from our sustained investment in recruitment
and training. Total Group colleague retention continued to rise at 85.9% (FY
23: 84.2%). Service colleague retention increased to 84.9% (FY 23: 83.3%),
while sales colleague retention improved to 80.0% (FY 23: 77.4%). Regionally,
Europe and Asia held retention rates above 90%. Our North American region
increased colleague retention by 2.6ppts to 77.8%. This has been achieved
through a wide-ranging programme including an enhanced new hire and onboarding
experience, and additional mentoring resources.
Innovation and Technology
The Company's investment in innovation and technology continues to drive
profitable growth in the business. It strengthens our brand and cements our
leadership position, enabling us to provide enhanced service to customers and
target key growth sectors, while lowering our operating costs and improving
our sustainability credentials.
In the first half of the year, we rolled out an additional 75,000 units of our
award-winning PestConnect solution, which provides a real-time, early warning
digital system for monitoring and controlling rodents. We now have 440,000
units in operation, and twelve countries where more than 10% of the commercial
portfolio benefits from connected devices. The PestConnect product range has
also been expanded in H1 2024 with the introduction of Radar X for businesses.
This is our most sustainable connected device to date, using carbon dioxide
gas rather than rodenticides and benefiting from a longer battery life and
more recyclable parts. Also in the period, having completed extensive
laboratory and field testing, we launched our AI smart camera technology,
following development of an AI algorithm for the specific needs of rodent
identification.
North America Innovation Centre
In June 2024, the Group opened its first dedicated pest control innovation
centre in the US based in Dallas, Texas. The centre will focus on innovation
and technology for the residential, termite and mosquito sectors. Housing a
combination of entomologists, vector scientists, fumigation chemists and
residential product owners, it will conduct research aimed at providing
transformative solutions to pest control challenges, as well as delivering
training for frontline colleagues.
Financial review
Central and regional overheads
Central and regional overheads of £61m at CER (and AER) were up £3m on the
prior year (H1 23: £58m at CER and AER).
Interest (at AER)
Adjusted interest of £66m at actual exchange rates was £1m lower year on
year.
Tax
The income tax charge for the period at actual exchange rates was £57m on the
reported profit before tax of £253m, giving an effective tax rate (ETR) of
22.5% (H1 23: 22.9%). The Group's ETR before amortisation of intangible assets
(excluding computer software), one-off and adjusting items and the net
interest adjustments for H1 24 was 23.5% (H1 23: 23.4%). This compares with a
blended rate of tax for the countries in which the Group operates of 25.3% (H1
23: 25.0%).
Net debt and cash flow
£m at actual exchange rates Year to Date
H1 2024 H1 2023 Change
£m £m £m
Adjusted Operating Profit 445 437 8
Depreciation 153 147 6
Other 13 18 (5)
Adjusted EBITDA 611 602 9
One-off and adjusting items (non-cash) 4 32 (28)
Working capital (97) (26) (71)
Movement on provisions (35) (26) (9)
Capex - additions (105) (102) (3)
Capex - disposals 1 2 (1)
Capital of lease payments and initial direct costs incurred (72) (81) 9
Interest (104) (114) 10
Tax (31) (58) 27
Free Cash Flow 172 229 (57)
Acquisitions (76) (175) 99
Dividends (149) (131) (18)
Cash impact of one-off and adjusting items (41) (78) 37
Other - (1) 1
Debt related cash flows:
Cash outflow on settlement of debt related foreign exchange forward contracts (6) (3) (3)
Debt repayments (4) - (4)
Debt related cash flows (10) (3) (7)
Net decrease in cash and cash equivalents (104) (159) 55
Cash and cash equivalents at the beginning of the year 832 879 (47)
Exchange losses on cash and cash equivalents (12) (22) 10
Cash and cash equivalents at end of the financial period 716 698 18
Net decrease in cash and cash equivalents (104) (159) 55
Debt related cash flows 10 3 7
IFRS 16 liability movement (1) (7) 6
Debt acquired (4) 18 (22)
Bond interest accrual 35 35 -
Foreign exchange translation and other items (12) 136 (148)
(Increase)/decrease in net debt (76) 26 (102)
Opening net debt (3,146) (3,296) 150
Closing net debt (3,222) (3,270) 48
Net cash flows from operating activities decreased 7.5% to £307m. Free Cash
Flow of £172m was £57m lower than in H1 23. Adjusted EBITDA was £611m, up
1.5% versus the prior year. One-off and adjusting items (non-cash) were £4m
(H1 23: £32m).
The Group had a £97m working capital outflow in the first six months of the
year resulting from a slightly softer debtors' performance and improved
supplier payment processing at the end of H1. These in-period outputs have no
impact on the FY cash outlook. Previous FY 24 expectations for working capital
and cash generation remain unchanged. Capital expenditure of £105m was
incurred in the period (H1 23: £102m), reflecting organic growth.
Cash interest payments of £104m were £10m lower than in the prior year due
to higher interest received on deposits. For some of our bonds we pay a full
year of cash interest in H1 versus a P&L charge across the year resulting
in weaker cash conversion in the first half.
Cash tax payments for the period were £31m, a decrease of £27m compared with
the corresponding period in 2023. This was due to prior year one-off tax
payments, as well as H1 24 one-off US tax refunds mainly related to the
Terminix acquisition. FY 24 cash tax guidance has been improved to reflect the
one-time receipt of less than £10m that will not repeat in 2025. Adjusted
Free Cash Flow Conversion was 62.2%.
Cash spend in H1 on current and prior year acquisitions was £76m, dividend
payments were £149m and the cash impact of one-off and adjusting items was
£41m (largely related to the Terminix acquisition). Overall, this led to a
change in net debt of £76m and closing net debt of £3,222m.
Going concern
The Board continues to adopt the going concern basis in preparing the accounts
on the basis that the Group's strong liquidity position and its demonstrated
ability to manage the level of capital expenditure, dividends or expenditure
on bolt-on acquisitions are sufficient to meet the Group's forecast funding
needs, including those modelled in a severe but plausible downside case.
Funding
As at 30 June 2024, the Group had liquidity headroom in the region of
£1,493m, including £791m ($1bn) of undrawn revolving credit facility (RCF),
with a maturity date of October 2028. The net debt to Adjusted EBITDA ratio
was 2.6x at 30 June 2024 (31 December 2023: 2.6x). The net debt to EBITDA
ratio was 2.8x at 30 June 2024 (31 December 2023: 2.8x). The interest rate on
approximately 81% of the Group's debt including leases is fixed. The Group's
€400m bond matures in November 2024 and given the current level of headroom,
the Group retains optionality around the timing of the refinancing.
Dividend
The directors have declared an interim dividend payment of 3.16p per share
amounting to £80m payable on 16 September 2024 to shareholders on the
register at close of business on 9 August 2024. The last day for DRIP
elections is 23 August 2024. The Company has a progressive dividend policy and
will consider the level of growth for 2024 based on the year-end results.
These interim financial statements do not reflect this dividend payable.
Termite Warranty Claims
Further good progress has been made in the period on termite warranty claim
volumes. Total filed warranty claims reduced by 6% on the prior year. Open
warranty claims further reduced by 16% on the prior year. There has also been
a significant 75% year-on-year reduction in complex litigated damage claims
filed. Rolling average settled claims costs for legacy customers have
increased by c.11% since 31 December 2023 as a result of the continued clear
down of legacy claims weighing on the average of an ever smaller claims
population.
Change of Presentation Currency
The Group has used British Pound Sterling (GBP) as its presentation currency
since inception. As a result of the acquisition of Terminix, the US represents
c.60% of Group Revenue and c.67% of Adjusted Operating Profit. We therefore
plan to change our Presentation Currency to United States Dollars (USD) for
all reporting periods starting from 1 January 2025. We commenced a project in
H2 2023 to recalculate the impact of FX for USD reporting back to the transfer
to IFRS in 2004. During H1 2024 we have completed key upgrades to the Group
consolidation system. Final upgrades and sign off will occur in H2 2024 to
support USD based planning processes for 2025. We plan to provide USD
comparatives for Key Financial Statements and support for modelling from
Annual Results reporting in 2025.
Listing
The Board is focused on ensuring the Group delivers attractive shareholder
returns by driving Organic Revenue growth, realising cost efficiency and
providing capital discipline. In the near-term we are committed to improving
organic growth in our US Pest business, through executing our Right Way 2
Growth plan, and to successfully integrating Terminix and Rentokil in North
America. Going forward, the Board will continue to keep the Group's listing
structure under review to ensure that the strength of the Group's underlying
financial performance and its prospects are appropriately valued.
Technical guidance update
Further operational progress is expected to offset increased FX headwinds. We
expect a net c.$15m (c.£12m) revision to Group Adjusted Operating Profit in
the full year, which reflects, amongst other items, the additional growth
investment in H2.
Expected P&L Outcomes
Restructuring costs: £5m
One offs and Adjusting items excl. Terminix: £15m-£20m (previously c.£10m)
Terminix integration Costs to Achieve*: $80m-$90m (previously c.$90m-$100m)
Central and regional overheads, including Terminix related investments.
£145m-£150m
P&L adjusted interest costs: c.£135m-£145m**, incl. £10m-£15m of
hyperinflation (at AER)
Estimated Adjusted Effective Tax Rate: 24%-25% (previously 25%-26%)
Share of Profits from Associates: c.£8m-£10m
Impact of FX within range of -£30m to -£40m (previously -£25m to -£35m)***
Intangibles amortisation: £175m-£185m
Due to closure of the Paragon distribution business, North America regional
Revenue and Adjusted Operating Profit in 2024 is reduced by approximately $65m
and $4m respectively.
Expected Cash Outcomes
Overall one-off and adjusting items: c.£85m-£95m
Working Capital: c.£50m-£60m and c.£55m-£65m of provision payments
Capex excluding right of use (ROU) asset lease payments: £250m-£260m
Cash interest: c.£150m-£160m (previously c.£160m-£170m)
Cash tax payments: £115m-£125m
Anticipated spend on M&A in 2024 of £200m-£250m (previously c.£250m)
* Reported as one-off and adjusting items and excluded from Adjusted
Operating Profit and Adjusted PBTA
** Interest costs will be impacted by refinancing decision taken around the
maturity of the €400m bond with a maturity date of November 2024
*** Based on maintenance of current FX rates. Each $0.01 movement in the
USD/GBP exchange rate and €0.01 movement in the EUR/GBP exchange rate has a
c.£5m and c.£2m impact respectively on annual Adjusted Operating Profit. All
technical items above subject to FX.
Appendix 1
Summary of financial performance (at AER)
Regional Performance
Revenue Adjusted Operating Profit
H1 2024 H1 2023 Change H1 2024 H1 2023 Change
£m
£m
%
£m
£m
%
North America 1,632 1,654 (1.3%) 304 306 (0.6%)
Pest Control 1,585 1,609 (1.4%) 295 302 (2.3%)
Hygiene & Wellbeing 47 45 5.0% 9 4 120.9%
Europe (inc LATAM) 551 529 4.0% 104 97 6.1%
Pest Control 264 252 4.8% 60 57 4.1%
Hygiene & Wellbeing 173 169 2.1% 24 22 10.8%
France Workwear 114 108 5.1% 20 18 7.0%
UK & Sub Saharan Africa 213 190 12.2% 49 46 8.4%
Pest Control 101 97 4.3% 26 26 2.8%
Hygiene & Wellbeing 112 93 20.5% 23 20 15.7%
Asia & MENAT 172 168 2.2% 22 23 (3.4%)
Pest Control 128 123 3.9% 17 18 (3.5%)
Hygiene & Wellbeing 44 45 (2.5%) 5 5 (3.2%)
Pacific 132 125 5.8% 29 29 0.6%
Pest Control 68 63 8.0% 12 12 (0.6%)
Hygiene & Wellbeing 64 62 3.6% 17 17 1.5%
Central 6 5 8.0% (61) (58) (5.1%)
Restructuring costs - - (2) (6) 70.4%
Total at AER 2,706 2,671 1.3% 445 437 1.9%
Total at CER 2,756 2,650 4.0% 455 434 4.7%
Business Category Performance
Revenue Adjusted Operating Profit
H1 2024 H1 2023 Change H1 2024 H1 2023 Change
£m
£m
%
£m
£m
%
Pest Control 2,146 2,144 0.1% 410 415 (0.4%)
Hygiene & Wellbeing 440 414 6.3% 78 68 11.1%
France Workwear 114 108 5.1% 20 18 7.0%
Central 6 5 8.0% (61) (58) (5.1%)
Restructuring costs - - (2) (6) 70.4%
Total at AER 2,706 2,671 1.3% 445 437 1.9%
Total at CER 2,756 2,650 4.0% 455 434 4.7%
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the period ended 30 June 2024
Note Unaudited Unaudited
6 months to
6 months to
30 June
30 June
2024
2023
£m
£m
Revenue 4 2,706 2,671
Operating expenses (2,360) (2,354)
Net impairment losses on financial assets (25) (13)
Operating profit 321 304
Finance income 24 17
Finance cost (96) (88)
Share of profit from associates net of tax 4 7
Profit before income tax 253 240
Income tax expense1 5 (57) (55)
Profit for the period 196 185
Profit for the period attributable to:
Equity holders of the Company 196 185
Non-controlling interests - -
Other comprehensive income:
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves 21 (341)
Net (loss)/gain on net investment hedge (8) 49
Effective portion of changes in fair value of cash flow hedge 5 49
Cost of hedging (2) 17
Tax related to items taken to other comprehensive income 2 2
Other comprehensive income for the period 18 (224)
Total comprehensive income for the period 214 (39)
Total comprehensive income for the period attributable to:
Equity holders of the Company 214 (39)
Non-controlling interests - -
Earnings per share attributable to the Company's equity holders:
Basic 7.78p 7.35p
Diluted 7.75p 7.31p
1. Taxation includes £57m (2023: £55m) in respect of overseas taxation.
All profit is from continuing operations.
The weighted average number of ordinary shares in issue is 2,521m (30 June
2023: 2,513m). For the diluted EPS calculation the adjustment for share
options and LTIPs is 9m (30 June 2023: 14m).
Consolidated Balance Sheet
Note Unaudited Audited
At 30
At 31
June
December
2024
2023
£m
£m
Assets
Non-current assets
Intangible assets 7,128 7,042
Property, plant and equipment 502 499
Right-of-use assets 457 452
Investments in associated undertakings 43 44
Other investments 21 21
Deferred tax assets 5 48 43
Contract costs 229 224
Retirement benefit assets 7 3
Trade and other receivables 49 45
Derivative financial instruments 10 18 57
8,502 8,430
Current assets
Other investments 1 1
Inventories 204 207
Trade and other receivables 949 880
Current tax assets 5 9 33
Derivative financial instruments 10 10 14
Cash and cash equivalents 1,557 1,562
2,730 2,697
Liabilities
Current liabilities
Trade and other payables (1,145) (1,144)
Current tax liabilities 5 (46) (48)
Provisions for liabilities and charges 12 (68) (94)
Bank and other short-term borrowings (1,199) (1,134)
Lease liabilities (133) (127)
Derivative financial instruments 10 (36) (32)
(2,627) (2,579)
Net current assets 103 118
Non-current liabilities
Other payables (82) (71)
Bank and other long-term borrowings (3,104) (3,153)
Lease liabilities (315) (318)
Deferred tax liabilities 5 (534) (517)
Retirement benefit obligations (29) (28)
Provisions for liabilities and charges 12 (357) (357)
Derivative financial instruments 10 (21) (16)
(4,442) (4,460)
Net assets 4,163 4,088
Equity
Capital and reserves attributable to the Company's equity holders
Share capital 25 25
Share premium 14 14
Other reserves 548 532
Retained earnings 3,577 3,518
4,164 4,089
Non-controlling interests (1) (1)
Total equity 4,163 4,088
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Company
Share Share Other Retained Non- Total
capital
premium
reserves
earnings
controlling
equity
£m
£m
£m
£m
interests
£m
£m
At 1 January 2023 25 9 763 3,302 (1) 4,098
Profit for the period - - - 185 - 185
Other comprehensive income:
Net exchange adjustments offset in reserves - - (341) - - (341)
Net gain on net investment hedge - - 49 - - 49
Net gain on cash flow hedge1 - - 49 - - 49
Cost of hedging - - 17 - - 17
Tax related to items taken directly to other comprehensive income - - - 2 - 2
Total comprehensive income for the period - - (226) 187 - (39)
Transactions with owners:
Gain on stock options - 3 - - - 3
Dividends paid to equity shareholders - - - (131) - (131)
Cost of equity-settled share-based payment plans - - - 14 - 14
Tax related to items taken directly to equity - - - 4 - 4
Movement in the carrying value of put options - - - 3 - 3
At 30 June 2023 (unaudited) 25 12 537 3,379 (1) 3,952
At 1 January 2024 25 14 532 3,518 (1) 4,088
Profit for the period - - - 196 - 196
Other comprehensive income:
Net exchange adjustments offset in reserves - - 21 - - 21
Net loss on net investment hedge - - (8) - - (8)
Net gain on cash flow hedge1 - - 5 - - 5
Cost of hedging - - (2) - - (2)
Tax related to items taken directly to other comprehensive income - - - 2 - 2
Total comprehensive income for the period - - 16 198 - 214
Transactions with owners:
Dividends paid to equity shareholders - - - (149) - (149)
Cost of equity-settled share-based payment plans - - - 11 - 11
Tax related to items taken directly to equity - - - (1) - (1)
At 30 June 2024 (unaudited) 25 14 548 3,577 (1) 4,163
1. £5m net gain on cash flow hedge (2023: £49m net gain) includes £36m loss
(2023: £nil gain/loss) from the effective portion of changes in fair value
offset by reclassification to the income statement of £41m loss (2023: £49m
gain) due to changes in foreign exchange rates.
Shares of £nil (2023: £nil) have been netted against retained earnings. This
represents 11.9m (2023: 14.5m) shares held by the Rentokil Initial Employee
Share Trust. The market value of these shares at 30 June 2024 was £55m (2023:
£89m). Dividend income from, and voting rights on, the shares held by the
Trust have been waived.
Consolidated Statement of Changes in Equity (continued)
Analysis of other reserves
Capital Merger Cash flow Translation Cost of Total
reduction
relief
hedge
reserve
hedging
£m
reserve
reserve
reserve
£m
£m
£m
£m
£m
At 1 January 2023 (1,723) 2,998 3 (511) (4) 763
Net exchange adjustments offset in reserves - - - (341) - (341)
Net gain on net investment hedge - - - 49 - 49
Net gain on cash flow hedge1 - - 49 - - 49
Cost of hedging - - - - 17 17
Total comprehensive income for the period - - 49 (292) 17 (226)
At 30 June 2023 (unaudited) (1,723) 2,998 52 (803) 13 537
At 1 January 2024 (1,723) 2,998 6 (754) 5 532
Net exchange adjustments offset in reserves - - - 21 - 21
Net loss on net investment hedge - - - (8) - (8)
Net gain on cash flow hedge1 - - 5 - - 5
Cost of hedging - - - - (2) (2)
Total comprehensive income for the period - - 5 13 (2) 16
At 30 June 2024 (unaudited) (1,723) 2,998 11 (741) 3 548
1. £5m net gain on cash flow hedge (2023: £49m net gain) includes £36m loss
(2023: £nil gain/loss) from the effective portion of changes in fair value
offset by reclassification to the income statement of £41m loss (2023: £49m
gain) due to changes in foreign exchange rates.
Consolidated Cash Flow Statement
Note Unaudited Unaudited
6 months to
6 months to
30 June
30 June
2024
2023
£m
£m
Cash flows from operating activities
Operating profit 321 304
Adjustments for:
- Depreciation and impairment of property, plant and equipment 78 75
- Depreciation and impairment of leased assets 63 60
- Amortisation and impairment of intangible assets (excluding computer 87 87
software)
- Amortisation and impairment of computer software 12 12
- Other non-cash items 13 18
Changes in working capital (excluding the effects of acquisitions and exchange
differences on consolidation):
- Inventories 5 (15)
- Contract costs (5) (5)
- Trade and other receivables (70) (55)
- Trade and other payables and provisions (62) 23
Interest received 19 8
Interest paid1 (123) (122)
Income tax paid 5 (31) (58)
Net cash flows from operating activities 307 332
Cash flows from investing activities
Purchase of property, plant and equipment (84) (81)
Purchase of intangible fixed assets (21) (21)
Proceeds from sale of property, plant and equipment 1 2
Acquisition of companies and businesses, net of cash acquired 7 (76) (175)
Net cash flows from investing activities (180) (275)
Cash flows from financing activities
Dividends paid to equity shareholders 6 (149) (131)
Capital element of lease payments (72) (82)
Cash outflow on settlement of debt-related foreign exchange forward contracts (6) (3)
Debt repayments (4) -
Net cash flows from financing activities (231) (216)
Net decrease in cash and cash equivalents (104) (159)
Cash and cash equivalents at beginning of period 832 879
Exchange loss on cash and cash equivalents (12) (22)
Cash and cash equivalents at end of the financial period 716 698
1. Interest paid includes the interest element of lease payments of £12m
(2023: £12m).
Explanatory notes to the unaudited interim financial statements
1. General information
The Company is a public limited company incorporated in England and Wales and
domiciled in the UK with listings on the London Stock Exchange and the New
York Stock Exchange. The address of its registered office is Rentokil Initial
plc, Compass House, Manor Royal, Crawley, West Sussex, RH10 9PY.
The consolidated half-yearly financial information for the half-year to 30
June 2024 was approved on 24 July 2024 for issue on 25 July 2024.
On page 87 and 88 of the 2023 Annual Report we set out the Group's approach to
risk management and on pages 89 to 93 we define the principal risks that are
most relevant to the Group. These risks are described in detail and have
mitigating actions assigned to each of them. In our view the principal risks
remain unchanged from those indicated in the Annual Report 2023. A summary of
the risks is laid out in the table below:
Principal risk Summary of risk
Failure to integrate acquisitions and execute disposals from continuing The Group has a strategy that includes growth by acquisition, and has acquired
business 23 businesses in H1 2024. These companies need to be integrated quickly and
efficiently to minimise potential impact on the acquired business and the
existing business.
Failure to develop products and services that are tailored and relevant to The Group operates across markets that are at different stages in the economic
local markets and market conditions cycle, at varying stages of market development and have different levels of
market attractiveness. We must be sufficiently agile to develop and deliver
products and services that meet local market needs which allows us to meet our
growth objectives and stay ahead in a highly competitive industry.
Failure to grow our business profitably in a changing macro-economic The Group's two core categories (Pest Control and Hygiene & Wellbeing)
environment operate in a global macro-economic environment that is subject to uncertainty
and volatility.
Failure to mitigate against financial market risks Our business is exposed to foreign exchange risk, interest rate risk,
liquidity risk, counterparty risk and settlement risk.
Breaches of laws or regulations (including tax, competition and anti-trust As a responsible company we aim to comply with all laws and regulations that
laws) apply to our businesses across the globe.
Failure to ensure business continuity in case of a material incident The Group needs to have resilience to ensure business can continue if impacted
by external events, e.g. cyber attack, hurricane or terrorism.
Fraud, financial crime and loss or unintended release of personal data Collusion between individuals, both internal and external, could result in
fraud if internal controls are not in place and working effectively. The
business holds personal data on colleagues, some customers and suppliers;
unintended loss or release of such data may result in sanctions, fines and
reputational risk.
Safety, health and the environment (SHE) The Group has an obligation to ensure that colleagues, customers and other
stakeholders remain safe, that the working environment is not detrimental to
health and that we are aware of, and minimise, any adverse impact on the
environment.
Failure to deliver consistently high levels of service to the satisfaction of Our business model depends on servicing the needs of our customers in line
our customers with internal high standards and to levels agreed in contracts.
These interim financial results do not comprise statutory accounts within the
meaning of Section 435 of the Companies Act 2006, and should be read in
conjunction with the Annual Report 2023. Those accounts have been audited and
delivered to the registrar of companies. The report of the auditor was
unqualified, did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report and did not
contain statements under section 498(2) or (3) of the Companies Act 2006.
For all information relating to 2023 results please refer to the Annual Report
2023 which can be accessed here:
https://www.rentokil-initial.com/investors/annual-reports.aspx
2. Basis of preparation
The condensed consolidated financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority and in accordance with IAS 34 Interim Financial Reporting as
contained in UK-adopted international accounting standards. The condensed
consolidated financial statements should be read in conjunction with the
annual financial statements for the year ended 31 December 2023 which have
been prepared in accordance with UK-adopted International Accounting Standards
and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. The annual financial statements for the year
ended 31 December 2023 and the condensed consolidated financial statements
also comply fully with International Financial Reporting Standards (IFRSs) as
issued by the International Accounting Standards Board (IASB).
Going concern
The Directors have prepared Board-approved cash flow forecasts that
demonstrate that the Group has sufficient liquidity to meet its obligations as
they fall due for the period of at least 12 months from the date of approval
of these Financial Statements.
Additionally, the Directors have assessed severe but plausible downside
scenarios. The downside scenarios include i) a revenue decline of 20% against
base budget for six months; ii) a 20% revenue decline for 12 months; and iii)
a one-off loss in the form of a cash loss of £200m. All of these scenarios
are considerably worse than the actual impact of the COVID-19 pandemic in
2020. Starting with approximately £1.4bn of headroom (excluding £0.1bn of
cash subject to exchange controls) at June 2024, none of the scenarios
required additional external funding above existing committed facilities. In
the most severe downside scenario, a combination of a 20% revenue decline for
12 months and a one-off loss in the form of a cash loss of £200m, the minimum
headroom modelled was approximately £0.7bn (excluding £0.1bn of cash subject
to exchange controls) before the inclusion of mitigating actions (adjusting
the level of M&A activity, and/or dividends paid) which are all within the
Group's control and were used during the COVID-19 pandemic.
The Directors have therefore concluded that the Group will have sufficient
liquidity to continue to meet its liabilities as they fall due for this period
and therefore have prepared the Consolidated Financial Statements on a going
concern basis.
3. Accounting policies
The Group makes estimates and assumptions concerning the future. Estimates and
assumptions are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. Actual results may differ from these
estimates and revisions to estimates are recognised prospectively.
Sensitivities to the estimates and assumptions are provided, where relevant,
in the notes to the financial statements.
The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are listed below:
● Termite damage claim provisions
Further detail can be found in the Annual Report 2023.
Significant seasonal or cyclical variations in the Group's total revenues are
not experienced during the financial year.
Changes in accounting policies
Except as described below, the accounting policies applied in these interim
financial statements are the same as those applied in the Group's consolidated
financial statements as at and for the year ended 31 December 2023. The
changes in accounting policies are also expected to be reflected in the
Group's consolidated financial statements as at and for the year ending 31
December 2024.
A number of new standards are effective from 1 January 2024 but they do not
have a material effect on the Group's financial statements.
The Group has adopted the following amendments to standards with effect from 1
January 2024:
● Classification of Liabilities as Current or Non-current and Non-current
liabilities with covenants - Amendments to IAS 1
● Lease liability in sale and leaseback - Amendments to IFRS 16
● Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7.
These standards have had no material impact on the financial position or
performance of the Group. Consequently, no adjustment has been made to the
comparative financial information. The Group has not early adopted any
standard, interpretation or amendment that was issued but is not yet
effective.
4. Segmental information
Segment reporting
Segmental information has been presented in accordance with IFRS 8 Operating
Segments below. The Group's operating segments are regions and this reflects
the internal management reporting structures and the way information is
reviewed by the chief operating decision maker (the Chief Executive). Each
region is headed by a Regional Managing Director who reports directly to the
Chief Executive and is a member of the Group's Executive Leadership Team
responsible for the review of Group performance. The businesses within each
operating segment operate in a number of different countries and sell services
across three business segments.
The LATAM region is combined with Europe in the Group's segment reporting. It
is the Group's smallest region and not considered reportable under the
quantitative thresholds in IFRS 8. It is combined with Europe as they are
similar with respect to economic characteristics, the nature of services
provided, the type of customers, methods used to provide services, and
language and cultural similarities.
Disaggregated revenue under IFRS 15 is the same as the segmental analysis
presented below. Restructuring costs, one-off and adjusting items,
amortisation and impairment of intangible assets (excluding computer
software), and central and regional costs are presented at a Group level as
they are not targeted or managed at reportable segment level. The basis of
presentation is consistent with the information reviewed by internal
management.
Revenue and profit from continuing operations
Revenue Revenue Operating Operating
30 June
30 June
profit
profit
2024
2023
30 June
30 June
£m
£m
2024
2023
£m
£m
North America
Pest Control 1,585 1,609 295 302
Hygiene & Wellbeing 47 45 9 4
1,632 1,654 304 306
Europe (incl LATAM)
Pest Control 264 252 60 57
Hygiene & Wellbeing 173 169 24 22
France Workwear 114 108 20 18
551 529 104 97
UK & Sub-Saharan Africa
Pest Control 101 97 26 26
Hygiene & Wellbeing 112 93 23 20
213 190 49 46
Asia & MENAT
Pest Control 128 123 17 18
Hygiene & Wellbeing 44 45 5 5
172 168 22 23
Pacific
Pest Control 68 63 12 12
Hygiene & Wellbeing 64 62 17 17
132 125 29 29
Central and regional overheads 6 5 (61) (58)
Restructuring costs - - (2) (6)
Revenue and Adjusted Operating Profit 2,706 2,671 445 437
One-off and adjusting items (37) (46)
Amortisation and impairment of intangible assets1 (87) (87)
Operating profit 321 304
1. Excluding computer software.
Analysis of revenue by type
30 June 30 June
2024
2023
£m
£m
Recognised over time
Contract service revenue 1,945 1,918
Recognised at a point in time
Job work 562 541
Sales of goods 199 212
Total 2,706 2,671
Other segment items included in the consolidated income statement are as
follows:
Amortisation and Amortisation and
impairment of
impairment of
intangibles1
intangibles1
30 June 2024
30 June 2023
£m
£m
North America 59 58
Europe (incl. LATAM) 12 13
UK & Sub-Saharan Africa 3 4
Asia & MENAT 5 5
Pacific 4 3
Central and regional 4 4
Total 87 87
1. Excluding computer software.
5. Income tax expense
Analysis of charge in the period:
6 months to 6 months to
30 June 30 June
2024 2023
£m £m
UK corporation tax at 25% (2023: 23.5%) 4 2
Overseas taxation 46 44
Adjustment in respect of previous periods 6 (2)
Total current tax 56 44
Deferred tax expense 8 13
Adjustment in respect of previous periods (7) (2)
Total deferred tax 1 11
Total income tax expense 57 55
The tax charge for the period has been calculated by applying the effective
tax rate which is expected to apply to the Group for the year ended 31
December 2024 using rates substantively enacted by 30 June 2024. A separate
effective income tax rate has been calculated for each jurisdiction in which
the Group operates, applied to the pre-tax profits for the interim period.
The reported tax rate for the period was 22.5% (June 2023: 22.9%). The Group's
Adjusted Effective Tax Rate (ETR) before amortisation of intangible assets
(excluding computer software), one-off items and the net interest adjustments
for the period was 23.5% (June 2023: 23.4%). This compares with a blended rate
of tax for the countries in which the Group operates of 25.3% (June 2023:
25.0%).
Total uncertain tax positions (including interest thereon) amounted to £43m
as at 30 June 2024 (December 2023: £41m). Included within this amount is £5m
(December 2023: £5m) in respect of interest arising on tax provisions, which
is included within other payables.
Total tax payments for the period amounted to £31m (June 2023: £58m), a
decrease of £27m.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023 ("Pillar 2"). Various
other jurisdictions the Group operates in have also substantively enacted
legislation or are intending to bring in legislation to implement Pillar 2 and
domestic top-up taxes. The expectation is that there will be minimal
variations between the UK legislation and other countries' legislation as all
are based on the same OECD Pillar 2 model rules. The Group is in scope of the
substantively enacted legislation and has performed an assessment of the
potential exposure to Pillar 2 income taxes for financial year ended 31
December 2024, mainly focusing on the transitional country-by-country
reporting safe harbours under the UK legislation which apply until 2026. Based
on this assessment, the majority of the jurisdictions in which the Group
operates are expected to meet the conditions for the transitional safe harbour
provisions and would not require full Pillar 2 calculations, nor would a
top-up tax charge be levied. The Pillar 2 effective tax rates in most of the
jurisdictions in which the Group operates are above 15% (calculated under the
safe harbour provisions). However, there are a limited number of jurisdictions
where the transitional safe harbour relief is not expected to apply and the
Pillar 2 effective tax rate is close to 15%. Within the assessment, the
aggregate of the estimated top-up tax charge for those countries is expected
to be less than £1m. The Group continues to monitor developments in the
implementation of the Pillar 2 rules in the UK and other relevant
jurisdictions.
The movement on the deferred income tax account is as follows:
6 months to 6 months to
30 June 30 June
2024 2023
£m £m
At 1 January (474) (468)
Exchange differences (1) 24
Acquisition of companies and businesses (8) (7)
(Charged) to the income statement (1) (11)
(Charged)/credited to other comprehensive income (1) 1
(Charged)/credited to equity (1) 4
At 30 June (486) (457)
Deferred taxation has been presented on the balance sheet as follows:
Deferred tax asset within non-current assets 48 46
Deferred tax liability within non-current liabilities (534) (503)
(486) (457)
A deferred tax asset of £42m has been recognised in respect of losses
(December 2023: £38m), of which £32m (December 2023: £28m) relates to UK
losses carried forward at 30 June 2024. This amount has been calculated by
estimating the future UK taxable profits, against which the UK tax losses will
be utilised, progressively risk weighted, and applying the tax rates
(substantively enacted as at the balance sheet date) applicable for each year.
A deferred tax asset is now recognised on nearly all UK tax losses as at 30
June 2024 as it is considered probable that future taxable profits will be
available against which the tax losses can be offset.
At the balance sheet date the Group had tax losses of £137m (December 2023:
£169m) 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.
6. 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.
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
2022 final dividend paid - 5.15p per share - 131
2023 final dividend paid - 5.93p per share 149 -
Total 149 131
The directors have declared an interim dividend of 3.16p per share amounting
to £80m payable on 16 September 2024 to shareholders on the register at close
of business on 9 August 2024. The last day for DRIP elections is 23 August
2024. The Company has a progressive dividend policy and will consider the
level of growth for 2024 based on the year-end results. These interim
financial statements do not reflect this dividend payable.
7. Business combinations
During the period the Group purchased 100% of the share capital or trade and
assets of 23 companies and businesses (2023: 24). An overview of the
acquisitions in the year can be found on page 9 under the 'Continued strength
of bolt-on M&A' heading. The Group acquires companies and businesses as
part of its growth strategy.
The total consideration in respect of these acquisitions was £112m (2023:
£202m).
Details of goodwill and the fair value of net assets acquired in the period
are as follows:
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Purchase consideration
- Cash paid 58 161
- Deferred and contingent consideration 54 41
Total purchase consideration 112 202
Fair value of net assets acquired 40 58
Goodwill from current-period acquisitions 72 144
Goodwill represents the synergies and other benefits expected to be realised
from integrating acquired businesses into the Group, such as improved route
density, expansion in use of best-in-class digital tools and back office
synergies.
Deferred consideration of £29m and contingent consideration of £25m are
payable in respect of the above acquisitions (2023: £8m and £33m
respectively). Contingent consideration is payable based on a variety of
conditions including revenue and profit targets being met. During the period
and the comparative period there were no releases of contingent consideration
liabilities not paid.
The provisional fair values1 of assets and liabilities arising from
acquisitions in the period are as follows:
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Non-current assets
- Intangible assets2 45 47
- Property, plant and equipment 5 11
Current assets 12 19
Current liabilities (8) (10)
Non-current liabilities (14) (9)
Net assets acquired 40 58
1. The provisional fair values will be finalised within 12 months of the dates
of acquisition.
2. Includes £41m (2023: £39m) of customer lists and £4m (2023: £8m) of
other intangibles.
Acquired receivables are disclosed at fair value and represent the best
estimate of the contractual cash flows expected to be collected.
From the dates of acquisition to 30 June 2024, these acquisitions contributed
£16m to revenue and £1m to operating profit (2023: £28m and £6m
respectively). If the acquisitions had occurred on 1 January 2024, the revenue
and operating profit of the Group would have amounted to £2,728m and £323m
respectively (2023: £2,686m and £307m respectively).
The Group paid £19m in respect of deferred and contingent consideration for
current and prior year acquisitions (2023: £21m), resulting in the total cash
outflow in the period from current and past period acquisitions, net of £1m
(2023: £7m) cash acquired, of £76m (2023: £175m).
8. Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net identifiable assets of the acquired
business at the date of acquisition. It is recognised as an intangible asset.
Goodwill arising on the acquisition of an associate is included in investments
in associates.
Goodwill is carried at cost less accumulated impairment losses and is tested
annually for impairment. For the purpose of impairment testing, goodwill is
allocated to cash-generating units (CGUs) identified according to country of
operation and reportable business unit. The way in which CGUs are identified
has not changed from prior periods. Newly acquired entities might be a single
CGU until such time that they can be integrated. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the
entity sold.
The recoverable amount of a CGU is determined based on the higher of
value-in-use calculations using cash flow projections and fair value less
costs to sell if appropriate. The cash flow projections in year one are based
on financial budgets approved by management, which are prepared as part of the
Group's normal planning process. Cash flows for years two to five use
management's expectation of sales growth, operating costs and margin, based on
past experience and expectations regarding future performance and
profitability for each CGU. Cash flows beyond the five-year period are
extrapolated using estimated long-term growth rates. The effect of climate
change has been considered in the cash flows.
An assessment has been performed for all material CGUs at the half year to
identify any possible indicators of impairment. The assessment included a
review of internal and external factors that have the potential to
significantly reduce the CGU value. The indicator assessment resulted in one
CGU showing possible indicators of impairment, and as a result a full
impairment assessment was undertaken for that CGU. The impairment assessment
identified an impairment of £1m.
9. Net debt
Reconciliation of net change in cash and cash equivalents to net debt:
At 30 At 31
June
December
2024
2023
£m
£m
Current
Cash and cash equivalents in the Consolidated Balance Sheet 1,557 1,562
Other investments 1 1
Fair value of debt-related derivatives (26) (18)
Bank and other short-term borrowings¹ (1,199) (1,134)
Lease liabilities (133) (127)
200 284
Non-current
Fair value of debt-related derivatives (3) 41
Bank and other long-term borrowings² (3,104) (3,153)
Lease liabilities (315) (318)
(3,422) (3,430)
Total net debt (3,222) (3,146)
1. Bank and other short-term borrowings consists of £339m bond debt (2023:
£347m), £841m overdraft (2023: £730m), £14m overseas loans (2023: £17m)
and £5m bond accruals (2023: £40m).
2. Bank and other long-term borrowings consists of £2,545m bond debt (2023:
£2,596m) and £559m loans (2023: £557m).
Fair value is equal to carrying value for all elements of net debt with the
exception of bond debt which has a carrying value of £2,884m (December 2023:
£2,943m) and a fair value of £2,835m (December 2023: £2,959m). No further
disclosures are required by IFRS 7.29(a).
Cash at bank and in hand includes £15m (December 2023: £15m) 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.
10. Derivative financial instruments
All financial instruments held at fair value are classified by reference to
the source of inputs used to derive the fair value. The following hierarchy is
used:
Level 1 - unadjusted quoted prices in active markets for identical assets or
liabilities;
Level 2 - inputs other than quoted prices that are observable for the asset or liability
either directly as prices or indirectly through modelling based on prices; and
Level 3 - inputs for the asset or liability that are not based on observable market
data.
Financial instrument Hierarchy level Valuation method
Financial assets traded in active markets 1 Current bid price
Financial liabilities traded in active markets 1 Current ask price
Listed bonds 1 Quoted market prices
Money market funds 1 Quoted market prices
Interest rate/currency swaps 2 Discounted cash flow based on market swap rates
Forward foreign exchange contracts 2 Forward exchange market rates
Borrowings not traded in active markets (term loans and uncommitted 2 Nominal value
facilities)
Money market deposits 2 Nominal value
Trade payables and receivables 2 Nominal value less estimated credit adjustments
Contingent consideration (including put option liability) 3 Discounted cash flow using WACC
Fair value Fair value Fair value Fair value
assets
assets
liabilities
liabilities
30 June 2024
31 December 2023
30 June 2024
31 December 2023
£m
£m
£m
£m
Interest rate swaps (level 2):
- non-hedge - - (1) (1)
- cash flow hedge 2 37 (45) (27)
- net investment hedge 42 24 (28) (11)
Foreign exchange swaps (level 2):
- non-hedge 1 1 - -
45 62 (74) (39)
Analysed as follows:
Current portion 6 5 (32) (23)
Non-current portion 39 57 (42) (16)
Derivative financial instruments 45 62 (74) (39)
Contingent consideration (including put option liability) (level 3)1 (85) (76)
Analysed as follows:
Current portion (40) (36)
Non-current portion (45) (40)
Other payables (non-current) (85) (76)
1. Contingent consideration includes put option liability of £32m (December
2023: £32m).
Certain interest rate swaps have been bifurcated to manage different foreign
exchange risks. The interest rate swaps are shown on the balance sheet as net
derivative assets of £28m (December 2023: £71m) and net derivative
liabilities £56m (December 2023: £48m).
Given the volume of acquisitions and the variety of inputs to the valuation of
contingent consideration (depending on each transaction) there is not
considered to be any change in input that would have a material impact on the
contingent consideration liability.
Contingent Contingent
consideration
consideration
30 June 2024
30 June 2023
£m
£m
At 1 January 76 70
Exchange differences (1) (2)
Acquisitions 25 33
Payments (15) (15)
Revaluation of put option through equity - (3)
85 83
Fair value is equal to carrying value for all other trade and other payables.
11. Analysis of bank and bond debt
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are classified as current liabilities unless the Group
has a continuing right to defer settlement of the liability for at least 12
months after the balance sheet date.
The Group's bank debt comprises:
Facility Drawn at Headroom Interest rate
amount
period end
at 30 June
at period
at 30 June
at 30 June
2024
end
2024
2024
£m
at 30 June
£m
£m
2024
%
Non-current
$700m term loan due October 2025 554 554 - 5.94
$1.0bn RCF due October 2028 791 - 791 0.14
Facility Drawn at Headroom Interest rate
amount
period end
at 31
at period
at 31
at 31
December
end
December
December
2023
at 31
2023
2023
£m
December
£m
£m
2023
%
Non-current
$700m term loan due October 2025 550 550 - 5.94
$1.0bn RCF due October 2028 785 - 785 0.14
The Group has a committed $1.0bn revolving credit facility (RCF) which is
available for cash drawings up to $1.0bn. The maturity date is October 2028.
As at 30 June 2024 the facility was undrawn (2023: undrawn).
Medium-term notes and bond debt comprises:
Bond interest Effective hedged
coupon
interest rate
2024
2024
Current
€400m bond due November 2024 Fixed 0.950% Fixed 3.02%
Non-current
€500m bond due May 2026 Fixed 0.875% Fixed 2.71%
€850m bond due June 2027 Fixed 3.875% Fixed 4.94%
€600m bond due October 2028 Fixed 0.500% Fixed 2.16%
€600m bond due June 2030 Fixed 4.375% Fixed 4.50%
£400m bond due June 2032 Fixed 5.000% Fixed 5.21%
Average cost of bond debt at period-end rates 3.85%
The effective hedged interest rate reflects the interest rate payable after
the impact of interest due from cross-currency swaps. The Group's hedging
strategy is to hold foreign currency debt in proportion to foreign currency
profit and cash flows, which are mainly in euro and US dollar. As a result,
the Group has swapped a portion of the bonds it has issued into US dollars,
thus increasing the effective hedged interest rate.
The Group has no significant concentration of credit risk. At 30 June 2024 the
Group had a total of £17m of cash held on bank accounts with banks rated
below A- by S&P (30 June 2023: £23m). The highest concentration with any
single bank rated below A- was £2m (30 June 2023: £4m).
The Group considers the fair value of other current liabilities to be equal to
the carrying value.
12. Provisions for liabilities and charges
The Group has provisions for termite damage claims, self-insurance,
environmental, and other. Provisions are recognised when the Group has a
present obligation as a result of past events, it is probable that an outflow
of resources will be required to settle the obligation, and the amount is
capable of being reliably estimated. If such an obligation is not capable of
being reliably estimated it is classified as a contingent liability.
Termite Self Environmental Other Total
damage
insurance
£m
£m
£m
claims
£m
£m
At 31 December 2023 260 164 16 11 451
At 1 January 2024 260 164 16 11 451
Exchange differences 2 - - - 2
Additional provisions 3 34 1 3 41
Used during the period (33) (30) (1) (4) (68)
Unused amounts reversed (3) - (1) (1) (5)
Unwinding of discount on provisions 4 - - - 4
At 30 June 2024 233 168 15 9 425
At 30 At 31
June
December
2024
2023
Total
Total
£m
£m
Analysed as follows:
Non-current 357 357
Current 68 94
Total 425 451
Termite damage claims
The Group holds provisions for termite damage claims covered by contractual
warranties. Termite damage claim provisions are subject to significant
assumptions and estimation uncertainty. The assumptions included in valuing
termite provisions are based on an estimate of the volume and value of future
claims (based on historical and forecast information), customer churn rates
and discount rates. These provisions are expected to be substantially utilised
within the next 17 years at a declining rate. The trend of volume and value of
claims is monitored and reviewed over time (with the support of external
advisers) and as such the value of the provision is also likely to change.
The sensitivity of the liability balance to changes in the inputs is
illustrated as follows:
● Discount rate - The exposure to termite damage claims is largely based within
the United States, therefore measurement is based on a seven-year US bond
risk-free rate. During 2024, interest rates (and therefore discount rates)
have moved up and are close to their highest level in over a decade. Rates
could move in either direction and management has modelled that an
increase/decrease of 5% in yields (would decrease/increase the provision by
£2m (2023: £3m). Over the 6 months to 30 June 2024, seven-year risk-free
rate yields have increased c.14% from 3.88% to 4.42%.
● Claim value - Claim value forecasts have been based on the latest available
historical settled Terminix claims. Claims values are dependent on a range of
inputs including labour cost, materials costs (e.g. timber), whether a claim
becomes litigated or not, and specific circumstances including contributory
factors at the premises. Management has determined the historical time period
for each material category of claim, between three months and one year, to
determine an estimate for costs per claim. Recent fluctuations in input prices
(e.g. timber prices) means that there is potential for volatility in claim
values and therefore future material changes in provisions. Management has
modelled that an increase/decrease of 5% in claim values would
increase/decrease the provision by c.£9m (2023: £15m). Over the 6 months to
30 June 2024, as a result of accelerating the clear down of legacy
longstanding claims and other macroeconomic factors, in-year costs per claim
rose by c.11% (2023: 32%).
● Claim rate - Management has estimated claim rates based on statistical
historical incurred claims. Data has been captured and analysed by a
third-party agency, to establish incidence curves that can be used to estimate
likely future cash outflows. Changes in rates of claim are largely outside the
Group's control and may depend on litigation trends within the US, and other
external factors such as how often customers move property and how well they
maintain those properties. This causes estimation uncertainty that could lead
to material changes in provision measurement. Management has modelled that an
increase/decrease of 5% in overall claim rates would increase/decrease the
provision by c.£10m (2023: £15m), accordingly. Over the 6 months to 30 June
2024, claim rates fell by c.20% (2023: 7%).
● Customer churn rate - If customers choose not to renew their contracts each
year, then the assurance warranty falls away. As such there is sensitivity to
the assumption on how many customers will churn out of the portfolio of
customers each year. Data has been captured and analysed by a third-party
agency, to establish incidence curves for customer churn, and forward looking
assumptions have been made based on these curves. Changes in churn rates are
subject to macroeconomic factors and to the performance of the Group. A 1%
movement in customer churn rates, up or down, would change the provision by
c.£8m up or down (2023: £11m), accordingly. On average over the last 10
years to December 2023 churn rates have moved by +/- c.1.8% per annum.
Self-insurance
The Group purchases external insurance from a portfolio of international
insurers for its key insurable risks, mainly employee-related risks.
Self-insured deductibles within these insurance policies have changed over
time due to external market conditions and scale of operations. These
provisions represent obligations for open claims and are estimated based on
actuarial/management's assessment at the balance sheet date. The Group expects
to continue self-insuring the same level of risks and estimates that all
pending claims should settle within the next five years.
Environmental
The Group owns, or formerly owned, a number of properties in Europe and the US
where environmental contamination is being managed. These issues tend to be
complex to determine and resolve and may be material, although it is often not
possible to accurately predict future costs of management or remediation
reliably. Provisions are held where liability is probable and costs can be
reliably estimated. Contingent liabilities exist where the conditions for
recognising a provision under IAS 37 have not been met. The Group monitors
such properties to determine whether further provisions are necessary. The
provisions that have been recognised are expected to be substantially utilised
within the next five years.
Other
Other provisions principally comprise amounts required to cover obligations
arising and costs relating to disposed businesses and restructuring costs.
Other provisions also includes costs relating to onerous contracts and
property dilapidations settlements. Existing provisions are expected to be
substantially utilised within the next five years.
13. Post balance sheet events
There have been no significant post balance sheet events affecting the Group
since 30 June 2024.
14. Use of Non-IFRS Measures
The Group uses a number of non-IFRS measures to present the financial
performance of the business. These are not measures as defined under IFRS, but
management believe that these measures provide valuable additional information
for users of the Financial Statements, in order to better understand the
underlying trading performance in the year from activities that will
contribute to future performance. The Group's internal strategic planning
process is also based on these measures and they are used for management
incentive purposes. They should be viewed as complements to, and not
replacements for, the comparable IFRS measures. Other companies may use
similarly labelled measures which are calculated differently to the way the
Group calculates them, which limits their usefulness as comparative measures.
Accordingly, investors should not place undue reliance on these non-IFRS
measures.
The following sets out an explanation and the reconciliation to the nearest
IFRS measure for each non-IFRS measure.
Constant exchange rates (CER)
Given the international nature of the Group's operations, foreign exchange
movements can have a significant impact on the reported results of the Group
when they are translated into sterling (the presentation currency of the
Group). In order to help understand the underlying trading performance of the
business, revenue and profit measures are often presented at constant exchange
rates. CER is calculated by translating current-year reported numbers at the
full-year average exchange rates for the prior year. It is used to give
management and other users of the accounts clearer comparability of underlying
trading performance against the prior period by removing the effects of
changes in foreign exchange rates. The major exchange rates used to calculate
CER in 2024 are £/$ 1.2441 and £/€ 1.1503. Comparisons are to the six
months ended 30 June 2023 (H1 2023) unless otherwise stated.
Organic Revenue Growth
Acquisitions are a core part of the Group's growth strategy. The Organic
Revenue Growth measures (absolute and percentage) are used to help investors
and management understand the underlying performance of the business, by
identifying Organic Revenue Growth separately from the impact of Acquired
Revenue. This approach isolates changes in performance of the Group that take
place under the Company's stewardship, and thereby reflects the potential
benefits and risks associated with owning and managing a professional services
business.
Organic Revenue Growth is calculated based on year-over-year revenue growth at
CER to eliminate the effects of movements in foreign exchange rates.
Acquired Revenue represents a 12-month estimate of the increase in Group
revenue from each business acquired. Acquired Revenue is calculated as: a) the
revenue from the acquisition date to the year end in the year of acquisition
in line with IFRS 3; and b) the pre-acquisition revenues from 1 January up to
the acquisition date in the year of acquisition. The pre-acquisition revenue
is based on the previously reported revenues of the acquired entity and is
considered to be an estimate.
In the year a business is acquired, all of its revenue reported under a) above
is classified as non-organic growth. In the subsequent first full financial
year after acquisition, Organic Revenue Growth is calculated for each
acquisition as the reported revenue less Acquired Revenue.
At a Group level, calculating Organic Revenue Growth therefore involves
isolating and excluding from the total year-over-year revenue change: i) the
impacts from foreign exchange rate changes, ii) the growth in revenues that
have resulted from completed acquisitions in the current period, and iii) the
estimate of pre-acquisition revenues from each business acquired. The sum of
ii) and iii) is equal to the total Acquired Revenues for all acquisitions. The
calculated Organic Revenue is expressed as a percentage of prior year revenue.
Prior year revenue is not 'pro-forma' adjusted in the calculation, as any such
estimated adjustments would have an immaterial impact.
If an acquisition is considered to be a material transaction, such as the
Terminix acquisition in October 2022, the above calculation is amended in
order to give a 'pro-forma' view of any Organic Revenue Growth for the full
financial year in the year of acquisition, as if the acquisition had been part
of the Group from the beginning of the prior year. The pro-forma calculation
is completed using pre-acquisition revenues to normalise current and prior
periods as shown in the table below. These revenue normalisations are
considered estimates, and ensure that the potentially larger Organic Revenue
Growth is measured over a denominator that includes the material acquisition.
The same adjustments are made to our North America and Pest Control segment
revenues for 2022 and 2023 as a result of the material Terminix acquisition.
While management believes that the methodology used in the calculation of
Organic Revenue is representative of the performance of the Group, the
calculations may not be comparable to similarly labelled measures presented by
other publicly traded companies in similar or other industries.
North Europe UK & Asia & Pacific Central Total
America
(incl.
Sub-
MENAT
£m
and
£m
£m
LATAM)
Saharan
£m
regional
£m
Africa
£m
£m
2023 Revenue 1,654 529 190 168 125 5 2,671
2023 Exchange differences (11) (4) (1) (3) (2) - (21)
2023 Revenue (at 2023 CER) 1,643 525 189 165 123 5 2,650
2023 Revenue from closed business1 (14) - - - - - (14)
Normalised 2023 Revenue (at 2023 CER) - base for Organic Revenue Growth 1,629 525 189 165 123 5 2,636
percentage
Revenue from 2024 acquisitions (at 2023 CER)² 1 2 10 3 1 - 17
Revenue from 2023 acquisitions (at 2023 CER)³ 11 4 5 2 7 - 29
Organic Revenue Growth 2024 (at 2023 CER)4 21 31 9 8 4 1 74
2024 Exchange differences (30) (11) - (6) (3) - (50)
2024 Revenue (at AER) 1,632 551 213 172 132 6 2,706
Organic Revenue Growth % 1.3% 5.8% 5.1% 4.7% 4.1% 8.0% 2.8%
1. The adjustment removes revenue from 1 April 2023 to 30 June 2023 from the
Paragon distribution business, closed with effect from 1 April 2024.
2. Revenue from completed acquisitions in the current period.
3. Estimate of revenue from each business acquired by the Group in the
previous financial year through to the 12-month anniversary of the Group's
ownership.
4. Organic Revenue Growth includes Organic Revenue Growth for all entities in
the Group as at 30 June 2023.
North Europe UK & Asia & Pacific Central Total
America
(incl.
Sub-
MENAT
£m
and
£m
£m
LATAM)
Saharan
£m
regional
£m
Africa
£m
£m
2022 Revenue 693 434 179 152 109 5 1,572
Adjustment for Terminix pre-acquisition 2022 Revenue¹ 796 13 - - - - 809
Normalised 2022 Revenue 1,489 447 179 152 109 5 2,381
2022 Exchange differences 67 6 - 3 1 - 77
Normalised 2022 Revenue (at 2022 CER) - base for Organic Revenue Growth 1,556 453 179 155 110 5 2,458
percentage
Revenue from 2023 acquisitions (at 2022 CER)² 13 2 5 2 6 - 28
Revenue from 2022 acquisitions (at 2022 CER)³ 15 24 - 6 4 - 49
Organic Revenue Growth 2023 (at 2022 CER)4 62 43 8 10 8 - 131
2023 Exchange differences 8 7 (2) (5) (3) - 5
2023 Revenue (at AER) 1,654 529 190 168 125 5 2,671
Organic Revenue Growth % 4.1% 9.8% 3.9% 6.5% 7.3% (2.1)% 5.4%
1. The adjustment brings in 2023 pre-acquisition revenue back to the first day
of the prior financial period for the acquired Terminix entities.
2. Revenue from completed acquisitions in the current period.
3. Estimate of revenue from each business acquired by the Group in the
previous financial year through to the 12-month anniversary of the Group's
ownership.
4. Organic Revenue Growth includes Organic Revenue Growth for all entities in
the Group as at 30 June 2022.
Adjusted expenses and profit measures
Adjusted expenses and profit measures are used to give investors and
management a further understanding of the underlying profitability of the
business over time by stripping out income and expenses that can distort
results due to their size and nature. Adjusted profit measures are calculated
by adding the following items back to the equivalent IFRS profit measure:
• amortisation and impairment of intangible assets (excluding computer
software);
• one-off and adjusting items; and
• net interest adjustments.
Intangible assets (such as customer lists and brands) are recognised on
acquisition of businesses which, by their nature, can vary by size and amount
each year. Capitalisation of innovation-related development costs will also
vary from year to year. As a result, amortisation of intangibles is added back
to assist with understanding the underlying trading performance of the
business and to allow comparability across regions and categories (see table
on page 23).
One-off and adjusting items are significant expenses or income that will have
a distortive impact on the underlying profitability of the Group. Typical
examples are costs related to the acquisition of businesses, gain or loss on
disposal or closure of a business, material gains or losses on disposal of
fixed assets, adjustments to legacy environmental liabilities, and payments or
receipts as a result of legal disputes. An analysis of one-off and adjusting
items is set out below.
Net interest adjustments are other non-cash or one-off accounting gains and
losses that can cause material fluctuations and distort understanding of the
performance of the business, such as amortisation of discount on legacy
provisions and gains and losses on hedge accounting.
Adjusted expenses are one-off and adjusting items, and Adjusted Interest.
Adjusted profit measures used are Adjusted Operating Profit, Adjusted Profit
Before and After Tax, and Adjusted EBITDA. Adjusted Earnings Per Share is also
reported, derived from Adjusted Profit After Tax.
One-off and adjusting items
One-off and adjusting items is a charge of £37m (2023: £46m) which mainly
relates to acquisition and integration costs, £31m of which relates to the
Terminix acquisition (2023: £35m).
Adjusted Interest
Adjusted Interest is calculated by adjusting the reported finance income and
costs by net interest adjustments (amortisation of discount on legacy
provisions and foreign exchange and hedge accounting ineffectiveness).
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Finance cost 96 88
Finance income (24) (17)
Add back:
Amortisation on discount of legacy provisions (4) -
Foreign exchange and hedge accounting ineffectiveness (2) (4)
Adjusted Interest 66 67
Adjusted Operating Profit
Adjusted Operating Profit is calculated by adding back one-off and adjusting
items, and amortisation and impairment of intangible assets to operating
profit.
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Operating profit 321 304
Add back:
One-off and adjusting items 37 46
Amortisation and impairment of intangible assets¹ 87 87
Adjusted Operating Profit (at AER) 445 437
Effect of foreign exchange 10 (3)
Adjusted Operating Profit (at CER) 455 434
1. Excluding computer software.
Adjusted Profit Before and After Tax
Adjusted Profit Before Tax is calculated by adding back net interest
adjustments, one-off and adjusting items, and amortisation and impairment of
intangible assets to profit before tax. Adjusted Profit After Tax is
calculated by adding back net interest adjustments, one-off and adjusting
items, amortisation and impairment of intangible assets, and the tax effect on
these adjustments to profit after tax.
6 months to 30 June 2024
IFRS Net interest One-off Amortisation Non-IFRS
measures
adjustments
and
and
measures
£m
£m
adjusting
impairment of
£m
items
intangibles1
£m
£m
Profit before income tax 253 6 37 87 383 Adjusted Profit Before Tax
Income tax expense (57) (1) (10) (22) (90) Tax on Adjusted Profit
Profit for the period 196 5 27 65 293 Adjusted Profit After Tax
6 months to 30 June 2023
IFRS Net interest One-off Amortisation Non-IFRS
measures
adjustments
and
and
measures
£m
£m
adjusting
impairment of
£m
items
intangibles1
£m
£m
Profit before income tax 240 4 46 87 377 Adjusted Profit Before Tax
Income tax expense (55) (1) (12) (20) (88) Tax on Adjusted Profit
Profit for the period 185 3 34 67 289 Adjusted Profit After Tax
1. Excluding computer software.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back finance income, finance cost,
share of profit from associates net of tax, income tax expense, depreciation,
one-off and adjusting items, and amortisation, impairment of intangible assets
and other non-cash expenses to profit for the year.
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Profit for the period 196 185
Add back:
Finance income (24) (17)
Finance cost 96 88
Share of profit from associates net of tax (4) (7)
Income tax expense 57 55
Depreciation 153 147
Other non-cash expenses 13 18
One-off and adjusting items 37 46
Amortisation and impairment of intangible assets¹ 87 87
Adjusted EBITDA 611 602
1. Excluding computer software.
Adjusted Earnings Per Share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of shares in
issue during the year, and is explained in Note A2 to the Consolidated
Financial Statements in the 2023 Annual Report. Adjusted Earnings Per Share is
calculated by dividing adjusted profit from continuing operations attributable
to equity holders of the Company by the weighted average number of ordinary
shares in issue and is shown below.
For Adjusted Diluted Earnings Per Share, the weighted average number of
ordinary shares in issue is adjusted to include all potential dilutive
ordinary shares. The Group's potentially dilutive ordinary shares are
explained in Note A2 to the Consolidated Financial Statements in the 2023
Annual Report.
2024 2023
£m
£m
Profit attributable to equity holders of the Company 196 185
Add back:
Net interest adjustments 6 4
One-off and adjusting items 37 46
Amortisation and impairment of intangibles1 87 87
Tax on above items2 (33) (33)
Adjusted profit attributable to equity holders of the Company 293 289
Weighted average number of ordinary shares in issue (million) 2,521 2,513
Adjustment for potentially dilutive shares (million) 9 14
Weighted average number of ordinary shares for diluted earnings per share 2,530 2,527
(million)
Basic Adjusted Earnings Per Share 11.64p 11.47p
Diluted Adjusted Earnings Per Share 11.60p 11.41p
1. Excluding computer software.
2. The tax effect on add-backs is as follows: one-off and adjusting items
£10m (2023: £12m); amortisation and impairment of intangibles £22m (2023:
£20m); and, net interest adjustments £1m (2023: £1m).
Adjusted cash measures
The Group aims to generate sustainable cash flow in order to support its
acquisition programme and to fund dividend payments to shareholders.
Management considers that this is useful information for investors. Adjusted
cash measures in use are Free Cash Flow, Adjusted Free Cash Flow, and Adjusted
Free Cash Flow Conversion.
Free Cash Flow
Free Cash Flow is measured as net cash flows from operating activities,
adjusted for cash flows related to the purchase and sale of property, plant,
equipment and intangible assets, cash flows related to leased assets, cash
flows related to one-off and adjusting items and dividends received from
associates. These items are considered by management to be non-discretionary,
as continued investment in these assets is required to support the day-to-day
operations of the business. Free Cash Flow is used by management for incentive
purposes and is a measure shared with and used by investors.
A reconciliation of net cash flows from operating activities in the
Consolidated Cash Flow Statement to Free Cash Flow is provided in the table
below.
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Net cash flows from operating activities 307 332
Purchase of property, plant, equipment (84) (81)
Purchase of intangible assets (21) (21)
Capital element of lease payments and initial direct costs incurred (72) (81)
Proceeds from sale of property, plant, equipment and software 1 2
Cash impact of one-off and adjusting items 41 78
Free Cash Flow 172 229
Adjusted Free Cash Flow and Adjusted Free Cash Flow Conversion
Adjusted Free Cash Flow Conversion is provided to demonstrate to investors the
proportion of Adjusted Profit After Tax that is converted to cash. It is
calculated by dividing Adjusted Free Cash Flow by Adjusted Profit After Tax,
expressed as a percentage. Adjusted Free Cash Flow is measured as Free Cash
Flow adjusted for product development additions and net investment hedge cash
interest through Other Comprehensive Income. Product development additions are
adjusted due to their variable size and non-underlying nature. Net investment
hedge cash interest through Other Comprehensive Income is adjusted because the
cash relates to an item that is not recognised in Adjusted Profit After Tax.
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Free Cash Flow 172 229
Product development additions 5 5
Net investment hedge cash interest through Other Comprehensive Income 6 6
Adjusted Free Cash Flow (a) 183 240
Adjusted Profit After Tax (b) 293 289
Free Cash Flow conversion (a/b) 62.21% 83.00%
The nearest IFRS-based equivalent measure to Adjusted Free Cash Flow
Conversion would be Cash Conversion, which is shown in the table below to
provide a comparison in the calculation. Cash Conversion is calculated as net
cash flows from operating activities divided by profit attributable to equity
holders of the Company, expressed as a percentage. Management considers that
this is useful information for investors as it gives an indication of the
quality of profits, and ability of the Group to turn profits into cash flows.
6 months to 6 months to
30 June
30 June
2024
2023
£m
£m
Net cash flows from operating activities (a) 307 332
Profit attributable to equity holders of the Company (b) 196 185
Cash Conversion (a/b) 157.00% 179.00%
Adjusted Effective Tax Rate (Adjusted ETR)
Adjusted Effective Tax Rate is used to show investors and management the rate
of tax applied to the Group's Adjusted Profit Before Tax. The measure is
calculated by dividing Adjusted Income Tax Expense by Adjusted Profit Before
Tax, expressed as a percentage.
6 months to 6 months to
30 June 30 June
2024 2023
£m £m
Income tax expense 57 55
Tax adjustments on:
Amortisation and impairment of intangible assets (excluding computer software) 22 20
Net interest adjustments 1 1
One-off and adjusting items 10 12
Adjusted income tax expense (a) 90 88
Adjusted profit before tax (b) 383 377
Adjusted effective tax rate (a/b) 23.5% 23.4%
The Group's effective tax rate (ETR) for the period was 22.5% (June 2023:
22.9%). The Group's Adjusted Effective Tax Rate before amortisation of
intangible assets (excluding computer software), one-off items and the net
interest adjustments for the period was 23.5% (June 2023: 23.4%). This
compares with a blended rate of tax for the countries in which the Group
operates of 25.3% (June 2023: 25.0%).
The Group's tax charge and Adjusted ETR will be influenced by the global mix
and level of profits, changes in future tax rates and other tax legislation,
foreign exchange rates, the utilisation of brought-forward tax losses on which
no deferred tax asset has been recognised, the resolution of open issues with
various tax authorities, acquisitions and disposals.
15. Legal statements
The financial information for the six month period ended 30 June 2024
contained in this interim announcement has been approved by the Board on 24
July 2024 and authorised for release on 25 July 2024.
These condensed interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year 31 December 2023 were approved by the Board of
Directors and authorised for release on 7 March 2024 and delivered to the
Registrar of Companies. The report of the auditors on those accounts 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 directors of Rentokil Initial plc are listed in the Rentokil Initial plc
Annual Report for 31 December 2023. A list of the current directors is
maintained on the Rentokil Initial website: rentokil-initial.com.
Responsibility statement of the directors in respect of the 2024 interim statement
We confirm that to the best of our knowledge:
● the condensed set of financial statements prepared in accordance with IAS 34,
'Interim Financial Reporting', as adopted in the UK (IAS 34), gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the Company and its subsidiaries included in the consolidation as a whole as
required by DTR 4.2.4R; and
● the interim management report includes a fair review of the information
required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year.
We have reviewed, and found that we have nothing to report in relation to the
requirements of DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first six months
of the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
By Order of the Board
Andy Ransom
Chief Executive
25 July 2024
Independent review report to Rentokil Initial plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Rentokil Initial plc's condensed consolidated interim
financial statements (the "interim financial statements") in the 2024 Interim
Results of Rentokil Initial plc for the 6 month period ended 30 June 2024 (the
"period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
● the Consolidated Balance Sheet as at 30 June 2024;
● the Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the period then ended;
● the Consolidated Cash Flow Statement for the period then ended;
● the Consolidated Statement of Changes in Equity for the period then ended; and
● the Explanatory notes to the unaudited interim financial statements.
The interim financial statements included in the 2024 Interim Results of
Rentokil Initial plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the 2024 Interim Results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The 2024 Interim Results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the 2024 Interim Results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the 2024 Interim Results, including
the interim financial statements, the directors are responsible for assessing
the group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the 2024 Interim Results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
25 July 2024
Cautionary statement
In order, among other things, to utilise the 'safe harbour' provisions of the
U.S. Private Securities Litigation Reform Act of 1995 (the "PSLRA") and the
general doctrine of cautionary statements, Rentokil Initial plc ("the
Company") is providing the following cautionary statement: This communication
contains forward-looking statements within the meaning of the PSLRA.
Forward-looking statements can sometimes, but not always, be identified by the
use of forward-looking terms such as "believes," "expects," "may," "will,"
"shall," "should," "would," "could," "potential," "seeks," "aims," "projects,"
"predicts," "is optimistic," "intends," "plans," "estimates," "targets,"
"anticipates," "continues" or other comparable terms or negatives of these
terms and include statements regarding Rentokil Initial's intentions, beliefs
or current expectations concerning, amongst other things, the results of
operations of the Company and its consolidated entities ("Rentokil Initial" or
"the Group), financial condition, liquidity, prospects, growth, strategies and
the economic and business circumstances occurring from time to time in the
countries and markets in which Rentokil Initial operates. Forward-looking
statements are based upon current plans, estimates and expectations that are
subject to risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialise, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated or
anticipated by such forward-looking statements. The Company can give no
assurance that such plans, estimates or expectations will be achieved and
therefore, actual results may differ materially from any plans, estimates or
expectations in such forward-looking statements. Important factors that could
cause actual results to differ materially from such plans, estimates or
expectations include: the Group's ability to integrate acquisitions
successfully, or any unexpected costs or liabilities from the Group's
disposals; difficulties in integrating, streamlining and optimising the
Group's IT systems, processes and technologies; the Group's ability to
attract, retain and develop key personnel to lead the Group's business; the
availability of a suitably skilled and qualified labour force to maintain the
Group's business; cyber security breaches, attacks and other similar
incidents, as well as disruptions or failures in the Group's IT systems or
data security procedures and those of its third-party service providers;
inflationary pressures, such as increases in wages, fuel prices and other
operating costs; weakening general economic conditions, including changes in
the global job market, or decreased consumer confidence or spending levels
especially as they may affect demand from the Group's customers; the Group's
ability to implement its business strategies successfully, including achieving
its growth objectives; the Group's ability to retain existing customers and
attract new customers; the highly competitive nature of the Group's
industries; extraordinary events that impact the Group's ability to service
customers without interruption, including a loss of its third-party
distributors; the impact of environmental, social and governance ("ESG")
matters, including those related to climate change and sustainability, on the
Group's business, reputation, results of operations, financial condition
and/or prospects; supply chain issues, which may result in product shortages
or other disruptions to the Group's business; the Group's ability to protect
its intellectual property and other proprietary rights that are material to
the Group's business; the Group's reliance on third parties, including
third-party vendors for business process outsourcing initiatives, investment
counterparties, and franchisees, and the risk of any termination or disruption
of such relationships or counterparty default or litigation; any future
impairment charges, asset revaluations or downgrades; failure to comply with
the many laws and governmental regulations to which the Group is subject or
the implementation of any new or revised laws or regulations that alter the
environment in which the Group does business, as well as the costs to the
Group of complying with any such changes; termite damage claims and lawsuits
related thereto and associated impacts on the termite provision; the Group's
ability to comply with safety, health and environmental policies, laws and
regulations, including laws pertaining to the use of pesticides; any actual or
perceived failure to comply with stringent, complex and evolving laws, rules,
regulations and standards in many jurisdictions, as well as contractual
obligations, including data privacy and security; the identification of a
material weakness in the Group's internal control over financial reporting
within the meaning of Section 404 of the Sarbanes-Oxley Act; changes in tax
laws and any unanticipated tax liabilities; adverse credit and financial
market events and conditions, which could, among other things, impede access
to or increase the cost of financing; the restrictions and limitations within
the agreements and instruments governing our indebtedness; a lowering or
withdrawal of the ratings, outlook or watch assigned to the Group's debt
securities by rating agencies; an increase in interest rates and the resulting
increase in the cost of servicing the Group's debt; and exchange rate
fluctuations and the impact on the Group's results or the foreign currency
value of the Company's ADSs and any dividends. The list of factors presented
here is representative and should not be considered to be a complete statement
of all potential risks and uncertainties. Unlisted factors may present
significant additional obstacles to the realisation of forward-looking
statements. The Company cautions you not to place undue reliance on any of
these forward-looking statements as they are not guarantees of future
performance or outcomes and that actual performance and outcomes, including,
without limitation, the Group's actual results of operations, financial
condition and liquidity, and the development of new markets or market segments
in which the Group operates, may differ materially from those made in or
suggested by the forward-looking statements contained in this communication.
Except as required by law, Rentokil Initial assumes no obligation to update or
revise the information contained herein, which speaks only as of the date
hereof.
The Company makes no guarantee that trends in the management of termite damage
claims will continue. Additionally, the Company makes no guarantee that its
operational improvement plans will mitigate against or reduce the number of
termite damage claims (litigated and non-litigated) against the Company nor
that these plans will reduce the ongoing cost to resolve such claims.
Additional information concerning these and other factors can be found in
Rentokil Initial's filings with the U.S. Securities and Exchange Commission
("SEC"), which may be obtained free of charge at the SEC's website, http://
www.sec.gov, and Rentokil Initial's Annual Reports, which may be obtained free
of charge from the Rentokil Initial website, https://www.rentokil-initial.com
No statement in this announcement is intended to be a profit forecast and no
statement in this announcement should be interpreted to mean that earnings per
share of Rentokil Initial for the current or future financial years would
necessarily match or exceed the historical published earnings per share of
Rentokil Initial.
This communication presents certain non-IFRS measures, which should not be
viewed in isolation as alternatives to the equivalent IFRS measure, rather
they should be viewed as complements to, and read in conjunction with, the
equivalent IFRS measure. These include revenue and measures presented at
actual exchange rates ("AER" - IFRS) and constant full year 2023 exchange
rates ("CER" - Non-IFRS). Non-IFRS measures presented also include Organic
Revenue Growth, One-off and adjusting items, Adjusted Interest, Adjusted
Operating Profit, Adjusted Profit Before and After Tax, Adjusted EBITDA,
Adjusted Earnings Per Share, Free Cash Flow, Adjusted Free Cash Flow, Adjusted
Free Cash Flow Conversion and Adjusted Effective Tax Rate. Definitions for
these measures can be found in note 14 of the financial statements. The
Group's internal strategic planning process is also based on these measures,
and they are used for incentive purposes. These measures may not be calculated
in the same way as similarly named measures reported by other companies.
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