Final Results
Rentokil Initial PLC
26 February 2004
26th February 2004
Rentokil Initial plc
Preliminary Results for the Year
to 31st December 2003
Turnover from continuing operations increased 6.9% to £2,471.1m.
Profit before Tax increased 4.7% to £408.5m, before charging £11.7m exceptional
loss on disposal of businesses.
Excellent operating cash flow up 10.8% to £269.3m.
Earnings per share, adjusted for the exceptional loss on disposal of businesses,
up 9.8% to 16.47p with basic earnings per share up 5.5% to 15.83p.
Full year dividend per share up 10.3% to 6.10p.
Strong performances in Security and Parcels Delivery.
The results for 2003 were:-
Turnover from continuing operations increased by 6.9% to £2,471.1m and by 4.8%
at constant 2003 average exchange rates. Total turnover increased by 6.3% to
£2,486.2m and by 4.1% at constant 2003 average exchange rates.
Profit before tax and exceptional loss on disposal of businesses increased by
4.7% to £408.5m and by 0.9% at constant 2003 average exchange rates. Profit
before tax after the exceptional loss on disposal of businesses increased by
1.7% to £396.8m and reduced by 2.0% at constant 2003 average exchange rates.
Earnings per share adjusted for the exceptional loss on disposal of businesses
increased 9.8% to 16.47p with basic earnings per share up 5.5% to 15.83p.
Dividend The Board has proposed a final dividend of 4.35p per share, giving a
full year dividend of 6.10p per share, an increase of 10.3% over 2002.
Segmental Commentary - Continuing Operations (at constant 2003 average exchange
rates)
Hygiene
Total Hygiene turnover grew by 2.0% to £982.5m with operating
profit down by 1.9% to £287.4m.
Hygiene Services was up by 2.0% in turnover at £758.1m and down 3.6% in
operating profit at £202.6m. Continental Europe was up 4.5% in turnover
at £486.8m, with strong performances in France and Portugal, and good
performances in Austria and Denmark but with disappointing trading in
Germany, especially within the hospital linen services division. UK
turnover was down by 3.6% at £181.9m with, as expected, a larger
reduction in operating profit from the lower turnover and increased cost
of management, operational and sales resource during the restructuring
period. Although the turnaround has been slower than expected, the new
management team, which is now in place, is implementing the major
initiatives which are expected to lead to an increase in the annualised
value of contracts towards the end of 2004. North America turnover was
down 4.6% at £6.0m whilst Asia Pacific and Africa increased turnover by
1.8% to £83.4m with excellent performances in Hong Kong and Indonesia
and good performances in Malaysia and South Korea.
Pest Control turnover was up by 1.8% at £224.4m and operating profit up
by 2.5% at £84.8m. UK turnover was up 1.7% at £70.0m and Continental
Europe was up by 2.5% at £106.0m with encouraging performances in most
countries. Asia Pacific and Africa turnover reduced by 0.6% to £32.8m
whilst North America turnover was up by 1.8% at £15.6m.
Security
Security turnover was up 7.2% at £584.0m with operating profit up by
9.4% to £58.1m, the margins improving in both electronic and guarding.
Continental Europe turnover was up 3.9% at £135.3m, with strong
performances in Belgium and France. North America had an excellent
performance with turnover up by 16.6% at £179.4m from a combination of
strong growth in guarding contracts, additional demand for temporary
services, and a useful contribution coming from acquisitions made during
the year. UK turnover was up by 3.4% at £269.3m, which was a good result
within a competitive market, where impending legislative changes will
be, in the long term, to the benefit of our business.
Facilities Management
Total Facilities Management turnover grew by 3.6% to £691.4m, although
operating profit reduced by 5.8% to £79.0m.
Facilities Management Services turnover grew by 4.5% to £493.0m, with
operating profit reduced by 4.7% to £34.8m. The UK had good growth in
turnover but with operating profit showing a small decline due to lower
margins on the net new business wins. A poor performance in North
America, including the loss of some large cleaning contracts, adversely
impacted both turnover and operating profit.
Tropical Plants turnover fell by 4.4% to £112.6m and operating profit by
13.6% to £17.8m, with the level of seasonal activities contributing less
than expected. North America turnover was down by 5.3% at £61.6m and
Continental Europe down by 1.5% at £29.2m. UK turnover fell by 6.5% to
£12.2m. Asia Pacific and Africa turnover was down by 4.9% at £9.6m.
Conferencing turnover grew by 10.6% to £85.8m, largely as a result of
additional capacity, with operating profit down by 1.5% to £26.4m, with
the profitability improving in the second half of the year as the new
centres began to trade profitably and customer demand in the peak
periods improved.
Parcels Delivery
Parcels Delivery turnover was up by 16.2% at £213.2m with operating
profit at £30.9m up by 11.6%. UK turnover grew by 13.9% to £208.3m with
a 5.4% increase in operating profit, the margin impacted by the higher
proportion of non-premium next day consignments.
Geographic Commentary - Continuing Operations (at constant 2003 average exchange
rates)
UK turnover grew by 5.7% to £1,205.4m although operating profit fell by 2.6% to
£219.5m. Total Hygiene turnover was down by 2.2% at £251.9m, Security up by 3.4%
to £269.3m, total Facilities Management up by 8.4% to £475.9m, and Parcels
Delivery up by 13.9% to £208.3m.
Continental Europe turnover was up by 3.7% to £806.3m with operating profit up
2.9% to £171.1m. Total Hygiene turnover was up by 4.1% to £592.7m, Security up
by 3.9% to £135.3m, and total Facilities Management was flat at £78.3m.
North America turnover was up by 4.2% to £324.7m, whilst operating profit
reduced by 11.1% to £16.8m. Total Hygiene turnover was flat at £21.7m, Security
up by 16.6% to £179.4m, and total Facilities Management down by 9.0% to £123.6m.
Asia Pacific and Africa turnover at £134.7m was up by 3.9% and operating profit
up by 2.1% to £48.0m. Total Hygiene turnover was up by 1.1% to £116.2m, total
Facilities Management down by 3.2% to £13.6m, and there was an inflation-driven
performance in our southern Africa Parcels Delivery business.
Total Operating Profit before the exceptional loss on disposal of businesses
increased by 3.1% to £455.5m although decreased by 0.5% at constant 2003 average
exchange rates.
Operating Cash Flow (before management of liquid resources, financing,
dividends, acquisitions, disposals and adjusted for capital expenditure financed
by leases) was excellent at £269.3m, up 10.8% on 2002.
Net Debt
Net debt at the year-end was £1,207.9m, £52.5m lower than 2002 despite £23.1m of
adverse foreign exchange adjustments and £90.7m from the net outflow of share
buy-backs, acquisitions and disposals.
Tax
The profit and loss account tax rate for 2003 was 26.5% compared to 26.8% in
2002.
Acquisitions
Seven bolt-on acquisitions were made in 2003 in Hygiene and Security, and in
addition we entered both the North America and Belgium electronic security
markets with one acquisition in each. The total cost for the nine acquisitions
(with aggregate annualised turnover of circa £35m) was £22.2m, these
contributing £20.9m to 2003 turnover and £1.3m to profit before tax. Since the
year-end we have made three acquisitions in Continental Europe and North America
with annualised turnover of circa £3m.
Disposals
The net loss on the previously reported sale of the Belgian cash-in-transit
business and the recent sale of four small businesses within Facilities
Management (which together had annualised turnover of circa £15m) was £0.2m. In
addition, a review of the deferred payments due from the disposal of businesses
in 2000 has led to a charge of £11.5m, to give a total exceptional loss of
£11.7m.
As part of Ashtead Group Plc's re-financing, interest payments on the £134m
convertible loan note have been deferred until January 2005, although interest
continues to accrue. We continue to closely monitor developments at Ashtead. In
line with the approach taken at the half-year there are, currently, no
intentions to reduce the carrying value of the loan note.
International Financial Reporting Standards
The company is making good progress in preparing for the introduction of
International Financial Reporting Standards with effect from the interim results
for 2005.
Part of this preparation, linked in with the issuance, in November 2003, of
Application Note G as an amendment to FRS 5 (and taking effect from reporting
periods ending on or after 23rd December 2003), has led to a review of the
accounting policy in respect of Turnover. Whilst this has required a
re-statement of the 2002 balance sheet, there was no impact on the 2002 profit
and loss account.
Pensions
The profit and loss account charge, in line with SSAP 24, increased from £3.1m
in 2002 to £4.5m in 2003 and is anticipated to increase to circa £6.7m in 2004.
By incorporating assumptions contained in the 2002 actuarial valuation (in
particular lower mortality and increased inflation rates) these, combined with
the change in bond yields and partially offset by the increase in investment
values, give a post-deferred tax FRS 17 deficit at 31st December 2003 of £131m,
this deficit representing less than 4% of the company's market capitalisation.
Prospects for 2004
Chief Executive James Wilde said:-
'I believe that organic turnover growth is the prime requirement for
profitable growth. We will therefore invest in additional sales
management and sales staff where appropriate and continue technological
developments to improve the productivity and quality of our service
delivery. Recruitment of people for future management positions and
company-wide training will remain key areas of focus.
We will continue the development of our four markets, Hygiene, Security,
Facilities Management and Parcels Delivery. The main emphasis will be
concentrated on Hygiene and Security within Continental Europe, where
there is a good opportunity to replicate the density and coverage of our
UK operations.
In the past year, the restructuring and ongoing initiatives have been
aimed at improving organic growth rates within an increasingly
price-competitive environment.
Progress in 2003 has been slower than expected, especially in our higher
margin businesses, so that, in 2004, whilst we aim for good growth in
turnover, margins are likely to be impacted by the pricing levels of net
new business gains, the faster growth in our lower margin businesses and
the investments outlined above.
Bolt-on acquisitions will be targeted to supplement our organic growth,
financed by the generation of strong cash flow.
In 2004, we are planning for an increase of at least 10% in the full
year dividend per share.
I firmly believe that Rentokil Initial is now much stronger and better
positioned such that the initiatives already taken, and those planned
for 2004, should lead to a strong performance in 2005 and beyond with an
improving turnover growth rate, especially in our higher margin
businesses.'
For further information:-
James Wilde, Chief Executive
Roger Payne, Finance Director
Charles Grimaldi, Corporate Affairs Director
Telephone: 01342 833022
Webcast
There will be a live audio/slide webcast of our 2003 Preliminary Results
presentation on February 26th, 2004 starting at 9:00 am (UK time). Additionally,
an on-demand version of the webcast will be available from 1:30 pm on February
26th for several weeks.
To access the webcast, please visit the investor centre on our corporate website
www.rentokil-initial.com.
Conference Call
A Conference Call with James Wilde, Chief Executive, and Roger Payne, Finance
Director, is scheduled for 3:00 pm (UK time) on February 26th, 2004.
Please dial + 44 (0) 20 7162 0180 and quote 'Rentokil' to access this live
facility.
SEGMENTAL ANALYSIS
Year to 31st Year to 31st
December December
2003 2002
£m £m
Business Turnover
analysis
Continuing operations at 2003 average exchange rates:
Hygiene Services 758.1 743.0
Pest Control 224.4 220.5
Hygiene 982.5 963.5
Security 584.0 544.7
Facilities Management Services 493.0 471.7
Tropical Plants 112.6 117.8
Conferencing 85.8 77.6
Facilities Management 691.4 667.1
Parcels Delivery 213.2 183.5
Total continuing operations at 2003 average exchange rates 2,471.1 2,358.8
Exchange - (48.0)
Continuing operations at reported exchange rates 2,471.1 2,310.8
Discontinued operations 15.1 28.7
Total as reported (including share of associate and franchisees) 2,486.2 2,339.5
Operating profit
Continuing operations at 2003 average exchange rates:
Hygiene Services 202.6 210.2
Pest Control 84.8 82.7
Hygiene 287.4 292.9
Security 58.1 53.1
Facilities Management Services 34.8 36.5
Tropical Plants 17.8 20.6
Conferencing 26.4 26.8
Facilities Management 79.0 83.9
Parcels Delivery 30.9 27.7
Total continuing operations at 2003 average exchange rates 455.4 457.6
Exchange - (15.7)
Continuing operations at reported exchange rates 455.4 441.9
Discontinued operations (0.3) (0.2)
Share of profit of other associate 0.4 0.3
Total as reported 455.5 442.0
SEGMENTAL ANALYSIS
Year to 31st Year to 31st
December December
2003 2002
£m £m
Geographic Turnover
analysis
Continuing operations at 2003 average exchange rates:
United Kingdom 1,205.4 1,140.0
Continental Europe 806.3 777.7
North America 324.7 311.5
Asia Pacific & Africa 134.7 129.6
Total continuing operations at 2003 average exchange rates 2,471.1 2,358.8
Exchange - (48.0)
Continuing operations at reported exchange rates 2,471.1 2,310.8
Discontinued operations 15.1 28.7
Total as reported (including share of associate and franchisees) 2,486.2 2,339.5
Operating profit
Continuing operations at 2003 average exchange rates:
United Kingdom 219.5 225.4
Continental Europe 171.1 166.3
North America 16.8 18.9
Asia Pacific & Africa 48.0 47.0
Total continuing operations at 2003 average exchange rates 455.4 457.6
Exchange - (15.7)
Continuing operations at reported exchange rates 455.4 441.9
Discontinued operations (0.3) (0.2)
Share of profit of other associate 0.4 0.3
Total as reported 455.5 442.0
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year to 31st Year to 31st
December December
2003 2002
£m £m
Turnover (including share of associate and franchisees)
Continuing operations 2,450.2 2,310.8
Acquisitions 20.9 -
Continuing operations 2,471.1 2,310.8
Discontinued operations 15.1 28.7
Turnover (including share of associate and franchisees) 2,486.2 2,339.5
Less:
Share of turnover of associate (all continuing) (18.7) (18.4)
Turnover of franchisees (all continuing) (101.2) (87.9)
Group turnover 2,366.3 2,233.2
Operating expenses (1,914.4) (1,794.8)
Operating profit
Continuing operations 450.3 438.6
Acquisitions 1.9 -
Continuing operations 452.2 438.6
Discontinued operations (0.3) (0.2)
Group operating profit 451.9 438.4
Share of profit of associates (all continuing)
Mainstream 3.2 3.3
Other 0.4 0.3
Total Operating Profit 455.5 442.0
Loss on disposal of businesses (exceptional item - note 3) (11.7) -
Profit on ordinary activities before interest 443.8 442.0
Interest payable (net) (47.0) (51.7)
Profit on ordinary activities before taxation 396.8 390.3
Tax on profit on ordinary activities (105.2) (104.6)
Profit on ordinary activities after taxation 291.6 285.7
Equity minority interests (1.5) (1.1)
Profit for the financial year attributable to shareholders 290.1 284.6
Equity dividends (110.1) (101.6)
Profit retained for the financial year 180.0 183.0
Basic earnings per 1p share 15.83p 15.00p
Adjusted earnings per 1p share 16.47p 15.00p
Diluted earnings per 1p share 15.81p 14.94p
Dividends per 1p share 6.10p 5.53p
Weighted average number of shares (million) 1,833 1,897
Number of shares in issue at period end (million) 1,824 1,861
CONSOLIDATED BALANCE SHEET
At 31st At 31st
December December
2003 2002
£m £m
(restated)
Fixed assets Intangible assets 195.7 177.0
Tangible assets 662.8 624.3
Investments 23.7 23.8
882.2 825.1
Current assets Stocks 45.2 45.4
Debtors - due within one year 451.8 450.7
Debtors - due after more than one year 167.6 176.4
Short term deposits and cash 272.8 246.5
937.4 919.0
Creditors - amounts
falling due within Creditors (754.9) (737.9)
one year Bank and other borrowings (82.9) (65.0)
(837.8) (802.9)
Net current assets 99.6 116.1
Total assets less current liabilities 981.8 941.2
Creditors - amounts
falling due after Creditors (10.4) (9.7)
more than one year Bank and other borrowings (1,397.8) (1,441.9)
(1,408.2) (1,451.6)
Provisions for
liabilities and charges Provisions for liabilities and charges (186.2) (206.9)
Net liabilities (612.6) (717.3)
Equity capital Called up share capital 18.2 18.6
and reserves Share premium account 49.2 46.3
Capital redemption reserve 19.6 19.2
Other reserves 8.9 8.2
Profit and loss account (715.0) (815.9)
Equity shareholders' funds (619.1) (723.6)
Equity minority interests 6.5 6.3
Capital employed (612.6) (717.3)
EARNINGS PER SHARE
Year to 31st Year to 31st
December December
2003 2002
Basic earnings Profit attributable to shareholders £290.1m £284.6m
per share Weighted average number of shares 1,832.6m 1,897.3m
Basic earnings per share 15.83p 15.00p
Adjusted earnings Profit attributable to shareholders £290.1m £284.6m
per share Add back loss on disposal of businesses (note 3) £11.7m -
Adjusted profit attributable to shareholders £301.8m £284.6m
Weighted average number of shares 1,832.6m 1,897.3m
Adjusted earnings per share 16.47p 15.00p
Diluted earnings Profit attributable to shareholders £290.1m £284.6m
per share Weighted average number of shares 1,832.6m 1,897.3m
Effect of share options 2.5m 7.3m
Adjusted average number of shares 1,835.1m 1,904.6m
Diluted earnings per share 15.81p 14.94p
CONSOLIDATED CASH FLOW STATEMENT
Year to 31st Year to 31st
December December
2003 2002
£m £m
Operating Operating profit 451.9 438.4
activities Depreciation charge (net of recovery on disposals) 157.0 152.4
Net movement in working capital 1.4 (14.9)
Net cash inflow from operating activities 610.3 575.9
Associates'
dividends Dividends received from associates 1.3 2.0
Returns on Interest received 49.3 54.4
investments and Interest paid (104.7) (109.2)
servicing of finance Interest element of finance lease payments (1.9) (2.1)
Dividends paid to minority interests (0.6) (0.6)
Net cash outflow from returns on investments and
servicing of finance (57.9) (57.5)
Taxation Tax paid (111.9) (104.7)
Capital Purchase of tangible fixed assets (187.8) (183.5)
expenditure Less: financed by leases 13.1 11.4
and financial (174.7) (172.1)
investment Sale of tangible fixed assets 15.3 10.9
Net cash outflow for capital expenditure and
financial investment (159.4) (161.2)
Acquisitions and Purchase of companies and businesses (21.2) (34.5)
disposals Disposal of companies and businesses 6.4 -
Net cash outflow from acquisitions and disposals (14.8) (34.5)
Equity
dividends paid Dividends paid to equity shareholders (104.4) (97.7)
Net cash inflow before use of liquid
resources and financing 163.2 122.3
Management of Movement in short term deposits
liquid resources with banks 13.0 83.5
Financing Issue of ordinary share capital 2.9 5.2
Own shares purchased (75.9) (234.6)
Net loan movement (9.8) 297.6
Capital element of finance lease payments (12.8) (13.2)
Net cash (outflow)/inflow from financing (95.6) 55.0
Net Cash Increase in net cash in the year 80.6 260.8
STATEMENT OF TOTAL
RECOGNISED GAINS AND LOSSES
Year to 31st Year to 31st
December December
2003 2002
£m £m
Profit for the financial year 290.1 284.6
Currency translation adjustments (3.6) (11.9)
Total gains and losses recognised in the financial year 286.5 272.7
Prior year adjustment on adoption of amendment to (15.7)
FRS 5 (note 4)
Total gains and losses recognised since last 270.8
annual report
RECONCILIATION OF MOVEMENTS
IN EQUITY SHAREHOLDERS' FUNDS
Year to 31st Year to 31st
December December
2003 2002
£m £m
Profit for the financial year 290.1 284.6
Equity dividends (110.1) (101.6)
Profit retained for the financial year 180.0 183.0
New share capital issued 2.9 5.2
Own shares purchased (73.1) (237.5)
Goodwill written back on disposals (1.7) -
Other recognised gains/(losses) in the financial year (3.6) (11.9)
Net change in equity shareholders' funds 104.5 (61.2)
Equity shareholders' funds at 1st January as reported (723.6) (646.7)
Prior year adjustment on adoption of amendment to - (15.7)
FRS 5 (note 4)
Equity shareholders' funds at 1st January as restated (723.6) (662.4)
Equity shareholders' funds at 31st December (619.1) (723.6)
CONSOLIDATED CASH FLOW STATEMENT
Year to 31st Year to 31st
December December
2003 2002
£m £m
Reconciliation Net debt at 1st January (1,260.4) (1,127.0)
of movement Change in net cash in the year 80.6 260.8
in net debt Movement in deposits and loans (3.2) (381.1)
Finance lease movements (0.3) 1.8
Acquisitions (2.5) -
Disposals 1.0 -
Currency translation adjustments (23.1) (14.9)
Net debt at 31st December (1,207.9) (1,260.4)
Notes 1. The profit and loss accounts and the cash flow statements for the years to 31st December
2003 and 31st December 2002, have been translated at average exchange rates for the relevant
periods. Balance sheets have been translated at period end exchange rates. The results of
continuing operations within the segmental commentaries have been translated at 2003 average
exchange rates for both periods.
2. Tax comprises UK Corporation Tax (less double taxation relief) of £40.8m (2002: £32.4m) and
overseas tax of £64.4m (2002: £72.2m).
At 26.5% (2002: 26.8%) the company's effective tax rate is 5.6% (2002:5.5%) below its
underlying tax rate based on its geographical spread of profits, principally as a result of
benefiting from tax losses £1.0 m (2002: £1.0m), goodwill amortisation £1.4m (2002: £1.0m),
adjustments in respect of prior periods £23.7m (2002: £19.9m), exceptional items (£3.4m)
(2002: £nil) and other items (£0.5m) (2002: (£0.5)m).
3. The loss on disposal of businesses represents a charge for the reduction in consideration
deferred from two businesses sold in 2000 (£11.5m), together with a small loss (£0.2m)
incurred on the disposal of five businesses made during the current financial year.
4. The financial information has been prepared on the basis of the accounting policies set out
in the full year 2002 Annual Report, adjusted for the adoption of Application Note G which
was issued as an amendment to FRS 5 'Reporting the Substance of Transactions' by the ASB in
November 2003 to be adopted for accounting periods ended on or after 23rd December 2003.
Accounting policies have been amended to recognise turnover on a straight-line basis over
the life of the contract. This has replaced the previous policy of recognising, where
appropriate, a higher proportion of the total income at the start of contracts to reflect
initial value of services performed and has resulted in a prior year adjustment to
shareholders' equity of £15.7m (net of tax). This is accounted for by a £22.5m increase in
creditors offset by a £4.0m decrease in corporation tax and a £2.8m decrease in deferred
tax. As there was no impact on the 2002 profit and loss account, the results for 2002 have
not been restated. The effect of applying this new policy in 2003 has been to reduce profit
before tax by £0.3m.
The Ashtead loan note, previously held in other investments, has been reclassified as a
debtor due after more than one year, with the prior year comparatives represented
accordingly. This reflects our continuing intention to hold this loan note to maturity in
2008 and the likelihood that the equity conversion will not be exercised.
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. There will be a presentation to analysts at 9.00 am today at the offices of UBS at
1 Finsbury Avenue, London EC2M 2PP. A copy of the slides and a live webcast of the
presentation will be available via the Company's website (www.rentokil-initial.com) as well
as a playback as soon as practicable after the presentation closes.
7. 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 4th June 2004 to shareholders on the register on 7th May 2004.
Annual Report expected to be despatched to shareholders in April 2004.
Annual General Meeting at The British Library, 96 Euston Road, London NW1 2DB on 27th May
2004 at 11.00am.
This information is provided by RNS
The company news service from the London Stock Exchange
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