Annual report 2016

Accelerated organic growth and strong execution of M&A.

Highlights of 2016 from this year's Annual Report.

Annual Report 2016


+ 12.6%
£2.0b
Ongoing Revenue

+ 11.5%
£252.3m
Ongoing Operating Profit

£156.4m
vs target of £110m
Free Cash Flow

+ 15.0%
3.37p
Total Dividend

Protecting People. Enhancing Lives.

Rentokil Initial is a global leader in the provision of route-based services which protect people and enhance lives. Throughout the world demands for higher standards of public health, stricter food safety legislation and compliance with workplace safety regulations are driving demand for our service expertise.

John McAdam Chairman, Rentokil Initial plc

“We have continued to evolve our business through a combination of organic and acquisitive growth. The composition of our revenues are also changing shape, with approximately 70% of Group Ongoing Revenue now within Growth and Emerging markets.”

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Overview of 2016

Revenue
Profit
Free Cash Flow

Ongoing Revenue increased by 12.6% in 2016, comprising Organic Revenue growth of 3.0% and growth from acquired businesses of 9.6%. Ongoing Revenue in Pest Control grew strongly at 25.9% during the year, of which 5.7% was organic. Growth in the Emerging (+18.7%) and Growth (+19.7%) markets was particularly strong. Manage for Value (MFV) markets grew by 1.3% and Protect & Enhance markets declined slightly by 0.7%. Revenue at actual exchange rates increased by 23.2% reflecting the favourable impact of foreign exchange.

Ongoing Operating Profit increased by 11.5% in 2016, reflecting growth in North America, the UK, Asia, Pacific and Latin America, but offset by lower profits in France and an increase in Central and Regional overheads. Adjusted profit before tax at actual exchange rates of £252.1m was favourably impacted by foreign exchange of £30.2m, due mainly to the weakening of Sterling against the Euro and the US Dollar in the year. Restructuring costs amounted to £7.1m at CER.

Free Cash Flow from continuing operations at actual exchange rates amounted to £156.4m in 2016, driven by continued strong operating cash flow and favourable foreign exchange movements. Spend on current and prior-year acquisitions of £109.2m and dividends of £55.5m were largely funded from Free Cash Flow. Net debt increased by £212.1m to £1,238.7m (31 December 2015: £1,026.6m), primarily driven by adverse exchange and other movements of £203.7m from the weakness of Sterling in the year.

Revenue

Ongoing Revenue increased by 12.6% in 2016, comprising Organic Revenue growth of 3.0% and growth from acquired businesses of 9.6%. Ongoing Revenue in Pest Control grew strongly at 25.9% during the year, of which 5.7% was organic. Growth in the Emerging (+18.7%) and Growth (+19.7%) markets was particularly strong. Manage for Value (MFV) markets grew by 1.3% and Protect & Enhance markets declined slightly by 0.7%. Revenue at actual exchange rates increased by 23.2% reflecting the favourable impact of foreign exchange.

Profit

Ongoing Operating Profit increased by 11.5% in 2016, reflecting growth in North America, the UK, Asia, Pacific and Latin America, but offset by lower profits in France and an increase in Central and Regional overheads. Adjusted profit before tax at actual exchange rates of £252.1m was favourably impacted by foreign exchange of £30.2m, due mainly to the weakening of Sterling against the Euro and the US Dollar in the year. Restructuring costs amounted to £7.1m at CER.

Free Cash Flow

Free Cash Flow from continuing operations at actual exchange rates amounted to £156.4m in 2016, driven by continued strong operating cash flow and favourable foreign exchange movements. Spend on current and prior-year acquisitions of £109.2m and dividends of £55.5m were largely funded from Free Cash Flow. Net debt increased by £212.1m to £1,238.7m (31 December 2015: £1,026.6m), primarily driven by adverse exchange and other movements of £203.7m from the weakness of Sterling in the year.

Differentiated Strategy

The differentiated quadrant-based strategy is working well and we have taken further steps in moving our portfolio towards higher growth businesses and geographies.

Our Business Model Our Quadrants

Priorities for the Next Phase of our Strategy

1 Accelerating Pest
Control
2 ‘Execute Now’ in
Hygiene
3 Workwear Quality
Focus

Rentokil is the world’s leading commercial pest control company. In 2016, Ongoing Revenues was up 25.9% and Ongoing Operating Profit up 25.1% strengthening our position as global leaders through innovation, digital expertise and acquisitions. Organic Revenue rose by 5.7% with growth through acquisition of 20.2%. Pest Control accounts for over 50% of Group Ongoing Revenue and Ongoing Operating Profit and this will rise to around 60% post completion of the JV with Haniel expected in mid-2017.

Find out more about Pest Control

In 2016 our Hygiene business delivered accelerated Ongoing Revenue growth, established a strong product range, launched the myInitial customer portal for enhanced customer insight and engagement and have begun to acquire target bolt-on acquisitions to build scale and density, replicating our successful pest control strategy. In 2016 Ongoing Revenue and Ongoing Operating Profit grew by 4.8% and 3.9% respectively and Organic Revenue rose by 3.1%.

Find out more about Hygiene

We have continued to implement our Quality agenda designed to differentiate Initial Workwear as the quality player in the continental European market. Operational improvements in customer service, satisfaction and retention have delivered financial improvements in Belgium and the Netherlands. In 2016 Ongoing Revenue and Ongoing Operating Profit declined by 1.3% and 14.5% respectively.

Our proposed Joint Venture with Haniel will create a leading provider of Workwear and Hygiene services in Europe with combined revenues of c. €1.1bn and APBITA of c. €130m (12 months to 30 June 2016). Our Initial Workwear operations and the CWS-boco businesses have complementary operations, products and capabilities providing the potential for future growth, as well as synergies and efficiencies.

Find out more about Workwear

1 Accelerating Pest
Control

Rentokil is the world’s leading commercial pest control company. In 2016, Ongoing Revenues was up 25.9% and Ongoing Operating Profit up 25.1% strengthening our position as global leaders through innovation, digital expertise and acquisitions. Organic Revenue rose by 5.7% with growth through acquisition of 20.2%. Pest Control accounts for over 50% of Group Ongoing Revenue and Ongoing Operating Profit and this will rise to around 60% post completion of the JV with Haniel expected in mid-2017.

Find out more about Pest Control

2 ‘Execute Now’ in
Hygiene

In 2016 our Hygiene business delivered accelerated Ongoing Revenue growth, established a strong product range, launched the myInitial customer portal for enhanced customer insight and engagement and have begun to acquire target bolt-on acquisitions to build scale and density, replicating our successful pest control strategy. In 2016 Ongoing Revenue and Ongoing Operating Profit grew by 4.8% and 3.9% respectively and Organic Revenue rose by 3.1%.

Find out more about Hygiene

3 Workwear Quality
Focus

We have continued to implement our Quality agenda designed to differentiate Initial Workwear as the quality player in the continental European market. Operational improvements in customer service, satisfaction and retention have delivered financial improvements in Belgium and the Netherlands. In 2016 Ongoing Revenue and Ongoing Operating Profit declined by 1.3% and 14.5% respectively.

Our proposed Joint Venture with Haniel will create a leading provider of Workwear and Hygiene services in Europe with combined revenues of c. €1.1bn and APBITA of c. €130m (12 months to 30 June 2016). Our Initial Workwear operations and the CWS-boco businesses have complementary operations, products and capabilities providing the potential for future growth, as well as synergies and efficiencies.

Find out more about Workwear

Andy Ransom Chief Executive, Rentokil Initial plc

“I am very encouraged by our performance in organic growth which, at 3.0%, is at its highest level for 10 years.”

Download Q&A with CEO

Downloads & links

Annual Report 2016

An outline of what we do through descriptions of our businesses, markets, growth opportunities and initiatives.

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Regional Performance View More
Acquisitions & Disposals View More
Funding & Dividends View More
Key Performance Indicators View More
Greater Focus on Growth and Emerging Markets

Growth and Emerging markets now account for c. 70% of Group Ongoing Revenues (2013: 36%)

Innovation

In 2016 we developed and launched a number of new sustainable products, including RapidPro, Lumnia, PestConnect and our NoTouch range of washroom products.

Digital expertise

We are leading the Pest Control industry in the commercialisation of the ‘Internet of Things’ through connected devices. During 2016 we continued to roll out PestConnect and we now have over 25,000 devices in 1,200 customer locations in 12 countries.

Customer satisfaction

In 2016 the Company maintained high levels of customer service, improved customer satisfaction by 4.7 points (as measured using the NPS system) and saw customer retention rise by 0.6%.

January
2016

Acquisition of Fumacare Hygiene Services in New Zealand with its comprehensive range of hygiene.

May
2016

Initial Workwear launches a new water-free laundry process, the first of its kind in Europe. A new machine in Lokeren, Belgium washes workwear using liquid carbon dioxide (LCO2), cleaning workwear more thoroughly, prolonging its life and reducing our environmental impact.

July
2016

Acquisition of pest control and turf products distribution business Residex for US$30m.

The U.S. Centers for Disease Control and Prevention (“CDC”) awards Rentokil North America a contract to help control the species of mosquito that could potentially carry the Zika virus across the USA.

Collaboration with Google and PA Consulting Group (PA) brings together Rentokil’s proprietary connected products and global pest control expertise; Google’s core infrastructure, data analytics and machine learning; and PA’s digital and agile expertise as one of Google's leading global partners in the use of the Internet of Things (IoT) and the Cloud Platform.

August
2016

The WHO Zika Committee congratulated Brazil on its successful application of appropriate public health measures during the Olympic Games. It also confirmed that there had been no reports of confirmed cases of Zika virus among people who attended the Games. Rentokil had been appointed to undertake Pest Control and mosquito control services as part of the extensive risk management approach that was undertaken by the Rio 2016 Organising Committee.

October
2016

Acquisition of Isotech Pest Management helps Rentokil expand its presence in California, particularly in the commercial sector.

November
2016

Rentokil Initial wins the 2016 UK BCS IT Industry Award for Best Internet of Things Project.

December
2016

Rentokil Initial is the biggest riser in 'Britain's Most Admired Companies' awards, rising 133 places to 25th in the list of leading companies.

A joint venture with Haniel & Cie is agreed, bringing together Rentokil Initial’s Workwear and Hygiene businesses in 10 countries principally in the Benelux and Central & Eastern Europe regions, together with Haniel’s businesses in 17 countries which operate under the CWS-boco brand.

January 2016

Acquisition of Fumacare Hygiene Services in New Zealand with its comprehensive range of hygiene.

May 2016

Initial Workwear launches a new water-free laundry process, the first of its kind in Europe. A new machine in Lokeren, Belgium washes workwear using liquid carbon dioxide (LCO2), cleaning workwear more thoroughly, prolonging its life and reducing our environmental impact.

July 2016

Acquisition of pest control and turf products distribution business Residex for US$30m.

The U.S. Centers for Disease Control and Prevention (“CDC”) awards Rentokil North America a contract to help control the species of mosquito that could potentially carry the Zika virus across the USA.

Collaboration with Google and PA Consulting Group (PA) brings together Rentokil’s proprietary connected products and global pest control expertise; Google’s core infrastructure, data analytics and machine learning; and PA’s digital and agile expertise as one of Google's leading global partners in the use of the Internet of Things (IoT) and the Cloud Platform.

August 2016

The WHO Zika Committee congratulated Brazil on its successful application of appropriate public health measures during the Olympic Games. It also confirmed that there had been no reports of confirmed cases of Zika virus among people who attended the Games. Rentokil had been appointed to undertake Pest Control and mosquito control services as part of the extensive risk management approach that was undertaken by the Rio 2016 Organising Committee.

October 2016

Acquisition of Isotech Pest Management helps Rentokil expand its presence in California, particularly in the commercial sector.

November 2016

Rentokil Initial wins the 2016 UK BCS IT Industry Award for Best Internet of Things Project.

December 2016

Rentokil Initial is the biggest riser in 'Britain's Most Admired Companies' awards, rising 133 places to 25th in the list of leading companies.

A joint venture with Haniel & Cie is agreed, bringing together Rentokil Initial’s Workwear and Hygiene businesses in 10 countries principally in the Benelux and Central & Eastern Europe regions, together with Haniel’s businesses in 17 countries which operate under the CWS-boco brand.

Protecting People. Enhancing Lives.

Our corporate responsibility actions focus on helping to improve public health, protecting property from pest damage and reducing risk of poor workplace hygiene, together with reducing emissions, energy and water usage. Download the 2016 Corporate Responsibility report here.

Safety
19%
improvement Long-Term Accident rate
20%
Improvement Working Days Lost rate
Environment
10.7%
Improvement in emissions
5.6%
Improvement in water consumption in workwear plants
Training
300,000
items of online training and development completed
>300
Courses and videos created for online training
Community
£171k
Donated to charities
£126k
Donated to Malaria No More since the relationship began