Statement by the Chairman
and the Chief Executive
Overview of performance
Despite tough conditions in many of our markets Rentokil Initial delivered revenue and profit growth across all divisions in 2012. Full-year revenue of £2.6bn grew by 2.8% at constant exchange rates, 0.8% organic (excluding Initial Facilities Spain where we continue to scale down the business to reduce financial exposure). Recent acquisitions have performed well during the year, contributing 2.4% (£60.6m) of revenue growth.
Textiles & Hygiene grew revenue by 2.5% in 2012, aided by a continuing robust performance from Germany and steady performances from France and Australia. Benelux made further improvement in profitability as the turnaround progressed, though revenue growth of 0.5% was held back by weak economic conditions.
Pest Control grew by 2.8%, aided by a particularly strong performance in North America and solid growth in the UK. While our Central, Eastern and Northern Europe operations have traded well, our operations in Southern Europe continue to struggle in particularly depressed market conditions. Growth during 2012 has been boosted by a number of strategically significant acquisitions which have strengthened our presence in our major US market and given us footholds in Latin America and the Middle East. We are particularly pleased with the acquisition of leading US West Coast pest control and products business, Western Exterminator ('Western'), which gives us close to 90% national coverage and positions us as the third largest player in the market. Integration of this business is proceeding well. We will continue to pursue growth by acquisition in the coming year.
Initial Facilities' revenue growth of 2.1% was driven by strong performances from a number of small acquisitions providing technical services. Underlying revenue (excluding Spain and acquisitions) fell by 1.7%, reflecting a significant reduction in the cleaning sector which has masked strong growth in other sectors as we re-position the business as a Total Facilities Management (TFM) provider. Improvement in service mix coupled with improved operational efficiency has however improved profitability, with growth of 9.6% for the full year.
Revenue in Asia grew by 6.2%. Both the pest control and hygiene categories performed well, benefiting from further market development and gains in share from competitors. Our operations in India and China delivered strong revenue growth from a low base though they remain loss making. Malaysia had another exceptional year.
City Link has made good progress this year on productivity savings and in volume growth with our major customers. Over the year City Link has achieved a 13% reduction in cost per delivery, volume growth of 17% and a 16% reduction in operating losses. However, offsetting this operational progress, revenue per consignment (RPC) has declined by 10% as our sales mix has moved toward large Business to Consumer customers. Efforts to maximise retention of more profitable smaller customers is a key priority for 2013.
During the year the Company began the process of fully integrating Ambius into the Pest Control division under a single management structure by country or region. Ambius is now included in the pest control segmental reporting (see Note 1). This follows the implementation of integrated management in the Nordics, South Africa and elsewhere in the Rentokil Initial group. Further structural changes were implemented early in 2013 with the transfer of the pest control business units in France and Germany to the Textiles & Hygiene division.
From 1 January 2013 almost all our core businesses (with the exception of Benelux) will be run on a day-to-day basis by one country manager per country. The country manager is responsible for all our core categories in his/her country – pest control, hygiene, workwear and plants. Countries have been grouped into three geographic regions – East, West and Asia – with each region being run by a senior managing director reporting to the Chief Executive.
The countries are supported by functional and category teams organised on a global or regional basis. We believe this integrated operating model offers the best balance between driving country cost and growth synergies and also leveraging our international scale through knowledge transfer via global and regional functional and category teams.
As a result of these changes we will report group results on a major country, as well as category basis. The Americas, UK, Ireland, Nordics, Southern Europe, Middle East & Africa will form the West region. This region consists predominantly of pest control businesses but includes hygiene and the majority of our plants business. France, Benelux, the German speaking countries and Pacific will form the East region. This region contains all of our workwear category plus hygiene, pest control and plants. The Asia region will continue as before. City Link and Initial Facilities will continue to be reported separately as divisions.
The reporting structure that will be reported from 2013 onwards can be found in the Business Overview.
At 31 December 2012 the group had net debt of £989.5m and a strong liquidity position, comprising over £200m of funds and £510m of available undrawn committed facilities, with £50m of bond maturities in 2013. This follows the issuance in September of a €500m seven-year bond paying a coupon of 3.375%.
The bond has provided funding for:
- The acquisition of the Western business at a cost of $92.6m (£57.1m)
- The repurchase of the group's £75m puttable/callable resettable bond at its fair value of £103.7m
- The repurchase of €14.5m of the €500m 2014 bond at a premium of £0.6m
It will also provide funding for:
- The repayment at maturity of the group's £50m bond maturing September 2013
- An element of the group's €500m 2014 maturity
The group signed a two-year £240m revolving credit facility (RCF) in December 2012 to provide further liquidity for the €500m 2014 maturity.
The Company resumed the payment of dividends in 2011, paying a final dividend for the year. Despite challenging market conditions the Company has made good progress in 2012 and we anticipate further progress in 2013. Taking this into consideration the board is recommending a final dividend in respect of 2012 of 1.43p per share, payable to shareholders on the register at the close of business on 19 April 2013 to be paid on 21 May 2013. This equates to a full year dividend of 2.1p per share.
In 2012 we have welcomed into Rentokil Initial new colleagues through the many good businesses we have acquired and through the on-going process of improving the capability of the business. We thank all our colleagues who have put in a huge effort over the last year to meet the challenges created by difficult economic trading conditions as well as to contribute to the on-going change programmes designed to improve the fitness of the group to deliver improved performance. Feedback from colleagues about their levels of motivation and enablement remains good, consistently outperforming service industry norms, and colleagues' participation in training, recognition programmes and community activities is impressive.
We also welcome Angela Seymour-Jackson who joined the board in March 2012 as a non-executive director. William Rucker stood down as a director today following a review of his commitments. The board is appreciative of his considerable contribution to the Company since joining the board in 2008.
We are grateful for the continued support of our shareholders and other stakeholders.
Outlook for 2013
Rentokil Initial finished the year strongly, with adjusted profit before tax up 15.9% in Q4 and 10.1% for 2012 as a whole at constant exchange rates. These results were broad based, with every division improving both revenue and profit. Furthermore, we increased organic revenue growth by 1.3% from negative 0.5% to positive 0.8% (excluding Initial Facilities Spain) despite difficult market conditions in most of Europe.
Our organisation has matured considerably in the past 24 months with global leadership established for major business functions including marketing & innovation. This has enabled us to evolve to an integrated country-based operating model with strong central and regional support. These changes have also given us a strong innovation pipeline for 2013 in our core categories.
While we remain mindful of continuing tough conditions across many of our markets, the operational changes we made during the year, together with the acquisition of Western in December, give us confidence that 2013 will see us sustain the momentum we achieved in the final quarter of 2012.
14 March 2013