Rentokil Initial plc

Good morning, ladies and gentlemen. Thank you all for joining us today. In a few moments, Stuart's going to provide you with details of our overall performance in 2023 and our technical guidance for 2024. I'll then come back to provide a very brief update on each of our categories before we focus today on North America. Here, I'll start by taking you through our organic growth model and our analysis of what happened in the second half. Brad Paulson, our recently appointed CEO for North America, who I'm delighted joins us here in person, will then go through our Right Way 2 growth plan. I'll then wrap up with a brief update on the excellent progress that we're making towards integration, and then we'll take questions. So to set the scene, let me just say a few words by covering the highlights for the year. In 2023, we delivered a good overall group performance with revenue increasing by 45.8% to £5.4 billion, of which organic growth was 4.9%. Adjusted operating profits grew by 57% to 897 million pounds, and we delivered a group margin of 16.6%, which was an increase of 120 basis points. Adjusted EBITDA for the year was 1.2 billion pounds. Our bolt-on M&A continued to create value with 41 deals, delivering annualized revenues in the year before acquisition of around £106 million. Our cash conversion was at the higher end of our 80% to 90% target at 89%, and we reached a 2.8 times net debt to EBITDA ratio one year ahead of our plan. So a good overall group performance. As you can see, we continue to make very good progress against the vast majority of our targets, and even in the case of organic growth, where we experienced a more challenging second half in North America, we nonetheless delivered organic growth of 4.9% against our medium-term target of 5% plus. The group is performing very well overall, and we've got a plan in place to reinvigorate growth in North America. As I just mentioned, our second half organic revenue performance in North America was below our expectations at 2% and at 3.5% for the full year. At the heart of this was a reduction in inbound sales leads contributed to by a range of factors, including the performance of our own digital marketing channels, the impact of our ongoing integration activities, increasing spend by a number of competitors, and a softer consumer market. And I'll come on to explain this in greater detail shortly. Having analyzed our organic growth performance in the second half, we've created a detailed plan and we've put in place a very talented and experienced sales and marketing leadership team ahead of this year's pest season. We're calling this our RightWay2 growth plan, and it aims to enhance our performance across all aspects of organic growth in North America, from both new and existing customers, and in particular, to increase our inbound lead flow. We're investing for growth with around $25 million being put to work to support our growth ambitions with investments into the team, into sales leads from technicians, and into our digital channels. This also includes our first advertising campaign to exploit Terminix's position as the most recognized pest control brand in the United States. Whilst we've got a very clear action plan and we're beginning to execute that now, it will take some time to get the business to the levels of organic growth that we expect. And as such, we're expecting organic growth in North America to be between 2% and 4% in 2024, with around 2% expected in the first quarter. Touching very briefly on the excellent progress we're making on the integration, we've now completed phase one and we've exceeded our 2023 synergy target by $9 million. Our branch co-locations are going very well with around 100 fewer branch properties and with a further 75 or so to be exited this year. And we've announced today that we're increasing our gross synergy target by $50 million to around $325 million. We're investing $25 million of that into sales and marketing, which results in our total net synergy target increasing from $200 million to around $225 million. We're also extending the branch integration phase into 2026 to de-risk the program and to deliver these greater synergies. As a reminder, our original plan was to deliver net cost synergies of $150 million by the end of 2025. And our latest plan takes us to $187 million by that point, and then on to the $225 million by the end of 26. So a good overall performance, a plan in place to reinvigorate organic growth in North America, and an increase in our gross synergy target of $50 million. So with that, let me hand over to Stu.

Thank you, Andy, and good morning, everyone. I'll run through the financial highlights of what has been another good year. I'll start with the group level numbers and then as usual, I'll move through the regions and then look at cash and the balance sheet. Unless I state to the contrary, all numbers are at constant rates of exchange. The business delivered a good top-line performance in the year. Revenue was up 45.8% to £5.4 billion. Organic revenue was up 4.9%, supported by performances in Europe, Asia-Pacific and the UK and Latam. This translates to an adjusted operating profit of £897 million, a year-on-year increase of 57%. Free cash flow in the year of £500 million, up 34% on 2023, flows from the good profit performance. This represents about 89.4% adjusted free cash flow conversion. It's inclusive of legacy termite warranty claims, but excludes the impact of one-off cash flows mostly related to the Terminix transaction. These factors, combined with the continued success of our bolt-on M&A programme and the dividend payment, resulted in a net debt to adjusted EBITDA ratio at year-end of 2.8 times, achieving our target below three times one year ahead of our initial guidance. Excluding one-offs, we achieved just under 2.6 times, so only just in excess of our medium-term target of 2 to 2.5 times. At AER, diluted EPS, diluted adjusted EPS was up 8.8% to 23.08 pence. But at CER, diluted adjusted EPS was actually up 12.9%. Based on a good four-year performance, the board has recommended a final dividend for the year of 5.93 pence per share to bring the total dividend for 2023 to 8.68 pence per share, a 15% rise year-on-year and in line with our progressive dividend policy. So looking now at our performance by region, starting with North America. Our North American business grew revenues by 79.2% in the year, of which 3.1% was organic. This was achieved alongside significant progress in the Terminix integration. Organic revenue growth in pest control was 3.1% and 3.5% for pest control services for our commercial, residential and termite customers. This result was below our expectations, largely owing to lower new business lead generation in H2. As anticipated, the weaker Q3 2023 growth performance continued into the low season of Q4 at 1.2% for pest services. However, Q1 2024 is expected to be at about 2%. We expect full-year organic revenue growth in North America to be in the range of 2% to 4%. We've put in a plan, Right Way 2, to reinvigorate organic growth in North America, and Andy and Brad will take you through this later in the presentation. Adjusted operating profit in North America was up 95.9% to £618 million, reflecting the combined impact of higher revenues and the Terminix acquisition. Strong price realisation continued to successfully offset expected inflationary pressures. Adjusted operating margins were up 160 basis points year-on-year to 18.7%. we've continued to make good progress in colleague retention in the region. Total retention, including Terminix, was up by more than five percentage points. Total customer retention in North America increased slightly to 79.5%. Despite the attention given to the Terminix transaction, we've had another good year for Bolton M&A in North America, acquiring 13 businesses with combined annualized revenues of around £46 million in the year prior to purchase. The next slide takes a look at the strong progress in North American margins. To look at the underlying margin improvement here, we've used the pro forma baseline in 2022 of 16.3%, including the annualised standalone Terminix margin of 14.7% we disclosed at the 2022 prelims. On this basis, we see that North American margin has increased by 240 basis points in the year. This progress was driven by two key factors. Firstly, trading activities, including growth and density improvements, contributed about 100 basis points of margin. Secondly, synergies delivered $56 million, that's about £45 million, adding about 140 basis points to margin. And you can also see that once we exclude the distribution business, adjusted operating margins are already in excess of 20%. We expect modest North American margin progression in 2024, with improvement weighted towards H2, owing to the region's expected organic growth trajectory and additional investment in sales and marketing. Turning now to the European region, a really strong performance across the board here, driven by both effective price increases and good demand. Revenue rose by 14.6%, passing £1 billion, a significant milestone. Organic revenue growth was 9.2%. All three businesses in Europe posted strong numbers. Pest control revenue is up 21.8%. Hygiene and wellbeing grew by 5.8%. France workwear, which continued to exceed pre-COVID performance levels and was supported by new business sales, was up 13.2%. Adjusted operating profit rose by 12.5%. In Europe, as expected, short-term H1 margin pressure reversed in H2. The H1 impact and hyperinflation in Argentina saw a slight reduction in the adjusted operating margin for the year to 19.5%. While inflationary pressures have persisted throughout the period in Europe and most of LATAM, we've been successful at protecting margins with pass-through pricing. Customer retention has remained strong and the region has delivered some really impressive numbers in colleague retention, now over 90%. There was a total of 11 business acquisitions made last year, with annualised revenues of around £12 million in the year prior to purchase. Turning to the UK and sub-Saharan Africa, the region delivered good results against a difficult macro backdrop. Revenue was up 7.9%, with organic growth of 3.5%. Within this, pest control was up 8%. Hygiene and wellbeing increased 7.7% despite lapping COVID-boosted comparators in the medical waste business. There was a good contribution from the recently acquired urban planters business, which supplies plants to retail properties, offices and restaurants. This was accompanied by an improved performance year on year in the UK property care business, despite the property market slowdown. Regional adjusted operating profit was down slightly by 0.5% to £95 million, with a margin reduction to 24.1%. As previously stated, margin performance in the first half of the year was affected by the anticipated reduction in COVID disinfection and related services, such as needle and PPE disposal and the non-repeat of UK COVID credit note releases. However, as expected, these factors mostly fell away in H2. Inflationary pressures have been significant, but the region's long-established pricing and margin management controls have delivered a price performance that mitigates these cost increases. These price increases have been delivered alongside an improved customer retention rate. Colleague retention was also up strongly. The region completed two business acquisitions in the year with annualized revenues of about £18 million. Looking now at Asia and MENA, the year saw a good performance led by the region's largest markets, India, Indonesia, Malaysia and Singapore. Markets overall remained structurally supportive and there was a more positive contribution from China. regional revenues rose by 11.2 percent of which 10.2 was organic adjusted operating profit in asia increased by 4 to 47 million pounds and adjusted operating margin was down 100 basis points to 13.1 percent affected by the anticipated reduction in covid disinfection revenues customer retention was slightly down in the prior year while colleague retention was considerably improved the region acquired seven businesses with total annualized revenues of around eight million pounds And finally, turning to the Pacific region, another strong trading performance here. Regional revenue increased by 15%, of which 6.8% was organic. Pest control was up 25.2%, with notable strength in commercial services. Hygiene and wellbeing was up 6.4%. We've had continued good demand in the region for Ambius services. Regional adjusted operating profit was up 19.8%, with an increase in adjusted operating margin of 90 basis points to 21.7%. The customer retention rate remained strong and colleague retention in the region showed a marked improvement. The region acquired eight businesses with total annualised revenues of around £22 million. So that's a rundown of our regions, which as you can see have performed well overall in the year and evidence the benefit of our group's worldwide presence. The next slide looks at our group margin development through 2023. Overall group adjusted operating margin increased by 120 basis points. Execution on our strategy, densifying routes and products, M&A, optimising overheads and leveraging technology, as well as active cost management, continues to effectively support margin expansion. Our overall trading performance contributed a net 90 basis points, and in the first full year of the Terminix integration, Synergy Delivery added 100 basis points to group margin. As can be seen from the chart on the right-hand side, that's more than offset the 70 basis point pro forma underlying impact of the inherited lower margin Terminix business. across our geographies with the persistence of inflationary cost pressures, most notably wage inflation. But we continue to be very successful and remain focused on our ability to mitigate increases through pricing. In line with the updated integration timetable about which Andy will speak in a moment, the medium-term group margin target of greater than 19% is now expected to be achieved in 2026. Now looking at our cash performance, adjusted EBITDA was £1.28 billion, up 43% year-on-year. Non-cash, one-off and adjusting items represent Terminix-related one-time share incentive schemes and asset impairments. The working capital outflow was largely attributable to growth, and the movements in provisions relate to termite warranty claim settlements, which were at the expected levels. Net capital expenditure of £197 million was incurred in the period, reflecting growth and the inclusion of Terminix capital expenditure. Lease payments were up by 45.2%, reflecting a full year of Terminix. Cash interest payments of £166 million were £127 million higher than in the prior year, reflecting the timing of interest charge payments related to the financing of the Terminix transaction, with phasing as described at the interims and to be repeated each year. The increase in cash tax payments reflects higher profits. Free cash flow over £500 million was £126 million higher than in full year 2022. This resulted in adjusted free cash flow conversion of 89.4% at the upper range of our guidance. There was a £242 million cash spend on acquisitions in the year. Dividends account for £200 million of cash spend and the £107 million cash impact of one-off and adjusting items largely related to Terminex. Net debt reduced by $133 million to $3.146 billion. This resulted in net debt to EBITDA ratio of 2.8 times at the year end, achieving our target of below 3 times one year ahead of schedule. And that included a marginal benefit from US dollar FX rates at year end. Note that excluding integration costs to achieve, leverage would have been less than 2.6 times. Our next debt maturity is a 400 million euro bond due in November. About 81% of the group's interest costs are fixed, providing good visibility in a volatile rate environment. In July 2023, S&P Global reaffirmed the group's BBB investment grade rating, and in October 2023, the group received a second BBB rating from Fitch. Moving to technical guidance. On this slide, we update some technical guidance to help you with your models in relation to the full year. I'll let you read these in your own time, but we'll draw your eyes to a few items. On the P&L, we expect Terminix integration costs to be between $90 to $100 million. Interest is expected to be the range of $135 to $145. That's net of a non-cash hyperinflation credit of $10 to $15 million. Our full-year FX guidance reflects the strengthening of the pound against the dollar. We anticipate a headwind of between £25 and £35 million, which appears to be already largely reflected in market consensus forecasts. And as shown on the side, please do note the impact on 2024 of the planned closure of our Paragon distribution business in North America. As already stated, due to the uplifted expected synergies, we expect to achieve a group margin of greater than 19% in 2026. At this point, I'll hand back to Andy, who will take us through the business category performance.

Thank you, Stuart. Excuse me. All right, I want to give the North America section as much time as possible this morning, so in the interest of time, I'm going to turn the pages on our usual employer of choice and business categories at some pace. But I'm delighted at the excellent progress being made, and I'll be obviously happy to take questions later. Our tried and tested operating model continues to perform very well and if we start with employer of choice you can see that colleague retention has improved globally by 4.7% with all regions improving and that equates to around 1,900 more colleagues choosing to stay and therefore fewer roles needing to be recruited for. North America increased colleague retention by 5% in the year. And that's really great progress. And I'll come back to that later. You know how important safety is in our company. And in 2023, we delivered further improvements on our world-class safety standards. And we were again recognized by ROSPA with their prestigious Gold Award for the sixth year running. Customer service levels were high. Customer satisfaction, which we measure at branch level using the Net Promoter Score, is now approaching world-class levels in many parts of the group, including, indeed, in Terminix. In ESG, we've made continued good progress on emissions in 2023, and we're again ranked amongst the leaders in our sector, something that's very important to us, as I know it is for all of our stakeholders. If I turn now to pest control, the global market remains very healthy, with independent market analysts forecasting growth of around 5% to 6% per annum through to 2028, which, given our global footprint in around 90 countries, we're ideally positioned to exploit. Indeed, our focus here has delivered revenue and profit CAGRs of over 20% since 2015. And last year, our global pest control business continued its growth journey to around £4.3 billion of revenue, organic growth of 4.5%, and we delivered margin expansion of 70 basis points. Now, for those of you who operate in US dollars, you can see on the chart here the scale of our global pest control business, where we are the number one in all regions around the world with $5.4 billion of revenue and profits of just over $1 billion. Now, as you know, innovation in pest control is very important to our customers. It's a key growth driver. So let me just give you a few examples of why Rent-A-Kill is the global leader in innovation. We now have over 350,000 Internet of Things PestConnect units operating in our customers' premises, and that's an increase of around 23% year-on-year. We're launching EcoCatch, and that's our new proprietary outdoor fly control solution, which in our Innovation Center test was 60% more effective at catching flies than the current market-leading fly trap. And we've got Lumnia. Lumnia is for indoor flying insect control, and we've sold around 445,000 units since its launch in 2017. And we're now developing the next generation devices using cameras and AI-based technology. These are just three examples of our innovations that differentiate Rent-a-Kill from the competition, and each of these will start to be rolled out in North America this year. Moving on to pest control's sister category of hygiene and well-being, here we operate in a resilient market which we're expecting to grow by around 4-5% through to 2028. Since 2015, this business has delivered revenue and profit CAGRs of 6.5% and 8.1% respectively. And during the year, the business delivered revenue growth of 7.8%, of which 4.8% was organic, profits grew by 4.1%, and full year margins were 18.4%. Our core services inside the washroom delivered organic growth of 4.5% last year, and we continued to develop new products which support the increase in the number of service lines per premise which increased over the last 12 months from 1.83 to 1.92. Outside of the washroom, we delivered organic growth of 5.3%, with increased focus on wellbeing services such as air and surface hygiene, scenting and plants. Whilst M&A in hygiene and wellbeing performed well in 2023 with seven deals, delivering annualised revenues of £30 million, and that's ahead of our medium-term target to deliver annualised revenues from acquisitions of at least £25 million. In France, our workwear business benefited from excellent colleague and customer retention and delivered revenue growth of 13.2%, adjusted operating profit grew by 23.6%, and the business delivered margins of 17.5%, which were the highest for at least a decade. Turning to our bolt-on M&A program, we delivered 41 deals in 23 with annualized revenues of £106 million. And our M&A program continues to perform well at or above our required hurdle rates. And we've got a good pipeline in place for 2024. And our current view of M&A spend this year is around £250 million. So a good overall performance, and now let's move the focus to North America. Clearly, we're disappointed with organic growth delivery in the second half. I'm now going to take a few minutes to explain to you how our organic growth model works, both the elements that underperformed in 2023, but also the elements that performed well. Brad will then take you through the plan to reinvigorate growth in a little bit more detail. So let me start with the market, the US pest control market. That's the world's largest pest control market, and it represents around half of global pest control demand. Based on our internal estimates, we believe that the US pest control market grew by around 4% in 2023. And whilst this is around a one percentage point reduction against the historical average of around 5%, the current consensus of third-party commentators calls for a return to average growth rates of around the 5% mark in the period to 2028. And as we think about future growth in the US pest control market, it is perhaps worth noting that third-party estimates suggest that in residential and termite, the unserved market is nearly seven times that of the current served market. So this represents a significant potential future growth opportunity to expand the size of the market. So here's our model for organic growth in pest control, and it starts at the top with strong colleague retention and expertise in our frontline techs and in our sales colleagues. You then have sources of organic growth coming from existing customers, and they're running down the left-hand side of the chart there, and sources of organic growth coming from new customers, and they're running down the right of the chart. In short, happy, engaged, well-trained, experienced technicians will deliver a high quality service to our customers, which then, over time, drives up customer retention. happy customers are accepting of our annual price increases, but they're also willing to purchase additional services from us with our frontline technicians making recommendations to our customers and submitting those as sales leads to then be sold by the sales team. Once the sales team has sold the lead, it's important that the technician gets the work order completed quickly as an urgent response is often very important to our customers. As I'll explain in a moment, revenue from existing customers was not our issue in 23. That said, it's nonetheless clear that we've got an outstanding opportunity to generate improved growth from our very large existing customer base. So what about the right-hand side of the chart, new customers? Growth from new customers was undoubtedly weaker in the second half of last year, primarily because of lower inbound sales leads in residential and termite and in our high street business customers. And why was that? Well, our analysis is that there was not a single major cause, but rather a range of contributing factors collectively impacting on our execution. As I've mentioned, growth in the market was down, reflecting the tougher economic environment. The performance of our own digital marketing channels was disappointing at a time when our marketing and sales leadership teams were undergoing considerable change. Whilst our service technician retention showed excellent improvement, our frontline sales colleague retention was flat year on year, and in Terminix, it remains well below where we need it to be. At the same time, some of our competitors were increasing their spend in digital channels. And in addition, we were clearly very focused on the integration program, perhaps more than the external market. So we've analyzed each part of that model that I just showed you. And let me put a little bit more meat on the bones before I hand to Brad to take you through the right way to growth plan. So let's go back to the model. Was our low growth caused by colleague retention? Well, no, it wasn't. In fact, colleague retention was up by 5 percentage points in North America last year. And since the deal closed, we've delivered an impressive 8 percentage point improvement in Terminix technician retention. In 2024, as Brad will come on to highlight, there'll be no letting up on our focus on this, but we will have a far greater emphasis now being put on sales colleague retention. On the right hand side, our key customer service metric of state of service remains strong in 23, as was customer satisfaction, where Terminex's net promoter score of 65 is truly excellent. And indeed, this improved by one and a half points last year. Continuing around the model, our pricing remained tightly managed in North America, where we successfully covered cost inflation with increases to our prices. Overall, our technician lead performance in 23 was fine. In fact, it was slightly up on 2022. And we deployed the new trusted advisor program in Terminix. But here again, we believe that we've got a significant opportunity to improve in this space going forward. Last year in the United Kingdom, 88% of technicians submitted successful leads, whereas in North America, it was just around 50%. So turning now to new customers. Terminex is the best known pest control brand in North America. It leads on both top of mind and unaided brand awareness. So whilst awareness of the Terminex brand is excellent, it is fair to say that we haven't yet invested in the Terminex brand, particularly in terms of the top of funnel marketing, as we've been very focused on the foundation phase of our integration. There's clearly, clearly a great opportunity here. Brad will outline the plan shortly to start to leverage this market-leading pest control brand from 2024. Looking at the right-hand side, as I mentioned earlier, the part of the model that is scored in red is new customer acquisition, where inbound sales leads were down by around 2% to 3% in the second half. I went through the contributing factors earlier, including the performance of our own channels and increased spend by competitors. But with a good understanding of this, we've now created the right way to growth plan. Once we get leads in from technicians or inbound leads from marketing, there's a funnel through to the sales team. So how effective were the sales teams at selling those leads? Well, the short answer is they did a decent job at converting leads into sales with a sales conversion rate that was effectively in line with 22. But in my view, perhaps this could also have been better given that our sales colleagues had fewer leads to work on. So clearly, improving our sales colleague retention will be an important part of the plan. Once a sales lead has been sold, it's passed to the techs to complete the work order. As I mentioned earlier, the time between order and installation is critical. Completion rates remained high throughout the year. And whilst we do see good opportunities to achieve yet further productivity, this was also not an issue for us in 2023. So I've taken you through the model for organic growth. I've outlined the range of factors which influence the lower organic growth performance. in 23 and I hope that I've also started to demonstrate the range of opportunities that we're focusing on in 24 and beyond. But all of this comes down to execution, execution of the plan. And to ensure that execution, as you can see on the screen, we're starting the 2024 pest season with a highly talented, experienced, and fully staffed senior sales and marketing team in place. Leading that team is our new CEO for North America, and that's Brad. And with that, I'm going to hand it over to Brad.