Rentokil Initial plc

Morning, everyone. So here's a quick look at today's agenda. I'm going to start with a few opening remarks. I'm then going to hand over to Paul, who's going to provide a financial overview, including our regions and categories. And then I'm going to dive into our North American review and our action plan. We'll then be pleased to take questions. In 2024, we delivered a revenue of £5.6 billion, an increase of 3.9%, of which organic growth increased by 2.8%. But clearly, this was a challenging year for the group, with lower profits and margins, as we outlined in our trading update in September. We delivered good growth in international, which are our businesses outside of North America, with revenue up 8.2%, of which organic revenue contributed 4.7%. And here, pest control, organic growth was strong at 5.3%. On the right, you can see a breakdown of the North America and international businesses. Our international pest control and hygiene businesses delivered revenue of £2 billion, that's an 8.3% increase, and with strong customer retention of 86%. I'll discuss the North America region in much more detail shortly. The integration itself is progressing well and I'm confident that following our Q1 review we're taking a pragmatic set of actions designed to drive improved growth. It was very good to see colleague retention continuing to increase up by 2.4% and operationally this means that we had around 1,000 fewer people to recruit last year. You've heard me say many times that a great colleague experience leads to a great customer experience. And indeed, in 2024, we delivered improved levels of customer satisfaction with a further one-point increase in our net promoter score and increased customer retention, which rose by 50 basis points. Turning now to North America. On the integration front, branch systems integration progressed well in 2024. 58 branches had their systems migrated in the second half of the year, bringing the total number of North American branches operating on our best of breed systems to over 250. We also successfully delivered the first full branch migrations with rerouting and with our new harmonized pay plans. And I'll come back to this shortly. On the enablers of growth, colleague and customer retention improved by 4.2% and by 0.6% respectively. Our term and exit campaign had a positive impact on brand awareness and participation rates in our trusted advisor lead referral program have also increased. In the fourth quarter we opened 10 satellite branches and we currently have 22 of these low-cost local satellite branches now in the early stages of operation. While this is all encouraging, our biggest challenge remains increasing sales leads into the business, both through paid for and organic search. And we're putting in place a series of actions designed to improve lead flow and improve sales conversion of those leads. So looking ahead into 2025, firstly, the integration program is now planned to restart early in the second half, by which time the core IT developments will be essentially completed. We'll continue to monitor those branches that have been integrated whilst planning and preparing for the next phase of integrations, and of course, focusing on leads and sales ahead of the peak season. On growth, our plan is to continue to raise the bar on colleague retention, on customer experience, and on customer retention, and also on the trusted advisor program. We will accelerate our marketing efforts, focusing on stronger owned, earned, and paid execution, and supporting this will build our customer proximity and our local visibility. We plan to continue to open new satellite branches, and we now expect our end-state branch network, including satellites, to exceed 500 locations. We're also implementing a new multi-brand strategy, retaining nine of our powerful regional brands, meaning we'll have fewer branches to merge and to convert into Terminix branches. On sales, there'll be a renewed emphasis on sales conversion with increased operational rigor. We are moving responsibility for field sales back to the branches, increasing sales colleague training, and putting greater incentives around contract selling as opposed to one-time jobs. So this action plan aims to reignite growth in North America over the medium term. And I'll cover it more in detail later. But let me first hand over to Paul, who, as you know, joined us at the start of December, became the CFO on the 1st of January. I'd say Paul has made a very fast start, and he'll share his initial observations as well as providing the financial review. Over to you, Paul.

Well, thank you, Andy, and good morning, everyone. It's a pleasure to be here today for my first earnings presentation with Renticle Initial. Since joining the company in early December, I've had the opportunity to meet many of our talented teams within the business. I look forward to getting to know all of you in the weeks and months ahead. This morning, I'll be walking through the key financial highlights from the past year and outlining some of the current financial priorities for the group. But before we get into the numbers, I'd like to take a moment to share some of my initial observations about the business. After spending the last three months immersed in the company, I can say that I'm pleased to be part of a business built on the foundation of great people and a strong culture, one that is ambitious, driven, and hungry for success. From an industry perspective, the dynamics are highly attractive. We operate in a market that has strong growth tailwinds, including population growth and urbanization, and the runway for long-term sustainable growth ahead of us is significant. The global addressable market is over $26 billion, with nearly half of that in North America. As a global leader in this fragmented industry, we are well positioned to grow both organically and through acquisitions. A key focus for us right now is the integration of Terminix. And this is a complex process. While there is still work to be done, once it's delivered, it will position us as one of the most efficient operators in the industry. We will have a highly competitive cost structure, underpinned by some of the best technology and innovation capabilities in the market. This will further strengthen our position and enhance our ability to serve customers at scale. As we work through the integration, we do, however, anticipate that growth will see periods of disruption. This year, pre-season Q1 is off to a slow start due to ongoing weak lead flow, in addition to noise from adverse weather and lapping the 2024 leap year. We therefore expect Q1 organic growth in North America pest services to be lighter than the same period last year. We do, though, expect to achieve a full year financial performance in line with market expectations. Looking ahead, as we accelerate North American revenue growth against a scalable cost base, we are focused on delivering against an attractive growth algorithm, driving revenue growth through both organic expansion and strategic acquisitions, improving margins by enhancing operational efficiencies and leveraging our scalable cost base, and generating significant surplus cash, which we will reinvest at attractive returns, whilst also returning excess capital to shareholders. Of course, there is more work to do in each of these areas to fully optimize our performance, but the fundamentals are strong, the strategy is clear, and the opportunity ahead is compelling. I'll now turn to the financial highlights for 2024. Group revenue was up 3.9% to 5.6 billion pounds, and statutory revenue was up 1.1% to 5.4 billion. Organic revenue was up 2.8%. North America underperformed. However, we saw continued good growth in the international business. As a reminder, this encompasses all of our regions outside of North America. The group Topline Performance delivered an adjusted operating profit of £860 million, down 7.1%, with a corresponding margin reduction of 130 basis points. Free cash flow was £410 million and cash conversion was 80% within our guidance range for the year. £172 million of investments in acquiring bolt-on businesses and £229 million of dividend payments resulted in a year-end net debt to EBITDA ratio of 2.9 times. The board is recommending a final dividend in respect of 2024 of 5.93 pence per share. This equates to a full year dividend of 9.09 pence per share, up approximately 5% year on year, in line with the company's progressive dividend policy. Looking now at our performance in North America. The North American business grew by 1.3%, which included the disposal of the Paragon distribution business. Organic growth was 1.5%. There was a modest improvement in organic growth into the year end, supported by the product distribution business and a stable performance in pest services. This resulted in half two organic revenue growth of 1.8% ahead of the revised guidance of circa one. Adjusted operating profit for the year of £573 million, down 7%, reflects the combined impact of below-plan revenue growth in the year and significant in-year investments to drive revenue. As we previously communicated, our spend through the peak season was higher than expected. Consequently, despite continued good price realisation, adjusted operating margin in North America declined to 17.1%, in line with our revised guidance. Through our RightWay2 plan, in 2024, we deployed sales, marketing, and customer experience initiatives to reinvigorate growth, but they are not yet delivering the levels of organic growth that we expect. With the insights gleaned from the review period at the start of this year, we are making adjustments to our approach to drive enhanced lead generation and sales conversion. Andy will speak to these shortly. A portion of the investment made in 2024 has not driven optimal effectiveness and efficiency, and so in 2025 will be redirected to fund the new strategies. During 2025, we do not anticipate the need for additional investments over those which were made in 2024. We are pleased with the progress we've made on the Terminix integration process. The 2024 integration plan was delivered according to our timeline. Across the North American business, we have seen improved customer retention in the year. The retention rate now exceeds 80%, with the last three months of the year the best at over 81%. The North American bolt-on M&A program continued with the purchase of 13 businesses with combined annualized revenues of 69 million pounds. Moving now to discuss synergies and margins. In 2024, we continued to achieve gross cost synergies from the Terminix integration, whilst also continuing our significant investments behind salary and benefit harmonization, safety, innovation, and IT. We also saw another year of inflation in the cost base. During 2024, we made significant in-year sales and marketing investments focused on driving revenue, including behind brand awareness, lead generation, and sales infrastructure. A portion of the investment behind these opportunities is not driving optimal effectiveness and efficiency. In 2025, this will be redirected to fund the new strategies we will be deploying in respect of our enhanced brand strategy and our enlarged branch strategy. During 2025, we expect further inflation on our cost base, but beyond that, we do not anticipate the need for additional investments over those made in 2024. We're now three years post the announcement of the Terminix deal, and going forward, we will not report separately on net synergy delivery. Disaggregating investments and inflationary cost increases from synergistic cost savings over multiple years has become increasingly subjective. We do, however, remain confident that at the end of 2026, when we expect integration to be complete, significant operational cost savings will have been achieved, in line with initial expectations of gross synergies. Branch integration and improved root density will significantly improve technician efficiency. From 2027, the cost reduction is estimated at a $100 million reduction from the inflation-adjusted 2024 spend level. We expect that, from 2027, delivery of these cost savings, together with an improved organic growth rate post-integration, will enable the North American business to achieve operating profit margins above 20%. We are retiring the previous group-adjusted operating margin target. The total remaining one-time cost to achieve in 2025 and 2026 are expected to be $100 million. Moving on now to the international business. which we are reporting on collectively for the first time for 2024. We saw good growth in international, with revenue up 8.2% to £2.2 billion and a 4.7% increase in organic revenue. This was led by pest control, which grew organically by 5.3% and by workwear up 7.1%. Growth was broad-based across the regions. Our second largest region after North America, Europe and LATAM was up 5%. Adjusted operating profit international was also up by 5.7%, and we experienced a 50 basis point operating profit margin reduction. In our Europe and LATAM region, Europe delivered a stable margin, but there was a slight drag from LATAM, where adverse weather impacted the shipping fumigation business. The UK margin was impacted largely by the acquisition of the low-margin specialist hygiene company DCUK. The international business continued to exhibit strong customer retention, with all regions roughly stable or improved, each delivering a rate of over 80%. Likewise, colleague retention rates were excellent, with standout performances in Asia over 93% and Europe and LATAM above 90%. The Bolton M&A program continued across our international operations, with the purchase of 23 businesses with combined annualized revenues of 71 million pounds. Looking now at the performance of our business categories, starting with pest control, where we remain a global leader with £4.4 billion of revenue. Total revenue grew by 2.9%, of which organic growth was 2.5%. Organic growth in North American pest control was 1.5% and 5.3% in international, in line with our medium-term range of between 4.5% and 6.5%. In the hygiene and wellbeing category, we delivered revenue growth of 8.4%, of which 3.1% was organic. Organic growth was held back later in the year owing to strong prior year comparatives. We continue to expand our range of core services to build product density. And in 2024, we acquired 13 companies with annualized revenues of £34 million, exceeding our medium-term guidance of £25 million per annum. Our French workwear business benefited from strong new business sales and delivered revenue growth of 7.1%, all of which was organic. Adjusted operating profit grew by 8.6%, and the business delivered margins of 17.7%, another very strong performance. Turning now to group cash flow. We recorded a £105 million working capital outflow for the full year. While debtors' performance in the second half was broadly in line with expectation, we experienced a higher outflow on creditors, primarily in North America, alongside an increase in inventory levels. We expect to see an improvement in working capital in 2025. Capital expenditure totaled £211 million for the period, supporting our ongoing investments in growth and operational efficiency. Lease payments amounted to £145 million, reflecting a 4% reduction year-on-year, primarily due to branch restructuring efforts as part of our integration work. On the financing side, cash interest payments decreased by £22 million. This was driven by higher interest rates on investment income and lower swap payments, partly due to a weaker US dollar. Cash tax payments were £87 million, a £13 million reduction year-on-year, reflecting lower profits in North America alongside tax refunds received during the period. From a capital allocation perspective, we remained disciplined in our approach. Cash spent on acquisitions totalled £172 million, aligning with our strategic focus on targeted growth. Dividend payments amounted to £229 million, while the cash impact of one-off and adjusting items was £77 million, largely attributable to ongoing Terminix integration costs. Overall, our financial management continues to support both our near-term priorities and longer-term strategic objectives, ensuring we maintain a strong and resilient balance sheet while investing for sustainable growth. Turning now to capital allocation, where our framework is built around five key priorities, designed to balance growth, shareholder returns and financial resilience. Our primary focus is on organic investment, deploying capital to support the long-term growth of our business. This includes investments in technology, operational infrastructure and innovation to enhance efficiency, service quality and market competitiveness. We will also continue to pursue targeted inorganic growth through bolt-on acquisitions. We have a strong track record of successfully integrating acquisitions to drive value creation, and we will remain selective and strategic in identifying opportunities that complement our existing portfolio, strengthen our market position, and deliver long-term shareholder value. We remain committed to a progressive dividend policy, ensuring that dividends grow over time. Our approach reflects confidence in the underlying strength of our business and our ability to generate consistent cash flows whilst maintaining financial flexibility. Additionally, we recognise the importance of returning excess capital to shareholders at the appropriate time. When we have surplus capital beyond our reinvestment needs, we will evaluate opportunities to return it, always ensuring that such actions align with our broader financial strategy. Finally, we remain focused on maintaining a strong and resilient balance sheet. Our net debt to EBITDA at year-end was 2.9 times. We do expect this to reduce during 2025 towards our targeted range of 2 to 2.5 times. In summary, our capital allocation strategy is designed to strike the right balance between investing for the future, delivering long-term value to shareholders and maintaining financial strength. So to conclude, looking ahead, we are focused on delivering against our attractive growth algorithm to enhance revenues, margins, and cash generation, which we are confident will allow us to secure sustainable growth. For 2025, we have, as usual, provided here our key technical guidance and would remind you that from Q1, we will be moving to dollar reporting. So this guidance is provided in dollars. And with that, I'll now hand you back to Andy.

Thank you, Paul. Right, let's now focus on North America. I'll start with the integration. I'll then cover the continued execution of our Right Way to Growth plan, including the important new satellite branches and regional brands before we take any questions. We made good progress with the integration in the second half of the year. We completed the systems integrations for another 58 branches, mainly Terminex residential, to add to the existing Rent-A-Kill network. And that takes the total number of branches in North America now operating on the unified best-of-breed systems to over 250. We also piloted our first rerouting, rebranding, and new pay plans in nine branches. And whilst it's obviously early days, we've seen some encouraging results with colleague retention in line with pre-migration levels and customer retention, in fact, increasing on our pre-migration levels. Since then, we've continued to fully integrate a further 41 branches. So this means we've got around 15% of the Terminix branch network has now been fully integrated. I'm not going to go through this slide in detail, but I do think it's worth remembering our journey in North America from where we started in 2022, a highly fragmented network of over 70 systems, 80 brands, different pay and benefit structures, multiple vendors, no uniform customer experience. And since then, we've made significant progress. Just a few examples. on the screen. We've got a fully aligned back office set of functions. We've got a single management team. We've introduced Rentakil's laser focus on colleague experience and colleague retention. We've rolled out a single people management system. We've set the innovation center up and running and the first branch system integrations executed successfully last year. Undoubtedly, this has been a significant lift for the organization and there's much work ahead of us. But the Terminex integration is targeted to be complete by the end of next year. And at that point, we'll have a fantastic platform in the world's largest pest control market. with a modern branch and IT network that's scalable to support future organic growth and indeed M&A. As Paul covered earlier, we expect North American margins to be above 20% in 2027. So turning to growth, here's our RightWay2 growth plan and showing how organic growth is generated from both existing and from new customers. Now the context for our Q1 review was colleague retention significantly improving since 2022. We said at the interims that customer retention would be a major focus for us going forward. In 2024, we made the first investment into the Terminix brand for several years. Inbound leads, though, have not yet been at the level we expect. And we've got much more to do on organic search in particular. And as you can see, we've marked this as red on the model. And increasing the leads, of course, will also improve the other area in red, which, as I mentioned earlier, is sales. Our first satellite branches were opened in the fourth quarter. and underperforming on new sales with organic growth at 1.5% for the full year. So that was the context for the review. So let me start looking at our North America organic growth model, and I'll cover the key areas that we've identified for needing improvement and those that we are actively addressing. A key enabler of our plan, of course, is colleague retention, and here we're making good progress. With North American colleague retention up by 4.2%, and notably, Terminix colleague retention has increased 13.9% since the integration began. This is foundational to our future success. Retaining more technicians enables a consistent, high-quality service, which in turn feeds into another crucial area, and that is customer retention, as we called out at the half-year. And we've seen progress here as well, with overall customer retention improving by 60 basis points to 80.1%, and in the fourth quarter increasing to over 81% in each month. We've launched the Drive to 85 initiative, and that includes 20 projects which are focused on further improving customer retention. And we now have greater focus and energy across the whole US organization on delivering customer satisfaction and retention. We've invested in our customer saves team, and this has been instrumental in our efforts, with the level of customer saved increasing in each of the last three months of the year. This was supported by good levels of customer service, and indeed has also resulted in over 55,000 online five-star reviews for our U.S. pest control brands, and that's up by around 200%. Our trusted advisor program is focused on generating additional sales from existing customers coming from sales leads from our frontline technicians. And here, we continue to enhance our approach with better data reporting with an increased focus at branch management level and training for all new technicians as part of their onboarding. And as you can see, both Terminix and Rent-a-Kill have increased technician lead participation rates. So good progress on Trusted Advisor, but much, much more to go for. On brand awareness, we significantly invested in the Terminix brand in 2024 with the Terminixit campaign. And this has resulted in a noticeable improvement in brand favorability with unaided brand awareness increasing by seven percentage points, reaching levels not seen since 2021. Now here you can see some of our latest brand research. and how we're performing against a leading competitor. Unaided and aided awareness combine to give a total awareness result. As you can see for Terminex, the brand has reached almost complete saturation with a 98% level of awareness. As you move down the funnel from awareness to consideration, about half of those aware of Terminix would consider using the brand for their pest control needs. That moves then to conversion at 42% and recommend to others at 38%. So our ongoing brand investment will generate long-term benefits and opportunities for the business. Our challenge here is to build on these good results whilst also adding the firepower of our regional brands. As I mentioned earlier, our biggest focus remains on increasing our lead flow, both through paid-for and organic search. In 2024, we bolstered our marketing team as part of our overall long-term investment, and we primarily used the paid-for search marketing lever to generate leads. Now, that worked to some degree with an increase in leads year on year. However, this is an area that we must improve on significantly. accelerating owned, earned and paid for execution and realizing benefits from a fuller suite of marketing solutions. And this will be a major focus for this year. Sales execution is also an area that we're actively focused on and which needs to improve. Once we get the leads, we need to sell them and at better average values. And in particular, we need to sell more contracts rather than one-off jobs to get our overall portfolio into positive and consistent net gain. That said, we did make progress last year on sales colleague retention, which is critically important, as those colleagues who've got over one year of service are typically around 50% more effective than those with less service time. So a 6.4% increase in sales colleague retention means that we now have more than 100 additional sellers entering their second year. So now turning to actions on growth. The first area is to build on the progress that we've made to date, raising the bar on colleague and customer retention, on trusted advisor leads, on pricing, and on continuing to deliver an efficient work order installation program. Secondly, we must get better at driving leads into the business, and we're putting in place a much better plan to realize the benefits of a fuller suite of marketing solutions. On Organic Leads, we have a new agency appointed, a new content development plan is in place, and we're also adding digital marketing expertise from our UK Centre of Excellence to directly support the US team. Equally, we've got to improve on our sales performance, and here we're putting in place some key initiatives to drive sales success this year. We're moving sales responsibility fully to the branches for field sales activities, so there's greater accountability, greater line of sight for the branch managers between sales and service. We're adding further operational rigor, targeting greater inspection proposal and close rates, and also targeting improved speed from lead to inspection. We're introducing more differentiated sales commissions, so we'll pay more for contracts, than we do for one-off jobs. There'll be more sales training, career development, and focused on improving sales colleague retention. We're also launching a new door-to-door sales pilot, which will be deployed throughout the high season. Now, supporting these plans, there will be more satellite branches, and we will retain more of our strong regional brands as independent brands for the future. As you know, to enhance our local presence, we've initiated a new satellite branch program. We've got 22 now in use. These smaller, strategically located branches aim to bring us closer to our customers, improve brand visibility, enhance operational efficiency, such as localized team meetings, and indeed support our local marketing initiatives. Clearly, it's very early days with the satellite program, but the overall results so far are positive, and we're revising our end-state plan for branch locations, increasing from around 400 to now over 500. In addition, of course, we've also got over 100 franchise-owned and operated Terminix branches in the United States. Adding to this greater local proximity, we're revising our brand strategy to keep nine of our strong regional brands independent of the Terminex and Rent-a-Kill brands. These are very well-known regional brands that we will now retain as standalone brands in typically standalone branches, so reduce need to merge with Terminix branches. These include Florida Pest Control, Ehrlich, Western Exterminator, and Bugout, as you can see on the right of the screen. So we're raising the bar in areas of good progress, such as colleague and customer retention. We're putting in place a better plan for inbound leads. We're driving far more operational rigor and local accountability in sales, all of which will be supported by our satellite branches and a powerful lineup of independent brands and branches. And so just to wrap up, the branch integration made good overall progress last year, and is now scheduled to restart early in the second half. But clearly, we're not delivering the levels of organic growth that we expect, and our main challenge is lead generation, and we're implementing the key changes that I've just outlined. Post integration, we remain committed to delivering one and a half times market organic growth in North America pest control, over the medium term. We expect North American margins to exceed 20% in 2027, and we continue to have a strong M&A opportunity to exploit, also with deals to be done this year and next year as well. Finally, we remain confident in our opportunity to secure sustainable growth globally through our market leading positions, new innovations, digital technologies, and cities of the future strategy. And in North America, that will come once we've completed the integration of Terminix. So in the year that Rent-A-Kill celebrates its 100th anniversary, I'll leave you with a slide that sums up just some of the many reasons why we're looking forward with confidence as we start this incredible brand's next century. With that, Paul and I will be very happy to take any questions. We'll start in the room, and Paul will keep an eye on the screen for additional questions. Thank you very much.