Interim Results
Rentokil Initial PLC
26 August 2004
26th August 2004
RENTOKIL INITIAL PLC
Chairman's Review
• Current problems are operational, not structural.
• No plans for major break-up or major disposals.
• Dividend reaffirmed at 6.71p, an increase of 10.0% over 2003. Further 10%
growth in dividend in 2005.
• Authority for share buy-back retained, although there is no immediate
intention to use this.
• Five key areas where focus and investment will transform performance:
1 Changing culture through devolvement of responsibility and increased
openness
2 Effectively rewarding and motivating over 90,000 employees
3 Making acquisitions happen
4 Accelerating IT development
5 Better commercial exploitation of inventions and developments
• Headhunters are well into the process of finding an experienced, high
calibre Chief Executive
Interim Results for the Half Year to 30th June 2004
• Turnover from continuing operations increased by
0.6% to £1,200.5m and by 2.4% at
constant 2003 average exchange rates
• Profit Before Tax declined by 10.0% to £180.4m and by 9.1%
at constant 2003 average exchange rates
• Operating Cash Flow up 1.4% to £119.7m, representing 89% of
after-tax profit
• Earnings Per Share declined by 7.5% to 7.26p
• Interim Dividend Per Share up 10.3% to 1.93p
Prospects for 2004
• Full Year Dividend reaffirmed at 6.71p, an increase of
10.0% over 2003.
• Full Year Profit Before Tax reaffirmed as should not be less than
£350m at constant 2003 average exchange
rates.
Invigorating Rentokil: The Chairman's Review
14-Week Review
Talking with and listening to major internal and external stakeholders.
Externally, the overwhelming common theme was a concern at the operational
issues facing the group - not the make up of the group. Internally the common
theme that emerged was one of frustration at slow processes.
Overall, however, Rentokil has excellent businesses with able and talented
people. Employees are enthusiastic and dedicated, keen to do well for
themselves, for the company and for the customers.
No immediate plans for major break-up or major disposals.
Rentokil does not suffer from the problem of a good core business being held
back by under performing peripheral businesses. The key to Rentokil is not in
divestment potential it is in getting the operational businesses working more
efficiently and effectively.
Parcels and Conferencing, the businesses that have been subject to most
speculation are highly profitable and relatively trouble-free. Indeed, the Group
expect to invest around £10 million on the conferencing business should we win
an anticipated new contract.
Five key areas where focus and investment will transform performance.
1. Changing culture through devolvement of responsibility and increased
openness;
The Group has been slow to react to changing market needs. New initiatives
will devolve responsibility and authority to the appropriate levels within
the business, encouraging managers to be more nimble.
There is a determination to adopt a more transparent approach externally.
This will be reflected in a resolve to open up lines of communication
internally, and promote greater openness in debate within and between the
businesses.
2. Effectively rewarding and motivating over 90,000 employees;
Despite employing over 90,000 people around the world Rentokil has
never had a central HR function. Jeanette Cowley has joined, from Marsh, the
world's leading risk consultancy, as the Group's first HR Director. Among
other things she will be responsible for ensuring that sales teams have the
necessary tools, support and incentives to win in an increasingly
competitive market.
3. Making acquisitions happen;
Acquisitions will now be on the agenda of every management meeting. A senior
M&A specialist will be appointed as Group Acquisitions Director, to sit
immediately below main board level. The Acquisitions Department will be
strengthened so that there is constant liaison with the operating management
at all levels in order to focus on acquisition opportunities. The main
thrust will be Hygiene and Security focused on the UK, Europe and North
America.
4. Accelerating IT development;
Development of new IT systems will be accelerated, including: increased use
of hand held technology in order to improve speed of service response and
communication with customers; upgraded internet platforms to make it easier
and more flexible for our customers to order products and services on line;
and finally the encouragement of best practice across the group in areas
such as service delivery.
5. Better commercial exploitation of inventions and developments;
Rentokil is good at inventions, but it is not so good at exploiting them or
getting them to market.
New marketing executives will help exploit these opportunities.
Chief Executive update
Headhunters have been appointed and are well into the process of finding an
experienced, high calibre Chief Executive. When that appointment is made Brian
McGowan will revert to non-executive Chairman. In the interim period McGowan
will continue as Executive Chairman and work alongside the management team to
ensure that positive action and the initiatives outlined above are effectively
carried out.
Brian McGowan, Executive Chairman said,
'As I anticipated when I spoke at the AGM, this is another very
disappointing set of results. I have spent the past fourteen weeks listening
to major internal and external stakeholders, and deciding on the actions
that need to be taken to invigorate Rentokil.
'Rentokil does not suffer from the problem of a good core business being
held back by under performing peripheral businesses. The key to future
growth is not divestment potential - it is in getting the businesses working
more effectively and more efficiently. This is what I have already started
to do.'
Interim Results for the Half Year to 30th June 2004
Turnover from continuing operations increased by 0.6% to £1,200.5m and by 2.4%
at constant 2003 average exchange rates. Total turnover (including franchisees
and share of associates of £57.1m) declined by 0.8% to £1,213.6m.
Operating profit from continuing operations declined by 10.6% to £201.1m and by
9.9% at constant 2003 average exchange rates.
Profit before tax declined by 10.0% to £180.4m and by 9.1% at constant 2003
average exchange rates.
Earnings per share declined by 7.5% to 7.26p.
Operating cash flow (before management of liquid resources, financing,
dividends, acquisitions, disposals and adjusted for capital expenditure financed
by leases) was excellent, the £119.7m representing 89% conversion of after-tax
profit and an increase of 1.4% over 2003.
Dividends and share buy-backs The Board has declared an interim dividend of 1.93
pence per share, an increase of 10.3% over 2003. The Board reaffirms its
intention, announced at the annual general meeting on 27 May 2004, to recommend
a total dividend of 6.71 pence per share for the year to 31 December 2004,
representing an increase of 10.0% over 2003.
The Board also announces that, in the absence of unforeseen circumstances, it
intends to recommend an increase in the dividend for 2005 of a further 10% to
7.38p per share. Thereafter, dividend increases will be broadly linked to
earnings per share growth over the medium term.
Whilst the group retains authority to make market purchases of its own shares,
in the light of a greater future focus upon acquisitions, it is not the
intention to use it at present.
Segmental Commentary - Continuing Operations
(at constant 2003 average exchange rates)
Hygiene
Total Hygiene turnover grew by 1.5% to £494.3m with operating profit down by
11.6% to £127.9m.
Hygiene Services turnover was up by 1.5% at £381.9m and down 14.1% in
operating profit at £88.5m.
- Within the total turnover of £381.9m washroom declined by 0.7% to
£152.6m, garments increased by 6.3% to £126.0m, floorcare increased by
5.9% to £21.4m, linen held steady at £54.5m, whilst other hygiene
decreased by 7.1% to £27.4m.
- In the UK, where significant restructuring continues, including
further senior management changes, turnover fell by 4.7% to £87.5m and
operating profit by 39.6% to £17.3m. Of particular concern within the
textiles operation are the results of the linen business and external
consultants have recently been appointed to review the options for this
part of the business.
- Continental Europe was up 4.1% in turnover at £249.6m and down by
2.3% in operating profit at £55.6m with strong growth in France, Spain
and Portugal and good growth in Belgium and Ireland. Germany continued
to regress in turnover (-1.8%) and operating profit (-23.7%) due to
general economic pressures, increased investment and continuing
difficulties in the hospital linen sub sector where a new managing
director is reviewing the future options in respect thereof.
- In the small North American business turnover fell by 1.7% to
£3.0m with a larger reduction in operating profit to £0.7m.
- Asia Pacific and Africa turnover increased by 0.5% to £41.8m
whilst operating profit fell by 9.3% to £14.9m. Strong turnover growth
in Malaysia complemented good performances from our joint ventures in
Japan and South Korea. Of our larger businesses both Australia and South
Africa showed flat turnover with operating profits regressing by 8.1%
and 3.6% respectively.
Pest Control turnover increased by 1.5% to £112.4m whilst operating profit
fell by 5.5% to £39.4m.
- Accentuated by a continuing softness in the highly profitable job
sector, the UK's turnover growth was held back to 0.6% at £34.5m with
operating profit regressing by 6.3% to £16.1m.
- Turnover in Continental Europe increased by 0.6% to £52.4m with
operating profit falling by 5.0% to £17.0m. Turnover growth was
excellent in Italy and good in Belgium and Portugal, whilst Switzerland
and Scandinavia disappointed. Although not to the same extent as
Hygiene, Germany also regressed in turnover and operating profit by 1.9%
and 5.0% respectively.
- North America turnover increased by 4.2% to £8.1m with a strong
performance in Canada, although overall operating profit fell by 1.3% to
£1.4m.
- Asia Pacific and Africa grew turnover by 5.3% to £17.4m with
strong performances in Australia and New Zealand although operating
profit fell by 4.9% to £4.9m.
Security
Security turnover grew by 2.3% to £290.6m with operating profit down by
1.8% to £27.0m.
- Within the total, electronic turnover grew by 6.0% to
£122.2m, with operating profit, down 1.2%, at £20.8m. Manned
guarding turnover was flat at £168.4m, with operating profit
declining by 3.8% to £6.2m.
- UK turnover reduced by 3.5% to £128.7m a flat performance
in electronic being offset by a 7.3% reduction in manned
guarding. Operating profit declined by 6.8% to £17.0m, a small
reduction in electronic being compounded by a significantly
higher reduction in manned guarding.
- Turnover in Continental Europe increased by 7.2% to £70.3m
and operating profit by 8.4% to £6.5m with an excellent
performance in Belgium, good growth in France and a sound
performance in the Netherlands.
- In North America turnover grew by 7.7% to £91.6m and
operating profit by 7.8% to £3.5m with an excellent result in
Canada and strong growth in USA, each assisted by bolt-on
acquisitions.
Facilities Management
Total Facilities Management turnover grew by 1.7% to £327.5m with
operating profit declining by 12.7% to £34.9m.
Facilities Management Services increased turnover by 2.5% to £231.6m
with operating profit down by 6.8% to £17.9m.
- In the UK turnover grew by 2.2% to £193.6m with operating
profit regressing by 7.2% to £16.0m as a consequence of margin
erosion on re-tenders and new business wins.
- In Continental Europe turnover grew by 7.0% to £25.2m with
operating profit declining to £1.3m, due, in particular, to
intense margin pressure in Spain.
- North America and Asia Pacific Africa each showed broadly
flat turnover at £10.9m and £1.9m respectively.
Tropical Plants turnover, at £52.2m, was 3.5% lower whilst operating
profit fell by 38.0% to £4.9m due to the combined effects of pricing
pressure and maintained investment.
- UK turnover increased by 0.9% to £6.3m with operating
profit declining by 42.8% to £1.2m.
- Turnover in Continental Europe fell by 6.6% to £13.9m,
only Netherlands showing marginal growth assisted by an
acquisition. Operating profit fell by 7.4% to £2.0m despite
growth in Denmark, Netherlands and Sweden.
- In North America turnover regressed by 2.7% to £27.3m,
despite good growth in Canada, whilst operating profit at £0.9m
was 61.5% lower.
- Turnover in Asia Pacific and Africa fell by 4.4% to £4.7m
with operating profit 39.4% lower at £0.8m, good growth in South
Africa being negated by a significant reduction in Australia.
Conferencing turnover at £43.7m was 4.3% ahead, although operating
profit declined by 6.2% to £12.1m due to continuing softness in weekend
bookings, higher margin discretionary spend and pricing in some of the
quieter periods. The business continues to attract long-term contract
interest from 'blue chip' companies.
Parcels Delivery
Turnover grew by 9.7% to £109.6m, the UK representing £109.1m of the total.
Operating profit, however, increased by 1.5% to £13.6m, the previously reported
mix issues continuing.
Geographical Commentary - Continuing Operations
(at constant 2003 average exchange rates).
UK turnover grew by 1.2% to £603.4m with operating profit down by 15.1% to
£93.1m.
Continental Europe turnover was up by 3.9% at £411.4m with operating profit
declining by 2.5% to £82.4m.
North America turnover increased by 4.3% to £140.9m with operating profit 21.8%
lower at £6.1m.
Asia Pacific and Africa turnover at £66.3m was up by 1.4% although operating
profit regressed by 7.6%m to £21.8m.
Other Items
Currency. Losses on exchange in continuing businesses, compared to constant 2003
average exchange rates, were £21.5m on turnover (including Europe £8.2m, USA
£10.8m) and £2.3m on profit before tax (including Europe £1.7m, USA £0.5m).
Contract Portfolio. To facilitate greater transparency, for the first time,
unaudited pro-forma management information in respect of the annualised value of
the contract portfolio of continuing businesses and net gain thereon of £24.6m
for the first half of 2004 are shown as Appendix 1 at the end of this release.
Interest expense (net of the £3.5m receivable on the Ashtead convertible loan
note) at £21.4m was 13% lower than 2003, benefiting from a combination of
ongoing cash flow and low interest rates, hedged on a short-term basis. Given
the high proportion of net debt in sterling denomination and the recent
progressive increases in the UK base rate, the net interest charge in the second
half (assuming no further acquisitions, disposals or share buy-backs but after
continuing Ashtead interest) is likely to be in the range of £28.5m to £29.5m
compared to £22.4m in the second half of 2003.
Net Debt at 30th June 2004 was £1,186.5m, representing a reduction of £21.4m
compared to 31st December 2003. At the end of July Standard and Poors
reconfirmed a credit rating of BBB+ with a stable outlook.
Tax The profit and loss account tax rate was 26.5% compared to 27.3% for the
first half of 2003 and 26.5% for 2003 as a whole. A rate within the range of 26%
to 28% is seen as sustainable for the foreseeable future.
Acquisitions Eight bolt-on acquisitions, with aggregate annualised turnover of
c. £8.0m, were made in Hygiene, Security and Tropical Plants, in UK, Continental
Europe, North America and Asia Pacific at a total cost of £15.9m. These
contributed £1.5m to turnover in the first half of 2004 and £0.2m to profit
before tax.
Disposals Two under-performing businesses within the North America Facilities
Management activity were sold during the first half of 2004, these businesses
having produced turnover and a loss before tax for the full year 2003 of £40.3m
and £0.5m respectively.
Ashtead resumed the payment of interest on a current basis in April 2004. We
continue to closely monitor developments at Ashtead and there is no intention to
reduce the carrying value of the loan note and accrued interest totalling
£143.2m.
Pensions As previously anticipated, the company recommended cash contributions
to the UK defined benefit scheme with a payment of £6.8m in March 2004. It is
currently the intention to pay a further c. £10.0m in March 2005. Contributions
thereafter will be determined by the outcome of the March 2005 triennial
revaluation which, whilst not quantifiable at this stage, is likely to show a
significant increase.
International Financial Reporting Standards In conjunction with our auditors,
PricewaterhouseCoopers, the company continues to make good progress in planning
for the introduction of IFRS with effect from 1st January 2005.
Prospects for 2004 The Board reaffirms the previous statements that profit
before tax for the year 2004, at constant average 2003 exchange rates, should be
not less than £350m.
For further information:-
B D McGowan, Chairman
R C Payne, Finance Director
C D Grimaldi, Corporate Affairs Director
01342 833022
John Sunnucks, Brunswick Group LLP
Jonathan Rhodes, Brunswick Group LLP
020 7404 5959
Alex Mackey, Catallus Consulting
07773 787458
www.rentokil-initial.com
------------------------
APPENDIX 1
PRO-FORMA ANNUALISED VALUE OF CONTRACT PORTFOLIO OF CONTINUING BUSINESSES
New Net
£m at constant 2003 1.1.04 Business Terminations Additions/ Acquisitions 30.6.04
average exchange rates Reductions
(note 1)
Hygiene Services 726.5 41.1 (41.0) 6.8 3.3 736.7
Pest Control 179.8 16.6 (17.5) 3.2 0.3 182.4
Total Hygiene 906.3 57.7 (58.5) 10.0 3.6 919.1
Electronic 81.5 4.0 (3.5) 2.6 2.5 87.1
Manned Guarding 314.2 24.7 (25.6) 1.7 - 315.0
Total Security 395.7 28.7 (29.1) 4.3 2.5 402.1
Facilities Management Services 380.1 28.8 (29.7) 5.5 - 384.7
Tropical Plants 91.7 5.4 (7.3) 2.0 0.5 92.3
Conferencing 35.8 - (0.1) 0.3 - 36.0
Total Facilities Management 507.6 34.2 (37.1) 7.8 0.5 513.0
TOTAL 1,809.6 120.6 (124.7) 22.1 6.6 1,834.2
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
6 months to 6 months to Year to 31st
30th June 30th June December
2004 2003 2003
£m £m £m
(unaudited) (unaudited) (audited)
Business Turnover
analysis
Continuing operations at 2003 average exchange rates:
Hygiene Services 381.9 376.3 758.1
Pest Control 112.4 110.7 224.4
Hygiene 494.3 487.0 982.5
Security 290.6 284.0 584.0
Facilities Management Services 231.6 225.9 452.7
Tropical Plants 52.2 54.1 112.6
Conferencing 43.7 41.9 85.8
Facilities Management 327.5 321.9 651.1
Parcels Delivery 109.6 99.9 213.2
Total continuing operations at 2003 average exchange rates 1,222.0 1,192.8 2,430.8
Exchange (21.5) - -
Continuing operations at reported exchange rates 1,200.5 1,192.8 2,430.8
Discontinued operations 13.1 31.1 55.4
Total as reported (including franchisees and share of 1,213.6 1,223.9 2,486.2
associates)
Operating Profit
Continuing operations at 2003 average exchange rates:
Hygiene Services 88.5 103.0 202.6
Pest Control 39.4 41.7 84.8
Hygiene 127.9 144.7 287.4
Security 27.0 27.5 58.1
Facilities Management Services 17.9 19.2 35.6
Tropical Plants 4.9 7.9 17.8
Conferencing 12.1 12.9 26.4
Facilities Management 34.9 40.0 79.8
Parcels Delivery 13.6 13.4 30.9
Total continuing operations at 2003 average exchange rates 203.4 225.6 456.2
Exchange (2.3) (0.6) -
Continuing operations at reported exchange rates 201.1 225.0 456.2
Discontinued operations 0.7 0.1 (0.7)
Total as reported (including share of associates) 201.8 225.1 455.5
SEGMENTAL ANALYSIS
6 months to 6 months to Year to 31st
30th June 30th June December
2004 2003 2003
£m £m £m
(unaudited) (unaudited) (audited)
Geographic Turnover
analysis
Continuing operations at 2003 average exchange rates:
United Kingdom 603.4 596.3 1,205.4
Continental Europe 411.4 396.0 806.3
North America 140.9 135.1 284.4
Asia Pacific and Africa 66.3 65.4 134.7
Total continuing operations at 2003 average exchange rates 1,222.0 1,192.8 2,430.8
Exchange (21.5) - -
Continuing operations at reported exchange rates 1,200.5 1,192.8 2,430.8
Discontinued operations 13.1 31.1 55.4
Total as reported (including franchisees and share of 1,213.6 1,223.9 2,486.2
associates)
Operating Profit
Continuing operations at 2003 average exchange rates:
United Kingdom 93.1 109.7 219.5
Continental Europe 82.4 84.5 171.1
North America 6.1 7.8 17.2
Asia Pacific and Africa 21.8 23.6 48.4
Total continuing operations at 2003 average exchange rates 203.4 225.6 456.2
Exchange (2.3) (0.6) -
Continuing operations at reported exchange rates 201.1 225.0 456.2
Discontinued operations 0.7 0.1 (0.7)
Total as reported (including share of associates) 201.8 225.1 455.5
CONSOLIDATED PROFIT AND LOSS ACCOUNT
6 months to 6 months to Year to 31st
30th June 30th June December
2004 2003 2003
£m £m £m
(unaudited) (unaudited) (audited)
Turnover (including franchisees and share of associates)
Continuing operations 1,199.0 1,192.8 2,430.8
Acquisitions 1.5 - -
Total continuing operations 1,200.5 1,192.8 2,430.8
Discontinued operations 13.1 31.1 55.4
Turnover (including franchisees and share of associates) 1,213.6 1,223.9 2,486.2
Less:
Share of turnover of associates (all continuing) (9.3) (9.2) (18.7)
Turnover of franchisees (all continuing) (47.8) (44.8) (101.2)
Group turnover 1,156.5 1,169.9 2,366.3
Operating expenses (956.8) (946.6) (1,914.4)
Group operating profit
Continuing operations 198.6 223.2 452.6
Acquisitions 0.4 - -
Continuing operations 199.0 223.2 452.6
Discontinued operations 0.7 0.1 (0.7)
Group operating profit 199.7 223.3 451.9
Share of profit of associates (all continuing) 2.1 1.8 3.6
Total operating profit 201.8 225.1 455.5
Loss on disposal of businesses - - (11.7)
Profit on ordinary activities before interest 201.8 225.1 443.8
Interest payable (net) (21.4) (24.6) (47.0)
Profit on ordinary activities before taxation 180.4 200.5 396.8
Tax on profit on ordinary activities (47.8) (54.7) (105.2)
Profit on ordinary activities after taxation 132.6 145.8 291.6
Equity minority interests (1.0) (0.9) (1.5)
Profit for the financial period attributable to shareholders 131.6 144.9 290.1
Equity dividends (34.5) (31.3) (110.1)
Profit retained for the financial period 97.1 113.6 180.0
Basic earnings per 1p share 7.26p 7.85p 15.83p
Adjusted earnings per 1p share 7.26p 7.85p 16.47p
Diluted earnings per 1p share 7.26p 7.84p 15.81p
Dividends per 1p share 1.93p 1.75p 6.10p
Weighted average number of shares (million) 1,813 1,846 1,833
Number of shares in issue at period end (million) 1,810 1,830 1,824
CONSOLIDATED BALANCE SHEET
At 31st
At 30th June At 30th June December
2004 2003 2003
£m £m £m
restated restated
(unaudited) (unaudited) (audited)
Fixed assets Intangible assets 204.1 197.3 195.7
Tangible assets 643.8 643.6 662.8
Investments 11.9 10.1 11.7
859.8 851.0 870.2
Current assets Stocks 46.4 49.1 45.2
Debtors due within one year 423.7 474.5 451.8
Debtors due after one year 169.2 178.8 167.6
Short term deposits and cash 215.3 127.5 272.8
854.6 829.9 937.4
Creditors - amounts Creditors (682.9) (707.2) (754.9)
falling due within Bank and other borrowings (119.0) (82.6) (82.9)
one year (801.9) (789.8) (837.8)
Net current assets 52.7 40.1 99.6
Total assets less current liabilities 912.5 891.1 969.8
Creditors - amounts Creditors (11.2) (10.3) (10.4)
falling due after Bank and other borrowings (1,282.8) (1,347.9) (1,397.8)
more than one year (1,294.0) (1,358.2) (1,408.2)
Provisions for Provisions for liabilities and charges (177.0) (204.1) (186.2)
liabilities and charges
Net liabilities (558.5) (671.2) (624.6)
Equity capital and Called up share capital 18.1 18.3 18.2
reserves Share premium account 49.5 47.9 49.2
Capital redemption reserve 19.7 19.5 19.6
Treasury shares (11.1) (12.0) (12.0)
Other reserves 8.4 8.6 8.9
Profit and loss account (650.1) (760.4) (715.0)
Equity shareholders' funds (565.5) (678.1) (631.1)
Equity minority interests 7.0 6.9 6.5
Capital employed (558.5) (671.2) (624.6)
CONSOLIDATED CASH FLOW STATEMENT
6 months to 6 months to Year to 31st
30th June 30th June December
2004 2003 2003
£m £m £m
(unaudited) (unaudited) (audited)
Operating Operating profit 199.7 223.3 451.9
activities Depreciation charge (net of recovery on 79.7 78.6 157.0
disposals)
Net movement in working capital (7.9) (19.1) 1.4
Net cash inflow from operating activities 271.5 282.8 610.3
Associates' Dividends received from associates 0.6 1.8 1.3
dividends
Returns on Interest received 30.7 24.7 49.3
investments and Interest paid (49.6) (55.5) (104.7)
servicing of finance Interest element of finance lease payments (0.9) (1.0) (1.9)
Dividends paid to minority interests (0.4) (0.3) (0.6)
Net cash outflow from returns on investments and
servicing of finance (20.2) (32.1) (57.9)
Taxation Tax paid (46.5) (50.2) (111.9)
Capital Purchase of tangible fixed assets (90.0) (89.8) (187.8)
expenditure and Less: financed by leases 4.2 5.2 13.1
financial investment (85.8) (84.6) (174.7)
Sale of tangible fixed assets 4.3 5.6 15.3
Net cash outflow for capital expenditure and
financial investment (81.5) (79.0) (159.4)
Acquisitions and Purchase of companies and businesses (14.8) (17.7) (21.2)
disposals Disposal of companies and businesses 1.8 2.1 6.4
Net cash outflow from acquisitions and disposals (13.0) (15.6) (14.8)
Equity Dividends paid to equity shareholders (78.7) (72.6) (104.4)
dividends paid
Net cash inflow before use of liquid resources
and financing 32.2 35.1 163.2
Management of Movement in short term deposits with banks 29.0 118.6 13.0
liquid resources
Financing Issue of ordinary share capital 0.3 1.6 2.9
Own shares purchased (24.2) (53.3) (75.9)
Net loan movement (75.2) (56.0) (9.8)
Capital element of finance lease payments (6.7) (6.1) (12.8)
Net cash outflow from financing (105.8) (113.8) (95.6)
Net cash (Decrease)/Increase in net cash in the period (44.6) 39.9 80.6
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
6 months to 6 months to Year to 31st
30th June 30th June December
2004 2003 2003
£m £m £m
(unaudited) (unaudited) (audited)
Profit for the financial period 131.6 144.9 290.1
Currency translation adjustments (5.5) 2.9 (3.6)
Total gains recognised in the financial period 126.1 147.8 286.5
Prior year adjustment on adoption of amendment to FRS 5 - (15.7) (15.7)
Total gains recognised since last report 126.1 132.1 270.8
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
6 months to 6 months to Year to 31st
30th June 30th June December
2004 2003 2003
£m £m £m
restated restated
(unaudited) (unaudited) (audited)
Profit for the financial period 131.6 144.9 290.1
Equity dividends (34.5) (31.3) (110.1)
Profit retained for the financial period 97.1 113.6 180.0
New share capital issued 0.3 1.6 2.9
Own shares purchased (24.2) (59.6) (73.1)
Negative goodwill written back on disposals (3.0) (1.0) (1.7)
Deferred share awards and share options exercised 0.9 - -
Other recognised gains and (losses) in the financial period (5.5) 2.9 (3.6)
Net change in equity shareholders' funds 65.6 57.5 104.5
Equity shareholders' funds at 1st January (631.1) (723.6) (723.6)
Prior year adjustment on adoption of UITF 38 - (12.0) (12.0)
(631.1) (735.6) (735.6)
Equity shareholders' funds at end of period (565.5) (678.1) (631.1)
RECONCILIATON OF MOVEMENT IN NET DEBT
6 months to 6 months to Year to 31st
30th June 30th June December
2004 2003 2003
£m £m £m
(unaudited) (unaudited) (audited)
Opening net debt (1,207.9) (1,260.4) (1,260.4)
Change in net cash in the period (44.6) 39.9 80.6
Acquisitions (0.4) (2.5) (2.5)
Disposals 2.7 0.8 1.0
Movement in deposits and loans 46.2 (62.6) (3.2)
Finance lease movements 2.5 0.9 (0.3)
Currency translation adjustments 15.0 (19.1) (23.1)
Closing net debt (1,186.5) (1,303.0) (1,207.9)
NOTES 1. The profit and loss accounts and cash flow statements for the
half years to 30th June 2003 and 2004 and for the year to 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 statements and commentaries have been
translated at 2003 average exchange rates for all three periods.
2. The financial information has been prepared on the basis of the
accounting policies set out in the 2003 Annual Report. Full year
2003 figures are taken from the accounts filed with the Registrar
of Companies. The results for the six months to 30th June 2004
and 30th June 2003 have not been audited but have been reviewed
by PricewaterhouseCoopers, the company's auditors.
3. The prior year adjustment represents amounts transferred to
shareholders' funds in respect of own shares held in the Rentokil
Initial Employee Share Trust to satisfy obligations under the
Rentokil Initial share option schemes. These shares were
originally carried at cost as part of fixed assets investments
and have been reclassified as Treasury Shares and transferred to
shareholders' funds in accordance with UITF 38 which was
published in December 2003 and effective for accounting periods
ending on or after 22nd June 2004. The June 2003 and December
2003 balance sheets have been restated accordingly.
As already noted in the 2003 Annual Report, the group adopted
Application Note G for the year ended 31st December 2003, which
resulted in a prior year adjustment being made in the 2003
accounts. The 30th June 2003 balance sheet has been restated to
reflect the same prior year adjustment, resulting in an increase
in creditors of £18.5m and a decrease in deferred taxation
of £2.8m, with a corresponding reduction in shareholders' funds.
Also referred to in the 2003 Annual Report was the
reclassification of the Ashtead loan note from investments to
debtors due after more than one year. The June 2003 balance sheet
has also been restated to reflect the same treatment.
4. Tax comprises UK Corporation Tax (less double taxation relief)
£15.0m (2003: £20.3m) and overseas tax £32.8m (2003: £34.4m).
5. Interim dividend to be paid on 29th October 2004 to shareholders
on the register on 1st October 2004.
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 30th June 2004, 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 mis-statements 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 30th June 2004.
PricewaterhouseCoopers LLP
Chartered Accountants
London
WC2N 6RH
26th August 2004
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