Interim Results
Rentokil Initial PLC
28 August 2003
NEWS RELEASE
28th August 2003
Interim Results for the half year to 30th June 2003
RENTOKIL INITIAL CONTINUES TO DELIVER
STRONG ORGANIC GROWTH AND CASH FLOW
* Turnover from continuing operations increased 6.5% to £1,222.2m.
* Profits before tax increased 7.4% to £200.5m.
* Earnings per share up 12.3% to 7.85p.
* Strong operating cash flow at £118.1m.
* Interim dividend up 10.8% to 1.75p.
* Excellent performances in Security and Parcels Delivery.
* Greater focus on European Hygiene and Security in the future.
* Board expects strong growth in earnings per share for 2003 in line
with market expectations.
Turnover from continuing operations increased by 6.5% to £1,222.2m, and by 5.0%
at constant average exchange rates to June 2003. Total turnover increased by
6.1% to £1,223.9m and by 4.5% at constant average exchange rates to June 2003.
Profits before tax increased by 7.4% to £200.5m, and by 4.2% at constant average
exchange rates to June 2003.
Earnings per share increased by 12.3% to 7.85p, benefiting from the good
increase in profits, the strong cash flow and the share buy-back programme.
Segmental Commentary (at constant average exchange rates to June 2003)
Hygiene
Total Hygiene turnover grew by 2.5% to £483.5m with operating profits up
by 2.0% to £143.8m.
Hygiene Services was up by 2.4% in turnover at £373.4m and 1.2% in
operating profits at £102.3m. Continental Europe was up 4.7% in turnover
at £237.7m, with strong performances in France, The Netherlands,
Portugal, Norway and Denmark, and a good performance in Austria. UK
turnover was down by 2.8% at £91.8m. Now half way through our two-year
restructuring programme, the new UK management structure and combined
sales force are now in place, the £5m investment in systems development
is progressing well, and our new washroom product range will be
launched, as planned, in September 2003. North America turnover was down
6.7% at £3.1m whilst Asia Pacific and Africa increased turnover by 2.2%
to £40.8m with excellent performances in Hong Kong and Indonesia and
good performances in Malaysia and South Korea.
Pest Control turnover was up by 2.8% at £110.1m and operating profits up
by 4.0% at £41.5m. UK turnover was up 2.8% at £34.3m and Continental
Europe up by 3.9% at £51.8m with excellent performances in Austria and
Spain and strong performances in France, Ireland, Portugal and The
Netherlands. North America turnover was up by 1.7% at £7.8m although
Asia Pacific and Africa turnover reduced by 0.2% to £16.2m.
Security
Security turnover was up 6.8% at £284.1m with operating profits up by
11.4% to £27.4m, the margins improving in both electronic and guarding.
Excluding the results of the now disposed of Belgium cash in transit
operation, Continental Europe turnover was up 5.2% at £65.0m, with an
excellent performance in France. North America turnover was up by 13.3%
at £85.7m with strong growth in guarding contracts. UK turnover was up
by 3.8% at £133.4m.
Facilities Management
Total Facilities Management turnover grew by 3.4% to £351.3m although
operating profits reduced by 3.6% to £40.4m.
Facilities Management Services turnover grew by 3.3% to £255.2m, with
operating profits, as expected, growing slower, by 1.0%, to £19.6m. Good
growth in turnover in the UK was offset by the impact of the termination
of some large cleaning contracts in the USA and Spain.
Tropical Plants turnover fell by 2.5% to £54.2m and operating profits by
10.2% to £7.9m. North America turnover was down by 5.2% at £28.5m and
Continental Europe turnover was up by 2.9% at £14.7m. UK turnover was
flat at £6.3m. Asia Pacific and Africa turnover was down by 5.0% at
£4.7m.
Conferencing turnover grew by 13.2% to £41.9m, largely as a result of
additional capacity, with operating profits down by 5.8% to £12.9m
reflecting the continuing lower levels of non-contracted occupancy and
customers' discretionary spend and the expected start-up losses at the
new centres.
Parcels Delivery
Parcels Delivery turnover was up by 18.9% at £103.3m with operating
profits at £13.7m up by 10.5%. UK turnover grew by 15.5% to £99.1m with
a 9.1% increase in operating profits, the margin adversely impacted by
the higher proportion of non-premium next day consignments.
Geographic Commentary (at constant average exchange rates to June 2003)
UK turnover grew by 6.2% to £601.8m and operating profits by 0.5% to £109.5m.
Total Hygiene turnover was down by 1.3% at £126.1m, Security up by 3.8% to
£133.4m, total Facilities Management up by 8.5% to £243.2m, and Parcels Delivery
up by 15.5% to £99.1m.
Continental Europe turnover was up by 4.0% to £393.0m with operating profits up
6.2% to £83.9m. Total Hygiene turnover was up by 4.5% to £289.5m, Security up by
5.2% to £65.0m, and total Facilities Management down by 1.5% to £38.5m.
North America turnover was up by 2.7% to £158.7m whilst operating profits
reduced by 5.7% to £8.2m. Total Hygiene turnover was down by 0.9% to £10.9m,
Security up by 13.3% to £85.7m, and total Facilities Management down by 8.4% to
£62.1m.
Asia Pacific and Africa turnover at £68.7m was up by 4.7% and operating profits
by 2.2% to £23.7m. Total Hygiene turnover was up by 1.5% to £57.0m, total
Facilities Management down by 11.3% to £7.5m, and there was an inflation-led
performance in Parcels Delivery.
Operating Profits (EBIT) for the company increased by 5.7% to £225.1m, and by
2.5% at constant average exchange rates to June 2003.
Operating Cash Flow (before management of liquid resources, financing,
dividends, acquisitions, disposals and adjusted for capital expenditure financed
by leases) has been strong at £118.1m, up 10.4% on a comparable basis with 2002.
Acquisitions Four bolt-on acquisitions have been made in Hygiene and Security,
and in addition we entered the North American electronic security market with
one acquisition, at a total cost of £20 million, these five businesses having
aggregate annualised turnover of approximately £27 million.
Share Buy-Back The company has purchased 32.4 million shares this year at a cost
of £60m.
Borrowings Net borrowings at the half-year were £1,303m.
Tax The effective tax charge for the half year was 27.3%, compared with 27.4% in
the first half of 2002.
Ashtead As part of Ashtead Group PLC's short term re-financing, interest
payments on the £134m convertible loan note have been deferred, although
interest receivable continues to accrue. We continue to monitor closely
developments at Ashtead and there are, currently, no intentions to reduce the
carrying value of the loan note.
Pensions Following the finalisation of the triennial revaluation of the
company's UK defined benefit scheme as at 31st March 2002, the company will
recommence cash contributions to the scheme, which are anticipated to be £8m in
2004. The profit and loss account charge, in line with SSAP 24, incorporating
this revaluation, is anticipated to increase by 55% to £5m in 2003 and to £7m in
2004.
Dividend The Board has announced a 10.8% increase in the interim dividend to
1.75p.
The Future
James Wilde, Chief Executive, said:-
'My vision is for Rentokil Initial to be the international business
services company paramount in providing hygiene, safety and security
solutions in all our geographic markets, with the strengths and
experience of a multi-national company, whilst retaining the agility and
characteristics of a local company.
As a result, every company, in any business, anywhere in the Rentokil
Initial world, should benefit from at least one of our services.
With our new sectoral structure, there will be a heightened emphasis on
finding and making more strategic and bolt-on acquisitions in Hygiene
and Security. To accelerate organic growth, we will increase sales staff
with a view to expanding coverage and density of our services, together
with service quality programmes to optimise customer retention.
We will concentrate on accelerating the growth in our Hygiene and
Security businesses, which today represent some 63% of our turnover.
Although continuing our development as a global company, including North
America and Asia Pacific, the main thrust for our growth over the next
five years will be focussed on Europe.
Rentokil Initial is substantially a European company with 81% of its
turnover generated in Europe (49% UK and 32% continental Europe). The
population in continental Europe is six times greater than that of the
UK, giving us a significant opportunity to increase our sales and
profits.
With the expansion of the European Union, a further ten countries with a
total population of some 75 million are expected to become members in
2004. The population of the European Union should enjoy rising living
standards which will provide us with considerable opportunities for
growth which can be further enhanced by increasing the coverage and
density of our services from both organic growth and acquisitions.
In time, we see the development of a pan-European business for our
services, assisted by the progressive lowering of barriers to trade
within the European Union and the benefits of our new structure. This
will allow us to provide services in many cases on a cross-border basis,
taking advantage of improved route efficiencies and containment of
overhead costs.
I believe this path could provide the opportunity for us to achieve, for
the foreseeable future, strong growth in earnings per share and, on this
basis, the Board is confident of increasing the full-year dividend by at
least 10% per annum.'
Prospects for 2003
James Wilde, Chief Executive, said:-
'We expect that good underlying organic growth in turnover and pre-tax
profits and the generation of strong operating cash flow, which will be
used to finance bolt-on acquisitions and share buy-backs, will continue
throughout the year.
The Board expects strong growth in earnings per share in line with
market expectations.'
For further information:-
J C F Wilde, Chief Executive
R C Payne, Finance Director
C D Grimaldi, Corporate Affairs Director
Telephone: 01342 833022
www.rentokil-initial.com
Conference Call
There will be a conference call for investors at 3.00pm (UK time) today, hosted
by James Wilde, Chief Executive, and Roger Payne, Finance Director.
Dial-in number: +44 (0) 20 7162 0185
Participants to quote 'Rentokil' to access the call.
SEGMENTAL ANALYSIS
6 months to 6 months to Year to 31st
30th June 30th June December
2003 2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
At June 2003 average exchange rates
Business Turnover
Analysis
Continuing operations:
Hygiene Services 373.4 364.8 737.3
Pest Control 110.1 107.1 219.4
Hygiene 483.5 471.9 956.7
Security 284.1 266.0 544.7
Facilities Management Services 255.2 247.0 488.9
Tropical Plants 54.2 55.6 118.3
Conferencing 41.9 37.0 77.6
Facilities Management 351.3 339.6 684.8
Parcels Delivery 103.3 86.9 185.9
Total continuing operations at June 2003 average 1,222.2 1,164.4 2,372.1
rates
Exchange - (17.0) (44.4)
Continuing operations 1,222.2 1,147.4 2,327.7
Discontinued operations 1.7 6.3 11.8
Total as reported 1,223.9 1,153.7 2,339.5
Operating Profits
Continuing operations:
Hygiene Services 102.3 101.1 208.3
Pest Control 41.5 39.9 82.2
Hygiene 143.8 141.0 290.5
Security 27.4 24.6 53.1
Facilities Management Services 19.6 19.4 36.5
Tropical Plants 7.9 8.8 20.7
Conferences 12.9 13.7 26.8
Facilities Management 40.4 41.9 84.0
Parcels Delivery 13.7 12.4 28.3
Total continuing operations at June 2003 average 225.3 219.9 455.9
rates
Exchange - (6.7) (13.9)
Continuing operations 225.3 213.2 442.0
Discontinued operations (0.3) (0.4) (0.3)
Total as reported 225.0 212.8 441.7
Share of profit of other associate 0.1 0.2 0.3
Total as reported 225.1 213.0 442.0
SEGMENTAL ANALYSIS
6 months to 6 months to Year to 31st
30th June 30th June December
2003 2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
At June 2003 average exchange rates
Geographic Turnover
Analysis
Continuing operations:
United Kingdom 601.8 566.4 1,153.4
Continental Europe 393.0 377.9 771.7
North America 158.7 154.5 315.1
Asia Pacific and Africa 68.7 65.6 131.9
Total continuing operations at June 2003 average 1,222.2 1,164.4 2,372.1
rates
Exchange - (17.0) (44.4)
Continuing operations 1,222.2 1,147.4 2,327.7
Discontinued operations 1.7 6.3 11.8
Total as reported 1,223.9 1,153.7 2,339.5
Operating Profits
Continuing operations:
United Kingdom 109.5 109.0 225.2
Continental Europe 83.9 79.0 165.1
North America 8.2 8.7 19.3
Asia Pacific and Africa 23.7 23.2 46.3
Total continuing operations at June 2003 average 225.3 219.9 455.9
rates
Exchange - (6.7) (13.9)
Continuing operations 225.3 213.2 442.0
Discontinued operations (0.3) (0.4) (0.3)
Total as reported 225.0 212.8 441.7
Share of profit of other associate 0.1 0.2 0.3
Total as reported 225.1 213.0 442.0
CONSOLIDATED PROFIT AND LOSS ACCOUNT
6 months to 6 months to Year to 31st
30th June 30th June December
2003 2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
Turnover (including share of associate and franchisees)
Continuing operations 1,217.9 1,147.4 2,327.7
Acquisitions 4.3 - -
Continuing operations 1,222.2 1,147.4 2,327.7
Discontinued operations 1.7 6.3 11.8
Turnover (including share of associate and franchisees) 1,223.9 1,153.7 2,339.5
Less:
Share of turnover of associate (all continuing) (9.2) (9.2) (18.4)
Turnover of franchisees (all continuing) (44.8) (41.8) (87.9)
Group turnover 1,169.9 1,102.7 2,233.2
Operating expenses (946.6) (891.6) (1,794.8)
Operating profit
Continuing operations 223.3 211.5 438.7
Acquisitions 0.3 - -
Continuing operations 223.6 211.5 438.7
Discontinued operations (0.3) (0.4) (0.3)
Group operating profit 223.3 211.1 438.4
Share of profit of associates
Continuing 1.7 1.7 3.3
Other 0.1 0.2 0.3
Profit on ordinary activities before interest 225.1 213.0 442.0
Interest payable (net) (24.6) (26.4) (51.7)
Profit on ordinary activities before taxation 200.5 186.6 390.3
Tax on profit on ordinary activities (54.7) (51.1) (104.6)
Profit on ordinary activities after taxation 145.8 135.5 285.7
Equity minority interests (0.9) (0.8) (1.1)
Profit for the financial period attributable to shareholders 144.9 134.7 284.6
Equity dividends (31.3) (28.4) (101.6)
Profit retained for the financial period 113.6 106.3 183.0
Basic earnings per 1p share 7.85p 6.99p 15.00p
Diluted earnings per 1p share 7.84p 6.95p 14.94p
Dividends per 1p share 1.75p 1.58p 5.53p
Weighted average number of shares (million) 1,846 1,926 1,897
Number of shares in issue at period end (million) 1,830 1,882 1,861
CONSOLIDATED BALANCE SHEET
At 30th June 2003 At 30th June At 31st December
2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
Fixed assets Intangible assets 197.3 172.8 177.0
Tangible assets 643.6 600.3 624.3
Investments 161.4 159.7 157.8
1,002.3 932.8 959.1
Current assets Stocks 49.1 47.0 45.4
Debtors 514.0 501.4 493.1
Short term deposits and cash 127.5 333.6 246.5
690.6 882.0 785.0
Creditors - amounts Creditors (688.7) (666.2) (719.4)
falling due within Bank and other borrowings (82.6) (96.1) (65.0)
one year (771.3) (762.3) (784.4)
Net current (liabilities)/assets (80.7) 119.7 0.6
Total assets less current liabilities 921.6 1,052.5 959.7
Creditors - amounts Creditors (10.3) (9.7) (9.7)
falling due after Bank and other borrowings (1,347.9) (1,545.1) (1,441.9)
more than one year (1,358.2) (1,554.8) (1,451.6)
Provisions for Provisions for liabilities and (206.9) (227.6) (209.7)
liabilities and charges charges
Net liabilities (643.5) (729.9) (701.6)
Equity capital and Called up share capital 18.3 18.8 18.6
reserves Share premium account 47.9 45.9 46.3
Capital redemption reserve 19.5 19.0 19.2
Other reserves 8.6 5.9 8.2
Profit and loss account (744.7) (825.7) (800.2)
Equity shareholders' funds (650.4) (736.1) (707.9)
Equity minority interests 6.9 6.2 6.3
Capital employed (643.5) (729.9) (701.6)
CONSOLIDATED CASH FLOW STATEMENT
6 months to 6 months to Year to 31st
30th June 30th June December
2003 2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
Operating Operating profit 223.3 211.1 438.4
activities Depreciation charge (net of recovery on 78.6 75.4 152.4
disposals)
Net movement in working capital (19.1) (27.0) (14.9)
Net cash inflow from operating activities 282.8 259.5 575.9
Associates' Dividends received from associates 1.8 - 2.0
dividends
Returns on Interest received 24.7 30.5 54.4
investments and Interest paid (55.5) (60.2) (109.2)
servicing of finance Interest element of finance lease payments (1.0) (1.1) (2.1)
Dividends paid to minority interests (0.3) (0.3) (0.6)
Net cash outflow from returns on
investments and servicing of finance (32.1) (31.1) (57.5)
Taxation Tax paid (50.2) (42.0) (104.7)
Capital Purchase of tangible fixed assets (89.8) (83.4) (183.5)
expenditure Less: financed by leases 5.2 4.0 11.4
and financial (84.6) (79.4) (172.1)
investment Sale of tangible fixed assets 5.6 4.0 10.9
Net cash outflow from capital expenditure
and financial investment (79.0) (75.4) (161.2)
Acquisitions and Purchase of companies and businesses (17.7) (30.7) (34.5)
disposals Disposal of companies and businesses 2.1 - -
Net cash outflow from acquisitions
and disposals (15.6) (30.7) (34.5)
Equity Dividends paid to equity shareholders (72.6) (68.1) (97.7)
dividends paid
Net cash inflow before use of liquid
resources and financing 35.1 12.2 122.3
Management of Movement in short term deposits
liquid resources with banks 118.6 (6.6) 83.5
Financing Issue of ordinary share capital 1.6 4.8 5.2
Own shares purchased (53.3) (177.8) (234.6)
Net loan movement (56.0) 400.2 297.6
Capital element of finance lease payments (6.1) (6.5) (13.2)
Net cash outflow from financing (113.8) 220.7 55.0
Net cash Increase in net cash in the period 39.9 226.3 260.8
STATEMENT OF TOTAL
RECOGNISED GAINS AND LOSSES
6 months to 6 months to Year to 31st
30th June 30th June December
2003 2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
Profit for the financial period 144.9 134.7 284.6
Currency translation adjustments 2.9 (7.2) (11.9)
Total gains recognised in the financial period 147.8 127.5 272.7
RECONCILIATION OF MOVEMENTS
IN EQUITY SHAREHOLDERS' FUNDS
6 months to 6 months to Year to 31st
30th June 30th June December
2003 2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
Profit for the financial period 144.9 134.7 284.6
Equity dividends (31.3) (28.4) (101.6)
Profit retained for the financial period 113.6 106.3 183.0
New share capital issued 1.6 4.8 5.2
Own shares purchased (59.6) (193.3) (237.5)
Goodwill written back on disposals (1.0) - -
Currency translation adjustments 2.9 (7.2) (11.9)
Net change in equity shareholders' funds 57.5 (89.4) (61.2)
Opening equity shareholders' funds (707.9) (646.7) (646.7)
Closing equity shareholders' funds (650.4) (736.1) (707.9)
CONSOLIDATED CASH FLOW STATEMENT
6 months to 6 months to Year to 31st
30th June 30th June December
2003 2002 2002
£m £m £m
(unaudited) (unaudited) (audited)
Reconciliation Opening net debt (1,260.4) (1,127.0) (1,127.0)
of movement Increase in net cash in the period 39.9 226.3 260.8
in net debt Movement in deposits and loans (62.6) (393.6) (381.1)
Finance lease movements 0.9 2.5 1.8
Acquisitions (2.5) - -
Disposals 0.8 - -
Currency translation adjustments (19.1) (15.8) (14.9)
Closing net debt (1,303.0) (1,307.6) (1,260.4)
NOTES
1. The profit and loss accounts and cash flow statements for the half years to
30th June 2002 and 2003 and for the year to 31st December 2002 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 average exchange rates to June
2003.
2. Between 1st January 2003 and 30th June 2003, the company had purchased
32.4m of its own shares in the market (representing 1.7% of the company's
issued share capital at 1st January 2003) under the authority given by
shareholders at the annual general meetings held on 30th May 2002 and 29th
May 2003. 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 29th May 2003, authorised
further buy-backs of up to 277m 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 2002. Full year 2002 figures are
taken from the accounts filed with the Registrar of Companies. The results
for the six months to 30th June 2003 and 30th June 2002 have not been
audited but have been reviewed by PricewaterhouseCoopers LLP, the company's
auditors.
4. Tax comprises UK Corporation Tax (less double taxation relief) £20.3m
(2002: £18.2m) and overseas tax £34.4m (2002: £32.9m).
5. Interim dividend to be paid on 31st October 2003 to shareholders on the
register on 3rd October 2003.
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 which
comprises a summarised profit and loss account, a statement of total gains and
losses, summarised balance sheet information as at 30 June 2003, a summarised
cash flow statement, comparative figures and associated notes. 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 reasons 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. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
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 30 June 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
London
WC2N 6RH
28th August 2003
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