Annual Financial Report

RNS Number : 1220U

Rentokil Initial PLC

31 March 2021

 

Rentokil Initial plc (the "Company")

Annual Report and Annual General Meeting

In compliance with Listing Rule 9.6.1, the Company announces that the following documents have today been submitted to the UK Listing Authority, and will shortly be available for inspection via the National Storage Mechanism at morningstar.co.uk/uk/NSM :

· Annual Report and Financial Statements for the year ended 31 December 2020 (the Annual Report 2020);

· Notice of 2021 Annual General Meeting; and

· Proxy Form for the 2021 Annual General Meeting.

The documents will be posted today and the Annual Report 2020 and the Notice of 2021 Annual General Meeting have been published on the Company's website at rentokil-initial.com/investors .

The 2021 AGM will be held at, and be broadcast via live webcast from, the Company's offices at the Power Centre, A1 & A2, Link 10, Napier Way, Crawley, RH10 9RA at 2.00pm on Wednesday 12 May 2021. However, in light of the ongoing COVID-19 pandemic and the UK government's current guidance, which includes restrictions on public gatherings, the Board has concluded that it will unfortunately not be possible to allow shareholders to attend in person on the day. Shareholders are recommended to make use of the electronic facilities on offer to participate in the meeting remotely. In order to protect the health and well-being of our shareholders, Directors and employees, it is intended that the only people present at the physical meeting will be those required to form a quorate meeting and transact the formal business of the meeting.

The Company's preliminary results announcement on 4 March 2021 contained a condensed set of Rentokil Initial plc financial statements and information on important events that have occurred during the year ending 31 December 2020 and their impact on the financial statements. That information together with the information set out below which is extracted from the Annual Report 2020 constitute the requirements of DTR 6.3.5 which is to be communicated via an RIS in unedited full text. This announcement is not a substitute for reading the full Annual Report 2020. Page numbers and cross references in the text below refer to page numbers and cross references in the Annual Report 2020. To view the preliminary results announcement, visit the Company's website at rentokil-initial.com/investors . 

Risks and uncertainties

The text in the table below, of the principal risks that the Company has identified, is extracted in full and unedited form from pages 69 to 73 of the Annual Report 2020.

Failure to grow our business profitably in a changing macro-economic environment The Company's three businesses (Pest Control, Hygiene and Protect & Enhance) operate in a global macro-economic environment that is subject to uncertainty and volatility.
Impact should the risk materialise Changes in the macro-economic environment could have a number of different impacts on the ability of the business to grow profitably, to sustain recruitment and to deliver against targets. Examples include: · Recession and economic slowdown in some of our key markets and a trend for government increases in minimum wage to exceed inflation may make it difficult to maintain profitability. · Low-growth economies with inherent cost inflation, where the Company has weak pricing power may make it difficult to maintain profitability. · Growing market presence of multinational competitors may increase the cost of acquisitions and drive down prices, impacting profitability. · Increased market presence by facilities management companies may drive down prices and increase compliance costs. · Shift to greater proportion of key accounts in some markets may drive down prices and make it difficult to maintain profitability. · Political instability and civil unrest in some markets may cause localised revenue reductions. · Legislation, regulation or society expectation limits our 'licence to operate'.	Mitigating actions · Regular review of our capital allocation model which is differentiated by line of business to ensure that scarce resources are directed to countries and businesses with the most attractive prospects. · Global Employer of Choice programme to ensure focus on the key priorities of the organisation, including recruiting and retaining critical talent in all markets. · Working with governments and regulators on implementation of new regulations. · Low-cost operating model, focused IT investment and route density incentives to deliver efficient operations for frontline and back office colleagues. · International Key Accounts team developing business with multinational customers to take advantage of the Company's unique global capabilities and new Hygiene offerings. · Increased review and focus on financial performance and controls. · Group Procurement team tasked to deliver economies of scale and increasingly source materials and operational equipment on a global basis. · Environmental action plan.	C hanges 2020 versus 2019 · North America business now accounts for 44% of Ongoing Revenue at CER, up from 38% · Supply chain resilience · Additional service lines in the Hygiene business · Biannual review of key financial controls Performance measures to monitor risk · Group Ongoing Revenue growth, in total and by category · Group Organic Revenue growth, in total and by category · Revenue contribution from acquisitions · Group Ongoing Operating Profit · Group Net Operating Margin · Free Cash Flow conversion · Net capital expenditure
Failure to deliver consistently high levels of service to the satisfaction of our customers Our business model depends on servicing the needs of our customers in line with internal high standards and to levels agreed in contracts.
Impact should the risk materialise If our operatives are not sufficiently qualified, or do not have the right skills, or we fail to innovate successfully, this may negatively impact our ability to acquire or retain customers, adversely impacting growth, profitability and cash flow. Industrial action in key operations could result in diminished customer service levels; if prolonged, it could damage the Company's reputation and ability to secure or renew contracts. In markets where overall employment rates are high, and/or our business is growing fast organically or via acquisition, we may have difficulty attracting and retaining key management of the right capability and the right calibre of operational personnel. Major digital change programmes could disrupt our ability to deliver high levels of service to our customers. Extreme weather could cause disruption to local operations and may impact colleague health and safety.	Mitigating actions · HR development processes, including Employer of Choice programme. · Regular tracking of customer satisfaction and the perception by both customers and non-customers of Rentokil Initial, benchmarked against competitors. · Dedicated Operational Excellence team to drive superior customer service and safe working practices, and to establish key metrics, combined with a strong focus on safety by supervisors and frontline staff. · Incentives for sales and service staff aligned closely with strategic priorities, based on delivering improved customer service levels. · Oversight of key industrial relations matters by Group HR Director and regular review by the Chief Executive for countries where industrial relations risk is elevated. · Regular review of major IT programmes by the Chief Information Officer and the introduction of a quarterly IT risk meeting.	Changes 2020 versus 2019 · 77% increased in U+ learning · Refreshed and relaunched Technical Hub (Safe Working Practices) · Continued deployment of IT programmes to frontline colleagues · Quarterly IT Risk meeting Performance measures to monitor risk · Sales and Service colleague retention · The number of online training courses being developed · U+ learning views · State of Service · Customer satisfaction (Customer Voice Counts) · Customer retention
Failure to develop products and services that are tailored and relevant to local markets and market conditions We operate across markets that are at different stages in the economic cycle, at varying stages of market development and have different levels of market attractiveness. We must be sufficiently agile to develop and deliver products and services that meet local market needs.
Impact should the risk materialise If we are not able to adapt to local business and consumer needs, our existing customers may choose not to renew contracts, or seek reductions in prices. This negatively impacts our ability to maintain or increase margins and cash flow. Examples include: · We must adapt to changes to the regulatory environment that may ban certain products or service models from being used, such as permanent rodent baiting. · We need to respond to the expectations from customers and the wider populace for us to reduce our own environmental impact and support our customers in reducing their environmental impact. · We need to develop products that are networked and capable of being monitored in real time, or react to competitor technology developments that are disruptive to the market.	Mitigating actions · Acquisition of targets with specific capabilities that address future changes in our markets. · Targeted investment in innovation to meet market and regulatory needs and defend against commoditisation. · Category Boards for Pest Control and Hygiene oversee the roll-out of innovations at pace across our regional businesses. · Continued investment in digital platforms to support Sales and Service colleagues	Changes 2020 versus 2019 · Increased profile and importance of Hygiene category · Increased penetration of digital technologies on customer sites · Growth in use of digital platforms by customers · Demonstration of business model resilience in the face of COVID-19 Performance measures to monitor risk · Sales growth for key innovations · Percentage of job sales revenue from innovation · Number of patents raised · Number of sites with digital solutions · Percentage of commercial customers registered for digital platforms · Percentage of colleagues utilising digital applications
Failure to ensure business continuity in case of a material incident The business needs to have resilience to ensure business can continue if impacted by externally induced incidents, e.g. cyber attack, hurricane or terrorism.
Impact should the risk materialise Failure to service our customers may affect our ability to retain those customers and damage the Company's reputation. This may negatively impact growth, profitability and cash flow. Examples of incidents that could impact our ability to service customers include: · A significant cyber attack or IT failure which impacts our ability to plan efficient routing, or ability to invoice, and is not recovered quickly. · Fire or flood impacting our laundries (in Workwear) or warehouses (in Hygiene and Pest Control), preventing goods from being available to enable our technicians to service our customers. · Industrial action by employees	Mitigating actions · All countries and units maintain business continuity plans, with local plans to service from alternative locations if required, and IT disaster recovery plans. · The majority of key data and applications are located in regional data centres with enhanced backup capability, and resilience and tools deployed to detect malicious behaviour and help prevent malicious files from spreading. · Data encryption and implementation of AirWatch on laptops, tablets and mobile phones. · Strong anti-phishing programme using phishing simulation tool to highlight risks to users. · Annual penetration testing on all systems to test external firewalls and address any identified weaknesses. · Annual inspections of key sites by insurers, on a rotating basis, to identify potential risks.	Changes 2020 versus 2019 · Acceleration of multi-factor authentication for remote access · Deployment of anti-ransomware software to the data centres · Additional colleague training and awareness Performance measures to monitor risk · Number of serious IT incidents and time taken to respond · Major Incident Review actions · Actions arising from IT security self-assessments · External testing and benchmarking of our IT security environment
Failure to mitigate against financial market risks Our business is exposed to foreign exchange risk, interest rate risk, liquidity risk, counterparty risk and settlement risk.
Impact should the risk materialise If any of the above risks materialise, this may have a negative impact on profitability, cash flow and financial statements, and may negatively impact financial ratios and credit ratings, impacting our ability to raise funds for acquisitions.	Mitigating actions · Financing policy in place to ensure that the Company has sufficient financial headroom to finance operations and bolt-on acquisitions. Commitment to target credit rating of BBB. · Treasury policies that limit the use of foreign exchange and interest rate derivatives, set limits for financial counterparty exposure, govern how financing is raised in bank and other debt capital markets and provide rules around treasury-related matters at operating company level. · Monthly reporting and monitoring of financial covenants and rating agency metrics and compliance with treasury policies. · Monitoring of the impact of exchange rate movements on non-GBP profits and net debt. · Cash pooling and debt financing arrangement to match, as far as possible, currency availability/demand across borders. · Revolving credit facility (RCF) increased to £550m. · Refinancing completed in 2020.	Changes 2020 versus 2019 · Refinancing completed in 2020 · Rolling 13-week cash forecasting Performance measures to monitor risk · Liquidity headroom at the year end of £1,089m · Counterparty ratings above A- · Monthly reporting against ratings metrics and financial covenants · No unhedged foreign exchange positions above £0.5m; fixed interest >50%; and matching currency of net debt to underlying profitability · Monitoring of amounts outstanding against counterparty credit limits
Fraud, financial crime and loss or unintended release of personal data Collusion between individuals, both internal and external, could result in fraud if internal controls are not in place and working effectively. The business holds personal data on employees, some customers and suppliers: unintended loss or release of such data may result in criminal sanctions.
Impact should the risk materialise Loss of personal data of customers, suppliers or employees could, if significant, result in regulatory intervention which may result in substantial fines and damage to the Company's reputation. Theft of Company assets including property, customer or employee information, or misstatement of financial or other records via deliberate action by employees or third parties may constitute fraud and result in financial loss to the business, damage to the Company's reputation and/or fines by regulators.	Mitigating actions · Ongoing programme to ensure all businesses are compliant with data privacy requirements (GDPR in Europe and data protection legislation in other markets). · Mandatory online training by all senior employees for the Code of Conduct, preventing anti-competitive practice, preventing bribery and corruption, securing information and protecting privacy, avoiding conflicts of interest and preventing insider trading. · Roll-out of Corporate Criminal Offence policy and training. · Compliance with Code of Conduct and other key policies affirmed by the annual Letter of Assurance by all senior management. · Standardised financial control framework operating in all locations. · Confidential Speak Up hotline and email address, monitored and followed up by Internal Audit. · Significant frauds investigated by Internal Audit and lessons learned widely shared. · User security awareness guidance and policies refreshed and reissued. · Updated policies on devices and the provision of Citrix-only access combined with global patching programmes, multi-factor authentication and deployment of anti-ransomware to our data centres.	Changes 2020 versus 2019 · Biannual review of key financial controls · Inclusion of Corporate Criminal Offence policy in annual Letter of Assurance Performance measures to monitor risk · Completion rate for mandatory U+ training modules · Data privacy programme roll-out  and implementation · Speak Up investigations and remediation · Key financial controls pass rates
Safety, health and the environment (SHE) The Company has an obligation to ensure that colleagues, customers and other stakeholders remain safe, that the working environment is not detrimental to health and that we are aware of and minimise any adverse impact on the environment.
Impact should the risk materialise The Company operates in hazardous environments and situations, for example: · use of poisons and fumigants in Pest Control; · driving to and working at customers' premises; · working at height; and · exposure to needlestick injury/ bio-hazards from medical waste. Non-compliance with internal policies or industry regulations could lead to personal injury, substantial fines or penalties including withdrawal of licences to operate, and reputational damage. Environmental risks may arise from former activities at sites currently operated by the Company or acquired by the Company.	Mitigating actions · Robust health and safety (H&S) policies supplemented by the SHE Golden Rules and technical policies address higher risk and regulated activities. · H&S officers appointed in all jurisdictions, supported by a dedicated central team. · Mandatory training of all relevant employees in safe working practices. · Focus on implementation of Group fumigation standards in all new acquisitions. · H&S considered as the first item at all Board and senior management meetings; review of standardised H&S KPIs. · Formal review of accidents and circulation of lessons learned. · Strategy to further develop environmentally friendly approaches, e.g. lower pest control chemical use, recycling of hygiene units, piloting use of electric vehicles.	Changes 2020 versus 2019 · New mandatory U+ module for Pink Notes · Extension of Pink Notes to cover all business categories · Refreshed and relaunched Technical Hub (Safe Working Practices) · Updated Internal Audit work plan for SHE Performance measures to monitor risk · Lost Time Accident rate · Working Days Lost rate · Total emissions · Energy usage · Compliance rates for mandatory U+ training
Breaches of laws or regulations (including tax, competition and anti-trust laws) As a responsible company we aim to comply with all laws and regulations that apply to our businesses across the globe.
Impact should the risk materialise Failure to comply with local laws covering bribery and corruption, anti-competitive practice, employment law, data privacy, health and safety, or financial and tax reporting requirements may result in fines or withdrawal of licence to operate, which could adversely impact growth, profitability and cash flow. The Company operates across many different tax jurisdictions and is subject to periodic tax audits which sometimes challenge the basis on which local tax has been calculated and/or withheld. Successful challenges by local tax authorities may have an adverse impact on profitability and cash flow.	Mitigating actions · Group Legal involvement in all acquisitions. · Tax strategy re-issued and approved by the Board annually. · All significant tax planning opportunities have to be pre-agreed with the Group Tax Director and Chief Financial Officer with independent tax advice taken where necessary. Regular review of tax exposures. · Authority schedule in place and regularly reviewed. · Group and local policies in place and regularly reviewed. · Requirement to report breaches in controls and/or laws to Group General Counsel and Head of Internal Audit. Follow-up by Group General Counsel of any significant regulatory breach in any country. · Mandatory training on Code of Conduct and other core compliance topics, to instil a highly principled culture of ethical behaviour, completion rates reported to senior management monthly. · All major business transactions or internal reorganisations are subject to a rigorous internal and external review.	Changes 2020 versus 2019 · Internal Audit of UK Coronavirus Job Retention Scheme · Review and presentation of all Internal Audit issues for 2019 and 2020 to senior leadership Performance measures to monitor risk · Central monitoring of material litigation · Tax provisions · Completion rate for mandatory U+ training modules, e.g. Code of Conduct and competition law
Failure to integrate acquisitions and execute disposals from continuing business The Company has a strategy that includes growth by acquisition, and has acquired 23 businesses in 2020. These companies need to be integrated quickly and efficiently to minimise potential impact on the acquired business and the existing business.
Impact should the risk materialise If the Company fails to successfully integrate acquisitions into its existing organisation structures, fails to deliver the revenue and profit targets, or fails to deliver expected synergy savings, the business may not achieve the expected financial and operational benefits which may adversely impact growth, profitability and cash flow. Business disposals also have to be managed efficiently to minimise risk to the businesses being disposed and the residual business.	Mitigating actions · Integration plans considered by the Investment Committee as part of the acquisition approval process. Integration activities and progress discussed during monthly performance reviews. · Dedicated project teams established for largest acquisitions and demergers with clear deliverables over three months, six months and one year. · Tried and tested induction programme for the first 100 days for all acquisitions. · Continuity of management/leadership in acquired companies, where possible. · Use of transaction structures including deferred consideration to mitigate deal risk. · Group departments, e.g. health and safety, legal, insurance and IT, involved with acquisitions to drive integration plans and compliance with Group standards, especially when entering new geographies. · Post-completion governance: formal post-acquisition review of every acquisition by Investment Committee against original business plan within 18-24 months; Board post-investment review of acquisitions in aggregate every six months; Internal Audit review of acquisitions in new geographies within 12-18 months. · Board oversight of all acquisitions involving new country entries or new business lines.	Changes 2020 versus 2019 · Additional resources provided to the US to support integration and replatforming Performance measures to monitor risk · Integration plans (30 days, 100 days, 1 year) · Reviews of integration plans for specific large acquisitions · Post-acquisition review completions · Post-investment review by the Board of aggregate performance of investment in M&A

Statement of Directors' responsibilities

The Annual Report 2020, on pages 203 to 204, contains the following statement regarding responsibility for the financial statements and is repeated here solely for the purpose of complying with DTR 6.3.5. Responsibility is for the full Annual Report 2020 and not the extracted information presented in this announcement or the preliminary results announcement.

The Directors are responsible for preparing the Annual Report and the Group and Parent Company Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company Financial Statements for each financial year. Under that law they are required to prepare the Group Financial Statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law and have elected to prepare the Parent Company Financial Statements in accordance with UK Accounting Standards, including FRS 101 Reduced Disclosure Framework. In addition, the Group Financial Statements are required under the UK Disclosure and Transparency Rules to be prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (IFRSs as adopted by the EU).

Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company Financial Statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable, relevant and reliable;

· for the Group Financial Statements, state whether they have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (IFRSs as adopted by the EU);

· for the Parent Company Financial Statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company Financial Statements;

· assess the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are set out on pages 78 and 79, confirms that, to the best of their knowledge:

· the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Each Director considers the Annual Report and Financial Statements, taken as a whole, to be fair, balanced and understandable and to provide the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

 

END

 

 

ACSSDSSUFEFSEDD