TIDMRTO
RNS Number : 4495F
Rentokil Initial PLC
28 July 2016
28 July 2016
RENTOKIL INITIAL PLC (RTO)
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2016
H1
Results 2016 Growth
GBPm AER AER CER
Revenue 987.1 15.4% 10.6%
Revenue
* ongoing operations(1) 979.5 16.3% 11.5%
Adjusted operating
profit(2) 114.0 16.9% 11.7%
Adjusted operating
profit(2)
* ongoing operations(1) 114.3 16.2% 11.0%
Adjusted profit
before tax(2) 98.3 22.5% 16.9%
Profit before
tax 80.4 14.4% 9.2%
Free cash flow(3) 57.1
Adjusted EPS(4) 4.20p 23.5% 17.1%
EPS 3.56p 16.7% 10.4%
Dividend per
share 0.99p 13.8%
------------------------------------- -------- -------- --------
Highlights (at CER unless stated otherwise)
-- Strong overall performance in H1 - ongoing revenue +11.5%,
ongoing adjusted operating profit +11.0% and free cash flow of
GBP57.1m (at AER) on track to meet GBP110m+ target for the year
-- Improved organic growth - total organic revenue growth +2.5%
year on year (FY 2015: +1.8%). Pest Control +5.5%, Hygiene +2.5%;
lower level of organic decline in Workwear business of -1.8% (FY
2015: -3.2%) impacted by continued challenging conditions in France
and Benelux
-- Continued strong M&A execution - 20 acquisitions to 30 June 2016 (16 in Pest Control):
- In addition, further expansion in North America with
acquisition of pest control and turf products distribution business
Residex LLC for US$30m on 1 July 2016. Acquisition doubles in size
our existing products business
- Combined annualised revenues for acquisitions (including Residex) of c. GBP100m:
- Integration of Steritech continues to progress well - on track
to meet $25m to $30m profit target for 2016
-- Pest Control now accounts for over 50% of group revenue and
profit, total North America revenue accounts for over 30% of group
revenue, post Residex acquisition
-- Declared 13.8% increase in interim dividend to 0.99p
-- Expectations for the full year unchanged
Commenting on the 2016 interim results Andy Ransom, CEO of
Rentokil Initial plc, said:
"I am pleased with our performance in the first half, and
particularly encouraged by the performance of our pest control
business and by our continued expansion into our key growth market
of North America, which is set to achieve revenues of around $1bn
by the end of 2016, some two years ahead of our expectations.
Organic growth in Pest Control was 5.5%, with North America Pest
Control growing organically by 4.7%.
"Acquisitions continue to play an important part in our growth
strategy and the 21 businesses we have acquired year to date have
added GBP100m of incremental revenue to the group and further
strengthened our international presence.
"While conditions in certain parts of Europe remain challenging,
particularly in France and Benelux, prospects in the majority of
our key markets are good and we are on track to achieve our 2016
revenue, profit and cash expectations."
Revenue (at CER)
H1 revenue from ongoing operations increased by 11.5%,
comprising organic growth of 2.5% and growth from acquired
businesses of 9.0%. Pest control revenue grew strongly at 25.1%, of
which 5.5% was organic (FY 2015: +4.6%). Growth in the Emerging
(+17.4%) and Growth (+18.8%) quadrants was driven by good
performances from North America, the UK & Ireland, Latin
America, Asia and Pacific. Revenue in the Protect & Enhance
quadrant declined by 1.2%, largely driven by France, with the
Manage for Value quadrant broadly flat at +0.5%. In H1 we closed
two very small non-core operations and these, together with other
businesses divested in 2015, reduced revenue growth by 0.9%
resulting in total revenue growth of 10.6%. Total revenue at AER
increased by 15.4%.
Profit (at CER)
Adjusted operating profit from ongoing operations of GBP107.1m
(which now includes restructuring costs which were previously
excluded from APBITA) increased by 11.0% in H1, reflecting growth
in North America, the UK & Ireland, Latin America, Asia and
Pacific, but offset principally by lower profits in France.
Adjusted operating profit includes restructuring costs of GBP3.8m
(2015: GBP1.8m) consisting mainly of costs in respect of
initiatives focused on driving operational efficiency in Europe and
North America. The GBP2.0m increase over the prior year is due to
the phasing of projects and the full year outcome is expected to be
in line with our guidance of GBP7m. One-off items of GBP2.0m (H1
2015: GBP1.1m credit) primarily relate to the integration costs of
the Steritech acquisition and are excluded from APBITA as they are
not considered to be "business as usual" expenses and have a
varying impact on different businesses and reporting periods.
Adjusted profit before tax at AER increased by 22.5% to GBP98.3m
and was favourably impacted by foreign exchange of GBP6.6m due
mainly to the weakness of Sterling against the Euro and USD. Profit
before tax at AER of GBP80.4m increased by 14.4% reflecting an
increase in amortisation of intangible assets following the
Steritech acquisition.
Cash (at AER)
Free cashflow from continuing operations of GBP57.1m in H1 was
GBP1.7m higher than in the prior year with the improvement in
operating profit partially offset by increased capital expenditure
(in part due to foreign exchange and phasing) and the beneficial
settlement of a legacy legal claim in the prior year (GBP10.8m cash
inflow). As a result of the expenditure on current and prior-year
acquisitions of GBP34.9m (including net debt acquired) and adverse
exchange rates movements of GBP142.8m (principally due to the
weakening of Sterling against the Euro and USD), net debt increased
by GBP157.6m versus 31 December 2015 to GBP1,184.2m.
M&A
In line with our strategy we have continued our M&A
programme to pursue targets in higher growth markets and in areas
which add local density to our existing operations. The Company has
acquired 20 highly-targeted, city-based businesses in H1 - 16 in
Pest Control, three in Hygiene and one in Plants. In North America
we have continued to expand our presence with the purchase of eight
businesses, including the Residex acquisition on 1 July 2016,
details of which can be found on page five. In addition, we have
acquired small businesses in Asia, Pacific and Europe. Combined
annualised revenues of the above businesses including Residex total
c. GBP100m in the 12 months prior to acquisition. The integration
of all acquisitions is progressing well and the pipeline remains
strong with opportunities to create value, particularly in Pest
Control. Given the cash spend on acquisitions in the year to date,
total cash spend for M&A for the full year is now likely to be
in the region of GBP70m to GBP80m.
Enquiries:
Rentokil
Investors Katharine Initial 01276 536585 / 07811
/ Analysts: Rycroft plc 270734
Rentokil
Malcolm Initial
Media: Padley plc 07788 978 199
John Sunnucks Bell Pottinger 0203 772 2549
A presentation for investors and analysts will be held on
Thursday 28 July 2016 at 9.15am in the Sidney Suite Conference
Room, 1st Floor, The Grange Tower Bridge Hotel, 45 Prescot Street,
London E1 8GP. This will be available via a live audio web cast at
www.rentokil-initial.com.
AER - actual exchange rates; CER - constant 2015 exchange
rates
(1) ongoing revenue and profit exclude the financial performance
of disposed and closed businesses but include results from
acquisitions
(2) before amortisation and impairment of intangibles (excluding
computer software), one-off items and net interest credit from
pensions
(3) cash flow before acquisitions, disposals, dividends and
discontinued operations. A reconciliation of adjusted operating
profit to free cash flow and movement in net debt is provided on
page 7
(4) earnings per share before the after tax effects of
amortisation and impairment of intangibles (excluding computer
software), one-off items and net interest credit from pensions
(5) Net debt comprises bank and other borrowings, cash and cash
equivalents, other investments - loans and receivables and the fair
value of debt related derivatives
This announcement contains statements that are, or may be,
forward-looking regarding the group's financial position and
results, business strategy, plans and objectives. Such statements
involve risk and uncertainty because they relate to future events
and circumstances and there are accordingly a number of factors
which might cause actual results and performance to differ
materially from those expressed or implied by such statements.
Forward-looking statements speak only as of the date they are made
and no representation or warranty, whether expressed or implied, is
given in relation to them, including as to their completeness or
accuracy or the basis on which they were prepared. Other than in
accordance with the Company's legal or regulatory obligations
(including under the Listing Rules and the Disclosure and
Transparency Rules), the Company does not undertake any obligation
to update or revise publicly any forward-looking statement, whether
as a result of new information, future events or otherwise.
Information contained in this announcement relating to the Company
or its share price, or the yield on its shares, should not be
relied upon as an indicator of future performance. Nothing in
this
announcement should be construed as a profit forecast.
Basis of preparation
Segmental information has been presented in accordance with IFRS
8 "Operating Segments". In order to assist with year on year
comparisons, all references to revenue and profit are at constant
2015 exchange rates (CER) unless stated otherwise. All comparisons
are at 2015 full year average exchange rates. References to ongoing
revenue and profit are from continuing operations and include the
results from acquisitions but exclude revenue and profit from
businesses disposed and closed. Unless otherwise stated references
to 'profit' and 'operating profit' are 'adjusted' measures and are
shown before amortisation, impairment of intangible assets
(excluding computer software), restructuring costs and one-off
items. These costs have been separately identified as they are not
considered to be "business as usual" expenses and have a varying
impact on different businesses and reporting periods. A
reconciliation of ongoing revenue and adjusted ongoing operating
profit at CER to statutory GAAP equivalents is provided in Note
4.
REGIONAL PERFORMANCE OVERVIEW
In the section below all references to revenue and profit are
for ongoing operations and references to profit are adjusted profit
as defined above.
In the North America region revenue grew 39.9% in H1, driven by
the continuing acquisition programme (+35.9%) including the
acquisition of Steritech in Q4 2015, and organic revenue growth of
+4.0%. Organic revenue growth from Pest Control of 4.7% was partly
impacted by favourable weather conditions in Q1. Strong profit
growth of 64.8% reflects the leverage impact from higher revenues
and acquisitions, including synergy delivery in Steritech. This has
improved net operating margins by 1.8% points (versus the first
half of 2015). The integration of the Steritech business continues
to go well and the business is on track to meet its profit target
of $25m to $30m for the full year.
Total revenue for Europe was broadly flat at +0.5% (organic
revenue growth +0.3%), with good growth in central Europe, notably
Germany (+2.9%), partially offset by declines in France (-1.0%) and
Benelux (-1.0%). Revenue in Southern Europe grew by 1.1% and Latin
America grew by 15.3%. Profit for Europe declined by 4.3% primarily
due to revenue reduction and pricing pressure in Workwear across
the region and France in particular. Workwear ongoing revenues
declined by 1.8% with net margins lower by 1.5% points.
Market conditions remain difficult in our workwear business
across the region. Competitive market and pricing pressures in
France in particular have adversely impacted revenue and margins.
To mitigate this we have implemented a quality initiative in our
workwear business which has led to higher customer retention and
our focus is now on building sales in small and medium sized
customers. Our European hygiene operations grew by 0.6%, driven by
growth in France in particular, and revenues from our pest control
businesses grew by 4.1%. We expect these mixed conditions in the
region to continue for the remainder of the year and hence the rate
of profit decline in Europe for the full year is anticipated to be
in line with H1.
In the UK & Rest of World region revenue rose by 4.1%,
reflecting organic growth of 3.7% and acquisition growth of 0.4%.
The UK Region continued its trend of growth in Pest Control and
Hygiene through the first half of 2016. Further growth in jobbing
work, in both pest control and property services, has been strong
along with portfolio growth in Hygiene. The Rest of World
operations delivered good revenue growth of 3.7% across all of its
regional clusters in the Nordics, Caribbean, Africa and MENAT.
Profit in the region grew by 7.7%, reflecting leverage from the
higher revenue growth with net margins up by 0.7% points.
The Asia region has had another strong performance with revenue
increasing by 11.9% (+7.9% organic) with both the pest control and
hygiene businesses performing well. Our operations in the less
established markets of India, China and Vietnam continue to deliver
strong growth (+23.9%). Double-digit revenue increases were also
delivered in the more developed markets of Indonesia (+12.2%) and
Malaysia (+16.0%, of which 6.4% was organic and 9.6% was growth
through acquisitions). Profit in the region grew by 34.3% in the
first half, reflecting the leverage from higher revenues and this,
together with service productivity improvements from greater
density, contributed to an increase in net margins of 1.7%
points.
In the Pacific region revenue grew by 9.4% in H1 (+3.6%
organic), driven by additional contract revenue from acquisitions,
higher levels of jobbing work in Pest Control and improved
retention in Hygiene. Profit in the region grew 10.8% with
productivity gains supplementing the strong revenue growth.
STRATEGY UPDATE
In February 2014 we announced our RIGHT WAY plan to deliver
sustainable revenue and profitable growth. Our plan is based upon a
clear, fixed business model for the company which includes five
distinct regions: North America, Europe, UK & Rest of World,
Asia and Pacific. We have three core competencies: our colleagues
as experts, our business leadership and our lean multi-business
model. We use a quadrant analysis tool for capital allocation and
operational management and group our businesses and geographies
into a four-box growth potential grid. Finally, we aim to
consistently meet our three medium-term financial targets:
mid-single-digit revenue growth, high-single-digit profit growth
and sustainable delivery of free cash flow of GBP110m+ per
annum.
Our top three strategic priorities are:
1. Accelerating Growth in Pest Control
2. Executing Now in Hygiene
3. Focusing on Quality in Workwear
Accelerating Growth in Pest Control
Pest Control is our core business line and engine for growth.
The business has grown strongly in the first half of 2016, growing
ongoing revenue and ongoing adjusted profit by 25.1% and 28.1%
respectively. Since 2013 the business has delivered a compound
annual growth rate of 14.7%.
Following the acquisition of Residex on 1 July 2016 Pest Control
now accounts for over 50% of group revenues and profits.
We plan to deliver continued acceleration of our business
through:
-- Deployment of new pest products and services from our innovation pipeline;
-- Roll-out of our performance-enhancing web presence across the group;
-- Our leadership in the 'Internet-of-Things' for pest control,
for example monitoring devices covering a range of pests and
risk-based reporting through extranets/apps;
-- Leverage of our North America position and growth in emerging markets; and
-- Continued M&A programme to build greater density.
Pest control is an attractive and growing market offering
sustainable, long-term growth prospects. It is expected to deliver
a compound annual growth rate of between 4% and 5%* through to
2026. Structural growth drivers include: economic activity in
growth markets (offices, housing etc.); population expansion and
urbanisation, particularly in Emerging markets; a growing middle
class demanding higher standards of hygiene; rising international
standards in food safety and hygiene regulation; increasing
pressure from pest species such as mosquitoes through climate
change (for example the Zika virus) and; legislation and regulatory
change.
* Source: Various industry market reports
Driving organic growth in Pest Control
As the world's leading pest control business we have the scale
and expertise to drive organic revenue growth, which rose by 5.5%
in H1. We provide an update on some of our organic growth levers
from H1 below.
1. Global and national accounts
We are making good progress in targeting global customers
particularly in the food processing and hospitality sectors. Our
acquisition of Steritech in North America, combined with our
increasingly active participation in the Global Food Safety
Initiative, has strengthened our global brand presence in these
sectors. In H1 we signed our first major contract with a global
food production and agricultural products organisation with a
geographic footprint that closely matches our own. In addition, we
have a strong pipeline of further new business opportunities within
the food production, pharmaceutical, hotels, hospitality,
transportation and logistics sectors.
The acquisition of Steritech last year has also significantly
enhanced our capability in the US national accounts market,
currently estimated to be worth $680m and representing 28% of the
total US commercial pest control market. While Rentokil has an 8%
share of the commercial market, we have less than 3% of the
national accounts opportunity. Now with greater national scale and
density, we are more competitive and a key component of our sales
strategy is to grow our national accounts portfolio rapidly
through:
-- Targeting specific national account prospects within the most
attractive industry segments such as food and pharmaceuticals;
-- Taking a standardised and focused approach to sales execution
with common performance metrics and sales processes;
-- Leveraging the combined national sales expertise of both Rentokil and Steritech; and,
-- Maximizing cross-selling opportunities across brands.
Year to date we have increased our national account sales by
over 60% and, as with our global accounts, our pipeline of
prospects is strong.
2. Technical expertise shared across markets
Across the world we combat the dangers to public health from
mosquitoes and believe our depth of expertise and experience in
global mosquito control is unrivalled. In July we were awarded a
contract by the U.S. Centers for Disease Control and Prevention to
help control the species of mosquito that could potentially carry
the Zika virus across the USA and its protectorates. Rentokil has a
network of experts available for deployment as required alongside
its global technical resource to target affected or high-risk
areas. It will also provide additional services that entail
community outreach, surveillance and inspection, and support for
the distribution of materials and educational information. The
contract will run to June 2018, subject to government review.
In Central and Latin America and across the Caribbean, Rentokil
is also undertaking monitoring and control services to support its
customers against the potential threat of Zika and in Asia we have
over 30 years' experience in helping customers to combat the threat
of Dengue fever.
3. Digital leadership and web expertise
The world is becoming increasingly focused on digital
applications and Rentokil is leading the pest control industry in
the commercialisation of the 'Internet-of-Things' through connected
devices. We now have digital expertise at every stage of the
customer journey from web searching through to e-billing. In
addition over the last three years we have been developing, testing
and deploying our range of remote monitoring sensors and connected
devices.
PestConnect, our remote monitoring system for rodents, is the
world's smartest mouse trap. It is now used in over 20,000 customer
premises across 12 countries has sent us over three million
individual messages relating to the presence of rodent activity and
service productivity (such as battery life and the level of mobile
connectivity). The system also guides our technicians to the exact
unit that has signaled rodent activity - particularly useful on
sites which use multiple units.
During the first half our web platform handled over four million
visits (over 10m visits within the last 12 months) with double
digit visitor growth in key markets. One new website was launched
every three weeks. In addition the myRentokil online customer
portal was rolled out to 20 countries with over 60,000 customers
registered. The same platform has been used to deliver customer
portals in Hygiene and Plants - myInitial and myAmbius.
Growth through M&A
In the first half of the year we have acquired 16 pest control
companies in the US, Canada, Australia, New Zealand, Hong Kong,
China, Honduras, Germany, Austria, Switzerland and Spain. In
addition, on 1 July 2016 we completed the acquisition of pest and
turf products distribution company Residex (see below). The
integration of all acquisitions is progressing well and the
pipeline remains strong with further opportunities to create value.
M&A is a core component of our strategy and we will continue to
look for attractive targets to further build density, particularly
in North America and in Emerging markets.
Acquisition of Residex
Our Target Specialty Products business (which accounts for
approximately 10% of our North American revenue) is a leading US
distributor of pest control and turf products. At the beginning of
July we announced the acquisition of US pest control and turf
products distribution business Residex LLC for US$30m. Residex is
the largest independent products distribution company in the US,
with annualised revenues for the 12 months prior to acquisition of
$113m. The acquisition increases the scale of our US pest products
operation, more than doubling its size to $200m in revenue. We now
have the second largest products business of this type in the US,
delivering national coverage and a greater density footprint. The
acquisition also provides entry into the Canadian pest products
market. The addition of Residex means that our total business in
North America is set to deliver annualised revenues of around $1
billion by the end of the year - some two years ahead of our
expectations.
Integration of Steritech
The integration of Steritech is progressing well. All
integration work streams are on track, management integration is
complete and our IT infrastructure migration and application
roadmap is in place. Both back office rationalisation and
procurement savings programmes are running to plan. The business is
on track to deliver its 2016 profit target of $25m - $30m.
Executing Now in Hygiene
Initial Hygiene is the world's leading hygiene services company.
Key revenue KPIs in the first half of the year show ongoing
progress: revenue grew by 4.2% (+2.5% organic); gross sales were
16.3% of opening portfolio; terminations fell by 1.8% points;
organic net gain was 3.7%; contract revenue grew by 3.9%; job
revenue rose by 9.7% and; revenue from products grew by 17.0%. Over
the last three years Hygiene has delivered a compound annual growth
rate of 2.8%.
We are pursuing an 'Execute Now' growth strategy to leverage our
strengths in our 45+ countries of operation by:
-- Building on the strength of our leading hygiene brand and strong market positions;
-- Selling with confidence - including new product ranges such
as Reflection, Signature, Colour, No Touch and Premium
Scenting;
-- Leading on innovation through 'Internet-of-Things' for
hygiene, for example sensing, hand hygiene compliance, particularly
in the food and health market sectors; and
-- Building city density and extending our footprint through organic growth and targeted M&A.
The hygiene services market offers good growth opportunities as
organisations demand increasing standards of hygiene. Our hygiene
business is highly profitable and margin growth, as in Pest
Control, is driven by customer density (servicing as many customers
as possible in a tight geographic zone) and product density
(selling multiple service lines to customers). What we seek,
therefore, is more customers on the route and more products on the
washroom wall.
Customer and product density
We are currently working on the development of a new web-based
route planning tool for our hygiene operations. Already used within
our pest control operations, the Service+ route planner is a
web-based planning system for optimising both territory and daily
route planning. Customer service visits, our driving routes and
working days are automatically pre-planned and optimised, then
service visits requiring further planning can be appointed,
automatically confirmed and the plans updated. The first time use
of Service+ territory planning typically delivers a 10% efficiency
saving. In M&A we are adopting the same route density,
city-focused strategy for our hygiene business as we have for our
pest control business, seeking small, highly-targeted acquisitions
in Growth and Emerging markets to build density and grow margins.
In H1 we acquired three small hygiene businesses in New Zealand,
Malaysia and the Republic of Ireland. The three businesses combined
generated annualised revenue of GBP8m in the year prior to
acquisition.
Significant leverage is gained in Hygiene through selling
multiple services per customer premises. We have high-quality
product ranges now in place and are offering our sales colleagues
specialist training to help them sell multiple services to
customers, supported by promotional campaigns to highlight our
range proposition. In addition, we are putting in place
country-specific incentive programmes with local rewards to focus
our sales force and front line colleagues on achieving greater
product density. We continue to strengthen our washroom range to
maximise our selling capabilities through additional product
launches and the continued roll-out of the range across our
operations. Our digital sales and service tools are also being
utilised to build customer awareness of Initial's multiple product
offerings, for instance, the new customer portal, MyInitial, is
being developed to highlight the full spectrum of hygiene solutions
on its home page.
Focusing on Quality in Workwear
Our workwear business operates across the major European markets
of Germany, France and the Benelux. It is a profitable and highly
cash-generative business with a good overall market share. However
it has been operating under significant pricing pressure
particularly in France and also within highly competitive markets
in Benelux. Margins remain under pressure with profit down by 14.3%
on revenue decline of 1.8% in H1. We believe that implementation of
our Quality initiative is the best approach to mitigate these
ongoing challenges.
Our Workwear Quality Plan involves:
-- Best-in-class processing - highest standards in washing &
repair quality, new higher quality detergents;
-- Greater responsiveness to customer needs - shorter lead time
between contract and deployment;
-- Smarter selling - "selling a service rather than a product";
-- Creation of product and service innovation action group; and
-- Leveraging European scale and best practice - to create a
more effective organisation through best practice sharing in supply
chain, R&D, processing, sales and marketing.
Since implementation of the plan last year we have made
encouraging operational progress with improvements in service
quality and customer retention, however there is still much to
achieve. State of Service is at its highest level in over five
years, Missing Item Complaints are down in all markets and good
progress has been achieved in complaint resolution. In addition,
customer satisfaction scores have risen for six consecutive
quarters. Standards in washing quality are rising and new work flow
tools have been introduced across all regions to reduce the
timeframe from contract to deployment. Underpinning this progress
is the rigorous application of processes to measure quality of
service and sales performance, improved product visibility through
the entire service process and the development of new products and
innovations.
FINANCIAL REVIEW
Central and regional overheads (at CER)
First half central and regional overheads at GBP34.4m (2015:
GBP32.3m) largely reflect increased charges for Long Term Incentive
Plans as a result of the recent share price performance of the
Company.
Restructuring costs and one-off items (at CER)
At our Preliminary results in February this year we announced
that, from 2016, with the exception of integration costs for
significant acquisitions, we will report restructuring costs within
APBITA. Integration costs associated with significant acquisitions
will be reported as one-off items and excluded from APBITA. In 2016
this will include costs in relation to Steritech which are
estimated at c. GBP5m.
Restructuring costs of GBP3.8m (2015: GBP1.8m) consisted mainly
of costs in respect of initiatives to deliver operational
efficiencies and service quality improvements in Europe and North
America. The increase over the prior year is due to the phasing of
projects and the full year is expected to be in line with our
guidance of GBP7m compared to GBP7.9m in 2015.
One-off items of GBP2.0m (H1 2015: GBP1.1m credit) primarily
relate to the integration costs of the Steritech acquisition.
Details of restructuring costs and one-off items are set out in
Note 4.
Interest (at AER)
Net interest payable (excluding the net interest credit from
pensions) for the first half of 2016 was GBP18.7m compared to
GBP19.9m in the prior year, a net decrease of GBP1.2m. The interest
reduction was due to the refinancing of the 5.75% GBP300m bond
offset by additional interest on the term loan to fund the
Steritech acquisition and the impact of exchange due to the
weakening of Sterling against the Euro and US. The average cost of
gross debt for the group was c. 3.5% for H1 2016.
Tax (at AER)
The income tax expense for the half at actual exchange rates was
GBP15.3m on the reported profit before tax of GBP80.4m. After
adjusting profit for the amortisation of intangible assets
(excluding computer software), one-off items and the net interest
credit from pensions, the effective tax rate for the half was 22.1%
(2015: 23.4%). This compares with a blended rate of tax for the
countries in which the group operates of 26% (2015: 26%). The lower
adjusted tax rate compared to the blended tax rate is principally
due to the benefit of previously unrecognised brought forward tax
losses being set off against UK profits.
Net debt and cash flow (at AER)
GBPm at actual exchange Year to Date
rates
------------------------------
2016 2015 Change
HY HY GBPm
GBPm GBPm
---------------------------------- ---------- -------- --------
Adjusted operating profit(1) 114.0 97.4 16.6
One-off items (2.1) 0.9 (3.0)
Depreciation 93.8 85.4 8.4
Other non-cash 1.6 7.9 (6.3)
---------- -------- --------
EBITDA 207.3 191.6 15.7
Working capital (2.9) (8.0) 5.1
Movement on provisions (5.4) (5.1) (0.3)
Capex - additions (104.6) (88.5) (16.1)
Capex - disposals 3.3 3.6 (0.3)
---------- -------- --------
Operating cash flow - continuing
operations 97.7 93.6 4.1
Interest (22.8) (23.5) 0.7
Tax (17.8) (14.7) (3.1)
Free cash flow - continuing
operations 57.1 55.4 1.7
Free cash flow - discontinued
operations - (0.6) 0.6
---------- -------- --------
Free cash flow 57.1 54.8 2.3
Acquisitions (34.9) (32.7) (2.2)
Disposal of companies and
businesses 0.5 - 0.5
Dividends (37.5) (33.1) (4.4)
Foreign exchange translation
and other items (142.8) 56.2 (199.0)
--------
(Increase) / decrease in
net debt (157.6) 45.2 (202.8)
Opening net debt (1,026.6) (775.0) (251.6)
---------- -------- --------
Closing net debt (1,184.2) (729.8) (454.4)
========== ======== ========
(1) before amortisation and impairment of intangibles (excluding
computer software) and one-off items
Operating cash inflow (GBP97.7m at AER for continuing
operations) was GBP4.1m higher than 2015 largely due to the
increase in APBITA partly offset by the beneficial impact from the
settlement of a legacy legal claim (GBP10.8m) in H1 2015 and
increased capital expenditure.
Capital expenditure from continuing operations of GBP104.6m was
GBP16.1m higher than 2015 due to the impact of exchange rate
movements and the phasing of certain projects from 2015 into
2016.
Interest payments (including finance lease interest) were
GBP0.7m lower than last year which combined with a GBP3.1m increase
in tax paid, resulted in free cash flow from continuing operations
of GBP57.1m, an increase of GBP1.7m on the prior year.
Cash spent on acquisitions totalled GBP34.9m (including net debt
acquired) and the Company made dividend payments of GBP37.5m in
2016 (a 13.3% increase on the prior year). Foreign exchange
translation and other items increased net debt by GBP142.8m
(primarily due to the weakening of Sterling against the Euro and US
dollar), leaving an overall increase in net debt of GBP157.6m
compared to 31 December 2015 and closing net debt of
GBP1,184.2m.
Pensions (at AER)
At 30 June 2016 the Company's UK defined benefit pension scheme,
which is closed to new members, was valued at an accounting surplus
of GBP337.4m on the Company's balance sheet. The Trustees value the
scheme on a different basis and the most recent triennial actuarial
valuation as at 31 December 2015 is now substantially complete. The
Trustee and the Company have agreed that the Scheme is now fully
funded on a technical provisions basis. The Trustees have therefore
agreed that the annual payments of GBP3.2m that the Company has
been paying into an escrow arrangement each January will not be
required going forward. In accordance with the terms of the escrow
arrangement, because the Scheme is fully funded on a technical
provisions basis, the GBP9.6m currently held in escrow will also be
released to the Company. The position will be reviewed at the next
actuarial valuation, which is scheduled for 31 December 2018.
Funding (at AER)
At 30 June 2016 the group had net debt of GBP1,184.2m, GBP75m of
centrally held funds, and GBP130m of available undrawn committed
facilities. The ratio of net debt to EBITDA at 30 June 2016 was
2.5x (calculated using exchanges rates as at 30 June 2016). On 29
June 2016 Standard & Poor's revised its outlook on the Company
from Negative to Stable and reaffirmed its BBB credit rating as a
reflection of our continued good progress in the execution of the
Steritech integration. Based on our expectations for the remainder
of the year, our strong cash flow projections for 2016 and into
2017 and further progress with Steritech, we are confident of
maintaining our credit rating at our committed BBB level.
The Directors continue to adopt the going concern basis in
preparing the accounts on the basis that the group's strong
liquidity position and ability to reduce capital expenditure or
expenditure on bolt-on acquisitions are sufficient to meet the
group's forecast funding needs, including those modelled in a
downside case.
Dividend
The Board has declared an interim dividend of 0.99p per share,
amounting to GBP18.1m, payable on 14 September 2016 to shareholders
on the register at the close of business on 12 August 2016. This is
an increase of 13.8% on the interim dividend for 2015.
GUIDANCE AND OUTLOOK FOR 2016 (at CER unless otherwise
stated)
Central and divisional overheads are now expected to be c. GBP3m
higher than the prior year reflecting increased charges for Long
Term Incentive Plans as a result of the recent share price
performance of the Company. We estimate that restructuring costs
(reported within APBITA) in 2016 will be c. GBP7m. One-off costs
(excluded from APBITA) are estimated at c. GBP5m and include
integration costs in relation to Steritech and the recent
acquisition of Residex. Interest costs are estimated at GBP37m,
reflecting the impact of the Company's recent refinancings (cash
interest at AER will be around GBP15m higher than the P&L
impact as a result of the timing of interest payments and the
weakening of Sterling).
In respect of the outcome of last month's EU Referendum and the
UK's decision to leave, we advise that approximately 90% of the
Company's revenues are derived from outside the UK and there is
minimal cross-border trading across its global businesses. Sterling
has weakened significantly since the announcement and, if recent
exchange rates were to continue for the rest of the year, the
estimated favourable impact of currency movements on our profit for
2016 would be around GBP26m.
Our current estimate for adjusted effective tax rate is around
22% (2015: 23.8%) with cash tax payable in the region of GBP35m to
GBP40m. Working capital outflow is anticipated to be around GBP10m,
with net capex in the region of GBP210m to GBP220m (subject to
foreign exchange movements). The group is targeting free cashflow
in excess of GBP110m. Cash spend on acquisitions is expected to be
in the region of GBP70m to GBP80m.
While conditions in certain parts of Europe remain challenging,
particularly in France and the Netherlands, the prospects in the
majority of our key markets are good and we are on track to achieve
our 2016 revenue, profit and cash expectations.
Appendix 1
FINANCIAL SUMMARY
GBPmillion Half Year
--------------------------
2016 2015 change
------------------------------------- --- ------- ------- --------
Continuing Operations(1)
At 2015 constant exchange rates(2)
Revenue - ongoing operations(3) 928.4 832.6 11.5%
Revenue - disposed and closed
businesses 7.1 12.9 (45.0%)
------- ------- --------
Revenue 935.5 845.5 10.6%
------- ------- --------
Adjusted operating profit(4)
- ongoing operations(3) 107.1 96.4 11.0%
Adjusted operating profit(4)
- disposed and closed businesses (0.3) (0.9) 66.7%
Adjusted operating profit(4) 106.8 95.5 11.7%
One-off items(5) (2.0) 1.1 -
Amortisation and impairment
of intangible assets (19.1) (13.8) (37.8%)
------- ------- --------
Operating profit 85.7 82.8 3.5%
Share of profit from associates
(net of tax) 2.6 2.7 (3.8%)
Net interest payable (excluding
pensions) (17.7) (19.9) 11.0%
Net interest credit from
pensions 4.3 3.0 42.5%
------- ------- --------
Profit before tax 74.9 68.6 9.2%
------- ------- --------
Adjusted profit before tax(4) 91.7 78.3 16.9%
Operating cash flow(6) 91.7 92.0 (0.4%)
Basic earnings per share 3.30p 2.99p 10.4%
Basic adjusted earnings
per share(7) 3.90p 3.33p 17.1%
Continuing Operations(1)
At actual exchange rates
Revenue - ongoing operations(3) 979.5 842.5 16.3%
Revenue - disposed and closed
businesses 7.6 12.8 (40.7%)
------- ------- --------
Revenue 987.1 855.3 15.4%
------- ------- --------
Adjusted operating profit(4)
- ongoing operations(3) 114.3 98.3 16.2%
Adjusted operating profit(4)
- disposed and closed businesses (0.3) (0.9) 64.6%
Adjusted operating profit(4) 114.0 97.4 16.9%
One-off items(5) (2.1) 0.9 -
Amortisation and impairment
of intangible assets (20.1) (13.9) (44.1%)
------- ------- --------
Operating profit 91.8 84.4 8.7%
Share of profit from associates
(net of tax) 3.0 2.7 10.5%
Net interest payable (excluding
pensions) (18.7) (19.9) 6.1%
Net interest credit from
pensions 4.3 3.0 42.2%
------- ------- --------
Profit before tax 80.4 70.2 14.4%
------- ------- --------
Adjusted profit before tax(4) 98.3 80.2 22.5%
Operating cash flow(6) 97.7 93.6 4.2%
Basic earnings per share 3.56p 3.05p 16.7%
Basic adjusted earnings
per share(7) 4.20p 3.40p 23.5%
Dividend per share (proposed/paid) 0.99p 0.87p 13.8%
(1) all figures are for continuing operations unless otherwise
stated
(2) results at constant exchange rates have been translated at
the full year average exchange rates for the year ended 31 December
2015. GBP/$ average rates: H1 2016 1.4258; FY 2015 1.5288, GBP/EUR
average rates: H1 2016 1.2864; FY 2015 1.3770
(3) ongoing revenue and profit exclude the financial performance
of disposed and closed businesses but include results from
acquisitions
(4) before amortisation and impairment of intangibles (excluding
computer software), one-off items and net interest credit from
pensions
(5) see Note 2 for further details
(6) cash flow before interest, tax, acquisitions, disposals,
dividends and discontinued operations
(7) earnings per share before the after tax effects of
amortisation and impairment of intangibles (excluding computer
software), one-off items and net interest credit from pensions
Appendix 2
Regional Analysis - ongoing operations
Revenue Adjusted operating
profit
---------------------------------- --------------------------------------
GBPm 6 months Change 6 months Change
to 30 June from HY to 30 June from HY
2016 2015 2016 2015
-------------- ------------------ ---------------- --------------------
CER AER CER AER CER AER CER AER
----------------------- ------ ------ -------- -------- ------- ------- --------- ---------
France 149.5 160.0 (1.0%) 5.0% 19.5 20.9 (11.0%) (5.6%)
Benelux 93.5 100.1 (1.0%) 5.1% 15.0 16.1 (1.6%) 4.4%
Germany 85.1 91.0 2.9% 8.9% 20.9 22.3 (2.0%) 3.6%
Southern Europe 30.3 32.4 1.1% 7.2% 4.5 4.8 4.0% 10.4%
Latin America 10.6 10.6 15.3% 6.6% 1.4 1.4 15.7% 9.4%
Total Europe 369.0 394.1 0.5% 6.1% 61.3 65.5 (4.3%) 1.2%
UK & Ireland 114.9 115.5 4.3% 4.8% 21.2 21.4 10.3% 10.9%
Rest of World 55.1 56.1 3.7% 2.3% 11.9 11.9 3.4% 0.1%
UK & Rest of World 170.0 171.6 4.1% 3.9% 33.1 33.3 7.7% 6.8%
Asia 57.9 60.6 11.9% 13.0% 5.8 6.0 34.3% 31.1%
North America 264.9 283.4 39.9% 49.8% 31.4 33.6 64.8% 76.5%
Pacific 66.6 69.8 9.4% 10.5% 13.7 14.4 10.8% 11.8%
Central and regional
overheads - - - - (34.4) (34.4) (6.7%) (6.7%)
Restructuring
costs - - - - (3.8) (4.1) (114.1%) (126.6%)
Ongoing operations 928.4 979.5 11.5% 16.3% 107.1 114.3 11.0% 16.2%
Disposed businesses 7.1 7.6 (45.0%) (40.7%) (0.3) (0.3) 66.7% 64.6%
----------------------- ------ ------ -------- -------- ------- ------- --------- ---------
Continuing operations 935.5 987.1 10.6% 15.4% 106.8 114.0 11.7% 16.9%
----------------------- ------ ------ -------- -------- ------- ------- --------- ---------
Appendix 2
Category Analysis - ongoing operations
Revenue Adjusted operating
profit
---------------------------------- --------------------------------------
GBPm 6 months Change 6 months Change
to 30 June from HY to 30 June from HY
2016 2015 2016 2015
-------------- ------------------ ---------------- --------------------
CER AER CER AER CER AER CER AER
----------------------- ------ ------ -------- -------- ------- ------- --------- ---------
Pest Control 454.4 479.5 25.1% 30.5% 80.4 84.7 28.1% 33.1%
Hygiene 219.8 230.0 4.2% 7.2% 39.9 41.8 0.5% 3.4%
Workwear 171.0 183.1 (1.8%) 4.2% 18.6 19.9 (14.3%) (9.1%)
Other 83.2 86.9 (1.3%) 2.5% 6.4 6.4 0.6% (0.8%)
Central and regional
overheads - - - - (34.4) (34.4) (6.7%) (6.7%)
Restructuring
costs - - - - (3.8) (4.1) (114.1%) (126.6%)
Ongoing operations 928.4 979.5 11.5% 16.3% 107.1 114.3 11.0% 16.2%
Disposed businesses 7.1 7.6 (45.0%) (40.7%) (0.3) (0.3) 66.7% 64.6%
----------------------- ------ ------ -------- -------- ------- ------- --------- ---------
Continuing operations 935.5 987.1 10.6% 15.4% 106.8 114.0 11.7% 16.9%
----------------------- ------ ------ -------- -------- ------- ------- --------- ---------
Condensed consolidated statement of profit or loss and other
comprehensive income
For the period ended 30 June
Restated(*)
6 months to 30 June 2016 6 months to 30 June 2015
Notes GBPm GBPm
======================================================== ====== ========================= =========================
Revenue 4 987.1 855.3
Operating profit 91.8 84.4
Finance income 10.0 8.3
Finance cost (24.4) (25.2)
Share of profit from associates, net of tax of GBP1.4m
(2015: GBP1.3m) 3.0 2.7
======================================================== ====== ========================= =========================
Profit before income tax 80.4 70.2
Income tax expense(1) (15.3) (14.4)
======================================================== ====== ========================= =========================
Profit for the year from continuing operations 65.1 55.8
Profit for the year attributable to the Company's equity
holders (including non-controlling
interests of GBP0.2m (2014: GBP0.3m) 65.1 55.8
======================================================== ====== ========================= =========================
Other comprehensive income:
Items that are not reclassified subsequently to the
income statement:
Re-measurement of net defined benefit asset/liability 9 95.9 8.0
Tax related to items taken to other comprehensive income (19.2) (1.7)
Items that may be reclassified subsequently to the
income statement:
Net exchange adjustments offset in reserves (0.7) 11.6
Other items (0.8) 0.1
-------------------------------------------------------- ------ ------------------------- -------------------------
Total comprehensive income for the year (including
non-controlling interests of GBP0.2m (2015:
GBP0.3m) 140.3 73.8
-------------------------------------------------------- ------ ------------------------- -------------------------
Earnings per share attributable to the Company's equity
holders:
Basic 3.56p 3.05p
======================================================== ====== ========================= =========================
Diluted 3.54p 3.04p
======================================================== ====== ========================= =========================
Non-GAAP measures(2)
Operating profit 91.8 84.4
Adjusted for:
Amortisation and impairment of intangible assets(3) 4 20.1 13.9
One-off items - operating 4 2.1 (0.9)
======================================================== ====== ========================= =========================
Adjusted operating profit 114.0 97.4
Finance income 10.0 8.3
Add back: Net interest credit from pensions (4.3) (3.0)
Finance cost (24.4) (25.2)
Share of profit from associates, net of tax of GBP1.4m
(2014: GBP1.3m) 3.0 2.7
======================================================== ====== ========================= =========================
Adjusted profit before income tax 98.3 80.2
Adjusted Basic Earnings per share attributable to the
Company's equity holders 4.20p 3.40p
-------------------------------------------------------- ------ ------------------------- -------------------------
The weighted average number of ordinary shares in issue is
1,823m (HY 2015: 1,819m). For the diluted calculation the
adjustment for share options and LTIPs is 8.3m (HY 2015: 6.2m).
1 taxation includes GBP13.9m (HY 2014: GBP13.3m as restated) in respect of overseas taxation
2 the group reports a number of additional performance measures
that are designed to assist with the underlying performance of the
group (not defined under IFRS). Such measures include adjusted
operating profit, adjusted profit before income tax and adjusted
earnings per share
3 excluding computer software
* 2015 comparative results have been restated due to
restructuring costs now being reported within APBITA.
Consolidated balance sheet
At 30 At 31
June December
2016 2015
Notes GBPm GBPm
---------------------------------------------------- ---------- ----------
Assets
Non-current assets
Intangible assets 935.0 818.3
Property, plant
and equipment 553.5 477.1
Investments in associated
undertakings 26.7 17.7
Other investments 0.1 0.1
Deferred tax assets 1.0 2.0
Retirement benefit
assets 9 337.4 237.0
Other receivables 9.7 8.5
Derivative financial
instruments 8 - 1.4
------------------------------------ -------------- ---------- ----------
1,863.4 1,562.1
------------------------------------ -------------- ---------- ----------
Current assets
Other investments 4.9 99.3
Inventories 68.8 55.7
Trade and other
receivables 383.3 329.8
Current tax assets 12.5 10.5
Derivative financial
instruments 8 6.7 0.8
Cash and cash equivalents 116.9 102.6
------------------------------------ -------------- ---------- ----------
593.1 598.7
------------------------------------ -------------- ---------- ----------
Liabilities
Current liabilities
Trade and other
payables (472.1) (404.4)
Current tax liabilities (77.1) (73.3)
Provisions for other
liabilities and
charges (23.5) (20.6)
Bank and other short-term
borrowings 7 (172.7) (332.6)
Derivative financial
instruments 8 (43.3) (21.7)
------------------------------------ -------------- ---------- ----------
(788.7) (852.6)
------------------------------------ -------------- ---------- ----------
Net current liabilities (195.6) (253.9)
------------------------------------ -------------- ---------- ----------
Non-current liabilities
Other payables (17.7) (15.4)
Bank and other long-term
borrowings 7 (1,086.2) (865.4)
Deferred tax liabilities (141.0) (112.8)
Retirement benefit
obligations (26.6) (24.1)
Provisions for other
liabilities and
charges (60.1) (60.8)
Derivative financial
instruments 8 (18.7) (17.6)
------------------------------------ -------------- ---------- ----------
(1,350.3) (1,096.1)
------------------------------------ -------------- ---------- ----------
Net assets 317.5 212.1
------------------------------------ -------------- ---------- ----------
Equity
Capital and reserves attributable
to the company's equity holders
Called up share
capital 18.3 18.2
Share premium account 6.8 6.8
Other reserves (1,770.3) (1,768.8)
Retained profits 2,062.5 1,956.1
------------------------------------ --- ---------------------- ----------
317.3 212.3
Non-controlling
interests 0.2 (0.2)
------------------------------------ --- ---------------------- ----------
Total equity 317.5 212.1
------------------------------------ --- ---------------------- ----------
Consolidated statement of changes in equity
Called
up Share Non
share premium Other Retained controlling Total
capital account reserves earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ---------- ---------- ----------- ----------- -------------- ---------
At 1 January 2015 18.2 6.8 (1,772.0) 1,847.2 (0.2) 100.0
Profit for the period - - - 55.5 0.3 55.8
Other comprehensive
income:
Net exchange adjustments
offset in reserves - - 11.6 - - 11.6
Remeasurement of net
defined benefit asset/liability - - - 8.0 - 8.0
Effective portion
of changes in fair
value of cash flow
hedge - - 0.1 - - 0.1
Tax related to remeasurement
of net defined benefit
asset/liability - - - (1.7) - (1.7)
---------------------------------- ---------- ---------- ----------- ----------- -------------- ---------
Total comprehensive
income for the period - - 11.7 61.8 0.3 73.8
Transactions with
owners:
Dividends paid to
equity shareholders - - - (33.1) - (33.1)
Cost of share options
and long-term incentive
plan - - - 0.9 - 0.9
At 30 June 2015 18.2 6.8 (1,760.3) 1,876.8 0.1 141.6
---------------------------------- ---------- ---------- ----------- ----------- -------------- ---------
At 1 January 2016 18.2 6.8 (1,768.8) 1,956.1 (0.2) 212.1
Profit for the period - - - 64.9 0.2 65.1
Other comprehensive
income:
Issue of ordinary
shares 0.1 - - - - 0.1
Amounts received from
minority interests - - - - 0.2 0.2
Net exchange adjustments
offset in reserves - - (0.7) - - (0.7)
Remeasurement of net
defined benefit asset/liability - - 95.9 - 95.9
Effective portion
of changes in fair
value of cash flow
hedge - - (0.8) - - (0.8)
Tax related to remeasurement
of net defined benefit
asset/liability - - (19.2) - (19.2)
---------------------------------- ---------- ---------- ----------- ----------- -------------- ---------
Total comprehensive
income for the period 0.1 - (1.5) 141.6 0.4 140.6
Transactions with
owners:
Dividends paid to
equity shareholders - - - (37.5) - (37.5)
Cost of share options
and long-term incentive
plan - - - 2.3 - 2.3
At 30 June 2016 18.3 6.8 (1,770.3) 2,062.5 0.2 317.5
---------------------------------- ---------- ---------- ----------- ----------- -------------- ---------
Treasury shares represent 5.4m (HY 2015: 3.8m) shares held by
the Rentokil Initial Employee Share Trust. The market value of
these shares at 30 June 2016 was GBP10.4m (HY 2015: GBP5.6m).
Dividend income from, and voting rights on, the shares held by the
Trust have been waived.
Analysis of other reserves
Cash
Capital flow
reduction hedge Translation
reserve Legal reserve reserve Total
GBPm GBPm GBPm GBPm GBPm
-------------------------- ----------- ------ --------- ------------ ----------
At 1 January 2015 (1,722.7) 10.4 - (59.7) (1,772.0)
Net exchange adjustments
offset in reserves - - - 11.6 11.6
Effective portion of
changes in fair value
of cash flow hedge - - 0.1 - 0.1
-------------------------- ----------- ------ --------- ------------ ----------
Total comprehensive
income for the period - - 0.1 11.6 11.7
At 30 June 2015 (1,722.7) 10.4 0.1 (48.1) (1,760.3)
-------------------------- ----------- ------ --------- ------------ ----------
At 1 January 2016 (1,722.7) 10.4 0.2 (56.7) (1,768.8)
Net exchange adjustments
offset in reserves - - - (0.7) (0.7)
Effective portion of
changes in fair value
of cash flow hedge - - (0.8) - (0.8)
-------------------------- ----------- ------ --------- ------------ ----------
Total comprehensive
income for the period - - (0.8) (0.7) (1.5)
At 30 June 2016 (1,722.7) 10.4 (0.6) (57.4) (1,770.3)
-------------------------- ----------- ------ --------- ------------ ----------
Consolidated cash flow statement
6 months 6 months
to 30 to 30
June June
2016 2015
Notes GBPm GBPm
------------------------------------------ ------ --------- ---------
Profit for the period 65.1 55.8
Adjustments for:
- Tax 15.3 14.4
- Share of profit from associates (3.0) (2.7)
- Net interest credit from
pensions (4.3) (3.0)
- Interest income (5.7) (5.3)
- Interest expense 24.4 25.2
Reversal of non-cash items:
- Depreciation and impairment
of property, plant and equipment 87.8 80.4
- Amortisation and impairment
of intangible assets(1) 20.1 13.9
- Amortisation of computer
software 6.0 5.0
- Other non-cash items 1.6 7.9
Changes in working capital
(excluding the effects of acquisitions
and exchange differences on
consolidation):
- Inventories (6.8) (2.0)
- Trade and other receivables (16.0) (12.0)
- Trade and other payables
and provisions 14.5 0.3
------------------------------------------ ------ --------- ---------
Cash generated from operating
activities 199.0 177.9
Interest received 6.3 5.0
Interest paid (28.5) (28.1)
Income tax paid (17.8) (14.7)
------------------------------------------ ------ --------- ---------
Net cash generated from operating
activities 159.0 140.1
------------------------------------------ ------ --------- ---------
Cash flows from investing activities
Purchase of property, plant
and equipment (89.0) (77.4)
Purchase of intangible fixed
assets (8.8) (5.1)
Proceeds from sale of property,
plant and equipment 3.3 3.6
Acquisition of companies and
businesses, net of cash acquired 10 (27.6) (32.7)
Disposal of companies and businesses 0.5 -
Net cash flows from investing
activities (121.6) (111.6)
------------------------------------------ ------ --------- ---------
Cash flows from financing activities
Issue of ordinary share capital 0.1 -
Dividends paid to equity shareholders (37.5) (33.1)
Interest element of finance
lease payments (0.6) (0.4)
Capital element of finance
lease payments (6.6) (4.5)
Cash inflow/(outflow) on settlement
of debt related foreign exchange
forward contracts 22.5 (0.3)
Proceeds from issue of debt 239.4 36.6
Net investment in term deposits 94.4 (47.1)
Net loan repayments (341.4) -
------------------------------------------ ------ --------- ---------
Net cash flows from financing
activities (29.7) (48.8)
------------------------------------------ ------ --------- ---------
Net increase/(decrease) in
cash and cash equivalents 7.7 (20.3)
Cash and cash equivalents at
beginning of year 100.5 194.1
Exchange gains/(losses) on
cash and cash equivalents 6.8 (6.5)
------------------------------------------ ------ --------- ---------
Cash and cash equivalents at
end of the financial period 115.0 167.3
------------------------------------------ ------ --------- ---------
(1) excluding computer software
1. General information
The Company is a limited liability company incorporated and
domiciled in the UK with a listing on the London Stock Exchange.
The address of its registered office is Rentokil Initial plc,
Riverbank, Meadows Business Park, Blackwater, Camberley, Surrey,
GU17 9AB.
The consolidated half-yearly financial information for the
half-year to 30 June 2016 was approved for issue on 28 July
2016.
On pages 60 to 61 of the Annual Report 2015 we set out the
group's approach to risk management and on pages 35 to 37 we define
the principal risks that are most relevant to the group. These
risks are described in detail and have mitigating actions assigned
to each of them. In our view the principal risks remain unchanged
from those indicated in the Annual Report 2015 and actions continue
to be taken to substantially mitigate the impact of such risks,
should they materialise.
These interim financial results do not comprise statutory
accounts within the meaning of Section 435 of the Companies Act
2006, and should be read in conjunction with the Annual Report
2015. Those accounts have been reported upon by the group's
auditors and delivered to the registrar of companies. The report of
the auditors was unqualified, did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report and did not contain statements
under section 498(2) or (3) of the Companies Act 2006.
For all information relating to 2015 results please refer to the
Annual Report 2015 which can be accessed here:
http://www.rentokil-initial.com/investors/year-in-review.aspx
2. Basis of preparation
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
The annual financial statements of the group are prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the EU. As required by the Disclosure and
Transparency Rules of the Financial Conduct Authority, the interim
financial statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of
the Company's published consolidated financial statements for the
year ended 31 December 2015 except for the changes described in
note 3.
After reviewing group cash balances, borrowing facilities and
projected cash flows, the directors believe that the group has
adequate resources to continue operations for the foreseeable
future. For this reason they continue to adopt the going concern
basis in preparing the consolidated financial statements.
3. Accounting policies
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 31 December 2015, as
described in those financial statements.
The preparation of the interim financial information for the
half-year ended 30 June 2016 requires management to make estimates
and assumptions that affect the reported amounts of revenues,
expenses, assets, liabilities and disclosure of contingent
liabilities at the date of the statement. If in the future such
estimates and assumptions, which are based on management's best
judgement at the date of the statement, deviate from the actual
circumstances, the original estimates and assumptions will be
modified as appropriate in the year in which the circumstances
change.
Significant seasonal or cyclical variations in the group's total
revenues are not experienced during the financial year.
Changes in accounting policies
The group has adopted the following amendments to standards with
effect from 1 January 2016:
- Annual improvements to IFRS: September 2014 cycle - amendments
to IFRS 5, IFRS 7, IFRS 10, IFRS 11, IFRS 12, IAS 19 and IAS 34
- Amendments resulting from the disclosure initiative - IAS 1
- Amendments regarding the clarification of acceptable methods
of depreciation and amortisation - IAS 16 and IAS 38
- Amendments regarding the application of the consolidation exception - IAS 28
These standards have had no impact on the financial position or
performance of the group. Consequently, no adjustment has been made
to the comparative financial information as at 31 December 2015 or
30 June 2015. The group has not early adopted any standard,
interpretation or amendment that was issued but is not yet
effective.
4. Segmental information
Segmental information has been presented in accordance with IFRS
8 "Operating Segments". Reporting segments reflect the internal
management organisation and reporting structures. Each segment is
headed by a Regional Managing Director who reports directly to the
Chief Executive and is a member of the Company Executive Board
responsible for the review of group performance. The operating
businesses within each segment report to the Regional Managing
Directors.
Profit is shown before amortisation and impairment of intangible
assets (excluding computer software) and one-off items that have
had a significant impact on the results of the group. These costs
have been separately identified as they are not considered to be
"business as usual" expenses and have a varying impact on different
businesses and reporting periods. From January 2016 it was decided
that all restructuring costs will now be reported within APBITA
(with the exception of integration costs for significant
acquisitions which will be reported as one-off items and excluded
from APBITA). Restructuring costs consist mainly of costs relating
to initiatives to deliver operational efficiencies and service
quality improvements in Europe and North America.
4. Segmental information (continued)
Revenue and profit excludes revenue and profit from businesses
disposed or closed but includes revenue and profit from
acquisitions. Constant exchange rates (CER) are used to assist with
the year on year comparisons.
Revenue
6 months 6 months
to to
30 June 30 June
2016 2015
Ongoing operations GBPm GBPm
----------------------------------- --------- ---------
France 149.5 151.0
Benelux 93.5 94.4
Germany 85.1 82.7
Southern Europe 30.3 30.0
Latin America 10.6 9.2
----------------------------------- --------- ---------
Europe 369.0 367.3
UK & Ireland 114.9 110.2
Rest of World 55.1 53.1
----------------------------------- --------- ---------
UK & Rest of World 170.0 163.3
Asia 57.9 51.8
North America 264.9 189.4
Pacific 66.6 60.8
Ongoing operations at constant
exchange rates 928.4 832.6
----------------------------------- --------- ---------
Disposed businesses(1) 7.1 12.9
----------------------------------- --------- ---------
Continuing operations at constant
exchange rates 935.5 845.5
Foreign exchange 51.6 9.8
----------------------------------- --------- ---------
Continuing operations at actual
exchange rates 987.1 855.3
----------------------------------- --------- ---------
Operating Profit Adjusted Adjusted
Restated profit Adjusted profit Adjusted
before Restructuring operating before Restructuring operating
restructuring costs profit restructuring costs profit
6 months 6 months 6 months 6 months 6 months 6 months
to to to to to to
30 30 30 30 30 30
June June June June June June
2016 2016 2016 2015 2015 2015
Ongoing operations GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
France 19.5 (0.8) 18.7 21.9 (1.2) 20.7
Benelux 15.0 (1.4) 13.6 15.3 - 15.3
Germany 20.9 (0.2) 20.7 21.3 - 21.3
Southern Europe 4.5 (0.3) 4.2 4.3 (0.2) 4.1
Latin America 1.4 - 1.4 1.2 - 1.2
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
Europe 61.3 (2.7) 58.6 64.0 (1.4) 62.6
UK & Ireland 21.2 - 21.2 19.2 (0.1) 19.1
Rest of World 11.9 - 11.9 11.5 (0.1) 11.4
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
UK & Rest of World 33.1 - 33.1 30.7 (0.2) 30.5
Asia 5.8 - 5.8 4.3 - 4.3
North America 31.4 (1.1) 30.3 19.1 (0.1) 19.0
Pacific 13.7 - 13.7 12.4 (0.1) 12.3
Central and regional
overheads (34.4) - (34.4) (32.3) - (32.3)
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
Ongoing operations
at constant exchange
rates 110.9 (3.8) 107.1 98.2 (1.8) 96.4
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
Disposed businesses(1) (0.3) - (0.3) (0.3) (0.6) (0.9)
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
Continuing operations
at constant exchange
rates 110.6 (3.8) 106.8 97.9 (2.4) 95.5
Foreign exchange 7.5 (0.3) 7.2 1.8 0.1 1.9
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
Continuing operations
at actual exchange
rates 118.1 (4.1) 114.0 99.7 (2.3) 97.4
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
One-off items (2.1) 0.9
Amortisation and
impairment of intangible
assets(2) (20.1) (13.9)
Operating profit 91.8 84.4
Interest payable
and similar charges (24.4) (25.2)
Interest receivable 5.7 5.3
Net interest credit
from pensions 4.3 3.0
Share of profit
from associates
(net of tax) -
Asia 3.0 2.7
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
Profit before income
tax 80.4 70.2
-------------------------- --------------- -------------- ----------- --------------- -------------- -----------
(1) disposed businesses are those businesses that have been
disposed or exited and therefore are not included as an ongoing
operation
(2) excluding computer software
4. Segmental information (continued)
One-off items and amortisation and impairment of intangible
assets (at actual exchange rates)
Amortisation Amortisation One-off One-off
and impairment and Impairment items items
6 months 6 months 6 months 6 months
to to to to
30 June 30 June 30 June 30 June
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
---------------------- ---------------- ---------------- ---------- ----------
Europe 2.7 3.4 0.3 8.0
UK & Rest of World 2.6 2.6 0.2 2.0
Asia 1.2 0.8 0.4 0.1
North America 11.6 6.1 1.3 (0.3)
Pacific 0.4 0.2 (0.2) -
Central and regional 1.6 0.8 0.1 (10.7)
---------------------- ---------------- ---------------- ---------- ----------
20.1 13.9 2.1 (0.9)
---------------------- ---------------- ---------------- ---------- ----------
One-off items include GBP1.0m for the costs associated with the
integration of Steritech in North America.
5. Discontinued operations and disposals
There are no discontinued operations as at 30 June 2016. There
were disposals of two small non-core businesses in Australia and
Malaysia for consideration totalling GBP0.5m. These do not meet the
definition of discontinued operations but have been excluded from
ongoing operations in the segmental analysis (note 4).
6. Dividends
6 months
to 6 months Year
30 to 30 to 31
June June December
2016 2015 2015
GBPm GBPm GBPm
---------------------------------- ----------- ----------- -----------
2014 final dividend paid - 1.82p
per share - 33.1 33.1
2015 interim dividend paid -
0.87p per share - - 15.8
2015 final dividend paid - 2.06p
per share 37.5 - -
37.5 33.1 48.9
------------------------------------ ----------- ----------- -----------
The directors have declared an interim dividend of 0.99p per
share amounting to GBP18.1m payable on 14 September 2016 to
shareholders on the register at 12 August 2016. The Company has a
progressive dividend policy and will take a view on the level of
any growth for 2016 based on the year-end results. These interim
financial statements do not reflect this dividend payable.
7. Bank and other borrowings
At 30 At 31
June December
2016 2015
GBPm GBPm
--------------------------- -------- ----------
Non-current
RCF and other bank
borrowings 318.2 198.8
Bond debt 746.7 653.0
Finance lease liabilities 21.3 13.6
---------------------------- -------- ----------
1,086.2 865.4
--------------------------- -------- ----------
Current
Bank overdrafts 1.9 2.1
Bank borrowings 139.4 0.6
Bond debt - 302.3
Bond interest accruals 17.7 18.3
Finance lease liabilities 13.7 9.3
---------------------------- -------- ----------
172.7 332.6
--------------------------- -------- ----------
Total bank and other
borrowings 1,258.9 1,198.0
---------------------------- -------- ----------
Medium-term notes and bond debt comprises:
Effective
Bond interest hedged interest
coupon rate
---------------------------- ------------------------ -----------------
Non-current
EUR500m bond due September
2019 Fixed 3.375% Fixed 3.62%
EUR350m bond due October
2021 Fixed 3.25% Fixed 3.52%
EUR50m bond due March
2018(1) Float 3M EURIBOR+0.48% Fixed 0.68%
GBP1.3m debentures Fixed 5.00% Fixed 5.00%
GBP0.3m debentures Fixed 4.50% Fixed 4.50%
---------------------------- ------------------------ -----------------
Average cost of bond debt
at period end rates 3.46%
------------------------------------------------------ -----------------
(1) The EUR50m bond due March 2018 was fixed at 0.57% payable
quarterly. The effective hedge rate is higher than the annual
coupon on our bonds due to discount and fees paid on issuance
Under the GBP315m RCF with a maturity date of January 2021, a
maximum of GBP270m can be drawn in cash and the remainder available
for guarantees. The marginal cost of borrowing under the facility
at the period end was 0.96%. During the six months to 30 June 2016,
GBP139.4m of the facility was drawn.
Under the Term loan providing cash drawings of up to GBP200m and
$157m with a maturity date of December 2018, they were fully drawn
during the six months to 30 June 2016. The cost of borrowing under
the GBP200m and $157m loans were 1.52% and 1.46% respectively.
The carrying values and the fair values of the group's
non-current borrowings are shown on the next page. Fair values are
based on cashflows discounted at the current market rates:
7. Bank and other borrowings (continued)
Carrying Carrying Fair Fair
amount amount Value Value
30 June 31 December 30 June 31 December
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
---------------------------- --------- ------------ -------- ------------
Bank borrowings 318.2 198.8 318.2 198.8
EUR500m bond due September
2019 415.1 363.0 455.5 396.1
EUR350m bond due October
2021 289.0 252.6 325.9 278.7
EUR50m bond due March
2018 41.6 36.4 41.6 36.6
GBP1.6m debentures 1.0 1.0 1.7 1.7
Finance lease liabilities 21.3 13.6 21.3 13.6
---------------------------- --------- ------------ -------- ------------
1,086.2 865.4 1,164.2 925.5
---------------------------- --------- ------------ -------- ------------
8. Derivative financial instruments
For all financial instruments held by the group, those that are
held at fair value are to be classified by reference to the source
of inputs used to derive the fair value. The following hierarchy is
used:
Level 1 - unadjusted quoted prices in active markets for
identical assets or liabilities;
Level 2 - inputs other than quoted prices that are observable
for the asset or liability either directly as prices or indirectly
through modelling based on prices;
Level 3 - inputs for the asset or liability that are not based
on observable market data.
The group holds all derivatives at fair value using discounted
cash flow models based on market rates which are observable.
Therefore all derivative financial instruments and
available-for-sale assets held by the group fall into Level 2.
Contingent consideration payable on acquisitions by the group falls
into Level 3. No financial instruments have moved between levels in
the period.
Fair Fair Fair Fair
value value value Value
assets assets liabilities liabilities
30 June 31 December 30 June 31 December
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
---------------------------------- -------- ------------ ------------- -------------
Interest rate swaps:
* non-hedge 5.7 - (13.2) (6.4)
* cash flow hedge 0.8 1.7 (0.7) (5.8)
* net investment hedge - 0.4 (44.5) (26.1)
Foreign exchange forwards:
* non-hedge - - (0.6) -
Foreign exchange swaps:
* non-hedge 0.2 0.1 (3.0) (1.0)
---------------------------------- -------- ------------ ------------- -------------
6.7 2.2 (62.0) (39.3)
---------------------------------- -------- ------------ ------------- -------------
Analysed as follows:
Current portion 6.7 0.8 (43.3) (21.7)
Non-current portion - 1.4 (18.7) (17.6)
---------------------------------- -------- ------------ ------------- -------------
6.7 2.2 (62.0) (39.3)
---------------------------------- -------- ------------ ------------- -------------
9. Retirement benefit obligations
Apart from the legally required social security state schemes,
the group operates a number of pension schemes around the world
covering many of its employees. The major schemes are of the
defined benefit type with assets held in separate trustee
administered funds.
The principal scheme in the group is the Rentokil Initial 2015
Pension Scheme in the United Kingdom ("the scheme"). It has a
number of defined benefit sections which are all now closed to new
members. At 30 June 2016 the scheme was valued at an accounting
surplus of GBP337.4m (December 2015: GBP237.0m) on the group's
balance sheet.
The scheme is re-appraised semi-annually by independent
actuaries based upon actuarial assumptions in accordance with IAS
19 requirements. The principal assumptions used for the scheme are
shown below.
30 June 31 December
2016 2015
GBPm GBPm
-------------------------- ---------- --------------
Weighted average
%
Discount rate 2.7% 3.8%
Future salary increases N/A N/A
Future pension increases 3.0% 3.3%
RPI Inflation 3.0% 3.4%
CPI Inflation 1.9% 2.3%
--------------------------- ---------- --------------
The triennial actuarial valuation of the Rentokil Initial 2015
Pension Scheme as at 31 December 2015 is substantially complete
with the Trustees and the Company agreeing that the Scheme is now
fully funded on a technical provisions basis. The Trustees have
therefore agreed that the annual payments of GBP3.2m the Company
has been paying into an escrow arrangement each January will not be
required going forward.
In accordance with the terms of the escrow arrangement, the
GBP9.6m currently held in escrow will also be released back to the
Company. The position will be reviewed at the next actuarial
valuation, which is expected to be carried out at 31 December
2018.
10. Business combinations
The group purchased 100% of the share capital or the trade and
assets of 20 companies and businesses in the period. The total
consideration in respect of acquisitions in the current year was
GBP32.4m. Details of goodwill and the fair value of net assets
acquired are as follows:
6 months 6 months
to 30 to 30
June June
2016 2015
GBPm GBPm
------------------------------ --------- ---------
Purchase consideration:
- Cash paid 25.6 26.6
- Deferred and contingent
consideration 6.8 8.0
-------------------------------- --------- ---------
Total purchase consideration 32.4 34.6
Fair value of net assets
acquired (19.8) (12.8)
-------------------------------- --------- ---------
Goodwill from current
period acquisitions 12.6 21.8
-------------------------------- --------- ---------
Goodwill represents the synergies, workforce and other benefits
expected as a result of combining the respective businesses.
Deferred consideration of GBP2.4m is payable in respect of the
above acquisitions. Contingent consideration of GBP4.4m is payable
based on a variety of conditions including revenue and profit.
The provisional fair value of assets and liabilities arising
from acquisitions in the period are shown below. The provisional
fair values will be finalised in the 2016 financial statements. The
fair values are provisional as the acquisition accounting has not
yet been finalised as a result of the proximity of the acquisitions
to the period end.
6 months 6 months
to 30 to 30
June June
2016 2015
GBPm GBPm
------------------------- --------- ---------
Non-current assets
- Intangible assets 21.3 12.8
- Property, plant and
equipment 1.0 1.7
Current assets 2.2 1.3
Current liabilities (1.5) (0.5)
Non-current liabilities (3.2) (2.5)
---------------------------- --------- ---------
Net assets acquired 19.8 12.8
---------------------------- --------- ---------
From the dates of acquisition to 30 June 2016, these
acquisitions contributed GBP6.2m to revenue and GBP1.4m to
operating profit. If the acquisitions had occurred on 1 January
2016, the revenue and operating profit of the combined entity would
have amounted to GBP989.5m and GBP91.9m respectively.
In relation to the Steritech acquisition in October 2015 there
has been an adjustment to the provisional fair values resulting in
an increase in Goodwill of GBP4.2m.
In addition GBP2.2m was paid in respect of deferred and
contingent consideration for prior year acquisitions resulting in
the total cash outflow in the period from current and past period
acquisitions, net of cash acquired, of GBP27.6m.
11. Events occurring after the balance sheet date
There were no significant events occurring after the balance
sheet date.
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU
-- the interim management report includes a fair review of the
information required by:
o DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
o DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so
By Order of the Board
Andy Ransom
Chief Executive
27 July 2016
The directors of Rentokil Initial plc are listed in the Rentokil
Initial plc Annual Report for 31 December 2015. A list of the
current directors is maintained on the Rentokil Initial website:
www.rentokil-initial.com
INDEPENDENT REVIEW REPORT TO RENTOKIL INITIAL PLC
Introduction
We have been engaged by the Company to review the financial
statements in the half-yearly financial report for the six months
ended 30 June 2016 which comprises the consolidated income
statement, consolidated balance sheet, consolidated statement of
comprehensive income, consolidated statement of changes in equity,
consolidated cash flow statement and the related explanatory notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA"). Our review
has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The financial statements included in this half-yearly financial
report have been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the financial statements in the half-yearly financial report based
on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the financial statements in the
half-yearly financial report for the six months ended 30 June 2016
is not prepared, in all material respects, in accordance with IAS
34 as adopted by the EU and the DTR of the UK FCA.
Paul Sawdon
for and on behalf of KPMG LLP,
Chartered Accountants
15 Canada Square
London
E14 5GL
27 July 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGURGMUPQGMM
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