Rentokil Initial plc

Hello and welcome to the RentalKill 4 Year Results 2025. My name is Carla and I will be coordinating your poll today. During the presentation, you can register to ask questions by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I will now hand you over to your host, Andy Ransom, Chief Executive, to begin. Please go ahead when you're ready.

Good morning everyone and welcome to our full year results presentation for 2025. After my opening remarks, Paul will provide a review of our financial performance. I will then focus on the execution of our plan in North America, as well as providing a brief update on our international region, our categories and our adoption of AI. We'll then open the floor for your questions and, as usual, details of how to ask a question can be found on the web portal. 2025 has been a year of encouraging progress, with group revenues increasing by 3.8% and with organic revenue growth of 2.6%. Our H2 performance was particularly encouraging with group revenues increasing by 4.5% and with organic revenue growth being 3.5%. My main focus for today, however, will be on North America, looking at our performance in 2025 and how we're building on that platform in 2026. This time last year, we set out our plan for growth in North America and it has been a year of encouraging progress with our performance, particularly in the second half, improving significantly. Whilst we're not there yet where we want to be, organic growth reached 2.6% in the fourth quarter. This was underpinned by strong execution, rolling out our new marketing plan, investing in our regional brands opening 150 small local branches through our satellite program and delivering $25 million of in-year cost savings through our efficiency program. Our international business also saw improving organic revenue growth of 3.4% in the second half. This combination of improved growth and cost efficiencies delivered adjusted operating profit growth of 5.4% and positions as well to deliver our plans for 20% net operating margins in North America next year. Now, looking to 2026, we have clear plans in place to build on the progress made last year. Our focus continues to be on growth, where we plan to expand our multi-brand strategy, deploying around 30 regional and local brands instead of the nine we had previously indicated, and we'll continue to increase our local presence, taking our network of small local branches to around 220. As I'll explain in a little more detail later on, the team in North America has also used the pause in integration to develop a simpler plan for the creation of a single unified field operation. On systems, we've developed a new branch data portal, meaning we can maintain our existing systems for longer periods. and on pay plans we're taking a more simplified approach to harmonising pay policy where in essence service colleagues joining us next year will join our new plan whereas existing colleagues will be given the choice of the new plan or to be grandfathered in their existing plan. So this combination of maintaining more brands and their branches continuing to use our existing branch systems whilst also simplifying the pay plan process means less change at the front line and more focus on the customer and indeed on growth. Fueling this growth and supporting our 2027 financial targets is our efficiency program and Paul will now take you through this in more detail along with the rest of the financials.

Thank you Andy and good morning everyone. I will now walk you through our key financial highlights for 2025 and look at our regional performance in more detail before closing on cash flow and capital allocation. As a reminder, unless I state otherwise, all numbers are on a continuing operations basis following the sale of our France workwear business and any comparative performance is on a constant currency basis. Revenue was up 3.8% to $6.9 billion, with organic revenue growth of 2.6%. Adjusted operating profit increased by 5.4% to just over $1 billion. This resulted in a group adjusted operating profit margin of 15.5%, a 30 basis point increase year on year. After an adjusted interest charge of $204 million, up $29 million due to the cost of additional bond debt issued in the year, and an adjusted effective tax rate of 25.3%, adjusted basic EPS increased 2.4% to 25.91 cents. I have spoken previously about our focus on maximising cash, and I am particularly pleased with our free cash flow performance, with 24.5% growth to $615 million and free cash flow conversion of 98%. This reflects disciplined working capital management and also some one-off benefits, including real estate sales. With the growth in profits and free cash flow and the proceeds from the sale of France Workwear, partly offset by an adverse foreign exchange impact of $181 million on year-end net debt, our leverage ratio improved 2.6 times, down from 2.9 times a year ago and close to our target range of 2 to 2.5 times. Reflecting this performance, the Board is recommending a full-year dividend of 12.39 cents per share, an increase of 3% in line with our progressive dividend policy. Turning to North America, revenue grew 3.2% to $4.3 billion with organic growth of 2.3%. Pest control services was up 1.1% while business services grew 8.9%. I'll come back to talk about these performance in more detail shortly. Adjusted operating profit for the region was $749 million, up 5.1%, bringing our adjusted operating profit margin to 17.4%. This improvement reflects the early benefits of our cost efficiency program, which delivered $25 million of savings in the year. Operationally, we are seeing our strategic initiatives strengthen key KPIs, with colleague retention up 2.8 percentage points to 82.2% and customer retention increasing to 80.5%. We also completed 12 Bonfort acquisitions in the region, with combined revenues of approximately $27 million in the year prior to purchase. Looking at our performance in North America in more detail, fourth quarter organic revenue growth in pest control services improved to 2.6% from 1.8% in the third quarter and 0.1% in the first half. This sequential improvement demonstrates the results we're seeing from the strategic initiatives we put in place at the start of this year. Lead flow, a key metric to indicate future growth in our contract portfolio, grew over 7% across the second half of the year, driven by our revised sales and marketing strategy. This has included a shift towards a more targeted digital marketing approach, with a bigger focus on driving organic leads, and also increased investment in our regional brands to boost lead generation and brand awareness. The ongoing rollout of smaller local branches through the satellite programme to bolster customer proximity and local presence is proving successful, with branches with one of these localised hubs attached to it, generating more than double the lead flow of those without. We've also improved our execution by moving sales accountability directly back into the branches. In addition to winning new customers, we have retained more through a relentless focus on customer service, and we've been able to sustain strong pricing discipline through the year. Andy will talk more about these initiatives shortly and how we will continue to build into 2026. Turning to business services, we were pleased with fourth quarter organic growth of 7.8% against a strong prior year comparative which included $6 million of emergency vector control revenue which did not repeat in 2025. Across the year, business services organic revenue growth of almost 9% was supported by double-digit growth in both our distribution business and our brand standards business, with the latter benefiting from significant new business wins. Throughout the year, we have been executing against our plans to simplify the North American business, improving the efficiency of our cost base and creating fuel for growth. We are increasing discipline in our day-to-day operations with improvements in organisational design and simplification of processes. The streamlining of operations led to headcount reductions of over 500 roles by the end of 2025. We are also reducing cost in the business through outsourcing and moving non-core functions to lower cost locations. This has allowed us to scale our back office operations more effectively while reducing our fixed cost base. To date, around 430 roles have successfully been offshored. We're using technology to automate manual processes and improve our overall efficiency, while better leveraging the benefits of our purchasing scale through managing our third-party spend and consolidating spend with suppliers. As well as reducing costs, we continue to drive improvements in how we invest our sales and marketing spend to optimise ROI and have reallocated some $20 million of marketing spend away from suboptimal paid lead activity to higher efficiency channels and campaigns. We rapidly mobilised to deliver $25 million of savings in 2025, targeting the cost areas that were easiest to impact quickly. There remains very significant opportunities for us to create efficiency in our cost space. As we drive up efficiency in the business, we are also investing back in a targeted way to drive organic growth. In 2025, this has included incremental marketing investment and strategic initiatives such as the rollout of smaller local branches and enhancing our capabilities in areas from pricing to data insight. This is helping us to identify the levers to elevate performance and amplify the benefits of our strategic initiatives. Improving our data has been and will continue to be fundamental to our ability to optimise our marketing budgets to maximise our reach into available customer demand. We have already delivered a double-digit reduction in our cost per lead and there is more to do. Balancing driving costs out with funding investments behind sustainable improvements in organic growth has been key to improving both top line growth and profit margin. And we will continue to balance this carefully as we progress towards our North America margin target of over 20% in 2027. Moving to our international business, which encompasses all regions outside North America. Revenue grew 4.8% to $2.6 billion, with organic revenue up 3%. Organic revenue growth improved in the second half, up 3.4%, compared to 2.6% in the first half. We saw our strongest performance in Europe, driven by healthy demand and solid pricing in Southern Europe, while growth in Asia was supported by the fast-growing economies of India and Indonesia. Adjusted operating profit increased 5.7% to $518 million, with margins increasing 20 basis points to 19.8%. The UK and sub-Saharan Africa delivered double-digit growth, reflecting a strong revenue performance. Asia and Minat also displayed margin resilience despite a backdrop of high wage inflation. Customer retention remained strong at 85.7%, and excellent colleague retention was seen throughout the year at 90.3%. We also completed 24 acquisitions in the region with combined annualised revenues of approximately $36 million. Turning now to central costs, which in the year were $191 million, up almost 7% and up 9% at actual rates, with some 85% of our central costs in sterling. In addition to underlying inflation, this growth represents multi-year ongoing investments in proprietary technology, digital applications and AI capabilities to support colleague efficiency, customer satisfaction and to generate revenue. In 2026, we expect continued above inflation rates of growth in addition to an FX headwind. One-off and adjusting items, excluding termites, were $92 million in 2025, primarily incurred in North America as part of the overall cost efficiency programme. Looking forward to 2026, we are expecting a similar level of spend. Moving now to the termite provision, which across the year we have increased by $201 million, with an additional $122 million in the second half, after the $79 million in half one. The trends that we saw in the first half of the year have continued. These included an increase in the number of complex residential and commercial litigation claims compared to 2024, albeit at a lower level than at the time of acquisition. More detail on this is included in a slide in the appendix. And a continued increase in cost per claim is our proactive strategy to solve customer problems and reduce litigation continues. In addition, during the second half we have resolved numerous large commercial legacy claims at a cost ahead of the historic average and increased the long-term inflation assumption in our provision model from 2% to 3.2% as a result of persistently high inflation in legal defence, housing and building materials costs. The cash cost of settling claims in 2025 was $95 million and we expect a similar level of cash payments in 2026. Turning now to cash flow. We generated free cash flow from continuing operations of $615 million, representing an adjusted free cash flow conversion of 98%. This was ahead of our guidance of 80% and a further improvement from the half year. We reduced the working capital outflow by $67 million to an outflow of $59 million to our disciplined focus on debtor management and supplier harmonisation, moving to more consistent credit terms across our supplier base. Although some of this improvement was one-off in nature, the underlying discipline remains and we are focused on continuing to improve in this important area. Our overall free cash flow conversion also benefited from $20 million of real estate sales. Our gross capex of $196 million was in line with guidance and we would expect a similar level of spend in 2026. Cash interest increased by $41 million to $222 million following our refinancing activities earlier in the year. Cash tax was $7 million lower at $100 million, mainly due to legislative changes in the US. Looking ahead, we continue to target a free cash flow conversion above 80%. Our strong operational cash generation combined with strategic divestments has allowed us to make progress in strengthening the balance sheet. Net debt at the end of the year was $3.65 billion compared to $4 billion at the start of the period. The key cash inflows in the year were $636 million of free cash flow and $391 million in net proceeds from the sale of our France workwear business, which completed on 30 September 2025. Beyond the immediate cash influx, this disposal has simplified our international business, reduced our ongoing capital expenditure requirements and structurally improved our group cash conversion. We reinvested $121 million of cash in bolt-on M&A, which remains core to our great strategy. This is less than originally planned, with some slippage of deals into 2026. Our pipeline for 2026 remains strong, and we're targeting spend of around $200 million. The cash impact from one-off and adjusting items amounted to $100 million for the year. These costs were largely attributable to transformation costs in North America, which, combined with other cash one-off items, will be a further outflow of around $80 to $85 million in 2026. Our closing net debt was impacted by $181 million adverse FX translation movement. Nonetheless, we are pleased to see progressive strengthening in our balance sheet, with our net debt to adjusted EBITDA ratio reducing from 2.9 times to 2.6 times, bringing us close to our target range of 2 to 2.5 times. 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 as it drives the best ROI, deploying capital to support the long-term growth of our business. We will also continue to pursue targeted inorganic growth through bolt-on M&A. 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 while maintaining financial flexibility. We recognise the importance of returning excess capital to shareholders at the appropriate time. When we do 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. Overall, 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, in summary, we have delivered an in-line performance in 2025. We are encouraged by the clear signs that our revised North America strategy is working and the improvement in growth in the second half from our international businesses. Our focus on cash is improving our operational cash conversion and reducing leverage towards our target range. As we balance investing in sustainable organic growth and driving up the efficiency of the business, we remain firmly on track to achieve our $100 million cost reduction target and our goal of a North American margin above 20% in 2027. Although the first month of 2026 in the US has seen some disruption from extreme weather, as we look forward, we have confidence in delivering in line with market expectations. Thank you. I will now hand you back to Andy.