Final Results
Rentokil Initial PLC
27 February 2003
Date 27th February 2003
Rentokil Initial Preliminary Results for the Year
to 31st December 2002
New Chief Executive completes business review and implements management
restructuring
New Chief Executive James Wilde said today:
'I am pleased to report our 2002 preliminary results and the implementation of
the most significant management restructuring in twenty years, following the
business review that I conducted during the second half of last year. This new
structure will provide the platform for continued growth, tighter operational
control and any further changes that I may make.'
* Turnover increased to £2,339.5m. Up 4.3% at actual rates
and up by 6.3% at constant average exchange rates
for 2002.
* Profits before tax increased to £390.3m. Up 4.3% at actual rates and
up by 6.7% at constant average exchange rates for
2002.
* Very strong operating cash flow at £243.1m.
* Earnings per share up 12.8% to 15.00p.
* Full year dividend per share up 10.6% to 5.53p.
* Excellent performances in Security and Parcels Delivery.
* Major improvement in Facilities Management resulting from success
of multi-service strategy.
* Strong performance across Continental Europe.
* Increased investment in sales and marketing to drive continuing
organic growth.
* New, service-based, sector management structure implemented.
* Company aims for strong growth in earnings per share for 2003.
The results for 2002 were:-
Turnover increased by 4.3% to £2,339.5m but by 6.3% at constant average exchange
rates for 2002. At constant average exchange rates for 2001 turnover growth
would have been 7.9%, differences on exchange costing £80.8m.
Profits before tax increased by 4.3% to £390.3m but by 6.7% at constant average
exchange rates for 2002. At constant average exchange rates for 2001, growth in
profits before tax would have been 8.7%, differences on exchange costing £16.4m.
Earnings per share increased by 12.8% to 15.00p, benefiting from the good
increase in profits, the strong cash flow, the lower tax charge and the share
buy-back programme.
Dividend The Board has proposed a 10.6% increase in the final dividend to 3.95p
per share, giving a full year dividend of 5.53p per share, an increase of 10.6%
over 2001.
Segmental Commentary (at constant average exchange rates for 2002)
As a result of the strategic restructuring of the business in 2000, which was
partly designed to minimise the exposure to cyclical businesses, the company's
activities are exhibiting good resilience to the current downturn in the world's
economies.
Hygiene Services was up by 3.8% in turnover at £697.6m and 2.4% in operating
profits at £197.8m. Continental Europe was up 8.2% in turnover at £425.0m, with
particularly strong performances in France and the Netherlands and good
performances in Italy, Spain and Switzerland. UK turnover was down by 3.3% at
£188.8m, North America down 5.8% at £6.7m and Asia Pacific and Africa up by 0.4%
at £77.1m with a particularly good performance in Indonesia.
Security Services turnover was up 10.2% at £554.4m with operating profits up by
6.5% to £52.2m. Continental Europe turnover was up 10.0% at £130.5m with an
excellent performance in France and a good improvement in Belgium. North America
turnover was up by 13.8% at £163.3m with continued excellent growth in manned
guarding contracts in the USA. UK turnover was up by 8.1% at £260.6m.
Pest Control Services turnover was up by 3.8% at £211.2m and operating profits
up by 4.1% at £79.0m. UK turnover was up by 1.0% at £68.8m and Continental
Europe up by 5.2% at £94.6m, with good performances in Italy, the Netherlands,
Belgium, and Spain. North America turnover was up by 6.1% at £16.5m and Asia
Pacific and Africa turnover up by 4.4% at £31.3m, with strong performances in
Malaysia and Thailand.
Tropical Plants turnover fell by 2.3% to £119.6m and operating profits by 9.5%
to £20.9m. North America turnover was down by 6.5% at £70.7m with disappointing
levels of festive season activity. Continental Europe turnover was up by 12.9%
at £27.2m with good performances in Norway and Belgium. UK turnover was down by
1.9% to £13.0m. Asia Pacific and Africa turnover was down by 7.0% at £8.7m.
Conferencing turnover grew by 3.9% to £77.6m with operating profits down by 3.6%
to £26.8m reflecting lower levels of occupancy and customers' discretionary
spending, especially over the Christmas period.
Parcels Delivery turnover was up by 15.0% at £189.0m with operating profits up
by 15.7% at £28.8m. UK performed strongly with turnover up by 13.1% to £182.9m
due to gains in market share but, as explained at the half year, the turnover
contribution from our Southern African business was reduced to £6.1m, in spite
of a strong performance measured in local currency. This arises from the major
difference in the exchange rates used for the full year 2002 to those for the
full year 2001.
Facilities Management showed a major improvement over 2001 with turnover growing
by 6.2% to £490.1m, benefiting from the impact of new multi-service contracts,
with operating profits, as expected, growing somewhat slower (at 2.0%) to
£36.2m.
Geographic Commentary (at constant average exchange rates for 2002)
UK turnover grew by 5.6% to £1,153.4m and operating profits by 1.0% to £225.2m.
Hygiene turnover was down by 3.3% at £188.8m, Security up by 8.1% to £260.6m,
Tropical Plants down by 1.9% at £13.0m, Pest Control up by 1.0% to £68.8m,
Conferencing up by 3.9% to £77.6m, with Facilities Management improving strongly
over 2001 and excellent growth from Parcels Delivery.
Continental Europe turnover was up by 7.7% to £722.1m and operating profits by
6.3% to £151.9m. Hygiene turnover was up by 8.2% to £425.0m, Security up 10.0%
to £130.5m, Tropical Plants up by 12.9% to £27.2m and Pest Control up by 5.2% to
£94.6m.
North America turnover was up by 6.3% to £334.4m and operating profits up by
1.0% to £20.5m. Hygiene turnover was down by 5.8% to £6.7m, Security turnover
was up by 13.8% to £163.3m, Tropical Plants was down by 6.5% to £70.7m and Pest
Control up by 6.1% to £16.5m.
Asia Pacific and Africa turnover was up by 4.0% to £129.6m and operating profits
up by 2.3% to £44.1m. Hygiene turnover was up by 0.4% to £77.1m, Tropical Plants
turnover down by 7.0% to £8.7m, with Pest Control turnover up by 4.4% to £31.3m
and a strong performance in Parcels Delivery.
Cash Flow before acquisitions, disposals, dividends and share buy-backs, has
been very strong at £243.1m.
Borrowings Net borrowings at the year end were £1,260.4m.
Tax The introduction of FRS19 (Deferred Tax) has had no material effect on the
results of the company. The tax charge for the full year was 26.8%, a rate which
should be sustainable for the foreseeable future.
Acquisitions Twelve bolt-on acquisitions were made in 2002 in Hygiene, Security,
Pest Control and Tropical Plants at a total cost of £34.5m, contributing £19.5m
to 2002 turnover.
Disposals In February 2003 the company completed the sale of its non-core,
cash-in-transit operation in Belgium, this business having produced turnover in
2002 of £11.8m.
Share buy-back In 2002 the company purchased 92.4m shares at a cost of £237m.
Pensions Under FRS17 the net pension charge to the profit and loss account would
have been £3.6m compared to the actual 2002 SSAP24 charge of £3.1m. The FRS17
balance sheet position at 31st December 2002 would have shown a net deficit,
after deferred tax, of £109.2m which, given the company's market capitalisation
in excess of £3 billion and compared to UK pension funds generally, is
considered to be a low exposure.
Business Review
Chief Executive James Wilde said:
'The business review that I conducted during the second half of last year has
reinforced my belief that the aim and strategy of the company remain
appropriate. Our shared customer and prospect base, management expertise and
critical mass lead me to believe that each of our businesses will perform better
within Rentokil Initial than elsewhere.
The review identified a number of key factors which will provide a platform for
more effective execution of management action, greater customer focus and
improved sales and service productivity. These changes to the business will put
us in an even stronger position to deliver our aim.
My first major change has been to create a service-based sector management
structure. This replaces the regional structure and is the most significant
management restructuring in twenty years. The rationale behind the new structure
is broadly to group together businesses that provide the same services, or
businesses which have similar operational and market drivers, whilst taking into
account the size of individual sectors and their geographic spread.'
- Key Findings
* The businesses share a common customer and prospect base.
* Groups of businesses share similar key operational and market drivers.
* The businesses need to be more outward facing with better targeted
marketing.
* Further scope exists for sales and service productivity improvements.
* There is a demand for increased use of technology in customer reporting
and quality programmes.
* Benefits will arise from further refinement of the recruitment process
and further development of business-specific training.
* Potential exists for integrating back office functions.
* Opportunities exist for streamlining management reporting.
- Actions
Management Restructuring
The six regions have been replaced with four sectors, each one headed by a
managing director - Edward Brown (Sector 1), Clive Ward (Sector 2), Henri
Hendrickx (Sector 3) and Henry Chandler (Sector 4). As part of this process,
there have been a number of senior management changes including the departure
from the company of two regional managing directors and five senior managers.
The central marketing function has been disbanded and responsibility has been
devolved to each sector to improve marketing effectiveness.
Customer Focus
All businesses are now re-evaluating their sensitivity to changes in their
customers' needs and markets, and are tasked with further development of their
competitive advantages. Furthermore, they will more vigorously review quality
control to ensure consistent, high standards of service delivery.
Sales Productivity
Each sector will identify branches with the highest productivity as the best
practice benchmark. National account sales teams are being strengthened where
appropriate.
Service Productivity
To enhance our competitive advantage the use of technology will be increased to
provide customers with immediate and transparent information on service delivery
and quality control. Sector-based service productivity measurements will be
introduced to bring under-performing branches up to the standards of the best in
their sector.
Recruitment and Training
A greater emphasis will be given to recruitment, in particular of future
management talent and, to reinforce this, the management development director
now reports directly to the chief executive. Our management development training
programmes will be reviewed together with the introduction of further sector and
business-specific training.
Operational Functions
There will be a review of the opportunities that the sector structure brings to
streamline management reporting and integrate back office functions.
Prospects for 2003
Chief Executive James Wilde said:-
'The above changes should continue to drive turnover from organic growth, whilst
maintaining and, where possible, improving profit margins in a low inflation and
increasingly price-competitive environment. We will continue to search for
suitable bolt-on acquisitions, primarily in security and hygiene.
On this basis, we aim for strong growth in turnover, profits before tax and
earnings per share, which could be further enhanced by the continuation, as
planned, of our share buy-back programme.'
For further information:-
James Wilde, Chief Executive
Roger Payne, Finance Director
Charles Grimaldi, Corporate Affairs Director
01342 833022
SEGMENTAL ANALYSIS
Year to 31st Year to 31st
At December 2002 average exchange rates December December
2002 2001
£m £m
Business Turnover
analysis
Hygiene 697.6 672.0
Security 554.4 503.1
Pest Control 211.2 203.5
Tropical Plants 119.6 122.4
Conferencing 77.6 74.7
Parcels Delivery 189.0 164.4
Facilities Management 490.1 461.3
Total at December 2002 average rates 2,339.5 2,201.4
Exchange - 41.0
Total as reported 2,339.5 2,242.4
Operating profit
Hygiene 197.8 193.1
Security 52.2 49.0
Pest Control 79.0 75.9
Tropical Plants 20.9 23.1
Conferencing 26.8 27.8
Parcels Delivery 28.8 24.9
Facilities Management 36.2 35.5
Total at December 2002 average rates 441.7 429.3
Exchange - 7.5
Total as reported 441.7 436.8
Share of profit of other associate 0.3 0.3
Total as reported 442.0 437.1
Geographic Turnover
analysis
United Kingdom 1,153.4 1,092.1
Continental Europe 722.1 670.2
North America 334.4 314.5
Asia, Pacific & Africa 129.6 124.6
Total at December 2002 average rates 2,339.5 2,201.4
Exchange - 41.0
Total as reported 2,339.5 2,242.4
Operating profit
United Kingdom 225.2 223.0
Continental Europe 151.9 142.9
North America 20.5 20.3
Asia, Pacific & Africa 44.1 43.1
Total at December 2002 average rates 441.7 429.3
Exchange - 7.5
Total as reported 441.7 436.8
Share of profit of other associate 0.3 0.3
Total as reported 442.0 437.1
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year to 31st Year to 31st
December December
2002 2001
£m £m
Turnover (including share of associate and franchisees)
Continuing operations 2,320.0 2,242.4
Acquisitions 19.5 -
Turnover (including share of associate and franchisees) 2,339.5 2,242.4
Less:
Share of turnover of associate (18.4) (19.5)
Turnover of franchisees (87.9) (79.0)
Turnover 2,233.2 2,143.9
Operating expenses (1,794.8) (1,710.8)
Operating profit
Continuing operations 435.3 433.1
Acquisitions 3.1 -
438.4 433.1
Share of profit of associates
Mainstream 3.3 3.7
Other 0.3 0.3
Profit on ordinary activities before interest 442.0 437.1
Interest payable (net) (51.7) (62.8)
Profit on ordinary activities before taxation 390.3 374.3
Tax on profit on ordinary activities (104.6) (108.2)
Profit on ordinary activities after taxation 285.7 266.1
Equity minority interests (1.1) (0.9)
Profit for the financial year attributable to shareholders 284.6 265.2
Equity dividends (101.6) (94.9)
Profit retained for the financial year 183.0 170.3
Basic earnings per 1p share 15.00p 13.30p
Diluted earnings per 1p share 14.94p 13.26p
Dividends per 1p share 5.53p 5.00p
Weighted average number of shares (million) 1,897 1,994
Number of shares in issue at period end (million) 1,861 1,950
CONSOLIDATED BALANCE SHEET
At 31st At 31st
December December
2002 2001
£m £m
Fixed assets Intangible assets 177.0 138.4
Tangible assets 624.3 591.3
Investments 157.8 158.5
959.1 888.2
Current assets Stocks 45.4 48.2
Debtors 493.1 488.8
Short term deposits and cash 246.5 389.6
785.0 926.6
Creditors - amounts
falling due within Creditors (719.4) (691.6)
one year Bank and other borrowings (65.0) (371.9)
(784.4) (1,063.5)
Net current assets/(liabilities) 0.6 (136.9)
Total assets less current liabilities 959.7 751.3
Creditors - amounts
falling due after Creditors (9.7) (11.7)
more than one year Bank and other borrowings (1,441.9) (1,144.7)
(1,451.6) (1,156.4)
Provisions for
liabilities and charges Provisions for liabilities and charges (209.7) (236.0)
Net liabilities (701.6) (641.1)
Equity capital Share capital 18.6 19.5
and reserves Share premium account 46.3 41.1
Capital redemption reserve 19.2 18.3
Other reserves 8.2 5.4
Profit and loss account (800.2) (731.0)
Equity shareholders' funds (707.9) (646.7)
Equity minority interests 6.3 5.6
Capital employed (701.6) (641.1)
CONSOLIDATED CASH FLOW STATEMENT
Year to 31st Year to 31st
December December
2002 2001
£m £m
Operating Operating profit 438.4 433.1
activities Depreciation charge 152.4 144.6
Net movement in working capital (14.9) (1.6)
Net cash inflow from operating activities 575.9 576.1
Associates'
dividends Dividends received form associates 2.0 1.1
Returns on Interest received 54.4 33.6
investments and Interest paid (109.2) (93.0)
servicing of finance Interest element of finance leases (2.1) (2.6)
Dividends paid to minority interests (0.6) (0.7)
Net cash outflow from returns on investments and
servicing of finance (57.5) (62.7)
Taxation Tax paid (104.7) (112.1)
Capital Purchase of tangible fixed assets (183.5) (200.3)
expenditure less: financed by leases 11.4 8.0
and financial (172.1) (192.3)
investment Sale of tangible fixed assets 10.9 16.1
Net cash outflow from capital expenditure and
financial investment (161.2) (176.2)
Acquisitions and Purchase of companies and businesses (34.5) (21.1)
disposals Disposal of companies and businesses - 1.9
Net cash outflow from acquisitions and disposals (34.5) (19.2)
Equity
dividends paid Dividends paid to equity shareholders (97.7) (92.3)
Net cash inflow before use of liquid
resources and financing 122.3 114.7
Management of Movement in short term deposits
liquid resources with banks 83.5 (249.4)
Financing Issue of ordinary share capital 5.2 4.4
Own shares purchased (234.6) (277.9)
Net loan movement 297.6 229.0
Capital element of finance lease payments (13.2) (13.5)
Net cash inflow/(outflow) from financing 55.0 (58.0)
Net Cash Increase/(decrease) in net cash in the year 260.8 (192.7)
CONSOLIDATED CASH FLOW STATEMENT
Year to 31st Year to 31st
December December
2002 2001
£m £m
Reconciliation Opening net debt (1,127.0) (962.8)
of movement Increase/(decrease) in net cash in the period 260.8 (192.7)
in net debt Movement in deposits and loans (381.1) 20.4
Finance lease movements 1.8 5.5
Exchange adjustments (14.9) 2.6
Closing net debt (1,260.4) (1,127.0)
RECONCILIATION OF MOVEMENTS
IN EQUITY SHAREHOLDERS' FUNDS
Year to 31st Year to 31st
December December
2002 2001
£m £m
Profit for the financial year 284.6 265.2
Equity dividends (101.6) (94.9)
Profit retained for the financial year 183.0 170.3
New share capital issued 5.2 4.4
Own shares purchased (237.5) (277.9)
Goodwill written back on disposals - (11.5)
Exchange adjustments (11.9) (4.6)
Net change in equity shareholders' funds (61.2) (119.3)
Opening equity shareholders' funds (646.7) (527.4)
Closing equity shareholders' funds (707.9) (646.7)
Notes 1. The profit and loss accounts and the cash flow statements for the year
to 31st December 2002 and 31st December 2001 have been translated at
average exchange rates for the relevant periods. Balance sheets have
been translated at period end exchange rates. The segmental
commentaries are translated at constant 2002 average exchange rates.
2. During the year the company purchased a further 92.4m of its own shares
in the market (representing 4.7% of the company's issued share capital
at 1st January 2002) under the authorities given by shareholders at the
2001 and 2002 annual general meetings. These shares have been or were
being cancelled and their nominal value transferred to the capital
redemption reserve on the balance sheet. These shares have been
excluded in calculating the weighted average number of shares in issue
after the date of their purchase by the company. As at
31st December 2002 authority had been given to purchase a further
250 million shares.
3. Tax comprises UK Corporation Tax (less double taxation relief) of
£32.4m (2001: £37.8m) and overseas tax of £72.2m (2001: £70.4m).
At 26.8% (2001: 28.9%) the company's effective tax rate is 5.5%
(2001:3.5%) below its underlying tax rate based on its geographical
spread of profits, principally as a result of benefiting from tax
losses £1.0m (2001: £2.7m), goodwill amortisation £1.0m (2001: £1.8m),
adjustments in respect of prior periods £19.9m (2001: £7.8m) and other
items £(0.5)m (2001: £0.8m).
Notes (continued)
4. The financial information has been prepared on the basis of the
accounting policies set out in the full year 2001 Annual Report.
During the year the company has adopted Financial Reporting Standard
(FRS) 19
'Deferred Tax' as issued by the Accounting Standards Board (ASB) in
December 2000. Adoption of this FRS had no material financial effect on
the results contained within these financial statements for the year
ended 31st December 2002.
5. The financial information in this statement is not audited and does not
constitute statutory accounts within the meaning of s.240 of the
Companies Act 1985 (as amended).
6. Copies of the Annual Report will be despatched to shareholders and will
also be available from the company's registered office at Felcourt,
East Grinstead, West Sussex, RH19 2JY.
Financial Calendar Final dividend to be paid on 6th June 2003 to shareholders on
the register on 9th May 2003.
Annual Report expected to be despatched to shareholders in
April 2003.
Annual General Meeting at The British Library, 96 Euston
Road, London NW1 2DB on Thursday 29th May 2003 at 10.30am.
This information is provided by RNS
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