TIDMRTO
RNS Number : 3136G
Rentokil Initial PLC
01 March 2018
2017 Preliminary Results
FY
Results 2017 Growth
GBPm AER AER CER
Ongoing Revenue 2,203.8 20.6% 14.5%
Revenue 2,412.3 11.3% 5.5%
Ongoing Operating
Profit 294.6 22.8% 14.8%
Operating Profit 292.4 25.8% 17.2%
Adjusted profit
before tax 286.9 13.8% 6.2%
Net profit on disposal 449.0 - -
of businesses
Profit before
tax 713.6 242.3% 241.5%
Free Cash Flow 175.8
Adjusted EPS 12.19p 13.6% 5.2%
EPS 37.21p 304.9% 305.1%
Dividend per
share 3.88p 15.1%
This statement includes certain financial performance
measures which are not GAAP measures as defined
under International Financial Reporting Standards
(IFRS). Ongoing Revenue and Ongoing Operating
Profit measures represent the performance of
the continuing operations of the Group (including
acquisitions) after removing the effect of disposed
or closed businesses. An explanation of the
measures used along with reconciliation to the
nearest IFRS measures is provided in Note 22
on page --.
2017 Highlights
-- Strong performance in excess of medium-term financial targets
- Ongoing Revenue growth of 14.5%, Ongoing Operating Profit growth
of 14.8% and Free Cash Flow of GBP175.8m
-- Year-on-year growth in Ongoing Organic Revenue of +3.8%
(2016: +3.6%, 3.0% Reported*), driven by Pest Control +5.8% and
Hygiene +2.1%
-- Particularly strong execution of M&A - 41 businesses
acquired with combined annualised revenues of GBP224.7m. Cash spend
on M&A of GBP281.1m
-- 33 Pest Control acquisitions, seven Hygiene acquisitions and one in Protect & Enhance
-- Pest Control acquisitions include:
o Controlling interest in joint venture with India's largest
pest control company, PCI, a strategically important step in a
country with significant growth potential
o Nine Pest Control acquisitions in the US with combined
annualised revenues of GBP100m reinforcing our position as the
number three player in the key North American market
-- Completion of joint venture with Haniel to create a leading
provider of workwear and hygiene services in Europe and divestment
of eight predominately flat linen laundries in France to RLD
-- Net debt below GBP1bn at GBP927.3m, notwithstanding GBP281.1m
spend on acquisitions in 2017
-- 15.1% increase in proposed final dividend of 2.74p to bring
total dividend for 2017 to 3.88p
* includes performance from those businesses transferred to the
Haniel JV
Andy Ransom, CEO of Rentokil Initial plc, said:
"I am pleased with our performance in 2017 and the continued
growth momentum in the business. Pest Control has performed well
across the regions and we remain encouraged by the progress we are
delivering in Hygiene, which is a strong complementary business to
our Pest Control operations. 2017 has also been a particularly good
year for M&A and we have acquired 33 Pest Control companies and
7 high-quality Hygiene businesses across 24 countries,
strengthening our already leading positions in key growth
territories. We continue to see a strong pipeline of value
enhancing acquisition opportunities going forward.
"Overall, we have had a very good year and I am delighted that
we have again exceeded our medium-term financial targets for
revenue, profit and cash. We are confident of delivering further
progress in 2018."
This statement includes certain financial performance measures
which are not GAAP measures as defined under International
Financial Reporting Standards (IFRS). Ongoing Revenue and Ongoing
Operating Profit represent the performance of the continuing
operations of the Group (including acquisitions) after removing the
effect of disposed or closed businesses. In particular, following
the completion of the Haniel JV on 30 June 2017, the financial
results of the businesses contributed to the JV have been removed
from Ongoing Revenue and Ongoing profit measures. The financial
results of the French workwear businesses sold to RLD have also
been excluded following the completion of the transaction in the
second half of 2017. Ongoing measures enable the users of the
accounts to focus on the performance of the businesses retained by
the Group and that will therefore contribute to the future
performance. Ongoing Revenue and Ongoing Operating Profit are
presented at CER unless otherwise stated. An explanation of the
measures used along with reconciliation to the nearest IFRS
measures is provided in Note 22 on page 24. The term 'joint
venture' is used to describe the Company's joint venture with
Haniel, however our 17.8% interest in CWS-boco is equity accounted
for as an associate. The term is also used to describe the
Company's 57% investment interest in Rentokil PCI, however our
interest in Rentokil PCI has been consolidated in our Financial
Statements.
Revenue
Ongoing Revenue, which excludes disposed businesses, increased
by 14.5% in 2017, with all regions contributing to growth. Asia
performed particularly well, increasing revenues by 37.3% (aided by
the PCI joint venture) with North America growing by 21.1%.
Revenues in the Pacific and Europe rose by 7.7% and 7.3%
respectively while the UK and ROW region delivered growth of 6.8%.
Group Organic Revenue growth was 3.8% and growth from acquired
businesses was 10.7%. Ongoing Revenue in Pest Control grew strongly
at 21.4% during the year, of which 5.8% was Organic Revenue, while
Hygiene reported increased revenues of 7.6%, up 2.1% Organic. Our
Protect & Enhance businesses reported Ongoing Revenue growth of
0.9% during the period with improved performance in our French
workwear business. Total Revenue at actual exchange rates increased
by 11.3% reflecting the disposal of businesses during the year
offset by the favourable impact of foreign exchange.
Profit
Ongoing Operating Profit, which excludes the results of disposed
businesses, increased by 14.8% in 2017, reflecting growth in all
regions but offset by lower profits in France. Restructuring costs
amounted to GBP6.9m at CER (2016: GBP7.9m) consisting mainly of
costs in respect of initiatives focused on driving operational
efficiency in North America, France and the UK.
Profit before tax at actual exchange rates grew by 242.3% to
GBP713.6m. Profit before tax includes a net profit on disposal of
businesses of GBP449.0m, including the profit on disposal of the
businesses transferred into the Haniel joint venture of GBP481.2m
and a loss of GBP32.2m in relation to the divestment of eight,
predominantly flat linen laundries in France to RLD. Net one-off
costs at actual exchange rates amounted to GBP6.8m (2016:
GBP8.6m).
Adjusted profit before tax at actual exchange rates of
GBP286.9m, which excludes the net profit from disposal of
businesses, was favourably impacted by foreign exchange movements
of GBP19.1m, due mainly to the weakening of Sterling against the
Euro in the year.
Cash
Free Cash Flow from continuing operations at actual exchange
rates amounted to GBP175.8m, driven by the increased profit
delivery in 2017 and a year-on-year reduction in interest payments
following the bond refinancing in Q1 2016, offset by the disposal
of the businesses transferred to the Haniel joint venture and the
non-repeat of the GBP7.3m special dividend from our Japanese
associate in 2016. Spend on current and prior-year acquisitions
(including the Rentokil PCI joint venture in India) totalled
GBP281.1m, net proceeds received from the completion of the JV with
Haniel and disposal of the eight laundries in France to RLD were
GBP451.9m and dividend payments were GBP64.3m (an GBP8.8m, 15.9%
increase on the prior year). Foreign exchange translation and other
items decreased net debt by GBP29.1m, leaving an overall decrease
in net debt of GBP311.4m and closing net debt of GBP927.3m.
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. We have
acquired 41 businesses for GBP281.1m - 33 in Pest Control, seven in
Hygiene and one in Protect & Enhance - with combined annualised
revenues in the year prior to acquisition of GBP224.7m. In North
America we have continued to reinforce our presence as the number
three player in the world's largest pest control market through the
acquisition of nine businesses. In addition, we have become the
clear market leader in India and in the Kingdom of Saudi Arabia and
the Gulf Cooperation Council countries through the Rentokil PCI
joint venture in India and the acquisition of SAMES. We will
continue to seek further acquisition opportunities in 2018 in both
Pest Control and Hygiene and the pipeline of prospects remains
strong. Our anticipated spend on acquisitions in 2018 is estimated
to be in the region of GBP200m to GBP250m.
Enquiries:
Rentokil
Investors Katharine Initial 01276 536585 / 07811
/ Analysts: Rycroft plc 270734
Rentokil
Malcolm Initial
Media: Padley plc 07788 978 199
A presentation for investors and analysts will be held on
Thursday 1 March 2018 at 9.30am 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.
The Company will also be hosting two investor seminars - in
London on 16 May 2018 and New York on 17 May 2018 - with a primary
focus on Pest Control. Further details and invitations to the event
will be issued in due course.
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.
REGIONAL PERFORMANCE
Due to the international nature of the Group, foreign exchange
movements can have a significant impact on regional performance. In
order to help understand the underlying trading performance, unless
otherwise stated, percentage movements in Ongoing Revenue and
Ongoing Operating Profit are presented at constant exchange
rates.
In North America Ongoing Revenue grew 21.1% in 2017, of which
16.3% was growth through acquisition and 4.8% was organic. Pest
Control grew 23.5% (+5.2% organic), helped by a strong performance
in the products business but also impacted by the hurricane in
Puerto Rico in September. Our business in Puerto Rico contributed
$7m of Ongoing Operating Profit in 2017 and continues to be
significantly impacted by the after effects of the hurricane.
Ongoing Operating Profit growth of 21.7% reflects the combined
impact from higher revenues and acquisitions. Net Operating Margins
at 13.6% were 0.1% points above the prior year with an underlying
increase in Pest Control services margins (up 0.7% points to 16.7%)
reflecting greater density, offset by an increase in mix from the
lower-margin distribution business. Nine Pest Control businesses
were acquired in the region during the year with combined
annualised revenues of just over GBP100m in the year prior to
purchase.
Ongoing Revenue for Europe rose by 7.3% (+2.9% Organic Revenue
growth), reflecting good growth in Germany (+8.6%) and Southern
Europe (+29.1%) and an improved performance across all categories
in France, which grew by 1.2%. Latin America, which was managed by
the Europe region in 2017, once again performed well rising by
30.1%. Ongoing Revenue from our European Hygiene operations grew by
15.4%, driven by growth in France and Southern Europe (including
the results of the acquisition of CWS Italy), while Ongoing Revenue
from our Pest Control businesses grew by 5.7%. Overall Ongoing
Operating Profit for the Europe region grew by 0.2%, with good
growth in Southern Europe and Germany offset by a budgeted 7.2%
decline in France as a result of ongoing market challenges. Net
Operating Margins for the region declined by 1.3% to 19.1%,
impacted by France Workwear and the dilutive effect of the
acquisition of CWS-boco's Italian hygiene business. Including
CWS-boco Italy the region acquired nine new businesses in 2017 in
Europe and Latin America, including four in Pest Control and five
in Hygiene with combined annualised revenues of GBP44m in the year
prior to purchase.
Our transaction to form a joint venture with Haniel to create a
leading provider of workwear and hygiene services in Europe by
transferring our Workwear and Hygiene businesses in Benelux and
Central and Eastern Europe into CWS-boco (owned by Haniel),
completed on 30 June 2017. In Q4 we also completed the sale of
eight laundries in France to RLD. Our remaining France Workwear
operations are making good operational progress and this, together
with an improving economic outlook for France, gives us confidence
in achieving our stated aim of returning France Workwear to
profitable growth by the end of this year.
The UK & Rest of World region delivered a good performance
in 2017, with an overall increase in Ongoing Revenue of 6.8%,
comprising Organic Revenue growth of 1.4% and growth through
acquisition of 5.4%. The region delivered continued growth from UK
Pest Control and Hygiene, with Pest Control continuing to benefit
from increased jobbing work in particular. However our UK Property
Care business experienced challenging market conditions in 2017
which impacted both revenue and margins. The Rest of World
operations delivered strong Ongoing Revenue growth of 12.6% across
all of its regional clusters in the Nordics, Caribbean, Africa and
MENAT. Overall Ongoing Operating Profit for the region grew by
6.1%, reflecting higher revenues. However, Net Operating Margins
for the UK and Rest of World region declined by 0.2% points to
20.7%, reflecting lower margins in Property Care. The region
acquired 11 new businesses in the year, including nine in Pest
Control, one in Hygiene and one in Protect & Enhance, with
combined annualised revenues of GBP24m in the year prior to
purchase.
The Asia region has had another excellent performance with
Ongoing Revenue increasing by 37.3% (+7.6% Organic Revenue growth)
with both Pest Control and Hygiene performing well. Our operations
in the less established markets of India (excluding the Rentokil
PCI joint venture), China and Vietnam continue to deliver strong
growth of 16.2%. Including PCI, these countries combined delivered
revenue growth of 210.0%. Ongoing Operating Profit in the region
grew by 39.5% in 2017, reflecting the leverage from higher
revenues, density and service productivity. Net Operating Margins
increased by 0.2% points to 10.5%, with growth in Hygiene margins
being offset by the dilutive effect of the lower-margin PCI Pest
Control business. Including PCI we acquired five Pest Control
businesses during 2017 in India, Singapore and Malaysia with
combined annualised revenues of GBP49m in the year prior to
purchase.
In the Pacific region Ongoing Revenue grew well by 7.7%, (+4.2%
organic), driven by good performances across our core Pest Control
and Hygiene categories. Our Pest Control operations in Australia
and New Zealand performed well, growing organically by just under
5% and 10% respectively. Ongoing Operating Profit in the region
grew by 9.6% and Net Operating Margins rose by 0.4% points to
21.6%. We acquired six small Pest Control companies in Australia in
the year and one Hygiene business, with combined annualised
revenues of GBP7m in the year prior to purchase.
Change in regional reporting structure
From January 2018 our Central American operations (previously
managed out of and reported within the North America region) will
be managed out of our existing Latin American operations, which
continue to be reported within our Europe region.
STRATEGY
Since February 2014 we have implemented an effective and
consistent strategy - called our RIGHT WAY plan - at pace and this
strategy has delivered consistent progress against our financial
targets. Four years on we are a stronger and more focused business,
operating in higher growth markets, with improving levels of
organic growth, reduced capital intensity and high levels of cash
generation. The proceeds we have received from our joint venture
with Haniel gives us greater flexibility to invest in our higher
growth categories of Pest Control and Hygiene, which now represent
just under 90% of Ongoing Operating Profit.
At our interim results in July we announced we had updated our
business model, strategy and medium-term financial targets to
reflect the significant changes to our business portfolio and our
focus going forward. We provide a summary below.
Our business model
1. We have over 1800 local service teams across the world
covering 91% of global GDP in over 90 of the world's 100 largest
cities across North America, Europe, UK and the Rest of World, Asia
and the Pacific. Operating in 70 countries, c. 90% of our revenues
are derived outside of the UK.
2. We have market-leading businesses in Pest Control and Hygiene:
Rentokil is the world's leading commercial pest control company
with a principal focus on Growth and Emerging markets and with
number one positions in 44 markets, number two positions in 13
markets and number three positions in eight markets globally;
Initial is a world leader in the provision of global hygiene
services with a focus on delivering operational excellence in the
44 countries in which it operates. It has top three leading
positions in 38 of these markets; and
Our Protect & Enhance businesses (which account for c. 10%
of Ongoing Operating Profit (pre-central and regional overheads)
include Ambius (our global plants business), our UK Property Care
business, our France-based Workwear business and a small Dental
Services business based in Germany and Sweden. All are profitable,
cash-generative, route-based businesses focused on delivering
enhanced service quality to protect customer retention and
profitability.
3. The Expertise of our People is paramount to delivering
excellence in service quality. Our 36,000 colleagues across the
world are highly-motivated and trained experts with strong local
insight, operating within integrated country models.
4. We have a Leadership position in Digital Capability and
Innovation and see significant opportunities to drive revenues,
reduce costs and better serve and retain our customers through the
deployment of digital technologies. The innovation and development
of differentiated products is at the heart of what we do.
5. At the centre of our Consistent and Efficient Operating Model
is our 'colleague - customer - shareholder' value chain: the RIGHT
People, doing the RIGHT Things for customers, in the RIGHT Way for
shareholders.
6 Our Financial Model to Compound Growth is a virtuous circle
predicated on delivering growth organically and through M&A
which leads to increased density and is directly correlated to
improved gross margins across our business categories. The above,
combined with our low cost operating model, drives strong
profitable growth and sustainable Free Cash Flow which is deployed
in two ways: first, into a financially disciplined M&A
programme and operational investment; and second, into maintaining
our progressive dividend policy.
Medium-term financial targets
On average over the next five years we would expect our Ongoing
Revenue growth to increase by 5% to 8% per annum with Ongoing
Operating Profit* growth of c.10% and Free Cash Flow conversion of
c. 90%. In 2017 we delivered Ongoing Revenue growth of 14.5%,
Ongoing Operating Profit growth of 14.8% and Free Cash Flow
conversion of c. 90%, in line with our medium-term guidance.
Employer of choice
In 2017 we made significant progress on our aim to become an
employer of choice with our employee survey 'Your Voice Counts'
showing us having improved on both Employee Engagement and Employee
Enablement by four points, and therefore sitting well ahead of the
Global Company norm and the High Performing Company norm as
determined by the Korn Ferry Survey. In 2017 we also saw strong
improvements in colleague opinions on the workplace review site
Glassdoor, culminating in us being ranked 7th out of 700,000
companies in the UK's Best Places to Work (as at December 2017). In
addition, we were also awarded the title of Britain's Most Admired
Company for Business Support Services in 2017. Going forward,
improving colleague retention - especially short term retention of
between 0 and 12 months- will be a key focus for 2018. Learning,
development and career progression are also critical to employee
engagement, as is building the pipeline of talent we need for
future business success.
Pest Control - a defensive and growing market
Pest control is an attractive and growing market offering
long-term growth prospects and is expected to deliver a CAGR of
around 5%* over the next five years. 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; and increasing pressure from pest species
through climate change, legislation and regulatory change.
* Source: Various market reports forecasting over 5+ years
including Markets & Markets, Allied Market Research, Future
Market Insight (all 2017)
Rentokil - the world's largest commercial pest control
company
We are strengthening our position as global leaders in pest
control through increased organic growth and by establishing
stronger market positions particularly in Growth and Emerging
markets, and through digital expertise, innovation and
acquisitions. The business has delivered a four-year revenue CAGR
of 17.2%. Pest Control accounts for 64% of Ongoing Revenue and 69%
of Ongoing Operating Profit and generated a Net Operating Margin of
18.1% in 2017. In 2017 Ongoing Revenue and Ongoing Operating Profit
in Pest Control grew by 21.4% and 18.1% respectively. Organic
Revenue rose by 5.8% with growth through acquisition of 15.6%. For
acquisitions in Pest Control we seek an IRR in Growth markets of
13%+ and 15%+ in Emerging markets.
Growth markets
These markets include North America, the UK, Australia, New
Zealand and the Caribbean. North America is particularly important
to us as it is the world's largest pest control market. Worth c.
$8bn it represents 50% of the global market and is expected to grow
at CAGR of c. 5% through to 2023 with the demand for mosquito
control expected to outpace demand for general pest services. Our
North American Pest Control business has delivered a four-year
revenue CAGR of 23.2% and is growing organically in excess of the
market. North America is a key market for M&A and, as the
'buyer of choice', our pipeline is particularly strong. Through a
combination of organic and non-organic growth actions, we plan to
generate $1.5bn revenues and Net Operating Margins of c. 18% across
our entire North American business by 2020.
Emerging markets
These markets include Asia, Latin America, MENAT, Kenya, Fiji
and Central America. In India we have grown from a small
loss-making operation to the country's number one pest control
company through our joint venture with PCI. In China we are
pursuing a city-based strategy with a focus on specific urban and
industrial zones. Our performance in the more mature markets of
Indonesia and Malaysia has been steady, with both countries
delivering high single digit revenue growth. Latin America is a
significant opportunity and we have moved quickly to secure a
leadership position in Chile, Brazil and Columbia through organic
growth and acquisitions.
Global and National accounts
We continue to make 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 2016 we signed our first major international Pest
Control contract with a global food production and agricultural
products organisation and at the end of that year secured a
contract with Mondelez, the multinational confectionery, food, and
beverage company. This was followed in 2017 with new global
preferred supplier contract wins with facilities management
business ISS and Sodexo, one of the world's largest multinational
food services and the facilities management corporations. The
combination of our unique global footprint and emphasis on
expertise and innovation has been a core theme in these wins, with
several customers visiting The Power Centre (our new global
research and development centre based in the UK) in the final
stages of their selection process, and crediting it with a critical
role in the decision. We have a strong pipeline of further new
global customer opportunities within the food production,
pharmaceutical, hotels, hospitality, transportation and logistics
sectors.
The acquisition of Steritech in 2015 also significantly enhanced
our capability in the US national accounts market. Now with greater
national scale and density, we are more competitive and the
progress we made in this area in 2016 has continued in 2017
resulting in a 40% increase in sales from national accounts during
the year. Our pipeline of prospects remains strong going into
2018.
Technical expertise shared across markets
Across the world we combat the dangers to public health from
mosquitoes and believe our expertise and experience is unrivalled.
This helped us to win in 2015 a prestigious two-year contract with
the US Centres for Disease Control for the prevention and control
of Zika virus in the US and its protectorates. While the contract
with the CDC expired in 2017, the threat from mosquito-borne
diseases is rising and in Q4 we announced our acquisition of Vector
Disease Acquisition, LLC ('VDA'), North America's largest provider
of mosquito control services. VDA provides a full range of vector
control services, including weekly monitoring of mosquito levels,
species identification and disease testing and control of adult and
larval mosquitoes from the ground and using aircraft. To support
our growing work in this field, in 2017 we established in North
America a new global centre of excellence for mosquito control.
Digital leadership
We are seeing an unprecedented level of change in the impact of
technology on our customers and our front-line and back office
colleagues and are using IT to improve the quality and consistency
of service delivery, drive innovation and reduce costs. We believe
we are leading the pest control industry in the commercialisation
of the 'Internet-of-Things' through connected devices and have
digital expertise at every stage of the customer journey from web
searching through to e-billing. In addition we are developing,
testing and deploying our range of remote monitoring sensors.
Connected devices open up opportunities to revolutionise our
business and provide customers with a complete pest detection
solution and full traceability. PestConnect, our award-winning
remote monitoring system for rodents, is the world's smartest mouse
trap. We now have over 50,000 devices being used in over 3,000
customer premises across ten countries. The system 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 signalled rodent activity -
particularly useful on sites which use multiple units.
In 2017 our web platform handled over 15.7m visits over 12
months, with double digit visitor growth in key markets. During the
year one new website was launched to a new country every three
weeks. In addition the myRentokil online customer portal was rolled
out to 32 countries with over 100,000 customers registered. We aim
to register the majority of our commercial customers by the end of
2018.
We see many opportunities to further automate our back-office
functions, deploying cloud platform services, artificial
intelligence, robotics and utilising data from sensors, colleague
apps and customer portals to facilitate management decision making
and further reduce costs.
Industry leading innovation
Innovation underlines our brand positioning as the experts in
pest control and continues to differentiate the business. It is
also an important driver of organic growth. In the UK in 2017,
21.5% of new pest control job sales came from innovations launched
in the last two years, a further 5% point increase on 2016. New
product launches in 2017 included three high-quality products:
Lumnia, RapidPro and AutoGate.
Lumnia is the world's first commercial range of fly killers that
uses LED lighting rather than traditional blue-light fluorescent
tubes allowing for power reductions of up to 60% versus comparable
units. We currently have 15,000 units being used in 31 markets
around the world. RapidPro is the world's fastest acting
rodenticide aimed specifically at mice. Our AutoGate rodent control
unit uses sensors to contain poisoned bait behind a gate, safe from
non-target species, until activated. During 2017 the product went
live in five countries, with a further ten planned for 2018.
AutoGate was created to address EU legislation prohibiting certain
uses of permanent baiting using chemical products in pest control.
Our pipeline of new innovations remains very healthy and we are
currently working on around 70 innovation projects, a 20% increase
on project volumes in 2016.
Initial Hygiene - the world's largest hygiene services
company
Initial Hygiene is the world's largest hygiene services business
and we see it as a strong complementary business to our Pest
Control operations. Both businesses service the same types of
customers and also share country management, technology,
infrastructure and back office services. They are both route-based
businesses where profit growth is driven by a fundamental
understanding of the importance of density. The megatrends in the
hygiene industry - and the importance of being able to prevent the
spread of diseases, germs and bacteria - such as: an increasing
aging population and adult incontinence; more women at work
requiring feminine hygiene products and services; and reputational
risk from poor hygiene standards, are fuelling demand for our
services.
Since 2013 we have delivered an improvement in revenue growth,
established a strong product range, launched the myInitial customer
portal for enhanced customer insight and engagement and have begun
to acquire bolt-on businesses to build scale and density. Hygiene
has delivered a four-year revenue CAGR of 4.9%. The business is
highly profitable with margins being driven by post code density
(servicing as many customers as possible in any tight geographic
zone) and customer penetration (selling multiple service lines to
customers). Hygiene accounts for 19% of Group Ongoing Revenue and
20% of Ongoing Operating Profit and in 2017 it generated a Net
Operating Margin of 17.7%. In 2017 Ongoing Revenue and Ongoing
Operating Profit grew by 7.6% and 9.7% respectively. Organic
Revenue rose by 2.1% with growth through acquisition of 5.5%. For
acquisitions within our Hygiene business we seek an IRR of 15% to
20%+.
Driving growth in Hygiene
As the world's leading hygiene services business, we have the
scale and expertise to drive Organic Revenue Growth and provide an
update on some of our organic growth levers below.
Postcode density and service productivity
Our Service+ route planner is a web-based planning tool which we
also use in our Pest Control business. During the year we have
further developed this tool for application across our Hygiene
operations. The Service+ route planner has been formulated to
optimise both territory and daily route planning. Customer service
visits, 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.
ServiceTrak is our smartphone field service app used by
technicians to record service visits - for example, start time,
services performed, customer recommendations, customer signatures
and end time. Proof of service is then emailed to customers at the
end of the visit and the data uploaded to our customer data
systems, allowing our customer care team to view the information
and respond quickly and easily to customer queries. We aim to reach
100% deployment of this tool across our Hygiene technicians in
2018. The benefits of ServiceTrak include greater service
productivity, delivery of a more professional service and cost
savings. In Indonesia, where all 300 of our technicians have access
to ServiceTrak, gross margins grew by 1.2% points in 2017.
Product penetration and customer upselling
Significant leverage is gained in Hygiene through selling
multiple services to each customer premises. We have high-quality
product ranges and offer our sales colleagues specialist training
to help them sell multiple services to customers, supported by
promotional campaigns. We are implementing country-specific
incentive programmes to focus our sales force and front line
colleagues on achieving greater product density. In addition, 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. Notable developments
in 2017 include the launch of our new GENIE air care product, a
patented innovation and the world's most advanced commercial air
fragrancing system. The product utilises unique dispersal
technology and odour neutralising fragrances ideally suited for
challenging washroom odours and high-traffic washroom spaces.
Digital leadership and web expertise
Our digital sales and service tools are also being utilised to
build customer awareness of Initial's multiple product offerings,
for instance, our customer portal, myInitial, is being developed to
highlight the full spectrum of Hygiene solutions on its home
page.
Growth through M&A
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, to build density and grow margins. In 2017 we bought
seven businesses in Australia, Colombia, France, Germany, Italy,
Sweden and the UK, generating combined annualised revenues of
GBP44m in the year prior to purchase. This includes CWS-boco's
Italian hygiene business which in the year prior to acquisition
generated revenues of just under GBP40m.
Acquisition of Cannon Hygiene Services
In early 2018 the Company completed its acquisition of Cannon
Hygiene Services. Cannon has businesses in nine countries - the UK,
Ireland, Spain, Portugal, South Africa, India, Thailand, Australia
and New Zealand - and represents a particularly good fit with our
existing Hygiene businesses. The acquisition will allow us to
increase our coverage in key markets and gain a good level of
synergies from enhanced density and combining infrastructures. The
transaction also marks our entry into the attractive Indian hygiene
market where Cannon is the market leader. Cannon will add c. GBP77m
of global Hygiene revenues to the Company and replaces a high
proportion of the European Hygiene revenues contributed to the
joint venture with Haniel. The business generated GBP5m of adjusted
operating profits in the year to March 2017. In the UK we are
currently required to hold the Cannon business separate while we
respond to queries from the Competition & Markets Authority,
but we remain confident that the acquisition does not create any
competition concerns and will be cleared in due course.
Protect & Enhance - focus on enhanced service, customer
retention and profit protection
The four businesses included in this category - Ambius, Property
Care, France Workwear and a very small Dental Services business -
are profitable, cash-generative route-based businesses which share
overheads with our Pest Control and Hygiene operations. Combined,
the businesses represent 17% of Group Ongoing Revenue and 11% of
Ongoing Operating Profit. In 2017 Ongoing Revenue grew by 0.9%
while Ongoing Operating Profit declined by 21.2%. The category
generated a Net Operating Margin of 10.3% in 2017. For acquisitions
in our Protect & Enhance business we seek an IRR of 20%+.
Ambius
Ambius operates in 17 countries with leadership positions in the
US, Canada, Australia and New Zealand. Its product offering
includes interior landscaping, Christmas decorations and premium
scenting. Key customer segments are offices, facilities management,
hospitality and retail. Its strategic focus is on higher-margin
green (living) walls and premium scenting, expanding and exploiting
international agreements and driving lead generation through
digital applications.
Property Care
Our Property Care business is based solely in the UK. Services
include dry rot and woodworm treatment and damp proofing. Highly
fragmented, the UK property care market is valued at c. GBP150m. We
have a leading position in the industry and have developed a strong
operational capability with certified teams undertaking work in
commercial and social housing. While the business has a defensive
cash position with advance payment required before work is
undertaken, the market is currently experiencing some weakness and
the business has underperformed in 2017. The strategic focus of
Property Care is on sharing digital expertise with Pest Control,
cost optimisation and efficiency, IT system integration and margin
management.
France Workwear
Our Workwear operations in France specialise in the supply and
laundering of workwear, uniforms, cleanroom uniforms and personal
protective garments. While the business has shown operational and
financial improvements this year, market conditions continue to be
challenging. The European workwear industry is currently undergoing
a period of consolidation with the Elis / Berendsen merger, our own
JV with Haniel and our recent divestment of eight of our textile
laundries to RLD. Going forward, our France Workwear operations
will continue to implement a Quality agenda focused on service
quality, together with profit improvement and margin protection
initiatives. We are committed to returning the business to
profitable growth by the end of this year.
ACQUISITIONS AND DISPOSALS
Acquisitions are core to our strategy - we have the in-house
capability to identify, evaluate and execute acquisitions at pace.
Our model for value-creating M&A is structured around
disciplined evaluation of targets, detailed integration programmes
and careful governance of new businesses under our ownership.
We have significantly accelerated our execution of M&A
during the year, particularly within Pest Control Emerging and
Growth markets. During the year we acquired 41 businesses for
GBP281.1m (33 in Pest Control, seven in Hygiene and one in Protect
& Enhance) with combined annualised revenues of GBP224.7m in
the year prior to purchase. We have been active in M&A
acquiring businesses in 24 countries and across all of our
regions.
In North America we have continued to reinforce our presence as
the number three player in the world's largest pest control market
through the acquisition of nine Pest Control companies, five of
which are businesses with revenues in excess of $12m. Combined
annualised revenues of all businesses acquired in the region in
2017 amounted to just over GBP100m in the year prior to
acquisition, giving annualised revenues from our North America
business at the end of December 2017 of over $1.1bn.
In March 2017 we created a joint venture with PCI, India's
largest pest control company, which offers a comprehensive range of
pest control services and products through its countrywide network.
Rentokil, which has management control of the JV and a 57% stake,
is integrating its Indian operations into the JV and the combined
business (known as Rentokil PCI) will operate from 250 locations
employing 6,900 people. Further, on 11 April we acquired SAMES, the
market leader in the commercial pest control sector in the Kingdom
of Saudi Arabia (KSA) with c. 2,500 customers covering most major
cities, making us the number one pest control company in the KSA
and the Gulf Cooperation Council countries. The business generated
revenues of GBP9m in the 12 months prior to acquisition.
We monitor the integration and performance of acquired
businesses closely to ensure they meet our financial hurdles and
resourcing capabilities. Of the 40 acquisitions that were made
between 1 April 2015 and 30 September 2016, all are delivering
expected returns at or above their respective target levels.
Going forward, we will continue to execute a differentiated
approach to capital investment and M&A, with clear expectations
and IRRs by business line. We will continue to seek further
acquisition opportunities in 2018 in both Pest Control and Hygiene
and the pipeline of prospects remains strong. Our anticipated spend
on acquisitions in 2018 is estimated to be in the region of GBP200m
to GBP250m.
Completion of JV with Haniel and disposal of eight laundries in
France
Our transaction to enter into a JV with Haniel to combine our
Workwear and Hygiene businesses in Benelux and Central and Eastern
Europe completed on 30 June 2017. We anticipate retaining our 17.8%
stake in the combined business for three to five years after
formation, after which time we have various exit options under the
terms of the agreement. We also completed the sales of eight
laundries in France to RLD in Q4. The laundries, which
predominantly supply flat linen to the highly competitive
healthcare sector, delivered revenues of c. EUR78m and were
break-even for the year ended 31 December 2016.
FINANCIAL REVIEW
Central and regional overheads
Central and regional overheads reduced by GBP1.5m to GBP66.2m at
CER (2016: GBP67.7m) reflecting the central cost reduction
programme following the Haniel JV offset by investments in digital
capability.
Restructuring costs
In February 2016 we announced that, with the exception of
integration costs for significant acquisitions, we will report
restructuring costs within operating profit. Integration costs
associated with significant acquisitions will be reported as
one-off items and excluded from operating profit.
Restructuring costs of GBP6.9m at CER (2016: GBP7.9m) consisted
mainly of costs in respect of initiatives focused on driving
operational efficiency in North America, France and the UK.
One-off items (at CER)
Net one-off costs of GBP6.6m (2016: GBP8.6m) primarily relate to
the acquisition and integration costs of Steritech.
Interest (at AER)
Net interest payable (excluding the net interest credit from
pensions) at actual exchange rates was GBP42.9m compared to
GBP38.5m in the prior year, a net increase of GBP4.4m primarily due
to the impact of foreign exchange as a result of the weakening of
Sterling against the Euro and a change in the net debt currency
mix. The average cost of net debt for the Group was 4.0% in
2017.
Tax
The income tax expense for the year at actual exchange rates was
GBP30.6m on the reported profit before tax of GBP713.6m. The tax
charge for the year includes a one-off deferred tax credit of
GBP6.4m as a result of the US tax reforms enacted at the end of
2017. The tax reforms are not expected to have any material impact
on the company's tax rate for 2018 but are expected to result in an
increase in cash tax payments of about GBP4m in 2018.
After adjusting the reported profit before tax for the profits
and losses on disposal of businesses, the amortisation and
impairment of intangible assets (excluding computer software),
one-off items, the net interest credit from pensions and the
one-off deferred tax credit arising from the US tax reforms, the
Adjusted Effective Tax Rate (ETR) for 2017 at AER was 22.0% (2016:
22.3%). This compares with a blended rate of tax for the countries
in which the Group operates of 24% (2016: 25%). The lower adjusted
ETR compared to the blended tax rate is principally due to the
benefit derived from financing overseas operations and the release
of a net prior year over-provision for tax.
Disposals (at AER)
A net profit on disposal of businesses has been recognised of
GBP449.0m relating to the profit on disposal of the businesses
transferred to the Haniel JV of GBP481.2m, and a loss of GBP32.2m
in relation to eight French laundries sold to RLD.
The profit on disposal in respect of the Haniel JV includes
consideration of GBP703.9m comprising cash consideration of
GBP449.9m plus the retained 17.8% share in the JV of GBP254.0m. Net
assets of the businesses contributed amounted to GBP247.3m which
together with transaction costs of GBP18.2m and foreign exchange
gains transferred from reserves of GBP42.8m resulted in a profit on
disposal of GBP481.2m.
Net debt and cash flow
GBPm at actual exchange Year to Date
rates
--------------------------------
2017 2016 Change
FY FY GBPm
GBPm GBPm
---------------------------------- ---------- ---------- --------
Adjusted Operating Profit 314.5 284.4 30.1
One-off items - operating (6.8) (8.6) 1.8
Depreciation 185.6 200.7 (15.1)
Other (1.5) 12.6 (14.1)
---------- ---------- --------
EBITDA 491.8 489.1 2.7
Working capital (16.3) (11.3) (5.0)
Movement on provisions (9.9) (14.5) 4.6
Capex - additions (212.1) (221.8) 9.7
Capex - disposals 4.9 6.3 (1.4)
---------- ---------- --------
Operating cash flow - continuing
operations 258.4 247.8 10.6
Interest (41.4) (54.6) 13.2
Tax (40.1) (35.8) (4.3)
Special pension contributions (1.1) (1.0) (0.1)
Free Cash Flow - continuing
operations 175.8 156.4 19.4
Free Cash Flow - discontinued
operations - (0.4) 0.4
---------- ---------- --------
Free Cash Flow 175.8 156.0 19.8
Acquisitions (281.1) (109.2) (171.9)
Disposal of companies and
businesses 451.9 0.3 451.6
Dividends (64.3) (55.5) (8.8)
Foreign exchange translation
and other items 29.1 (203.7) 232.8
--------
(Increase) / decrease in
net debt 311.4 (212.1) 523.5
Opening net debt (1,238.7) (1,026.6) (212.1)
---------- ---------- --------
Closing net debt (927.3) (1,238.7) 311.4
========== ========== ========
Operating cash inflow (GBP258.4m at AER for continuing
operations) was GBP11m higher than in 2016 largely due to the
increase in Ongoing Operating profit of GBP54.4m offset by the
impact of the Haniel JV and the non-repeat of the GBP7.3m special
dividend from our Japanese associate in 2016.
Capital expenditure from continuing operations of GBP212.1m was
GBP9.7m lower than 2016 with an underlying growth in capital
expenditure in the ongoing business in line with revenue growth and
the adverse impact of exchange rate movements being offset by a
reduction in capex following the disposal of the workwear and
hygiene assets to Haniel and RLD.
Interest payments (including finance lease interest) were
GBP13.2m lower than last year due to phasing following the maturity
of the GBP300m bond in Q1 2016. This resulted in Free Cash Flow
from continuing operations of GBP175.8m, an increase of GBP19.4m on
the prior year.
Cash spent on acquisitions totalled GBP281.1m. Net proceeds
received during the year from the completion of the JV transaction
with Haniel and the divestment of the French laundries was
GBP451.9m. The Company made dividend payments of GBP64.3m in 2017
(an GBP8.8m, 15.9% increase on the prior year) which together with
foreign exchange translation and other items of GBP29.1m resulted
in an overall decrease in net debt of GBP311.4m and closing net
debt of GBP927.3m.
Pensions
At 31 December 2017 the Company's UK defined benefit pension
scheme, which is closed to new members, was valued at an accounting
surplus of GBP325.4m on the Company's balance sheet. Following the
most recent triennial actuarial valuation as at 31 December 2015
the Trustee and the Company agreed that the Scheme is now fully
funded on a technical provisions basis. The Trustees have therefore
agreed annual payments will not be required going forward. Because
the Scheme is fully funded on a technical provisions basis, GBP9.0m
of payments previously held in escrow was released to the Company
in February 2017. The funding position will be reviewed at the next
actuarial valuation, which is scheduled for 31 December 2018.
Funding
At 31 December 2017, and following the receipt of the proceeds
in respect of the Haniel JV, the Group had net debt of GBP927.3m
representing a reduction of GBP98.2m from the net debt as at 30
June 2017. At the year end the Group had GBP613m of centrally held
funds and available undrawn committed facilities. In November 2017
the Group's term loans were refinanced with a EUR400m bond maturing
in November 2024 at a EUR coupon of 0.95%. The majority of funds
were swapped into US Dollars in line with our hedging policy. Other
than a EUR50m bond that is maturing in March 2018, the Group has no
debt maturities until September 2019 when the EUR500m bond
matures.
The ratio of net debt to EBITDA at 31 December 2017 was c. 1.9x
and the Company's credit rating remains at BBB with a Stable
outlook. We are committed to maintaining a BBB rating and, based on
our expectations for the coming year and our strong cash flow
projections for 2018, we are confident in doing so.
Going Concern
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
Following an encouraging performance in 2017, and in
anticipation of further progress in 2018, the Board is recommending
a final dividend in respect of 2016 of 2.74p per share, payable to
shareholders on the register at the close of business on 13 April
2018, to be paid on 16 May 2018. This equates to a full year
dividend of 3.88p per share, an increase of 15.1% compared to
2016.
Geopolitical events
We are a global business with c. 90% of revenues derived from
outside the UK and with minimal cross-border trading. The global
economic environment continues to be uncertain with high levels of
volatility in exchange and commodity markets and with international
trading arrangements potentially subject to significant change. We
continue to monitor the potential implications of geopolitical
change on our trading and financing environment. We remain of the
view that the defensive nature of our core categories, combined
with the geographic location and spread of our operations, place us
in a relatively strong position to mitigate such risks going
forward and to take advantage of any potential opportunities that
the changes may bring.
GUIDANCE FOR 2018 (at CER unless otherwise stated)
Central and regional overheads for the year are expected to be
GBP4m above the prior year reflecting further investments in our
digital capability and deployment costs. We estimate that
restructuring costs (reported within Ongoing Operating Profit) will
be in line with 2017 at c. GBP7m.
The businesses and laundries that have now been transferred to
Haniel and RLD contributed GBP195m of revenue and GBP21m of
adjusted operating profit in 2017 prior to their disposal.
Profit from associates, including our share of the adjusted
profit from the Haniel JV, is estimated to be in the region of
GBP20m to GBP25m in 2018.
Interest costs are estimated to be c. GBP46m with cash interest
estimated to be broadly in line with the P&L impact. This small
increase is a reflection of movements in foreign exchange and an
increased mix of higher coupon US Dollar debt. Sterling has started
to strengthen against both the Euro and the US Dollar following the
substantial weakening in late 2016 and 2017.
If the recent exchange rates gains were to continue for the rest
of 2018, the full year estimated negative impact of currency
movements on our profit (and Free Cash Flow) would be in the region
of GBP10m to GBP15m.
Our current estimate for the Adjusted Effective Tax Rate in 2018
is c. 22.5% (in line with 2017) with cash tax payable in the region
of GBP45 to GBP50m. This reflects an increased level of profits and
the impact of the recent US tax reforms.
Capital expenditure during 2018 is estimated to be in the region
of GBP165m to GBP175m and reflects a reduction in spend following
the Haniel joint venture and the French laundry disposals,
partially offset by increased service equipment to support growth
in Ongoing Revenue and investments in digital capability across the
Group. Working capital outflow is anticipated to be GBP15m.
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
For the year ended 31 December
2017 2016
Notes GBPm GBPm
=========================================================================================== ======= ======= =======
Revenue 2 2,412.3 2,168.1
Operating profit 292.4 232.4
Net profit on disposal of businesses 449.0 -
=========================================================================================== ======= ======= =======
Profit before interest and income tax 741.4 232.4
Finance income 4 12.3 19.3
Finance cost 3 (48.4) (49.4)
Share of profit from associates, net of tax of GBP4.4m (2016: GBP3.4m) 8.3 6.2
=========================================================================================== ======= ======= =======
Profit before income tax 713.6 208.5
Income tax expense(1) 5 (30.6) (40.7)
=========================================================================================== ======= ======= =======
Profit for the year attributable to the Company's equity holders (including non-controlling
interests of GBP0.2m (2016: GBP0.3m)) 683.0 167.8
=========================================================================================== ======= ======= =======
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Re-measurement of net defined benefit asset 47.0 21.3
Tax related to items taken to other comprehensive income (5.6) 4.1
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves (36.0) 11.4
Cumulative exchange recycled to income statement on disposal of foreign operations (46.5) -
Other items (2.6) (6.1)
------------------------------------------------------------------------------------------- ------- ------- -------
Total comprehensive income for the year (including non-controlling interests of GBP0.2m
(2016:
GBP0.3m)) 639.3 198.5
------------------------------------------------------------------------------------------- ------- ------- -------
Earnings per share attributable to the Company's equity holders:
Basic 6 37.21p 9.19p
Diluted
All profit is from continuing operations. 6 36.90p 9.11p
=========================================================================================== ======= ======= =======
Non-GAAP measures
Operating profit 292.4 232.4
Adjusted for:
Amortisation and impairment of intangible assets (excluding computer software) 2 53.8 43.4
One-off items - operating 2 6.8 8.6
Reversal of depreciation - assets held-for-sale (38.5) -
=========================================================================================== ======= ======= =======
Adjusted operating profit 314.5 284.4
Finance income 4 12.3 19.3
Add back: Net interest credit from pensions 4 (6.8) (8.4)
Finance cost 3 (48.4) (49.4)
Share of profit from associates, net of tax of GBP4.4m (2016: GBP3.4m) 8.3 6.2
One-off items - associates 7.0 -
=========================================================================================== ======= ======= =======
Adjusted profit before income tax 286.9 252.1
Basic adjusted earnings per share attributable to the Company's equity holders 6 12.19p 10.73p
Diluted adjusted earnings per share attributable to the Company's equity holders 6 12.08p 10.63p
------------------------------------------------------------------------------------------- ------- ------- -------
1. taxation includes GBP14.9m (2016: GBP32.8m) in respect of overseas taxation
Consolidated Balance Sheet
At 31 December
2017 2016
Notes GBPm GBPm
============================================= ======= ========= =========
Assets
Non-current assets
Intangible assets 8 1,220.2 999.6
Property, plant and equipment 9 390.2 416.3
Investments in associated undertakings 278.7 17.8
Other investments 0.2 0.2
Deferred tax assets 3.4 2.0
Retirement benefit assets 14 326.2 272.7
Other receivables 11.0 10.8
Derivative financial instruments 13.7 -
============================================= ======= ========= =========
2,243.6 1,719.4
============================================= ======= ========= =========
Current assets
Other investments 0.5 9.6
Inventories 84.3 80.0
Trade and other receivables 449.8 383.3
Current tax assets 13.1 11.0
Disposal group held-for-sale 10 - 177.7
Derivative financial instruments 6.3 1.6
Cash and cash equivalents 12 310.1 160.2
============================================= ======= ========= =========
864.1 823.4
============================================= ======= ========= =========
Liabilities
Current liabilities
Trade and other payables (535.7) (458.5)
Current tax liabilities (79.5) (71.6)
Provisions for other liabilities and charges 15 (25.3) (15.3)
Bank and other short-term borrowings (68.0) (77.4)
Derivative financial instruments (5.3) (56.8)
============================================= ======= ========= =========
(713.8) (679.6)
============================================= ======= ========= =========
Net current assets 150.3 143.8
============================================= ======= ========= =========
Non-current liabilities
Other payables (76.0) (21.4)
Bank and other long-term borrowings (1,166.9) (1,260.4)
Deferred tax liabilities (109.3) (112.8)
Retirement benefit obligations 14 (26.1) (30.9)
Provisions for other liabilities and charges 15 (55.0) (55.2)
Derivative financial instruments (26.6) (21.8)
============================================= ======= ========= =========
(1,459.9) (1,502.5)
============================================= ======= ========= =========
Net assets 934.0 360.7
============================================= ======= ========= =========
Equity
Capital and reserves attributable to the Company's equity holders
Share capital 16 18.4 18.3
Share premium account 6.8 6.8
Other reserves (1,848.6) (1,763.5)
Retained profits 2,757.1 2,099.0
============================================= ======= ========= =========
933.7 360.6
Non-controlling interests 0.3 0.1
============================================= ======= ========= =========
Total equity 934.0 360.7
============================================= ======= ========= =========
Consolidated Statement of Changes in Equity
For the year ended 31 December
Attributable to equity holders of the Company
Called up
share Share Other Non- Total
capital premium account reserves Retained earnings controlling interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- ---------------- --------- ------------------- ---------------------- -------
At 1 January 2016 18.2 6.8 (1,768.8) 1,956.1 (0.2) 212.1
======================== ========= ================ ========= =================== ====================== =======
Profit for the year - - - 167.5 0.3 167.8
Other comprehensive
income:
Net exchange adjustments
offset in reserves - - 11.4 - - 11.4
Re-measurement of net
defined benefit
asset/liability - - - 21.3 - 21.3
Effective portion of
changes in fair value
of cash flow hedge - - (6.1) - - (6.1)
Tax related to items
taken directly to other
comprehensive income - - - 4.1 - 4.1
Total comprehensive
income for the year - - 5.3 192.9 0.3 198.5
Transactions with
owners:
Dividends paid to equity
shareholders - - - (55.5) - (55.5)
Shares issued 0.1 - - - - 0.1
Cost of share options
and long-term incentive
plan - - - 5.5 - 5.5
At 31 December 2016 18.3 6.8 (1,763.5) 2,099.0 0.1 360.7
======================== ========= ================ ========= =================== ====================== =======
Profit for the year - - - 682.8 0.2 683.0
Other comprehensive
income:
Net exchange adjustments
offset in reserves - - (36.0) - - (36.0)
Re-measurement of net
defined benefit
asset/liability - - - 47.0 - 47.0
Effective portion of
changes in fair value
of cash flow hedge - - (2.6) - - (2.6)
Cumulative exchange
recycled to income
statement on disposal
of foreign operations - - (46.5) - - (46.5)
Tax related to items
taken directly to other
comprehensive income - - - (5.6) - (5.6)
======================== ========= ================ ========= =================== ====================== =======
Total comprehensive
income for the year - - (85.1) 724.2 0.2 639.3
Transactions with
owners:
Dividends paid to equity
shareholders - - - (64.3) - (64.3)
Shares issued 0.1 - - - - 0.1
Cost of share options
and long-term incentive
plan - - - 4.4 - 4.4
Movement on put option - - - (6.2) - (6.2)
At 31 December 2017 18.4 6.8 (1,848.6) 2,757.1 0.3 934.0
======================== ========= ================ ========= =================== ====================== =======
Shares of GBP0.1m (2016: GBP0.1m) have been netted against
retained earnings. This represents 6.7m (2016: 4.8m) shares held by
the Rentokil Initial Employee Share Trust. The market value of
these shares at 31 December 2017 was GBP21.2m (2016: GBP10.7m).
Dividend income from, and voting rights on, the shares held by the
Trust have been waived.
Consolidated Statement of Changes in Equity (continued)
For the year ended 31 December
Analysis of other reserves
Capital
reduction Cash flow Translation
reserve Legal reserve hedge reserve reserve Total
GBPm GBPm GBPm GBPm GBPm
=================================================== ========== ============= ============== =========== =========
At 1 January 2016 (1,722.7) 10.4 0.2 (56.7) (1,768.8)
=================================================== ========== ============= ============== =========== =========
Net exchange adjustments offset in reserves - - - 11.4 11.4
Effective portion of changes in fair value of cash
flow hedge - - (6.1) - (6.1)
Total comprehensive (expense)/income for the year - - (6.1) 11.4 5.3
=================================================== ========== ============= ============== =========== =========
At 31 December 2016 (1,722.7) 10.4 (5.9) (45.3) (1,763.5)
=================================================== ========== ============= ============== =========== =========
Net exchange adjustments offset in reserves - - - (36.0) (36.0)
Effective portion of changes in fair value of cash
flow hedge - - (2.6) - (2.6)
Cumulative exchange recycled to income statement on
disposal of foreign operations - - - (46.5) (46.5)
=================================================== ========== ============= ============== =========== =========
Total comprehensive income for the year - - (2.6) (82.5) (85.1)
=================================================== ========== ============= ============== =========== =========
At 31 December 2017 (1,722.7) 10.4 (8.5) (127.8) (1,848.6)
=================================================== ========== ============= ============== =========== =========
The capital reduction reserve arose in 2005 as a result of the
scheme of arrangement of Rentokil Initial 1927 plc, under section
425 of the Companies Act 1985, to introduce a new holding company,
Rentokil Initial plc, and the subsequent reduction in capital
approved by the High Court whereby the nominal value of each
ordinary share was reduced from 100p to 1p.
The legal reserve represents amounts set aside in compliance
with local laws in certain countries in which the Group
operates.
Consolidated Cash Flow Statement
For the year ended 31 December
Notes 2017 2016
GBPm GBPm
================================================================================== ======= =======
Cash flows from operating activities
Cash generated from operating activities 461.3 451.6
Interest received 5.1 12.7
Interest paid(1) (46.5) (67.3)
Income tax paid (40.1) (35.8)
============================================================================== ======= =======
Net cash flows from operating activities 379.8 361.2
============================================================================== ======= =======
Cash flows from investing activities
Purchase of property, plant and equipment (174.3) (186.2)
Purchase of intangible fixed assets (19.1) (21.0)
Proceeds from sale of property, plant and equipment 4.9 6.3
Acquisition of companies and businesses, net of cash acquired 19 (281.1) (109.2)
Disposal of companies and businesses 451.9 0.3
Dividends received from associates 3.2 10.3
============================================================================== ======= =======
Net cash flows from investing activities (14.5) (299.5)
============================================================================== ======= =======
Cash flows from financing activities
Dividends paid to equity shareholders 7 (64.3) (55.5)
Capital element of finance lease payments (15.9) (13.7)
Cash outflow on settlement of debt related foreign exchange forward contracts (32.5) (30.8)
Net investment in term deposits 9.1 89.7
Proceeds from new debt 386.7 242.4
Bond repayments (447.7) (299.0)
============================================================================== ======= =======
Net cash flows from financing activities (164.6) (66.9)
============================================================================== ======= =======
Net increase/(decrease) in cash and cash equivalents 200.7 (5.2)
Cash and cash equivalents at beginning of year 105.9 100.5
Exchange losses on cash and cash equivalents (2.5) 10.6
============================================================================== ======= =======
Cash and cash equivalents at end of the financial year 304.1 105.9
============================================================================== ======= =======
1. Interest paid includes interest on finance lease payments of GBP1.4m (2016: GBP1.3m)
Notes to the financial statements
1. Changes in accounting policies
The Group has adopted the following new standards and amendments
to standards, including any consequential amendments to other
standards, with effect from 1 January 2017:
-- Income taxes - amendments to IAS 12
-- Statement of cash flows - amendments to IAS 7
The application of these amendments has had no material impact
on the disclosures of the amounts recognised in the Group's
consolidated financial statements. Consequently, no adjustment has
been made to the comparative financial information at 31 December
2016.
The Group has not early adopted any standard, interpretation or
amendment that was issued but is not yet effective.
The Group will adopt IFRS 15 Revenue from Contracts with
Customers from 1 January 2018. Substantially all of the Group's
revenue will be in the scope of IFRS 15, but no material changes to
the timing of revenue recognition are required. The majority of
revenue across the Group is currently recognised evenly over the
course of the contract because this reflects the timing of the
provision of the service, and therefore revenue is recognised as
performance obligations are satisfied. Incremental costs of
obtaining contracts (mainly sales commissions) will be recognised
as an asset and amortised over the lives of the contracts to which
they relate. It is estimated that the value of this adjustment will
be in the range of GBP35-45m. The impact on the income statement
from this change in treatment is expected to be a reduction in
costs in 2018 due to historic year on year increases in sales
commissions. Any impact is not expected to be material. The
assessment of the impact of IFRS 15 is preliminary as not all
transition work requirements have been finalised and therefore may
be subject to adjustment.
The Group will adopt IFRS 9 from 1 January 2018. The Group has
minimal financial assets (other than trade debtors) and the new
standard does not have a material impact on the recognition and
measurement of the Group's financial assets. The standard will,
however, result in changes in presentation in some disclosures of
the Group's financial assets.
As a result of the changes within the forthcoming standard IFRS
16 Leases which is to be adopted from 1 January 2019, the majority
of our existing operating leases will be accounted for as right of
use assets, which will be largely offset by corresponding lease
liabilities. The lease liability will increase net debt. It is
anticipated that operating expenses will decrease and financing
costs will increase as the operating lease expense is replaced by
depreciation and interest. Depreciation will be straight-line over
the life of the lease but the financing charge will decrease over
the lease term. The overall impact on net profit is not expected to
be material.
2. 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 Leadership
Team responsible for the review of Group performance. The operating
businesses within each segment report to the Regional Managing
Directors.
Given the international nature of the Group, foreign exchange
movements can have a significant impact on regional performance and
as a result the segmental analysis is presented at constant
currency rates. Restructuring costs and Central and Regional
overheads are also presented centrally as they are not directly
attributable to any reportable segment. The basis of presentation
is consistent with the information reviewed by internal management.
Revenue and profit are from Ongoing operations which is defined and
reconciled to the nearest equivalent GAAP measure in Note 22.
2. Segmental information (continued)
Operating Operating
Revenue Revenue profit profit
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
================================================= ======== ======= ========= =========
France 274.6 271.5 41.1 44.3
Benelux 79.9 79.7 23.5 23.4
Germany 78.0 71.6 23.6 22.4
Southern Europe 90.3 69.9 13.7 12.0
Latin America 33.8 26.0 4.2 3.9
================================================= ======== ======= ========= =========
Europe 556.6 518.7 106.1 106.0
================================================= ======== ======= ========= =========
UK & Ireland 245.6 235.8 47.6 45.7
Rest of World 124.8 110.9 29.2 26.7
================================================= ======== ======= ========= =========
UK & Rest of World 370.4 346.7 76.8 72.4
================================================= ======== ======= ========= =========
Asia 179.1 130.4 18.7 13.4
North America 824.0 680.4 111.7 91.8
Pacific 162.9 151.3 35.2 32.1
Central and regional overheads - - (66.2) (67.6)
Restructuring costs - - (6.9) (7.9)
================================================= ======== ======= ========= =========
Ongoing operations at constant exchange rates 2,093.0 1,827.5 275.4 240.2
Disposed businesses(2, 3) 195.0 340.6 55.0 44.2
================================================= ======== ======= ========= =========
Continuing operations at constant exchange rates 2,288.0 2,168.1 294.0 284.4
Foreign exchange 124.3 - 22.6 -
================================================= ======== ======= ========= =========
Continuing operations at actual exchange rates 2,412.3 2,168.1 353.0 284.4
================================================= ======== ======= ========= =========
One-off items - operating (6.8) (8.6)
Amortisation of intangible assets(1) (53.8) (43.4)
Operating profit 292.4 232.4
================================================= ======== ======= ========= =========
(1) Excluding computer software.
(2) Disposed business for 2016 is restated for businesses
disposed in 2017.
(3) Includes revenue of GBP8.8m (2016: GBPnil) from product
sales by the Group to CWS-boco International GmbH. Prior to 30th
June 2017, this revenue was classified as intergroup revenue and
eliminated on consolidation
One-off items - operating relates mainly to acquisition and
integration costs in North America of GBP8.7m, various legacy
issues in Europe relating to the continuing business and
acquisition related costs in Asia and Pacific regions, partially
offset by credits related to acquisition accounting.
Other segment items included in the consolidated income
statement are as follows:
Amortisation Amortisation
and impairment and impairment
of intangibles(1) of intangibles(1)
============================
2017 2016
GBPm GBPm
============================ =================== ===================
Europe 6.2 6.2
UK & Rest of World 7.2 5.2
Asia 5.2 2.7
North America 26.6 24.4
Pacific 2.5 1.8
Central and regional 4.0 3.1
============================ =================== ===================
Total at constant exchange
rates 51.7 43.4
Foreign exchange 2.1 -
============================ =================== ===================
Total at actual exchange
rates 53.8 43.4
============================ =================== ===================
Tax effect (16.6) (14.2)
============================ =================== ===================
Total after tax effect 37.2 29.2
============================ =================== ===================
(1) excluding computer software
3. Interest payable and similar charges
2017 2016
GBPm GBPm
====================================================================================== ===== =====
Hedged interest payable on medium term notes issued(1) 24.7 28.4
Interest payable on bank loans and overdrafts(1) 1.2 0.9
Interest payable on revolving credit facility(1) 7.5 7.9
Interest payable on foreign exchange swaps 12.5 10.0
Interest payable on finance leases 1.4 1.3
Amortisation of discount on provisions 0.3 0.3
Fair value loss on other derivatives(2,3) 0.3 0.6
Foreign exchange gain on translation of foreign denominated assets and liabilities(4) 0.5 -
====================================================================================== ===== =====
Total interest payable and similar charges 48.4 49.4
====================================================================================== ===== =====
(1) interest expense on financial liabilities held at amortised cost
(2) loss on financial assets/liabilities at fair value through the income statement
(3) the fair value loss on other derivatives includes fair value
losses relating to interest rate swaps
(4) comprises translation gain on financing instruments of
GBP133.8m, offset by losses of GBP134.3m (2016 gains of GBP761.0m
offset by losses of GBP760.2m)
4. Interest receivable
2017 2016
GBPm GBPm
====================================================================================== ===== =====
Bank interest 1.0 1.1
Interest receivable on foreign exchange swaps 4.5 8.5
Fair value gain on other derivatives(1,2) - 0.5
Foreign exchange gain on translation of foreign denominated assets and liabilities(3) - 0.8
Interest on net defined benefit asset 6.8 8.4
======================================================================================= ===== =====
Total interest receivable 12.3 19.3
======================================================================================= ===== =====
(1) gain on financial assets/liabilities at fair value through the income statement
(2) the fair value gain on other derivatives includes fair value
gains relating to interest rate swaps
5. Income tax expense
2017 2016
GBPm GBPm
======================================================= ====== =====
Analysis of charge in the year:
UK corporation tax at 19.25% (2016: 20.00%) 6.4 2.9
Overseas taxation 35.2 30.2
Adjustment in respect of previous periods 2.4 7.8
======================================================= ====== =====
Total current tax 44.0 40.9
Deferred tax debit/(credit) (7.0) 1.3
Deferred tax adjustment in respect of previous periods (6.4) (1.5)
======================================================= ====== =====
Total deferred tax (13.4) (0.2)
======================================================= ====== =====
Total income tax expense 30.6 40.7
======================================================= ====== =====
Current tax expense represents the amount payable on this year's
taxable profits and any adjustment relating to prior years.
Deferred tax is an accounting adjustment to provide for tax that is
expected to arise in the future due to differences between
accounting and tax bases. Tax is recognised in the income
statement, except to the extent that it relates to items recognised
in other comprehensive income. In this case the tax is also
recognised in other comprehensive income.
Deferred income tax is provided on temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. The following
temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities in
transactions other than a business combination that at the time of
the transactions affect neither the accounting nor taxable profit
or loss; and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable
future. The amount of deferred income tax is determined using tax
rates (and laws) that have been enacted (or substantively enacted)
at the balance sheet date, and are expected to apply when the
related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profits will be available against
which the temporary differences can be utilised. In recognising the
deferred tax asset in respect of UK losses, management has
estimated the quantum of future UK taxable profits over the next
three years.
5. Income tax expense (continued)
A deferred tax asset of GBP12.3m (2016: GBP22.2m) has been
recognised in respect of UK losses carried forward at 31 December
2017. This amount has been calculated by estimating the future UK
taxable profits, against which the UK tax losses will be utilised,
and applying the tax rates (substantively enacted as at the balance
sheet date) applicable for each year. Remaining UK tax losses of
GBP136.0m have not been recognised as at 31 December 2017. The
reduction in the deferred tax asset recognised on the UK tax losses
is due to the fact that from 1 April 2017 only 50% of current year
profits in excess of GBP5.0m may be offset by brought forward tax
losses.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of shares in issue during the year, excluding those
held in the Rentokil Initial Employee Share Trust for UK employees
(see note at the bottom of the Consolidated Statement of Changes in
Equity) which are treated as cancelled, and including share options
for which all conditions have been met.
Adjusted earnings per share is the basic earnings per share
adjusted for the after-tax effects of one-off items, amortisation
and impairment of intangibles(1) and net interest credit from
pensions.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to include all potential
dilutive ordinary shares. The Group's potentially dilutive ordinary
shares relate to the contingent issuable shares under the Group's
long term incentive share plants (LTIPs) to the extent the
performance conditions have been met at the end of the period.
These share options are issued for nil consideration to employees
if performance conditions are met.
Details of the adjusted earnings per share are set out
below:
2017 2016
GBPm GBPm
========================================================================================= ======= ======
Profit from continuing operations attributable to equity holders of the Company 682.8 167.8
One-off items - operating 6.8 8.6
One-off items - associates 7.0 -
Net gain on disposal of businesses (449.0) -
Reversal of depreciation - assets held-for-sale (38.5) -
Amortisation and impairment of intangibles(1) 53.8 43.5
Net interest credit from pensions (6.8) (8.4)
Tax on above items(2) (26.1) (15.6)
US tax reform - net deferred tax credit (6.4) -
Adjusted profit from continuing operations attributable to equity holders of the Company 223.6 195.9
========================================================================================= ======= ======
Weighted average number of ordinary shares in issue 1,834.8 1,826.0
Adjustment for potentially dilutive shares 15.7 16.9
========================================================================== ======= =======
Weighted average number of ordinary shares for diluted earnings per share 1,850.5 1,842.9
========================================================================== ======= =======
Basic earnings per share 37.21p 9.19p
Diluted earnings per share 36.90p 9.11p
Basic adjusted earnings per share 12.19p 10.73p
Diluted adjusted earnings per share 12.08p 10.63p
==================================== ====== ======
1 excluding computer software
2 One-off items operating GBP5.1m (2016: GBP3.1m), one-off items
associates GBPnil (2016: nil), net gain on disposal of businesses
GBP5.7m (2016: nil), amortisation and impairment of intangibles
GBP16.6m (2016: GBP14.1m), net interest credit from pensions
GBP(1.3)m (2016: GBP(1.6)m)
7. Dividends
Dividend distribution to the Company's shareholders is
recognised as a liability in the Group's financial statements in
the period in which the dividends are approved by the Company's
shareholders. Interim dividends are recognised when paid.
2017 2016
GBPm GBPm
============================================= ===== =====
2015 final dividend paid - 2.06p per share - 37.5
2016 interim dividend paid - 0.99p per share - 18.0
2016 final dividend paid - 2.38p per share 43.5 -
2017 interim dividend paid - 1.14p per share 20.8 -
============================================= ===== =====
64.3 55.5
============================================= ===== =====
An interim dividend of 1.14p per share was paid on 13 September
2017 amounting to GBP20.8m. A final dividend in respect of 2017 of
2.74p (2016: 2.38p) per 1p share amounting to GBP50.3m (2016:
GBP43.5m) is to be proposed at the annual general meeting on 09 May
2017. These financial statements do not reflect this recommended
dividend.
8. Intangible assets
Customer
lists and Computer 2017 2016
Goodwill relationships Brands Product development software Total Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ========= ============== ======= =================== ========= ======= =======
Cost
At 1 January 766.3 591.2 60.1 18.2 91.0 1,526.8 1,306.8
Exchange differences (58.1) (23.9) (4.1) - (0.6) (86.7) 239.8
Additions - - - 4.7 14.4 19.1 21.0
Disposals/retirements - - - - (4.1) (4.1) (7.8)
Acquisition of companies and
businesses 297.4 39.9 7.0 - 0.1 344.4 97.6
Disposal of companies and
businesses (0.8) (3.0) - - (4.2) (8.0) -
Transferred to disposal group
held-for-sale - - - - - - (130.6)
================================ ========= ============== ======= =================== ========= ======= =======
At 31 December 1,004.8 604.2 63.0 22.9 96.6 1,791.5 1,526.8
================================ ========= ============== ======= =================== ========= ======= =======
Accumulated amortisation and impairment
At 1 January (30.3) (403.4) (31.2) (6.0) (56.3) (527.2) (488.5)
Exchange differences (0.3) 12.8 1.8 - - 14.3 (83.2)
Disposals/retirements - - - - 3.4 3.4 6.4
Disposal of companies and
businesses - 2.9 - - 2.3 5.2 0.1
Impairment charge (2.0) - - - (0.2) (2.2) -
Amortisation charge - (43.5) (4.6) (3.7) (13.0) (64.8) (55.9)
Transferred to disposal group
held-for-sale - - - - - - 93.9
================================ ========= ============== ======= =================== ========= ======= =======
At 31 December (32.6) (431.2) (34.0) (9.7) (63.8) (571.3) (527.2)
================================ ========= ============== ======= =================== ========= ======= =======
Net book value
At 1 January 736.0 187.8 28.9 12.2 34.7 999.6 818.3
================================ ========= ============== ======= =================== ========= ======= =======
At 31 December 972.2 173.0 29.0 13.2 32.8 1,220.2 999.6
================================ ========= ============== ======= =================== ========= ======= =======
9. Property, plant and equipment
Vehicles
Land and Other plant and and office 2017 2016
buildings Service contract equipment equipment equipment Total Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========== ========================== =============== =========== ======= =======
Cost
At 1 January 96.4 423.9 193.2 225.7 939.2 1,203.8
Exchange differences 3.1 13.0 6.4 (9.8) 12.7 222.4
Additions 3.8 135.8 17.0 36.1 192.7 201.8
Disposals (2.6) (78.5) (7.2) (30.7) (119.0) (171.0)
Acquisition of companies and
businesses 2.3 4.6 2.5 8.8 18.2 12.6
Disposal of companies and
businesses (24.0) (79.1) (54.9) (5.2) (163.2) -
Transferred to disposal group
held-for-sale - - - - - (530.4)
At 31 December 79.0 419.7 157.0 224.9 880.6 939.2
============================== ========== ========================== =============== =========== ======= =======
Accumulated depreciation and
impairment
At 1 January (26.8) (219.4) (141.9) (134.8) (522.9) (726.7)
Exchange differences (1.0) (7.5) (4.9) 5.0 (8.4) (140.7)
Disposals 1.4 76.4 6.9 28.6 113.3 165.4
Disposal of companies and
businesses 5.8 15.0 38.4 2.3 61.5 -
Depreciation charge (3.3) (86.9) (11.9) (31.8) (133.9) (188.3)
Transferred to disposal group
held-for-sale - - - - - 367.4
At 31 December (23.9) (222.4) (113.4) (130.7) (490.4) (522.9)
============================== ========== ========================== =============== =========== ======= =======
Net book value
At 1 January 69.6 204.5 51.3 90.9 416.3 477.1
============================== ========== ========================== =============== =========== ======= =======
At 31 December 55.1 197.3 43.6 94.2 390.2 416.3
============================== ========== ========================== =============== =========== ======= =======
10. Business disposals
On the 30 June 2017 the Group sold its Workwear and Hygiene
operations in 10 countries, principally in the Benelux region and
Central and Eastern Europe, to a joint venture with the CWS-boco
businesses of Franz Haniel & Cie. GmbH (Haniel). The disposal
group was recognised as held for sale at 31 December 2016. In
addition to cash consideration, the Group received a 17.8% share in
the combined business; CWS-boco International GmbH. This is
recognised as an investment in associate at 31 December 2017. The
value of the investment in associate is based on the valuation of
the combined businesses. The Group anticipates maintaining its
stake in the joint venture for a minimum period of three years,
after which the Company has various exit options under the
agreement to optimise further value for shareholders. In relation
to its investment in the combined business, the Group will receive
an annual dividend of EUR19m for five years.
The Group has made an accounting policy choice to recognise a
full disposal of the businesses to Haniel under IFRS 10, rather
than accounting for this as a partial disposal under IAS 28. Under
this approach the full gain is recognised on the loss of control of
the subsidiaries, and an element of the continuing interest in the
assets and liabilities has not been eliminated in calculating the
gain on disposal. The fair value of the retained investment in
CWS-boco International GmbH is the deemed cost for the purposes of
subsequent accounting.
On 30 September 2017 the Group sold eight textile laundries in
France to RLD for a cash consideration of EUR32.4m.
Details of net assets disposed and disposal proceeds in the year
relating to this disposal are as follows:
Europe workwear and hygiene France textile laundries
2017 2017 Total
GBPm GBPm 2017
GBPm
====================================================== =========================== ======================== =======
Non-current assets
Intangible assets 39.4 - 39.4
Property, plant and equipment 201.2 63.5 264.7
Current assets
Inventories 2.0 1.4 3.4
Trade and other receivables 52.6 2.2 54.8
Cash 17.4 - 17.4
Current liabilities
Trade and other payables (43.1) (2.7) (45.8)
Non-current liabilities
Other long- term liabilities (6.0) (5.0) (11.0)
Deferred and current tax (16.2) (1.2) (17.4)
====================================================== =========================== ======================== =======
Net assets and liabilities 247.3 58.2 305.5
Consideration (449.9) (28.4) (478.3)
Share of investment in associate (254.0) - (254.0)
====================================================== =========================== ======================== =======
Total consideration (703.9) (28.4) (732.3)
Cumulative exchange recycled from the translation
reserve (42.8) (3.7) (46.5)
Costs of disposal 18.2 6.1 24.3
====================================================== =========================== ======================== =======
Net (gain)/loss on disposal (481.2) 32.2 (449.0)
====================================================== =========================== ======================== =======
11. Financing
Fair value estimation
All financial instruments held at fair value are 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.
11. Financing (continued)
The Group uses the following methods to estimate fair value of
its financial instruments:
Hierarchy
Financial instrument level Valuation method
============================ ========== =============================
Financial assets 1 Current bid price
traded in active
markets
Financial liabilities 1 Current ask price
traded in active
markets
Borrowings not traded 2 Cash flows discounted
in active markets at current market rates
Long-term debt 1 Quoted market prices
Interest rate/currency 1 Market swap rates at
swaps the balance sheet date
Forward foreign exchange 1 Forward exchange market
contracts rates at the balance
sheet date
Financial instruments 2 or Valuation assumptions
not traded in active 3 based on market conditions
markets at the balance sheet
date
Trade payables and 3 Nominal value less estimated
receivables credit adjustments
Deferred and contingent 3 Fair value based on
consideration the future forecasts
of the acquired businesses
Other financial instruments 3 Variety of techniques
including discounted
cash flows
---------------------------- ---------- -----------------------------
12. Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, and other short-term highly liquid investments
with original maturities of three months or less (and subject to
insignificant changes in value). In the cash flow statement cash
and cash equivalents are shown net of bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities on
the balance sheet.
Cash at bank and in hand includes GBP1.9m (2016: GBP25.2m) of
restricted cash. This cash is held in respect of specific contracts
and can only be utilised in line with terms under the contractual
arrangements.
The Group operates pooling arrangements whereby cash balances
and overdrafts held within the same bank are offset to give a net
balance which is included within cash and cash equivalents on the
balance sheet. These cash and bank overdraft figures before netting
are shown in the table below:
Offsetting financial assets and liabilities
Gross amounts
Gross amounts before offsetting set off Net amounts presented
GBPm GBPm GBPm
========================== =============================== ============= =====================
At 31 December 2017
Cash at bank and in hand 997.8 (697.5) 300.3
Short-term bank deposits 9.8 - 9.8
========================== =============================== ============= =====================
Cash and cash equivalents 1,007.6 (697.5) 310.1
Bank overdraft (703.5) 697.5 (6.0)
========================== =============================== ============= =====================
304.1 - 304.1
========================== =============================== ============= =====================
At 31 December 2016
Cash at bank and in hand 767.9 (609.7) 158.2
Short-term bank deposits 2.0 - 2.0
========================== =============================== ============= =====================
Cash and cash equivalents 769.9 (609.7) 160.2
Bank overdraft (664.0) 609.7 (54.3)
========================== =============================== ============= =====================
105.9 - 105.9
========================== =============================== ============= =====================
13. Analysis of bank and bond debt
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are classified as current
liabilities unless the Group has a continuing right to defer
settlement of the liability for at least 12 months after the
balance sheet date.
The Group's bank debt comprises:
Drawn at Interest rate
Facility amount year end Headroom at year end
GBPm GBPm GBPm %
============================================================== =============== ========= ========== =============
Non-current
$25m RCF due December 2019 18.5 - 18.5 -
GBP420m RCF due January 2022 (GBP60m reserved for guarantees) 360.0 - 360.0 -
$50m term loan due June 2020 37.0 37.0 - 2.17
Average cost of bank debt at year end rates 415.5 37.0 378.5 2.17
============================================================== =============== ========= ========== =============
The Group has a revolving credit facility of GBP360m available
for cash drawings, and GBP60m for guarantees and letters of credit.
The maturity date of the RCF is January 2022. At the year end,
GBPnil was drawn under the part of the facility available for cash
drawings, and GBP34m under the part available for guarantees. The
Group also has a $25m revolving credit facility that matures in
December 2019, on terms in line with the main RCF.
On 19 June 2017 the Group entered into a $50m term loan for
three years on terms in line with its other bank facilities.
Medium-term notes and bond debt comprises:
Bond interest coupon Effective hedged interest rate
============================================ ===================== ==============================
Current
EUR50m bond due March 2018 Euribor +0.48% Fixed 0.84%
Non-current
EUR500m bond due September 2019 Fixed 3.375% Fixed 3.65%
EUR350m bond due October 2021 Fixed 3.25% Fixed 4.31%
EUR400m bond due November 2024 Fixed 0.95% Fixed 2.77%
GBP1.3m perpetual debentures Fixed 5.00% Fixed 5.00%
GBP0.3m perpetual debentures Fixed 4.50% Fixed 4.50%
Average cost of bond debt at year end rates 3.45%
=================================================================== ==============================
The effective interest rate reflects the interest rate after the
impact of interest from currency swaps. The Group hedging strategy
is to hold debt in proportion to the Group foreign currency profit
and cash flows which are mainly EUR and USD. As a result the Group
has swapped a proportion of the Euro bond issue into USD debt which
has increased effective interest rate.
On 22 November 2017 the Group issued a new EUR400m bond at a
coupon of 0.95% under its EMTN Programme. Part of the proceeds were
swapped into USD and used to refinance the GBP200m and $157m term
loans. The rate on the USD swaps is floating for the first year at
3 month libor +1.08% and fixed at 3.38% from November 2018 until
maturity.
On 30 June 2017, EUR141m of the EUR350m bond due in 2021 was
swapped for USD at a fixed rate of 5.49%.
The Group considers the fair value of other current liabilities
to be equal to the carrying value.
14. 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 principal pension scheme in the Group is the Rentokil
Initial 2015 Pension Scheme (RIPS) in the UK which has a defined
contribution section, and a number of defined benefit sections
which are now closed to new entrants and future accrual of
benefits. The defined benefit scheme is funded through payments to
a trustee-administered fund, determined by periodic actuarial
calculations.
Actuarial valuations of the RIPS are usually carried out every
three years. At 31 December 2017 RIPS was valued at an accounting
surplus of GBP325.4m (2016: GBP272.0m) on the Group's balance
sheet. The trustees of the RIPS value the scheme on a different
basis. In their valuation at 31 December 2015 the scheme is fully
funded and no contributions are currently required from the
Company. The funding position will be formally reviewed at the next
actuarial valuation, which is expected to be carried out at 31
December 2018.
The Group has recognised an asset in relation to the RIPS
surplus as the Group has an unconditional right reduce future
pension contributions, taking into account the adverse effect of
any minimum funding requirements.
The defined benefit schemes are reappraised semi-annually by
independent actuaries based upon actuarial assumptions in
accordance with IAS 19R requirements. The assumptions used for the
RIPS scheme are shown below.
2017 2016
========================= ==== =====
Weighted average %
Discount rate 2.5% 2.6 %
Future salary increases N/A N/A
Future pension increases 3.4% 3.4%
RPI inflation 3.5% 3.5%
CPI inflation 2.4% 2.4%
========================= ==== =====
14. Retirement benefit obligations (continued)
The movement in the net defined benefit obligation for all
pension schemes over the accounting period is as follows:
Fair
Present value Present
value of of plan value of Fair value
obligation assets Total obligation of plan Total
2017 2017 2017 2016 assets2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
========================================================== ========== ======= ====== ========== ========== =======
At 1 January (1,486.2) 1,728.0 241.8 (1,232.0) 1,444.9 212.9
========================================================== ========== ======= ====== ========== ========== =======
Current service costs(1) (0.5) - (0.5) (0.5) - (0.5)
Past service costs(1) (0.3) - (0.3) (0.1) - (0.1)
Administration expenses(1) (1.2) - (1.2) (1.3) - (1.3)
Interest on net defined benefit asset(1) (36.8) 43.6 6.8 (45.1) 53.5 8.4
Exchange difference (1.0) 0.3 (0.7) (8.2) 4.1 (4.1)
========================================================== ========== ======= ====== ========== ========== =======
Total pension income (39.8) 43.9 4.1 (55.2) 57.6 2.4
========================================================== ========== ======= ====== ========== ========== =======
Remeasurements:
* Remeasurement of gain/(loss) on scheme assets - 20.1 20.1 - 285.9 285.9
* Actuarial gain/(loss) on obligation(2) 26.9 - 26.9 (264.6) - (264.6)
Transfers
* Transferred on disposal of business 1.3 - 1.3
* Transferred on acquisition of business (0.9) - (0.9)
* Transfers to disposal group held-for-sale - - - 4.6 (3.2) 1.4
Contributions:
* Employers (0.6) 1.8 1.2 (0.5) 1.5 1.0
* Participants (0.1) 0.1 - - 0.1 0.1
* Benefit payments 82.9 (78.5) 4.4 60.2 (58.8) 1.4
* Administration costs 1.2 - 1.2 1.3 - 1.3
========================================================== ========== ======= ====== ========== ========== =======
At 31 December (1,415.3) 1,715.4 300.1 (1,486.2) 1,728.0 241.8
========================================================== ========== ======= ====== ========== ========== =======
Retirement benefit obligation schemes(3) (50.1) 24.0 (26.1) (52.9) 22.0 (30.9)
Retirement benefit asset schemes(4) (1,365.2) 1,691.4 326.2 (1,433.3) 1,706.0 272.7
========================================================== ========== ======= ====== ========== ========== =======
(1) service costs, settlement and administration expenses are
charged to operating expenses, and interest cost and return on plan
assets to net interest credit from pensions
(2) the actuarial movement on the UK RIPS scheme comprises
remeasurement gain arising from changes in demographic assumptions
of GBP55.2 (2016: loss GBP18.5m), remeasurement loss arising from
changes in financial assumptions of GBP22.2m (2016: GBP238.1m) and
remeasurement losses arising from experience of GBP4.4m (2016:
GBP2.2m loss).
(3) benefit plans in an obligation position include plans
situated in Ireland, UK, Martinique, Trinidad, Norway, South
Africa, Germany, Austria, France, Italy, Korea, Philippines, and
Hong Kong
(4) benefit plans in an asset position include plans situated in
UK, Australia and Barbados
Included in the table above is a defined benefit obligation of
GBP1,360.7m (2016:GBP1,431.0m) and plan assets of GBP1,686.1m
(2016: GBP1,703.0m) in relation to the UK RIPS scheme.
Of the GBP1,415.3 (2016: GBP1,486.2m) of obligations, GBP16.8m
(2016: GBP18.6m) is unfunded.
Total contributions payable to defined benefit pension schemes
in 2017 are expected to be between GBP1m and GBP2m.
The fair value of plan assets at the balance sheet date is
analysed as follows:
2017 2016
GBPm GBPm
============================ ======= =======
Equity instruments 136.4 234.7
Debt instruments - quoted 1,548.2 1,466.4
Debt instruments - unquoted 13.0 11.4
Property 0.6 0.3
Other 17.2 15.2
Total plan assets 1,715.4 1,728.0
================================ ======= =======
15. Provisions for other liabilities and charges
Vacant property, environmental, self-insurance and other
provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and the amount is capable of being reliably estimated.
If such an obligation is not capable of being reliably estimated it
is classified as a contingent liability.
Future cash flows relating to these obligations are discounted
when the effect is material. The discount rates used are based on
government bond rates in the country of the cash flows, and were
between 0.3% and 0.5% (2016: between 0.3% and 0.5%) for the UK, and
between 0.8% and 2.3% (2016: 2.3%) for the US.
Judgement is required in determining the worldwide provision for
environmental restoration. These provisions tend to be long-term in
nature and the use of an appropriate market discount rate and
forecast future utilisation based upon management's best estimate
determines the level of provision required at the balance sheet
date. The phasing and actual cash spend may be different from the
forecast on which the provision is based.
Vacant Self- 2017 2016
properties Environmental insurance Other Total Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================================ =========== ============== ========== ====== ====== ======
At 1 January 20.4 15.4 24.9 9.8 70.5 81.4
Exchange differences - 0.1 (1.7) 0.2 (1.4) 7.8
Additional provisions 1.1 6.9 8.4 21.0 37.4 29.8
Used during the year (4.4) (2.1) (6.8) (12.0) (25.3) (37.3)
Unused amounts reversed (2.3) - (1.6) (1.0) (4.9) (8.1)
Acquisition of companies and businesses - - - 3.8 3.8 -
Unwinding of discount on provisions - 0.1 0.1 - 0.2 0.3
Transferred to disposal group held-for-sale - - - - - (3.4)
At 31 December 80.3 70.5
============================================ =========== ============== ========== ====== ====== ======
Analysed as follows:
============================================ =========== ============== ========== ====== ====== ======
Non-current 55.0 55.2
============================================ =========== ============== ========== ====== ====== ======
Current 25.3 15.3
============================================ =========== ============== ========== ====== ====== ======
Vacant properties
The Group has a number of vacant and sub-let leasehold
properties, with the majority of the head leases expiring before
2020. Provision has been made for the residual lease commitments
together with other outgoings, after taking into account existing
sub-tenant arrangements and assumptions relating to later periods
of vacancy.
The total future minimum sub-lease payments expected to be
received under non-cancellable sub-leases at 31 December 2017 is
GBP1.2m (2016: GBP1.1m).
Environmental
The Group owns a number of properties in Europe and the US where
there is land contamination and provisions are held for the
remediation of such contamination. These provisions are expected to
be substantially utilised within the next seven years.
Self-insurance
The Group purchases external insurance from a portfolio of
international insurers for its key insurable risks, but prior to
2008 the Group self-insured its risks. Provision is still held for
self-insured past cover, primarily in relation to third party motor
vehicle and employee liability. For the continuing self-insured
programmes, individual claims are met in full by the Group up to
agreed self-insured limits in order to limit volatility in claims.
The calculated cost of self-insurance claims is based on an
actuarial assessment of claims incurred at the balance sheet date
and is accumulated as claims provisions. These provisions are
expected to be substantially utilised within the next ten
years.
Other
Other provisions principally comprise amounts required to cover
obligations arising, costs relating to disposed businesses and
restructuring costs. Existing provisions are expected to be
substantially utilised within the next five years.
16. Share capital
2017 2016
GBPm GBPm
============================================================ ===== =====
Issued and fully paid
At 31 December - 1,837,332,965 shares (2016: 1,829,332,965) 18.4 18.3
============================================================ ===== =====
17. Reconciliation of net change in cash and cash equivalents to
net debt
Non-cash (fair value Non-cash (foreign
Opening 2017 Cash flows changes) exchange and other) Closing 2017
GBPm GBPm GBPm GBPm GBPm
Cash and cash
equivalents(1) 160.2 152.3 - (2.4) 310.1
Other investments - loans
and receivables 9.6 (9.1) - 0.2 0.7
Fair value of
debt-related derivatives (70.7) 32.5 (9.9) 44.7 (3.4)
Bank and other short-term
borrowings (60.7) 48.3 (0.4) (45.4) (58.2)
Bank and other long-term
borrowings (1,237.7) 61.0 14.2 23.3 (1,139.2)
Finance leases (39.4) 15.9 (15.1) 1.3 (37.3)
========================= ============ ========== ========================= ======================== ============
(1,238.7) 300.9 (11.2) 21.7 (927.3)
========================= ============ ========== ========================= ======================== ============
1 Excluding bank overdrafts.
18. Operating cash and Free Cash Flow
2017 2016
GBPm GBPm
=============================================
Operating profit 741.4 232.4
Adjustments for:
- Depreciation and impairment of property,
plant and equipment 133.9 188.3
- Amortisation and impairment of intangible
assets (excluding computer software) 53.8 43.4
- Amortisation and impairment of computer
software 13.2 12.4
- Other non-cash items (4.7) 2.3
- Profit on sale of business (499.0) -
Changes in working capital (excluding
the effects of acquisitions and exchange
differences on consolidation):
- Inventories (1.8) (3.6)
- Trade and other receivables (46.1) (34.6)
- Trade and other payables and provisions 21.7 12.0
============================================= ======== ========
Cash generated from operating activities
before special pension contributions 462.4 452.6
Special pension contributions (1.1) (1.0)
--------------------------------------------- -------- --------
Cash generated from operating activities 461.3 451.6
--------------------------------------------- -------- --------
Add back: special pension contributions 1.1 1.0
============================================= ======== ========
462.4 452.6
Purchase of property, plant and equipment (174.3) (186.2)
Purchase of intangible fixed assets (19.1) (21.0)
Leased property, plant and equipment (18.7) (14.6)
Proceeds from sale of property, plant
and equipment 4.9 6.3
Dividends received from associates 3.2 10.3
============================================= ======== ========
Operating cash flow(1) 258.4 247.4
--------------------------------------------- -------- --------
Interest received 5.1 12.7
Interest paid (46.5) (67.3)
Income tax paid (40.1) (35.8)
Special pension contributions (1.1) (1.0)
--------------------------------------------- -------- --------
Free Cash Flow 175.8 156.0
============================================= ======== ========
Add back: Free Cash Flow - discontinued
operations - 0.4
============================================= ======== ========
Free Cash Flow from continuing operations 175.8 156.4
============================================= ======== ========
(1) Operating cash flow includes non-ongoing operations of
GBPnil (2016: GBP(0.4)m)
19. Business combinations
During the year the Group purchased 100% of the share capital or
trade and assets of 40 companies and businesses, and 57% of the
share capital of PCI India. The total consideration in respect of
these acquisitions was GBP356.5m and the cash outflow from current
and past period acquisitions, net of cash acquired, was
GBP281.1m.
19. Business combinations (continued)
The acquisition of PCI India includes put options whereby the
non-controlling interest can require the Group to purchase the
remaining 43% of shares in stages over a fixed term (between five
and ten years from the date of acquisition). The Group also holds a
call option to acquire the shares from the non-controlling interest
at the end of this fixed term which has not been recognised as it
has a fair value of GBPnil. The Group has elected not to recognise
a non-controlling interest on the acquisition of PCI India. Under
this accounting policy, put and call options are accounted for as
an anticipated acquisition of the underlying non-controlling
interest. The Group refers to this treatment as the Anticipated
Acquisition Method. The Group has recognised a put option liability
of GBP42.4m for the anticipated acquisition of the shares. The
Group has also made an accounting policy choice, to recognise
movements in the carrying value of the movement in the options
through equity.
Details of goodwill and the fair value of net assets acquired
are as follows:
2017 2016
GBPm GBPm
======================================== ====== ======
Purchase consideration:
- Cash paid 269.9 82.9
- Deferred and contingent consideration 86.6 24.2
Total purchase consideration 356.5 107.1
Fair value of net assets acquired (68.2) (60.0)
========================================= ====== ======
Goodwill from current year acquisitions 288.3 47.1
========================================= ====== ======
Goodwill represents the synergies, workforce and other benefits
expected as a result of combining the respective businesses.
Deferred consideration of GBP15.6m and contingent consideration
of GBP71.0m (GBP42.4m relates to PCI India put options) is payable
in respect of the above acquisitions. Contingent consideration is
based on a variety of conditions including revenue and profit
targets being met. Both deferred and contingent consideration are
payable over the next four years. The Group incurred
acquisition-related costs of GBP5.7m. The Group has included the
contingent and deferred consideration based on the fair value of
the consideration at the acquisition date.
The provisional fair value(1) of assets and liabilities arising
from acquisitions in the year are as follows:
2017 2016
GBPm GBPm
================================ ====== ======
Non-current assets
- Intangible assets(2) 46.2 46.2
- Property, plant and equipment 18.5 4.0
Current assets(3) 51.6 39.7
Current liabilities (38.1) (23.3)
Non-current liabilities(4) (10.0) (6.6)
================================= ====== ======
Net assets acquired 68.2 60.0
================================= ====== ======
(1) the provisional fair values will be finalised in the 2018
financial statements. The fair values are provisional since the
acquisition accounting has not yet been finalised as a result of
the proximity of many acquisitions to the year end
(2) includes GBP39.1m (2016: GBP38.3m) of customer lists and
relationships and GBP7.1m (2016: GBP7.9m) of other intangibles
(3) includes trade and other receivables of GBP36.4m (2016:
GBP24.1m) which represents the gross and fair value of the assets
acquired
(4) includes (GBP5.1m) of deferred tax relating to acquired intangibles (2016: GBP6.4m)
The cash outflow from current and past acquisitions are as
follows:
2017 2016
GBPm GBPm
=============================================================== ====== ======
Total purchase consideration 356.5 107.1
Consideration payable in future periods (86.6) (24.2)
=============================================================== ====== ======
Purchase consideration paid in cash 269.9 82.9
Cash and cash equivalents in acquired companies and businesses (8.1) (2.2)
=============================================================== ====== ======
Cash outflow on current period acquisitions 261.8 80.7
Deferred consideration paid 19.3 28.5
Cash outflow on current and past acquisitions 281.1 109.2
=============================================================== ====== ======
From the dates of acquisition to 31 December 2017, these
acquisitions contributed GBP135.6m to revenue and GBP19.1m to
operating profit.
If the acquisitions had occurred on 1 January 2017 the estimated
revenue and operating profit of the Group would have amounted to
GBP2,493.9m and GBP298.3m respectively.
20. Related party transactions
The Group operates in a number of joint ventures and associate
entities. All transactions between these entities and the Group
were transacted at arm's length during the ordinary course of
business and have been eliminated on consolidation.
CWS-boco became a part of the Group as a joint venture on 30
June 2017. The value of transactions and outstanding balances are
shown below. There are no significant transactions between
associates and other Group companies.
Transaction values for the year ended 31 December Balance outstanding as at 31 December
========================= ================================================== =======================================
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
========================= ======================== ======================== =================== ==================
Sales of goods and
services 10.2 - 2.0 -
Purchase of goods and
services 0.5 - 0.1 -
========================= ======================== ======================== =================== ==================
The Group bears the costs of administration and independent
pension advice of the Rentokil Initial 2015 Pension Scheme. The
total amount of costs in the year ended 31 December 2017 was
GBP1.1m (2016: GBP1.9m) of which GBP0.2m (2016: GBP0.2m) was
recharged to the scheme.
21. Events occurring after the balance sheet date
There were no significant post balance sheet events affecting
the Group since 31 December 2017.
22. Alternative performance measures
Definitions and reconciliation of non-GAAP measures to GAAP
measures
The Group uses a number of measures to present the financial
performance of the business which are not GAAP measures as defined
under IFRS. Management believes these measures provide valuable
additional information for users of the financial statements in
order to understand the underlying trading performance. The Group's
internal strategic planning process is also based on these measures
and they are used for incentive purposes. They should be viewed as
complements to, and not replacements for, the comparable GAAP
measures.
Constant exchange rates (CER)
Given the international nature of the Group's operations,
foreign exchange movements can have a significant impact on the
reported results of the Group when they are translated into
sterling (the functional reporting currency of the Group). In order
to help understand the underlying trading performance of the
business, unless otherwise stated, percentage movements for revenue
and profit measures are presented at constant exchange rates (CER).
Constant exchange rates are calculated by retranslating current
year reported numbers at the full year average exchange rates for
the prior year, in order to give management and other users of the
accounts better visibility of underlying trading performance
against the prior period. The major exchange rates used are GBP/$
FY 2017 1.2968 (FY 2016 1.3556) and GBP/EUR FY 2017 1.1461 (FY 2016
1.2299). Comparisons are to the year ended 31 December 2016 (2016)
unless otherwise stated.
Ongoing Revenue and Ongoing Operating Profit
Ongoing Revenue and Ongoing Operating Profit represent the
performance of the continuing operations of the Group (including
acquisitions) after removing the effect of disposed or closed
businesses. Ongoing Operating Profit is an adjusted measure and is
presented before amortisation and impairment of intangible assets
(excluding computer software), one-off items and net profit on
disposal of businesses (see below).
Ongoing measures enable the users of the accounts to focus on
the performance of the businesses retained by the Group and that
will therefore contribute to the future performance. Ongoing
Revenue and Ongoing Operating Profit are presented at CER unless
otherwise stated. A reconciliation of Ongoing Revenue and Ongoing
Operating Profit measures to the equivalent GAAP measure is
provided in the table below and in the segmental analysis in Note
2.
Adjusted profit and earnings per share measures
Adjusted profit measures are used to give management and other
users of the accounts a clear understanding of the underlying
profitability of the business over time. Adjusted profit measures
are calculated by adding the following items back to the equivalent
GAAP profit measure:
-- Amortisation and impairment of intangible assets (excluding computer software)
-- One-off items (operating and associates)
-- Net profit on disposal of businesses
-- Depreciation on held-for-sale assets
-- Net interest credit from pensions
Intangible assets (excluding computer software) are recognised
on the acquisition of businesses which, by their nature, can vary
by size and amount each year. As a result, amortisation of
intangibles is added back to assist with the understanding of the
underlying trading performance of the business and to allow
comparability across regions and categories.
One-off items are significant expenses or income which will have
a distortive impact on the underlying profitability of the Group.
Typical examples are costs related to the acquisition of businesses
(including aborted acquisitions), gain or loss on disposal or
closure of a business, material gains or losses on disposal of
fixed assets, adjustments to legacy property-related provisions
(vacant property and environmental liabilities), and payments or
receipts as a result of legal disputes. Similar adjustments where
appropriate are also made to the share of profits from
associates.
The net profit on disposal of businesses of GBP449.0m has been
separately presented on the face of the profit and loss below
operating profit.
In addition, following the announcement of the Joint Venture
with Haniel in December 2016 the assets of the businesses being
contributed into the JV were reported as 'held for sale'. In
accordance with IFRS 5, - Non-current Assets Held for Sale and
Discontinued Operations - the assets were not depreciated from that
point which has increased the profitability of the disposed
businesses by GBP38.5m in the year. In order to avoid this
distorting the underlying performance of the business the
non-depreciation benefit has been added back in arriving at our
adjusted profit measures.
22. Alternative performance measures (continued)
Prior to 2016 restructuring costs were an adjustment in arriving
at adjusted profit measures. Although they are no longer adjusted
for, they are presented in the segmental analysis in order to
provide comparability.
Adjusted earnings per share is calculated by dividing adjusted
profit from continuing operations attributable to equity holders of
the Company by the weighted average number of ordinary shares in
issue. Note 6 shows the adjustments made in arriving at adjusted
profit from continuing operations attributable to equity holders of
the Company.
A reconciliation of non-GAAP measures to the comparable GAAP
equivalents is provided below at both AER and CER:
% change
========
2017 2017 2016
AER CER
GBPm GBPm GBPm AER CER
========
Ongoing Revenue 2,203.8 2,093.0 1,827.5 20.6% 14.5%
Revenue - disposed
and closed businesses(2) 208.5 195.0 340.6 (38.8%) (42.7%)
============================ ======== ======== ======== ======== ========
Revenue 2,412.3 2,288.0 2,168.1 11.3% 5.5%
============================ ======== ======== ======== ======== ========
Ongoing Operating
Profit 294.6 275.4 240.2 22.8% 14.8%
Operating Profit
- disposed and
closed businesses 58.4 55.0 44.2 32.1% 24.4%
============================ ======== ======== ======== ======== ========
Operating profit
- continuing operations 353.0 330.4 284.4 24.2% 16.3%
============================ ======== ======== ======== ======== ========
Depreciation -
held-for-sale assets (38.5) (36.4) - - -
============================ ======== ======== ======== ======== ========
Adjusted Operating
Profit 314.5 294.0 284.4 10.7% 3.5%
============================ ======== ======== ======== ======== ========
One-off items -
Operating (6.8) (6.6) (8.6) 19.5% 23.2%
Depreciation -
held-for-sale assets 38.5 36.4 - - -
Amortisation and
impairment of intangible
assets (53.8) (51.5) (43.4) (24.5%) (19.2%)
============================ ======== ======== ======== ======== ========
Operating profit 292.4 272.3 232.4 25.8% 17.2%
============================ ======== ======== ======== ======== ========
Profit on disposal
of businesses 449.0 465.7 - - -
Share of profit
from associates
(net of tax) 8.3 8.0 6.2 34.2% 29.8%
Net interest payable
(excluding pensions) (42.9) (40.7) (38.5) (11.4%) (5.7%)
Net interest credit
from pensions 6.8 6.8 8.4 (19.0%) (19.0%)
============================ ======== ======== ======== ======== ========
Profit before tax 713.6 712.1 208.5 242.3% 241.5%
============================ ======== ======== ======== ======== ========
Net interest credit
from pensions (6.8) (6.8) (8.4) (19.0%) (19.0%)
One-off items -
operating 6.8 6.6 8.6 19.5% 23.2%
One-off items -
associates(1) 7.0 6.5 - - -
Profit on disposal
of businesses (449.0) (465.7) - - -
Depreciation -
held-for-sale assets (38.5) (36.4) - - -
Amortisation and
impairment of intangible
assets 53.8 51.5 43.4 (24.5%) (19.2%)
============================ ======== ======== ======== ======== ========
Adjusted profit
before tax 286.9 267.8 252.1 13.8% 6.2%
============================ ======== ======== ======== ======== ========
Basic earnings
per share 37.21p 37.23p 9.19p 304.9% 305.1%
Basic adjusted
earnings per share 12.19p 11.29p 10.73p 13.6% 5.2%
============================ ======== ======== ======== ======== ========
1. Rentokil Initial Group's post tax share of one-off items and
amortisation of intangibles of the CWS-boco International GmbH
associated undertaking.
2. Includes revenue of GBP8.8m (2016: GBPnil) from product sales
by the Group to CWS-boco International GmbH. Prior to 30th June
2017, this revenue was classified as intergroup revenue and
eliminated on consolidation
Organic Revenue Measures
Acquisitions are a core part of the Group's growth strategy.
Organic Revenue growth measures are used to help understand the
underlying performance of the Group. Organic Revenue growth
represents the growth in Ongoing Revenue excluding the effect of
businesses acquired during the year. Acquired businesses are
included in organic measures in the year following acquisition, and
the comparative period is adjusted to include an estimated full
year performance for growth calculations (pro forma revenue).
UK and North
Europe ROW Asia America Pacific Total
GBPm % GBPm % GBPm % GBPm % GBPm % GBPm %
---------------- ------ ---- ------ ---- ------ ----- ------ ----- ------ ---- -------- -----
2016 Ongoing
Revenue
(as reported) 518.7 - 346.7 - 130.4 - 680.4 - 151.3 - 1,827.5 -
Pro forma
revenue
from 2016
and 2017
acquisitions 22.8 4.4 18.8 5.4 38.8 29.7 110.8 16.3 5.2 3.5 196.4 10.7
Organic
Revenue
growth 15.1 2.9 4.9 1.4 9.9 7.6 32.8 4.8 6.4 4.2 69.1 3.8
---------------- ------ ---- ------ ---- ------ ----- ------ ----- ------ ---- -------- -----
2017 Ongoing
Revenue
(as reported) 556.6 7.3 370.4 6.8 179.1 37.3 824.0 21.1 162.9 7.7 2,093.0 14.5
---------------- ------ ---- ------ ---- ------ ----- ------ ----- ------ ---- -------- -----
Protect
Pest Control Hygiene & Enhance Total
GBPm % GBPm % GBPm % GBPm %
---------------------- -------- ----- ------ ---- ------ ------ -------- -----
2016 Ongoing Revenue
(as reported) 1,094.5 - 374.0 - 359.0 - 1,827.5 -
Pro forma revenue
from 2016 and 2017
acquisitions 170.2 15.6 20.8 5.5 5.4 1.6 196.4 10.7
Organic growth 63.7 5.8 7.7 2.1 (2.3) (0.7) 69.1 3.8
---------------------- -------- ----- ------ ---- ------ ------ -------- -----
2017 Ongoing Revenue
(as reported) 1,328.4 21.4 402.5 7.6 362.1 0.9 2,093.0 14.5
---------------------- -------- ----- ------ ---- ------ ------ -------- -----
22. Alternative performance measures (continued)
Segmental analysis
Segmental information has been presented in accordance with IFRS
8 Operating Segments (Note 2). The "Geographic" reporting segments
reflect the internal management organisation and reporting
structure of the Group. The "Category" reporting segment has been
revised in 2017 and now combines with the quadrant analysis to give
new operational categories of Pest Control, Hygiene, and Protect
& Enhance (made up of the businesses of workwear, plants and
property care).
Segmental analysis is presented at CER unless otherwise
stated.
Regional Analysis
Ongoing Operating
Ongoing Revenue Profit
===================== ==================================== ================================
Change Change
from from
2017 FY 2016 2017 FY 2016
===================== ================== ================ ================ ==============
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
===================== ======== ======== ======= ======= ======= ======= ====== ======
France 294.7 274.6 8.6 1.2 44.1 41.1 (0.5) (7.2)
Benelux 85.8 79.9 7.7 0.4 25.2 23.5 7.9 0.6
Germany 83.2 78.0 16.1 8.6 25.2 23.6 12.7 5.5
Southern Europe 96.9 90.3 38.6 29.1 14.8 13.7 23.3 14.9
Latin America 37.4 33.8 43.8 30.1 4.6 4.2 16.6 6.7
===================== ======== ======== ======= ======= ======= ======= ====== ======
Total Europe 598.0 556.6 15.3 7.3 113.9 106.1 7.5 0.2
===================== ======== ======== ======= ======= ======= ======= ====== ======
UK & Ireland 247.1 245.6 4.8 4.2 48.9 47.6 7.0 4.0
Rest of World 133.5 124.8 20.3 12.5 31.2 29.2 17.1 9.7
===================== ======== ======== ======= ======= ======= ======= ====== ======
UK & Rest of
World 380.6 370.4 9.8 6.8 80.1 76.8 10.7 6.1
===================== ======== ======== ======= ======= ======= ======= ====== ======
Asia 187.8 179.1 44.0 37.3 19.4 18.7 44.2 39.5
North America 862.1 824.0 26.7 21.1 116.9 111.7 27.4 21.7
Pacific 175.3 162.9 15.8 7.7 37.8 35.2 17.8 9.6
Central and
regional overheads - - - - (66.2) (66.2) 2.1 2.2
Restructuring
costs - - - - (7.3) (6.9) 9.4 13.2
Ongoing operations 2,203.8 2,093.0 20.6 14.5 294.6 275.4 22.8 14.8
===================== ======== ======== ======= ======= ======= ======= ====== ======
Disposed businesses 208.5 195.0 (38.8) (42.7) 58.4 55.0 32.1 24.4
===================== ======== ======== ======= ======= ======= ======= ====== ======
Continuing
operations 2,412.3 2,288.0 11.3 5.5 353.0 330.4 24.2 16.3
===================== ======== ======== ======= ======= ======= ======= ====== ======
Depreciation
- held for
sale - - - - (38.5) (36.4) - -
===================== ======== ======== ======= ======= ======= ======= ====== ======
Adjusted -
Continuing
operations 2,412.3 2,288.0 11.3 5.5 314.5 294.0 10.7 3.5
===================== ======== ======== ======= ======= ======= ======= ====== ======
Category Analysis(1)
Ongoing Operating
Ongoing Revenue Profit
===================== ==================================== ==================================
Change Change
from from
2017 FY 2016 2017 FY 2016
===================== ================== ================ ================ ================
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
===================== ======== ======== ======= ======= ======= ======= ======= =======
Pest Control 1,396.6 1,328.4 27.6 21.4 252.0 239.8 24.1 18.1
- Growth 1,194.3 1,137.0 22.8 16.9 221.1 210.3 19.5 13.7
- Emerging 202.3 191.4 66.1 57.1 30.9 29.5 70.5 62.8
Hygiene 424.3 402.5 13.4 7.6 75.3 71.4 15.6 9.7
Protect &
Enhance 382.9 362.1 6.6 0.9 40.8 37.3 (13.9) (21.2)
Central and
regional overheads - - - - (66.2) (66.2) 2.1 2.2
Restructuring
costs - - - - (7.3) (6.9) 9.4 13.2
Ongoing operations 2,203.8 2,093.0 20.6 14.5 294.6 275.4 22.8 14.8
===================== ======== ======== ======= ======= ======= ======= ======= =======
Disposed businesses 208.5 195.0 (38.8) (42.7) 58.4 55.0 32.1 24.4
===================== ======== ======== ======= ======= ======= ======= ======= =======
Continuing
operations 2,412.3 2,288.0 11.3 5.5 353.0 330.4 24.2 16.3
===================== ======== ======== ======= ======= ======= ======= ======= =======
Depreciation
- held for
sale - - - - (38.5) (36.4) - -
===================== ======== ======== ======= ======= ======= ======= ======= =======
Adjusted -
Continuing
operations 2,412.3 2,288.0 11.3 5.5 314.5 294.0 10.7 3.5
===================== ======== ======== ======= ======= ======= ======= ======= =======
1 The "Category" reporting segment has been revised in 2017,
this table is restated
22. Alternative performance measures (continued)
Operating Margin
Operating Margin is calculated by dividing Ongoing Operating
Profit by Ongoing Revenue, expressed as a percentage. Net operating
margin by region and category is shown in the tables below:
2017 2016 Variance
% % % points
========================== ===== ===== ==========
France 15.0 16.3 (1.3)
Benelux 29.4 29.3 0.1
Germany 30.4 31.3 (0.9)
Southern Europe 15.2 17.1 (1.9)
Latin America 12.4 15.1 (2.7)
========================== ===== ===== ==========
Total Europe 19.1 20.4 (1.3)
========================== ===== ===== ==========
UK & Ireland 19.4 19.4 -
Rest of World 23.4 24.0 (0.6)
========================== ===== ===== ==========
UK & Rest of World 20.7 20.9 (0.2)
========================== ===== ===== ==========
Asia 10.5 10.3 0.2
North America 13.6 13.5 0.1
Pacific 21.6 21.2 0.4
Ongoing operations(1) 13.2 13.1 0.1
========================== ===== ===== ==========
Disposed businesses 9.5 13.0 (3.5)
========================== ===== ===== ==========
Continuing operations(1) 12.9 13.1 (0.2)
========================== ===== ===== ==========
2017 2016 Variance
% % % points
========================== ===== ===== ==========
Pest Control 18.1 18.6 (0.5)
- Growth 18.5 19.0 (0.5)
- Emerging 15.4 14.9 0.5
Hygiene 17.7 17.4 0.3
Protect & Enhance 10.3 13.2 (2.9)
Ongoing operations(1) 13.2 13.1 0.1
========================== ===== ===== ==========
Disposed businesses 9.5 13.0 (3.5)
========================== ===== ===== ==========
Continuing operations(1) 12.9 13.1 (0.2)
========================== ===== ===== ==========
(1) Operating Margin for ongoing operations and continuing
operations is calculated after central and regional overheads and
restructuring costs
Free Cash Flow
The Group aims to generate sustainable cash flow (Free Cash
Flow) in order to support its acquisition programme and to fund
dividend payments to shareholders. Free Cash Flow is measured as
net cash from operating activities, adjusted for cash flows related
to the purchase and sale of property, plant, equipment and
intangible fixed assets, and dividends received from associates.
These items are considered by management to be non-discretionary,
as continued investment in these assets is required to support the
day-to-day operations of the business. A reconciliation of Free
Cash Flow from Net Cash from Operating Activities is provided in
the table below:
2017 2016
AER AER
GBPm GBPm
==================================== ======== ========
Net cash from operating activities 379.8 361.2
Purchase of property, plant,
equipment and intangible fixed
assets (193.4) (207.2)
Leased property, plant and
equipment (18.7) (14.6)
Proceeds from sale of property,
plant, equipment and software 4.9 6.3
Dividends received from associates 3.2 10.3
==================================== ======== ========
Free Cash Flow 175.8 156.0
==================================== ======== ========
Free Cash Flow - continuing
operations 175.8 156.4
Free Cash Flow - discontinued
operations - (0.4)
==================================== ======== ========
22. Alternative performance measures (continued)
Adjusted Free Cash Flow Conversion
Adjusted Free Cash Flow Conversion is calculated by dividing
Adjusted Profit from continuing operations attributable to equity
holders of the Company (further adjusted for any post tax profits
and one-offs from the CWS-boco International GmbH associate) by
Adjusted Free Cash Flow, expressed as a percentage. Adjusted Free
Cash Flow is measured as Free Cash Flow adjusted for one-off items
- operating and product development additions.
2017 2016
AER AER
GBPm GBPm
=========================================== ====== ======
Adjusted profit after tax from continuing
operations attributable to equity
holders of the Company 223.6 195.9
Share of profit of CWS-boco International
GmbH associate (net of tax) (1.3) -
One-off items - associates (7.0) -
=========================================== ====== ======
215.3 195.9
=========================================== ====== ======
Free Cash Flow from continuing operations 175.8 156.0
One-off items - operating 6.8 8.6
Product development additions 4.7 6.0
=========================================== ====== ======
187.3 170.6
=========================================== ====== ======
Adjusted Free Cash Flow conversion 87.0% 87.1%
=========================================== ====== ======
Adjusted Effective Tax Rate
Adjusted Effective Tax Rate is calculated by dividing adjusted
income tax expense by adjusted profit before income tax, expressed
as a percentage. The measure is used by management to assess the
rate of tax applied to the Group's adjusted profit before tax from
continuing operations.
2017 2017 2016
AER CER
GBPm GBPm GBPm
=========================================== ====== ====== ======
Unadjusted income tax expense 30.6 29.2 40.7
Tax adjustments on:
Amortisation and impairment of intangible
assets (excluding computer software) 16.6 15.8 14.1
One-off items - operating 5.1 4.7 3.1
Disposal of businesses 5.7 5.4 -
Net interest credit from pensions (1.3) (1.3) (1.6)
US tax reforms - net impact 6.4 6.5 -
Adjusted income tax expense (a) 63.1 60.3 56.3
Adjusted profit before income tax
(b) 286.9 267.8 252.1
=========================================== ====== ====== ======
Adjusted Effective Tax Rate (a/b) 22.0% 22.5% 22.3%
=========================================== ====== ====== ======
23. Legal statements
The financial information for the year ended 31 December 2017
contained in this preliminary announcement was approved by the
Board on 28 February 2018.
The financial information in this statement does not constitute
the company's statutory accounts for the years ended 31 December
2017 or 2016. The financial information for 2016 and 2017 is
derived from the statutory accounts for 2016 (which have been
delivered to the registrar of companies) and 2017 (which will be
delivered to the registrar of companies following the AGM in May
2017). The auditors have reported on the 2016 and 2017 accounts;
their report was (i) unqualified, (ii) did not include a reference
to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and (iii) did not contain
a statement under section 498 (2) or (3) of the Companies Act
2006.
The statutory accounts for 2017 are prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted for
use in the European Union. The accounting policies (that comply
with IFRS) used by Rentokil Initial plc ("the Group") are
consistent with those set out in the 2016 Annual Report. A full
list of policies will be presented in the 2017 Annual Report. For
details of new policies applicable to the Group in 2017 and their
impact please refer to Note 1.
24. 2017 Annual Report
Copies of the 2017 Annual Report will be sent to shareholders
who have elected to receive hard copies on 5 April 2018 and will
also be available from the company's registered office at
Riverbank, Meadows Business Park, Blackwater, Camberley, Surrey,
GU17 9AB and at www.rentokil-initial.com in PDF format.
25. Financial calendar
The Annual General Meeting will be held at the Hilton Hotel
(Ascot Suite), Gatwick Airport, South Terminal, Crawley, West
Sussex, RH6 0LL on Wednesday 9 May 2018 at 12 noon.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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