Interim Results
Rentokil Initial PLC
29 August 2002
29th August 2002
Interim Results for the half year to 30th June 2002
RENTOKIL INITIAL CONTINUES TO DELIVER
STRONG UNDERLYING ORGANIC GROWTH AND CASH FLOW
* Turnover increased to £1,153.7m. Up 4.8% at actual rates and up by 7.4% at
constant average exchange rates for 2001 to £1,179.9m.
* Profits before Tax increased to £186.6m. Up 6.8% at actual rates and up by
10.5% at constant average exchange rates for 2001 to £191.9m.
* Earnings per Share up 14.6% to 6.99p.
* Dividend up 10.5% to 1.58p.
* Continuing acceleration in underlying organic growth.
* Excellent performances in Security and Parcels Delivery.
* Major improvement in Facilities Management resulting from success of Multi
Focus strategy.
* Strong performance across Continental Europe.
* Increased investment in sales and marketing to drive continuing organic
growth.
* Very strong operating cash flow at £111m.
* Board expects excellent growth in Earnings per Share for 2002 in line with
market expectations.
Turnover increased by 4.8% to £1,153.7m but by 6.2% at constant average exchange
rates to June 2002. At constant average exchange rates for 2001, turnover was
£1,179.9m, giving growth of 7.4% which compares with 6.9% reported after four
months. This continuing acceleration in underlying turnover follows further
investment in sales and marketing.
Profits before tax increased by 6.8% to £186.6m but by 9.8% at constant average
exchange rates to June 2002. At constant average exchange rates for 2001,
profits before tax were £191.9m, giving growth of 10.5%, the same as the 10.5%
reported after four months.
Earnings per share increased by 14.6% to 6.99p, benefitting from the good
increase in profits, the strong cash flow, the lower tax charge and the share
buy-back programme.
Segmental Commentary (at constant average exchange rates to June 2002)
Hygiene Services was up by 3.6% in turnover at £343.6m and 3.9% in operating
profits at £95.6m. Continental Europe was up 8.1% in turnover at £206.8m, with
particularly strong performances in France and Netherlands and good performances
in Italy, Spain and Switzerland. UK turnover was down by 4.0% at £94.5m, North
America down 3.1% at £3.6m and Asia Pacific and Africa up by 0.8% at £38.7m with
a particularly good performance in Indonesia.
Security Services turnover was up 11.0% at £273.7m with operating profits up by
7.1% to £24.0m. Continental Europe turnover was up 10.4% at £62.6m with an
excellent performance in France and a good improvement in Belgium. North America
turnover was up by 16.0% at £82.5m with good growth in manned guarding contracts
in USA. UK turnover was up by 8.3% at £128.6m.
Pest Control Services turnover was up by 3.6% at £103.1m and operating profits
up by 6.4% at £38.4m. UK turnover was flat at £33.4m and Continental Europe up
by 5.0% at £45.4m, with good performances in Netherlands, Belgium, Portugal and
Spain. North America turnover was up by 10.4% at £8.4m and Asia Pacific and
Africa turnover up by 4.7% at £15.9m, with strong performances in Malaysia and
Thailand.
Tropical Plants turnover fell by 4.5% to £57.1m and operating profits by 3.3% to
£8.8m. North America turnover was down by 8.8% at £33.4m, following the
restructuring of a number of loss making branches. Continental Europe turnover
was up by 10.0% at £13.1m with a good performance in Norway. UK turnover was
down by 4.0% at £6.2m. Asia Pacific and Africa turnover was down by 8.0% at
£4.4m.
Conferencing turnover grew by 2.5% to £37.0m with operating profits up by 3.0%
to £13.7m reflecting an improvement in business in recent months as a result of
new contracts.
Parcels Delivery turnover was up by 11.9% at £90.2m with operating profits at
£13.0m up by 17.1%. At constant exchange rates for 2001, growth was 25.3% which
compares with 23.5% reported after four months. UK performed strongly with
turnover up by 9.1% to £85.7m due to gains in market share but the contribution
from our Southern African business was reduced to £4.5m in turnover, in spite of
a strong performance measured in local currency. This arises from the major
difference in the average exchange rates used for the half year 2002 to those
for the half year and full year 2001.
Facilities Management showed major improvement with turnover growing by 7.4% to
£249.0m, benefitting from the impact of new multi service contracts, with
operating profits, as expected, growing somewhat slower (by 5.5%) to £19.3m.
Geographic Commentary (at constant average exchange rates to June 2002)
UK turnover grew by 4.9% to £566.4m and operating profits by 1.4% to £109.0m.
Hygiene turnover was down by 4.0% at £94.5m, Security up by 8.3% to £128.6m,
Tropical Plants down 4.0% at £6.2m, Pest Control flat at £33.4m with
Conferencing up by 2.5% to £37.0m, Facilities Management improving strongly and
excellent growth from Parcels Delivery.
Continental Europe turnover was up by 7.8% to £350.5m with operating profits up
10.6% to £71.7m. Hygiene turnover was up by 8.1% to £206.8m, Security up by
10.4% at £62.6m, Tropical Plants up by 10.0% to £13.1m and Pest Control up by
5.0% to £45.4m.
North America turnover was up by 7.5% to £169.8m and operating profits up by
6.7% to £9.6m. Hygiene turnover was down by 3.1% to £3.6m, Security was up by
16.0% to £82.5m, Tropical Plants down by 8.8% to £33.4m and Pest Control up by
10.4% to £8.4m.
Asia Pacific and Africa turnover at £67.0m was up by 5.8% and operating profits
by 7.1% to £22.5m. Hygiene turnover was up by 0.8% to £38.7m, Tropical Plants
turnover down by 8.0% to £4.4m, with Pest Control turnover up by 4.7% to £15.9m
and a strong performance in Parcels Delivery.
Operating Profits (EBIT) for the company have increased by 5.2% at constant
average exchange rates to June 2002.
Cash Flow before acquisitions, disposals, dividends and share buy-backs, has
been very strong at £111m.
Acquisitions Nine bolt-on acquisitions have been made in Hygiene, Security, Pest
Control and Tropical Plants at a total cost of £31m.
Share buy-back The company has purchased 71.5 million shares this year at a cost
of £193m, having been unable to make purchases since 30th June 2002 because of
the close period. Using current borrowing rates and market expectations for eps
in 2002, share purchases are accretive to eps up to 455p per share.
Borrowings Net Borrowings at the half-year were £1,308m.
Tax The introduction of FRS 19 (Deferred Taxation) has had no material effect on
the results of the company. The tax charge for the half year was 27.4%, a rate
which should be sustainable for the foreseeable future.
Dividend The Board has announced a 10.5% increase in the Interim Dividend to
1.58p.
Prospects for 2002
Sir Clive Thompson, Chairman and Chief Executive, said:-
'We expect to continue to generate strong operating cash flow. This will be used
to make bolt-on acquisitions in Hygiene and Security, particularly in North
America, UK and Continental Europe, to continue our share buy-back programme and
to invest further in sales and marketing to drive continued organic growth.
We expect that strong underlying organic growth in turnover and pre-tax profits
will continue throughout the year. Accordingly, the Board expects excellent
growth in earnings per share in line with market expectations.'
For further information:-
Sir Clive Thompson, Chairman and Chief Executive
Roger Payne, Finance Director
01342 833022
SEGMENTAL ANALYSIS
6 months to 6 months to Year to 31st
30th June 30th June December
2002 2001 2001
£m £m £m
At June 2002 average exchange rates
Business Turnover
Analysis
Hygiene 343.6 331.8 669.1
Security 273.7 246.6 507.1
Pest Control 103.1 99.5 203.5
Tropical Plants 57.1 59.8 124.8
Conferencing 37.0 36.1 74.7
Parcels Delivery 90.2 80.6 167.0
Facilities Management 249.0 231.8 463.6
Total at June 2002 average rates 1,153.7 1,086.2 2,209.8
Exchange - 14.8 32.6
Total as reported 1,153.7 1,101.0 2,242.4
Operating Profits
Hygiene 95.6 92.0 192.4
Security 24.0 22.4 49.0
Pest Control 38.4 36.1 75.8
Tropical Plants 8.8 9.1 23.4
Conferencing 13.7 13.3 27.8
Parcels Delivery 13.0 11.1 25.5
Facilities Management 19.3 18.3 35.5
Total at June 2002 average rates 212.8 202.3 429.4
Exchange - 3.8 7.4
Total as reported 212.8 206.1 436.8
Share of profit of other associate 0.2 0.1 0.3
Total as reported 213.0 206.2 437.1
Geographic Turnover
analysis
United Kingdom 566.4 540.0 1,092.1
Continental Europe 350.5 325.0 663.3
North America 169.8 157.9 325.6
Asia, Pacific & Africa 67.0 63.3 128.8
Total at June 2002 average rates 1,153.7 1,086.2 2,209.8
Exchange - 14.8 32.6
Total as reported 1,153.7 1,101.0 2,242.4
Operating Profit
United Kingdom 109.0 107.5 223.0
Continental Europe 71.7 64.8 141.3
North America 9.6 9.0 21.1
Asia, Pacific & Africa 22.5 21.0 44.0
Total at June 2002 average rates 212.8 202.3 429.4
Exchange - 3.8 7.4
Total as reported 212.8 206.1 436.8
Share of profit of other associate 0.2 0.1 0.3
Total as reported 213.0 206.2 437.1
CONSOLIDATED PROFIT AND LOSS ACCOUNT
6 months to 30th 6 months to 30th Year to 31st
June June December
2002 2001 2001
£m £m £m
Turnover (including share of associate and franchisees)
Continuing operations 1,147.3 1,101.0 2,242.4
Acquisitions 6.4 - -
Total continuing operations 1,153.7 1,101.0 2,242.4
Less:
Share of turnover of associate (all continuing) (9.2) (9.6) (19.5)
Turnover of franchisees (all continuing) (41.8) (36.0) (79.0)
Turnover 1,102.7 1,055.4 2,143.9
Operating expenses (891.6) (851.1) (1,710.8)
Operating profit
Continuing operations 210.6 204.3 433.1
Acquisitions 0.5 - -
Continuing operations 211.1 204.3 433.1
Share of profit of associates
Continuing 1.7 1.8 3.7
Other 0.2 0.1 0.3
Profit on ordinary activities before interest 213.0 206.2 437.1
Interest payable (net) (26.4) (31.5) (62.8)
Profit on ordinary activities before taxation 186.6 174.7 374.3
Tax on profit on ordinary activities (51.1) (50.1) (108.2)
Profit on ordinary activities after taxation 135.5 124.6 266.1
Equity minority interests (0.8) (0.7) (0.9)
Profit attributable to shareholders 134.7 123.9 265.2
Equity dividends (28.4) (25.7) (94.9)
Profit retained 106.3 98.2 170.3
Basic earnings per 1p share 6.99p 6.10p 13.30p
Diluted earnings per 1p share 6.95p 6.08p 13.26p
Dividends per 1p share 1.58p 1.43p 5.00p
Weighted average number of shares (million) 1,926 2,031 1,994
Number of shares in issue at period end (million) 1,882 1,965 1,950
CONSOLIDATED BALANCE SHEET
At 30th June At 30th June At 31st December
2002 2001 2001
£m £m £m
Fixed assets Intangible assets 172.8 126.6 138.4
Tangible assets 600.3 555.1 591.3
Investments 159.7 158.8 158.5
932.8 840.5 888.2
Current assets Stocks 47.0 47.0 48.2
Debtors 501.4 480.5 488.8
Short term deposits and cash 333.6 162.5 389.6
882.0 690.0 926.6
Creditors - amounts
falling due within Creditors (666.2) (628.7) (691.6)
one year Bank and other borrowings (96.1) (1,275.9) (371.9)
(762.3) (1,904.6) (1,063.5)
Net current assets/(liabilities) 119.7 (1,214.6) (136.9)
Total assets less current liabilities 1,052.5 (374.1) 751.3
Creditors - amounts Creditors (9.7) (9.1) (11.7)
falling due after Bank and other borrowings (1,545.1) (32.2) (1,144.7)
more than one year
(1,554.8) (41.3) (1,156.4)
Provisions for Provisions for liabilities and (227.6) (247.5) (236.0)
liabilities and charges charges
Net liabilities (729.9) (662.9) (641.1)
Equity capital and Called up share capital 18.8 19.6 19.5
reserves Share premium account 45.9 39.1 41.1
Capital redemption reserve 19.0 18.2 18.3
Other reserves 5.9 4.1 5.4
Profit and loss account (825.7) (749.6) (731.0)
Equity shareholders' funds (736.1) (668.6) (646.7)
Equity minority interests 6.2 5.7 5.6
Capital employed (729.9) (662.9) (641.1)
CONSOLIDATED CASH FLOW STATEMENT
6 months to 6 months to Year to 31st
30th June 30th June December
2002 2001 2001
£m £m £m
Operating Operating profit 211.1 204.3 433.1
activities Depreciation charge 75.4 73.1 144.6
Net movement in working capital (27.0) (6.4) (1.6)
Net cash inflow from operating activities 259.5 271.0 576.1
Associates' Dividends received from associates - - 1.1
dividends
Returns on Interest received 30.5 8.9 33.6
investments and Interest paid (60.2) (40.7) (93.0)
servicing of finance Interest element of finance leases (1.1) (1.3) (2.6)
Dividends paid to minority interests (0.3) (0.4) (0.7)
Net cash outflow from returns on
investments and servicing of finance (31.1) (33.5) (62.7)
Taxation Tax paid (42.0) (50.6) (112.1)
Capital Purchase of tangible fixed assets (83.4) (86.9) (200.3)
Expenditure Less: financed by leases 4.0 3.7 8.0
and financial (79.4) (83.2) (192.3)
Investment Sale of tangible fixed assets 4.0 5.2 16.1
Net cash outflow from capital expenditure
and financial investment (75.4) (78.0) (176.2)
Acquisitions and Purchase of companies and businesses (30.7) (7.9) (21.1)
disposals Disposal of companies and businesses - 4.3 1.9
Net cash outflow from acquisitions
and disposals (30.7) (3.6) (19.2)
Equity Dividends paid to equity shareholders (68.1) (64.3) (92.3)
dividends paid
Net cash inflow before use of liquid
Resources and financing 12.2 41.0 114.7
Management of Movement in short term deposits
liquid resources with banks (6.6) (30.1) (249.4)
Financing Issue of ordinary share capital 4.8 2.4 4.4
Own shares purchased (177.8) (236.4) (277.9)
Net loan movement 400.2 185.3 229.0
Capital element of finance lease payments (6.5) (6.3) (13.5)
Net cash outflow from financing 220.7 (55.0) (58.0)
Net cash Increase/(decrease) in net cash in the 226.3 (44.1) (192.7)
period
CONSOLIDATED CASH FLOW STATEMENT
6 months to 6 months to Year to 31st
30th June 30th June December
2002 2001 2001
£m £m £m
Reconciliation Opening net debt (1,127.0) (962.8) (962.8)
of movement Increase(decrease) in net cash in the period 226.3 (44.1) (192.7)
in net debt Movement in deposits and loans (393.6) (155.2) 20.4
Finance lease movements 2.5 2.6 5.5
Exchange adjustments (15.8) 13.9 2.6
Closing net debt (1,307.6) (1,145.6) (1,127.0)
RECONCILIATION OF MOVEMENTS
IN EQUITY SHAREHOLDERS' FUNDS
6 months to 6 months to Year to 31st
30th June 30th June December
2002 2001 2001
£m £m £m
Profit for the financial period 134.7 123.9 265.2
Equity dividends (28.4) (25.7) (94.9)
Profit retained for the financial period 106.3 98.2 170.3
New share capital issued 4.8 2.4 4.4
Own shares purchased (193.3) (236.4) (277.9)
Goodwill written back on disposals - (9.0) (11.5)
Exchange adjustments (7.2) 3.6 (4.6)
Net change in equity shareholders' funds (89.4) (141.2) (119.3)
Opening equity shareholders' funds (646.7) (527.4) (527.4)
Closing equity shareholders' funds (736.1) (668.6) (646.7)
NOTES 1. The profit and loss accounts and cash flow statements for the half years to 30th June 2001 and
2002 and for the year to 31st December 2001 have been translated at average rates of exchange for
the relevant periods. Balance sheets have been translated at period end rates of exchange. The
Segmental and Geographic commentaries are at constant 2002 rates of exchange.
2. Between 1st January 2002 and 30th June 2002, the company had purchased 71.5m of its own shares in
the market (representing 3.7% of the company's issued share capital at 1st January 2002) under
the authority given by shareholders at the annual general meetings held on 31st May 2001 and 30th
May 2002. These shares have been (or were being) cancelled and their nominal value transferred to
the capital redemption reserve on the balance sheet. They have been excluded in calculating the
weighted average number of shares in issue after the date of their purchase by the company. The
shareholders, at the annual general meeting on 30th May 2002, authorised further buy-backs of up
to 284m shares representing 15% of the company's issued share capital at that date.
3. The financial information has been prepared on the basis of the accounting policies set out in
the Annual Report 2001 with the exception of the policy on deferred tax. Financial Reporting
Standard (FRS) 19 'Deferred Tax' has been adopted with effect from 1st January 2002. FRS 19
requires that deferred tax be recognised in respect of all timing differences that have
originated, but not reversed, by the balance sheet date. Prior to 1st January 2002 the Group's
accounting policy was to provide for deferred tax to the extent that it was probable that a
benefit or charge would crystalise. There was no material change to the Group's results following
the adoption of FRS 19. Full year 2001 figures are taken from the accounts filed with the
Registrar of Companies. The results for the six months to 30th June 2002 and 30th June 2001 have
not been audited but have been reviewed by PricewaterhouseCoopers, the company's auditors.
4. Tax comprises UK Corporation Tax (less double taxation relief) £18.2m (2001: £21.4m) and overseas
tax £32.9m (2001: £28.7m).
5. Interim dividend to be paid on 1st November to shareholders on the register on 6th September 2002
6. The financial information in this statement does not constitute statutory accounts within the
meaning of s.240 of the Companies Act 1985 (as amended).
7. Copies of the interim report will be dispatched to shareholders and will also be available from
the company's registered office at Felcourt, East Grinstead, West Sussex, RH19 2JY.
INDEPENDENT REVIEW REPORT TO RENTOKIL INITIAL PLC
Introduction
We have been instructed by the company to review the financial information as set out on pages 4 to 8. We have read the
other information contained in the interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of, and has been
approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the preceding annual accounts except where any
changes, and the reason for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially
less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial
information as presented for the six months ended 30th June 2002.
PricewaterhouseCoopers
Chartered Accountants and
Registered Auditors
1 Embankment Place
London
WC2N 6RH 28th August 2002
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