Final Results
Rentokil Initial PLC
24 February 2005
NEWS RELEASE
24th February 2005
Rentokil Initial plc
Preliminary Results for the Year
to 31st December 2004
Highlights
• Profit Before Tax and Exceptional Items at £350.8m, at constant 2003
average exchange rates, was in line with the guidance first given to
the market in May 2004.
• Profit Before Tax and Exceptional items at £347.2m, at reported
exchange rates, was marginally ahead of market expectations.
• Operating Cash Flow, at £231.8m, was excellent.
• Final Dividend Per Share is proposed at 4.78p to take the total
dividend for 2004 to 6.71p, an increase of 10.0% over 2003.
• Doug Flynn appointed as Chief Executive.
Chairman Brian McGowan said today:
'Those actions initiated in July 2004 aimed at re-energising the company
through reinvestment in sales, service, IT, R&D and HR and increasing
the pace of activity on acquisitions, have continued into 2005.
As expected, there has, as yet, been no noticeable improvement in the
trend of contract portfolio development or short-term trading results.
The board, however, continues to believe that the reinvestment programme
is essential and will continue at present levels.
In November 2004, I stated that a further deterioration in trading
results would continue into the first half of 2005, but that,
thereafter, the benefits of the investments and cultural changes should
start to come through, even though the year as a whole was likely to
give a weaker performance than in 2004. Three months on, this remains my
view.'
Financial Summary
Turnover from continuing operations increased by 2.0% at constant 2003 average
exchange rates to £2,473.7m and by 0.4% at reported exchange rates to
£2,435.3m.
• Profit Before Tax And at constant 2003 average exchange rates was £350.8m. Exchange
Exceptional Items differences of £3.6m reduced this to a reported £347.2m.
• Profit Before Tax after exceptional items, at reported exchange rates, was £297.8m.
• Operating Cash Flow was excellent at £231.8m, representing 89% of reported pre-exceptional,
post-tax profit.
• Earnings Per Share at 11.87p represented a decline of 25.0%, which increases to 14.30p
(13.2% lower than 2003) on an adjusted, pre-exceptional basis.
• Final Dividend Per Share is proposed at 4.78p to take the total dividend for 2004 to 6.71p, an
increase of 10.0% over 2003.
• Contract Portfolio increased in 2004 by an annualised £33.5m at constant 2003 average
exchange rates.
Segmental Commentary - Continuing Operations
(All at constant 2003 average exchange rates. Operating profit relates to
pre-exceptionals)
Hygiene
Total Hygiene turnover grew by 1.3% to £995.4m with operating profit down by
13.9% at £247.5m.
Hygiene Services turnover was up by 1.2% at £767.2m, with operating profit down
by 16.1% to £170.0m. Contract portfolio net gain was £16.1m (2.2%) with £4.5m of
this coming from acquisitions.
• Within the total turnover of £767.2m, washroom slipped by 0.2% to £305.6m,
garments grew by 2.7% to £249.7m, floorcare increased by 5.7% to £42.3m,
linen increased by 1.4% to £112.9m, whilst other hygiene fell by 1.2% to
£56.7m.
• In the UK, where turnover fell by 3.1% to £176.3m and operating profit
dropped by 45.2% to £29.7m, the new management team continues to reorganise
the washroom operations. In addition, a dedicated team is engaged in
separating out the linen and garment activities, ahead of the envisaged
withdrawal from these parts of the business. Preliminary discussions are
underway with potential acquirers for all or parts of these activities.
Earlier guidance on possible exit costs remains unchanged, as does the risk
to 2005 trading arising from the potential disruption associated with the
reorganisation and phased exit processes.
• In Continental Europe turnover grew by 2.8% to £500.4m whilst operating
profit slipped 3.7% to £109.5m. Turnover and operating profit growth were
encouraging in a number of countries including Belgium, France, Portugal and
Sweden. In Germany the pressure on turnover, evident in the first half
(-1.8%), intensified to leave the full year down by 4.2%, albeit the trend
of operating profit regression of 23.7% at the half year to 27.7% for the
full year was less severe. As required under German law, the company
continues to consult with the representatives of the work force of the
German hospital linen activity and to progress options to eliminate the
losses in the order of £1.5m p.a.
• In the small North American business, turnover fell by 0.8% to £6.0m with
the operating profit regression extending to 27.1%, to leave operating
profit at £1.3m.
• In Asia Pacific and Africa, whilst turnover grew by 1.2% to £84.5m,
operating profit, impacted in part by increased revenue investments, fell
10.3% to £29.5m. Malaysia, South Africa, Philippines, Taiwan and Indonesia
produced good turnover growth, but a flat performance in the large
Australian business and regressions in Singapore and Hong Kong were
disappointing.
Pest Control turnover at £228.2m showed improved growth (at 1.7%) from that
reported at the ten months, albeit increased revenue investments and the sales
mix of contracts to jobs resulted in an 8.6% reduction in operating profit to
£77.5m. Contract portfolio net gain was £4.7m (2.6%) with £1.0m of this coming
from acquisitions.
• The UK business, where a new managing director has recently been
appointed, had a turnover regression of 0.8% to £69.4m, with operating
profit falling by 9.7% to £31.9m.
• Turnover in Continental Europe at £107.0m increased by 0.9%, with Belgium,
Portugal, Spain, Finland and Greece each growing well. Regressions in
Denmark, Norway, Sweden and Ireland were disappointing, although an
improvement in Germany, from a 1.9% regression at the half year to a flat
position for the year as a whole, was encouraging. Continental Europe
operating profit regression of 8.2% to £33.8m reflected, in part, the above
reasons but, once again, Germany was encouraging with a regression of 5.0%
in the first half being pulled back to 2.5% for the full year.
• In North America turnover growth accelerated to 6.3% with all the business
units, in particular Canada, contributing to this performance. Operating
profit of £2.5m on total turnover of £16.6m was some 1.9% lower than 2003.
• Growth in Asia Pacific and Africa accelerated to 7.2% to produce turnover
of £35.2m. Australia, Malaysia, New Zealand, South Africa, Indonesia and
Philippines produced the best growth, although regressions in Hong Kong,
Singapore and Thailand held back the overall level of growth. Operating
profit fell by 7.4% to £9.3m despite an encouraging performance in
Australia.
Security
Total Security turnover at £591.4m was 1.3% up on 2003, albeit with operating
profit falling by 8.9% to £53.0m.
• Within the total, electronic security turnover grew by 4.4% to £251.6m,
with operating profit 5.7% lower at £41.6m. Contract portfolio growth of
£9.0m (11%) came from a combination of organic growth (£3.5m) and
acquisitions (£5.5m). Manned guarding saw turnover fall by 0.9% to £339.8m
and operating profit by 18.6% to £11.4m, although a pick-up in contract
portfolio net gain towards the end of the year produced organic portfolio
growth of £1.8m (0.6%) for 2004 as a whole.
• In the UK, turnover fell by 2.9% to £261.5m, with a 7.3% fall in manned
guarding in very difficult market conditions, more than negating the 1.2%
(£1.7m) increase in electronic, which benefited from four bolt-on
acquisitions contributing c. £3.5m of turnover. Operating profit at £33.4m
was 13.3% down, with manned guarding (where the managing director has
recently been replaced) being the worst relative performance. Electronic
operating profit also regressed due to a combination of increased sales and
marketing investment, to address the underlying decline in organic
installation turnover, as well as development and reorganisation costs
associated with the bolt-on acquisitions.
• Continental Europe turnover at £143.7m was up by 6.2%, approximately a
half of this growth coming from the Belgian electronic market entry
acquisition made at the end of 2003. France performed well, whilst Belgian
manned guarding and the Dutch electronic business each produced growth
broadly in line with inflation. Despite the modest profit contribution from
the aforementioned Belgian electronic acquisition, total operating profit
fell by 1.9% to £13.0m, the Belgian guarding and the French electronic
businesses both regressing whilst the Dutch electronic business produced
only flat profits.
• In North America turnover and operating profit growth were broadly in line
at 3.8% and 4.0% respectively to £186.2m and £6.6m respectively. All three
business units (US manned guarding, US electronic and Canadian manned
guarding) contributed to the growth in both turnover and profit.
Facilities Management
Total Facilities Management turnover grew by 1.2% to £659.2m but the operating
profit regression experienced at the half year escalated to 16.4% for the year
as a whole to produce £66.7m.
Facilities Management Services grew turnover by 0.9% to £456.6m but very
challenging market conditions were the principal cause of the operating profit
slippage of 18.8% to £28.9m. Whilst contract portfolio was flat across the year
as a whole, the underlying profitability of the exit portfolio of £380.2m was
lower than that of the £380.1m at the start of 2004 due to fierce competition on
re-bids and new business wins.
• In the UK (which represents 83% of turnover and 88% of operating profits),
whilst turnover increased by 0.6% to £380.2m, operating profits fell by some
19.3% to £25.5m, with almost half of the £6.1m regression coming from the
core cleaning operation.
• Continental Europe cleaning turnover increased by 4.0% to £51.0m although
pricing and cost pressures caused operating profit to fall by 20.1% to
£2.4m.
• Notwithstanding two partial disposals, the reduced scale North American
operation continued to make a loss, this almost doubling to £1.2m on
turnover 2.6% lower at £21.2m. Options to eliminate these losses are being
actively considered.
• In Asia Pacific and Africa, turnover and operating profit increased by
£0.3m and £0.5m to £4.2m and £2.2m respectively.
Tropical Plants continued the improving in-year trend with turnover and
operating profit regressions slowing to 1.0% and 29.8% respectively for the year
as a whole (compared to reductions of 3.5% and 38.0% respectively in the first
half). Turnover ended the year at £111.5m with operating profit of £12.5m.
Contract portfolio net gain of £0.2m benefited from £1.1m of acquisitions.
• Despite a turnover growth of 5.3% to £12.8m, operating profit in the UK
fell by 51.3% to £2.0m.
• In Continental Europe turnover and operating profit each fell by 4.4% to
£28.0m and £4.1m respectively, with encouraging performances in The
Netherlands, Spain and Ireland being offset elsewhere, in particular
Belgium, Norway and Germany.
• A 0.3% turnover regression for the full year in North America to £61.4m
with a 34.0% fall in operating profit to £4.8m, whilst very disappointing,
were improvements over the first half where the falls were 2.7% and 61.5%
respectively.
• Similar comments to North America also apply to Asia Pacific and Africa,
turnover and operating profit falls of 2.7% and 29.7% respectively to £9.3m
and £1.6m improving from the 4.4% and 39.4% reductions reported for the
first half.
Conferencing continued to improve the trends of turnover growth and operating
profit regressions, these ending the year at 6.2% and 4.2% respectively to
produce full year totals of £91.1m and £25.3m respectively. Contract portfolio
net gain was £1.6m (4.5%).
Parcels Delivery
The UK (which represented 98% of total turnover of £227.7m and 96% of total
operating profit of £31.3m) grew turnover by 9.7%, albeit mix and certain
revenue investment costs held back operating profit growth to 2.0%, which was,
however, an improvement compared to both the first half and the ten months.
Geographic Commentary - Continuing Operations
(All at constant 2003 average exchange rates. Operating profit relates to
pre-exceptionals)
UK turnover grew by 1.2% to £1,214.9m with operating profit down by 19.0% to
£177.8m.
Continental Europe turnover was up by 3.0% at £830.1m with operating profit
declining by 4.9% to £162.8m.
In North America, where management in the US and Canada has been restructured,
turnover increased by 2.5% to £291.4m whilst operating profit fell by 18.6% to
£14.0m.
Asia Pacific and Africa increased turnover by 1.9% to £137.3m, although
operating profit fell by 9.3% to £43.9m.
Other Items
Exceptional Items - The ten month trading statement issued on 30th November 2004
identified a number of potential specific, one-off items, totalling an estimated
net cost of £35.0m. These have now materialised broadly in line with the earlier
guidance:-
£m
Impairment of goodwill, in particular US Tropical Plants and German
Hospital Textile Services (14.4)
Impairment of fixed assets in US Facilities Management (9.3)
Increases in vacant property and environmental provisions in respect of
specific properties in the UK and US (19.7)
Potentially uninsured losses in respect of product supply by a
discontinued business (6.0)
Exceptional Losses Charged to Operating Profit (49.4)
Gain on the sale of a 25.1% stake in the South African business as part
of a black economic empowerment (BEE) initiative. 14.2
Gain taken to the Statement of Recognised Gains and Losses 14.2
Net Cost (35.2)
Currency - Differences on exchange, compared to constant 2003 average exchange
rates, were a negative £40.0m on turnover (principally £25.5m USA and £10.6m
Europe) and a negative £3.6m on profit before tax and exceptional items
(principally £2.1m Europe and £1.0m US).
Contract Portfolio - The annualised value of the contract portfolio for
continuing operations (based upon unaudited, pro-forma management information)
increased by £33.5m in the year, the closing value thereof at £1,843.1m
(measured at constant 2003 average exchange rates) representing c. 75% of 2004
full-year turnover from continuing operations.
Acquisitions - Nineteen bolt-on acquisitions, with aggregate annualised turnover
of c. £19m were made in Hygiene, Security and Tropical Plants in UK, Continental
Europe, North America and Asia Pacific at a total cash cost of £27.5m. These
produced in-year turnover of £7.6m, operating profit of £2.4m and profit before
tax of c. £1.5m.
Since the year end a further six acquisitions have been made with turnover of c.
£6.2m, at an aggregate cost of £6.4m.
In recent months the in-house acquisition team has been strengthened, in
particular through the recently reported external appointment of a Group
Acquisitions Director.
Disposals - In addition to the aforementioned 25.1% sale of the South African
company, as previously reported, two under-performing businesses within the
North America Facilities Management activity and the London based courier
business within UK Parcels Delivery, were sold in 2004. At reported exchange
rates there was no gain or loss on disposal. In 2004, prior to their disposal,
these businesses contributed £15.5m of turnover and £0.4m of operating profit at
reported exchange rates.
Interest and Cash Flow - The net interest charge for the full year of £48.3m was
2.8% higher than 2003, the benefit of excellent operating cash flow of £231.8m
(*) being overtaken by the combined cash outflow effects of increased dividends,
limited share buybacks and acquisition spend as well as the impact, in the
second half, of increasing sterling interest rates.
* before management of liquid resources, financing, dividends,
acquisitions, disposals and adjusted for capital expenditure financed by
leases.
Tax - The profit and loss tax rate, on a pre-exceptional basis, was 25.0%, this
increasing to 27.4% on a reported basis, within the range of 26% to 28% which is
still seen as sustainable for the foreseeable future.
Pensions - The pro-forma FRS17, post-deferred tax deficit increased in 2004 to
some £184m, the benefit of the increase in the value of gross assets being
exceeded by a combination of increased life expectancy assumptions, bond yield
movements and revised assumptions in respect of price inflation, salary and
pension increases and the expected rate of return on assets.
As previously indicated, the £6.8m 2004 cash contribution into the UK defined
benefit scheme will increase to c. £10.0m in 2005. Company cash contributions
for 2006 onwards are not quantifiable at this stage, albeit it is anticipated
that they are likely to show a further significant increase once the March 2005
triennial actuarial revaluation has been undertaken. To part mitigate the
effects of this, members of the existing scheme have been advised that, from 1st
April 2005, employee contributions will increase by 2% pa. and the maximum
future increases in pension payments in respect of pensions earned after 5th
April 2005 will be reduced from 5% to 2.5% p.a., in line with recently announced
Government relaxation of the previous rules.
Share Buy-Back - As previously announced the share buy-back programme has been
suspended, purchases in 2004 having been confined to some 14.5m shares at a cost
of £24.2m in the first half.
Net Debt at 31st December 2004 was £1,135.6m, £72.3m lower than the £1,207.9m at
31st December 2003. In November 2004, following the ten-month trading statement,
Standard and Poors reconfirmed their credit rating of BBB+ with a stable
outlook.
Ashtead resumed the payment of interest on a current basis in April 2004 and the
half-yearly payment due in October 2004 was also made on the due date. We
continue to closely monitor developments at Ashtead and are encouraged by their
bank refinancing, trading results and prospects and the share price
out-performance in recent months.
International Financial Reporting Standards - As indicated in our 30th November
2004 trading statement, we continue to make good progress on planning for the
transition to IFRS. There are no further significant developments to report in
this area, at this stage. We expect to present the main reconciling items
between the 2004 UK GAAP results and the IFRS adjusted results early in the
second half of 2005, prior to our scheduled 2005 interim results announcement.
New Holding Company - We anticipate that the implementation of IFRS will have an
impact upon the company's distributable reserves, in particular the need to
recognise (under IAS19) the pension fund deficit as a liability.
To ensure sufficient distributable reserves remain to support the likely
dividend requirements in the medium to long term, the company proposes to
implement a corporate reorganisation, by way of a court approved scheme of
arrangement under S425 of the Companies Act 1985, similar to those implemented
by a number of other, large UK listed companies.
Under the reorganisation, which should not result in any disruption to the
company's day-to-day commercial operations, a new listed holding company would
acquire the existing group and implement a reduction of capital to create
additional distributable reserves. The scheme will require shareholder approval
which will be sought at meetings which are likely to be held on the same day as
the AGM. The reorganisation is currently expected to become effective prior to 1
July 2005 and a further announcement will be made in due course.
Prospects for 2005
With the final 2004 results being marginally ahead of market expectations and
with the earlier uncertainty as to who, as chief executive, would lead the
company forward having now been resolved, the board remains convinced that the
right actions are being taken to return to a path of sustainable growth over the
medium to longer term.
As stated in the 30th November 2004 trading statement, the board still
anticipates a further deterioration in trading results into the first half of
2005, although the benefits of the investments and cultural changes should start
to come through thereafter. However, and again in line with earlier guidance,
the year as a whole is likely to give a weaker performance than in 2004.
As previously announced, in the absence of unforeseen circumstances, the board
restates its intention to recommend an increase in the dividend for 2005 of a
further 10% to 7.38 pence per share.
END
A video interview with Chairman, Brian McGowan, will be available from 07.30hrs
and can be accessed from the company website www.rentokil-initial.com. Also
available on our website, from 13.30hrs, will be an audio/slide webcast of the
presentation to analysts & investors.
For further information contact
B D McGowan, Chairman
R C Payne, Finance Director
C D Grimaldi, Corporate Affairs Director
01342 833022
John Sunnucks, Brunswick Group LLP
020 7404 5959
Alex Mackey, Catullus Consulting
07773 787458
APPENDIX 1
PRO-FORMA UN-AUDITED ANNUALISED VALUE OF CONTRACT PORTFOLIO OF CONTINUING
BUSINESSES
New Net
£m at constant 2003 1.1.04 Business Terminations Additions/ Acquisitions 31.12.04
average exchange rates Reductions
(note 1)
Hygiene Services 726.5 81.0 (81.5) 12.1 4.5 742.6
Pest Control 179.8 31.9 (34.5) 6.3 1.0 184.5
Total Hygiene 906.3 112.9 (116.0) 18.4 5.5 927.1
Electronic 81.5 7.0 (7.5) 4.0 5.5 90.5
Manned Guarding 314.2 49.0 (47.6) 0.4 - 316.0
Total Security 395.7 56.0 (55.1) 4.4 5.5 406.5
Facilities Mngmnt Services 380.1 47.5 (56.7) 9.3 - 380.2
Tropical Plants 91.7 10.5 (14.7) 3.3 1.1 91.9
Conferencing 35.8 1.9 (0.5) 0.2 - 37.4
Total Facilities 507.6 59.9 (71.9) 12.8 1.1 509.5
Management
TOTAL 1,809.6 228.8 (243.0) 35.6 12.1 1,843.1
Notes:-
1. This represents the net of additions to existing contracts, price increases
on existing contracts and reductions to existing contracts.
2. The above include, on a consistent basis, certain estimates where there are
regular, variable, elements of revenue contained within the contracts.
3. In addition to the above, a number of the contracts within the contract
portfolio generate periodic, ad hoc and/or repeat job work and extras.
SEGMENTAL ANALYSIS - TURNOVER
Year to 31st Year to 31st
December 2004 December 2003
£m £m
Business Segments (at 2003 average exchange rates)
Continuing operations
Hygiene Services 767.2 758.1
Pest Control 228.2 224.4
Hygiene 995.4 982.5
Security 591.4 584.0
Facilities Management Services 456.6 452.7
Tropical Plants 111.5 112.6
Conferencing 91.1 85.8
Facilities Management 659.2 651.1
Parcels Delivery 227.7 208.6
Total continuing operations 2,473.7 2,426.2
Discontinued operations 17.1 60.0
Total operations (at 2003 average exchange rates) 2,490.8 2,486.2
Exchange (40.0) -
Total as reported (including franchisees and share of associates) 2,450.8 2,486.2
Geographic Segments (at 2003 average exchange rates)
Continuing operations
United Kingdom 1,214.9 1,200.8
Continental Europe 830.1 806.3
North America 291.4 284.4
Asia Pacific & Africa 137.3 134.7
Total continuing operations 2,473.7 2,426.2
Discontinued operations 17.1 60.0
Total operations (at 2003 average exchange rates) 2,490.8 2,486.2
Exchange (40.0) -
Total as reported (including franchisees and share of associates) 2,450.8 2,486.2
SEGMENTAL ANALYSIS - PROFIT
Year to 31st December 2004 Year to 31st
Before Exceptional December 2003
Exceptional Items Total
Items (note 2)
£m £m £m £m
Business Segments (at 2003 average exchange rates)
Continuing operations
Hygiene Services 170.0 (3.7) 166.3 202.6
Pest Control 77.5 (0.3) 77.2 84.8
Hygiene 247.5 (4.0) 243.5 287.4
Security 53.0 - 53.0 58.2
Facilities Management Services 28.9 (10.4) 18.5 35.6
Tropical Plants 12.5 (11.5) 1.0 17.8
Conferencing 25.3 - 25.3 26.4
Facilities Management 66.7 (21.9) 44.8 79.8
Parcels Delivery 31.3 - 31.3 30.8
Central Exceptional Items - (26.2) (26.2) -
Total continuing operations 398.5 (52.1) 346.4 456.2
Discontinued operations 0.5 - 0.5 (0.7)
Total operating profit 399.0 (52.1) 346.9 455.5
Loss on disposal of businesses - (0.3) (0.3) (11.7)
Interest payable (net) (48.2) - (48.2) (47.0)
Profit before tax (at 2003 average exchange rates) 350.8 (52.4) 298.4 396.8
Exchange (3.6) 3.0 (0.6) -
Profit before tax as reported 347.2 (49.4) 297.8 396.8
Geographic Segments (at 2003 average exchange rates)
Continuing operations
United Kingdom 177.8 (21.9) 155.9 219.5
Continental Europe 162.8 (3.7) 159.1 171.1
North America 14.0 (25.6) (11.6) 17.2
Asia Pacific & Africa 43.9 (0.9) 43.0 48.4
Total continuing operations 398.5 (52.1) 346.4 456.2
Discontinued operations 0.5 - 0.5 (0.7)
Total operating profit 399.0 (52.1) 346.9 455.5
Loss on disposal of businesses - (0.3) (0.3) (11.7)
Interest payable (net) (48.2) - (48.2) (47.0)
Profit before tax (at 2003 average exchange rates) 350.8 (52.4) 298.4 396.8
Exchange (3.6) 3.0 (0.6) -
Profit before tax as reported 347.2 (49.4) 297.8 396.8
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year to 31st December 2004 Year to 31st
Before Exceptional December 2003
Exceptional Items Total
Items (note 2)
£m £m £m £m
Turnover (including franchisees and share of associates)
Continuing operations 2,427.7 - 2,427.7 2,426.2
Acquisitions 7.6 - 7.6 -
Continuing operations 2,435.3 - 2,435.3 2,426.2
Discontinued operations 15.5 - 15.5 60.0
Turnover (including franchisees and share of associates) 2,450.8 - 2,450.8 2,486.2
Less:
Share of turnover of associates (all continuing) (18.5) - (18.5) (18.7)
Turnover of franchisees (all continuing) (110.2) - (110.2) (101.2)
Group turnover 2,322.1 - 2,322.1 2,366.3
Operating expenses (1,930.7) (49.4) (1980.1) (1,914.4)
Group operating profit
Continuing operations 388.6 (49.4) 339.2 452.6
Acquisitions 2.4 - 2.4 -
Continuing operations 391.0 (49.4) 341.6 452.6
Discontinued operations 0.4 - 0.4 (0.7)
Group operating profit 391.4 (49.4) 342.0 451.9
Share of profit of associates (all continuing) 4.1 - 4.1 3.6
Total operating profit 395.5 (49.4) 346.1 455.5
Loss on disposal of businesses - - - (11.7)
Profit on ordinary activities before interest 395.5 (49.4) 346.1 443.8
Interest payable (net) (48.3) - (48.3) (47.0)
Profit on ordinary activities before taxation 347.2 (49.4) 297.8 396.8
Tax on profit on ordinary activities (note 4) (81.6) (105.2)
Profit on ordinary activities after taxation 216.2 291.6
Equity minority interests (1.7) (1.5)
Profit for the financial year attributable to 214.5 290.1
shareholders
Equity dividends (120.7) (110.1)
Profit retained for the financial year 93.8 180.0
Basic earnings per 1p share 11.87p 15.83p
Adjusted earnings per 1p share 14.30p 16.47p
Diluted earnings per 1p share 11.87p 15.81p
Dividends per 1p share 6.71p 6.10p
Weighted average number of shares (million) 1,807.8 1,832.6
Number of shares in issue at period end (million) 1,810.1 1,824.4
CONSOLIDATED BALANCE SHEET
At 31st At 31st
December December
2004 2003
£m £m
restated
Fixed assets Intangible assets 192.9 195.7
Tangible assets 675.7 662.8
Investments 9.6 11.7
878.2 870.2
Current assets Stocks 40.4 45.2
Debtors due within one year 455.7 451.8
Debtors due after more than one year 184.9 167.6
Short term deposits and cash 206.1 272.8
887.1 937.4
Creditors - amounts
falling due within Creditors (763.1) (754.9)
one year Bank and other borrowings (201.3) (82.9)
(964.4) (837.8)
Net current (liabilities)/assets (77.3) 99.6
Total assets less current liabilities 800.9 969.8
Creditors - amounts
falling due after Creditors (10.9) (10.4)
more than one year Bank and other borrowings (1,140.4) (1,397.8)
(1,151.3) (1,408.2)
Provisions for
liabilities and charges Provisions for liabilities and charges (209.0) (186.2)
Net liabilities (559.4) (624.6)
Equity capital Called up share capital 18.1 18.2
and reserves Share premium account 49.5 49.2
Capital redemption reserve 19.7 19.6
Treasury shares (11.1) (12.0)
Other reserves 9.2 8.9
Profit and loss account (655.0) (715.0)
Equity shareholders' funds (569.6) (631.1)
Equity minority interests 10.2 6.5
Capital employed (559.4) (624.6)
EARNINGS PER SHARE
Year to 31st Year to 31st
December December
2004 2003
Basic earnings Profit attributable to shareholders £214.5m £290.1m
per share Weighted average number of shares 1,807.8m 1,832.6m
Basic earnings per share 11.87p 15.83p
Adjusted earnings Profit attributable to shareholders £214.5m £290.1m
per share Add back exceptional items (note 2) £44.1m £11.7m
Adjusted profit attributable to shareholders £258.6m £301.8m
Weighted average number of shares 1,807.8m 1,832.6m
Adjusted earnings per share 14.30p 16.47p
Diluted earnings Profit attributable to shareholders £214.5m £290.1m
per share Weighted average number of shares 1,807.8m 1,832.6m
Effect of share options - 2.5m
Adjusted average number of shares 1,807.8m 1,835.1m
Diluted earnings per share 11.87p 15.81p
CONSOLIDATED CASH FLOW STATEMENT
Year to 31st Year to 31st
December December
2004 2003
£m £m
Operating Operating profit 342.0 451.9
activities Non cash items 50.2 -
Depreciation charge (net of recovery on disposals) 160.4 157.0
Net movement in working capital (0.5) 1.4
Net cash inflow from operating activities 552.1 610.3
Associates'
dividends Dividends received from associates 3.8 1.3
Returns on Interest received 55.5 49.3
investments and Interest paid (99.7) (104.7)
servicing of finance Interest element of finance lease payments (1.7) (1.9)
Dividends paid to minority interests (0.7) (0.6)
Net cash outflow from returns on investments and
servicing of finance (46.6) (57.9)
Taxation Tax paid (98.1) (111.9)
Capital Purchase of tangible fixed assets (191.4) (187.8)
expenditure Less: financed by leases 11.0 13.1
and financial (180.4) (174.7)
investment Sale of tangible fixed assets 12.0 15.3
Net cash outflow for capital expenditure and
financial investment (168.4) (159.4)
Acquisitions and Purchase of companies and businesses (27.5) (21.2)
disposals Disposal of companies and businesses 6.7 6.4
Net cash outflow from acquisitions and disposals (20.8) (14.8)
Equity
dividends paid Dividends paid to equity shareholders (113.5) (104.4)
Net cash inflow before use of liquid
resources and financing 108.5 163.2
Management of Movement in short term deposits
liquid resources with banks 126.5 13.0
Financing Issue of ordinary share capital 0.3 2.9
Own shares purchased (24.2) (75.9)
Net loan movement (195.9) (9.8)
Capital element of finance lease payments (13.6) (12.8)
Net cash outflow from financing (233.4) (95.6)
Net cash Increase in net cash in the year 1.6 80.6
STATEMENT OF TOTAL
RECOGNISED GAINS AND LOSSES
Year to 31st Year to 31st
December December
2004 2003
£m £m
Profit for the financial year 214.5 290.1
Gain on sale of interest in South African business (note 3) 14.2 -
Adjustment to goodwill (note 5) (16.4) -
Currency translation adjustments (4.7) (3.6)
Total gains and losses recognised in the Financial Year 207.6 286.5
RECONCILIATION OF MOVEMENTS
IN EQUITY SHAREHOLDERS' FUNDS
Year to 31st Year to 31st
December December
2004 2003
£m £m
Profit for the financial year 214.5 290.1
Equity dividends (120.7) (110.1)
Profit retained for the financial year 93.8 180.0
New share capital issued 0.3 2.9
Own shares purchased (24.2) (73.1)
Negative goodwill written back on disposals (2.4) (1.7)
Deferred share awards and share options exercised 0.9 -
Other recognised gains/(losses) in the financial year (6.9) (3.6)
Net change in equity shareholders' funds 61.5 104.5
Equity shareholders' funds at 1st January as reported (631.1) (723.6)
Prior year adjustment on adoption of UITF 38 - (12.0)
(631.1) (735.6)
Equity shareholders' funds at 31st December (569.6) (631.1)
RECONCILIATION OF MOVEMENT IN NET DEBT
Year to 31st Year to 31st
December December
2004 2003
£m £m
Net debt at 1st January (1,207.9) (1,260.4)
Change in net cash in the year 1.6 80.6
Acquisitions (0.4) (2.5)
Disposals 2.7 1.0
Movement in deposits and loans 69.4 (3.2)
Finance lease movements 2.6 (0.3)
Currency translation adjustments (3.6) (23.1)
Net debt at 31st December (1,135.6) (1,207.9)
Notes 1. The profit and loss accounts and the cash flow statements for the years to 31st December 2004
and 31st December 2003, 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. Exceptional items charged against operating profit represent one-off significant items
occurring in the year (2003: £nil). These comprise:
At 2004 At 2003
average
exchange average
rates exchange
rates
Impairment of goodwill £14.4m £15.5m
Impairment of fixed assets in a US Facilities Management £9.3m £10.4m
business
Additional vacant property and environmental provisions * £19.7m £20.2m
Potential uninsured loss on a discontinued business * £6.0m £6.0m
* These are managed centrally and therefore have not been £49.4m £52.1m
allocated to a
business segment
The impairment of goodwill was made following the deterioration in performance experienced
during the year in six businesses, namely US Tropical Plants (£9.8m at 2004 average exchange
rates), German Hospital Services (£3.6m at 2004 average exchange rates) and four other
businesses in the Hygiene and Facilities Management sectors, mainly in Asia Pacific and Africa.
Exceptional items charged below operating profit represent the profit made on the disposal
(£nil at 2004 average exchange rates and £0.3m at 2003 average exchange rates) of three small
businesses sold during the year in the Facilities Management and Parcels Delivery sectors,
partially offset by the creation of a provision required for the estimated cost of exiting a
business in the Hygiene sector in Europe (consultations are taking place with representatives
of the work-force on options available). The above amounts include the write back to the profit
and loss account of £3.3m of negative goodwill.
3. The gain on disposal of a 25.1 % interest in our South African business as part of a 'black
economic empowerment' (B.E.E) initiative, as outlined in the Trading Statement issued on 30th
November 2004, has not been included in the profit and loss account as it has not been realised
due to the vendor financed nature of the transaction, instead it has been taken to the
statement of total recognised gains and losses.
4. Tax comprises UK Corporation Tax (less double taxation relief) of £26.7m (2003: £40.8m) and
overseas tax of £54.9m (2003: £64.4m).
At 27.4% (2003: 26.5%) the company's effective tax rate is 4.2% (2003: 5.6%) below its
underlying tax rate based on its geographical spread of profits, principally as a result of
benefiting from tax losses £2.0m (2003: £1.0m), goodwill amortisation £0.7m (2003: £1.4m),
adjustments in respect of prior periods £20.5m (2003: £23.7m), exceptional items (£9.5m) (2003:
(£3.4m)) and other items (£1.3m) (2003: (£0.5m)).
5. The adjustment to goodwill was made following a detailed review of the goodwill balance in
preparation for transition to IFRS. This review revealed that the consideration and goodwill in
respect of one acquisition made in 2000 necessitated an adjustment. The position has been
corrected through the statement of total recognised gains and losses to be consistent with the
original accounting.
6. The financial information has been prepared on the basis of the accounting policies set out in
the full year 2003 Annual Report with the exception of the adoption of UITF 38 which required a
restatement of shareholders' funds following the transfer of treasury shares from investments.
7. 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).
8. There will be a presentation to analysts at 9.30 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.
9. 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 3rd June 2005 to shareholders on the register on 6th May 2005.
Annual Report expected to be despatched to shareholders in April 2005.
Annual General Meeting at The Plaisterers Hall, No. 1 London Wall, London, EC2Y 5JU on 26th May
2005 at 11.00am.
This information is provided by RNS
The company news service from the London Stock Exchange
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