Final Results
Rentokil Initial PLC
28 February 2002
28th February 2002
Rentokil Initial plc
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2001
RENTOKIL INITIAL DELIVERING STRONG GROWTH FROM
PRODUCTIVITY IMPROVEMENTS
• Turnover (continuing operations) +7.4% to £2242.4m
• Operating profits (continuing operations) +6.3% to £436.8m
• Earnings per share +13.6% to 13.30p
• Full year dividend per share +10.4% to 5.0p
• Strong performances in Hygiene, Conferencing and Parcels Delivery
businesses and geographically in Continental Europe and Asia Pacific and
Africa.
• Good turnaround in second half turnover in Facilities Management.
• Board expects continued strong growth in Earnings per share for 2002.
Turnover of continuing operations increased by 7.4% to £2242.4m, up 6.8% at
constant exchange rates. Turnover growth at constant exchange rates, after
eliminating the large acquisitions made in the USA (Tropical Plants) and Germany
(Hygiene) in the second half of 2000, increased from 5.1% in the first half of
2001 to 5.7% in the second half, to leave the full year increase at 5.4%.
Operating profits of continuing operations increased by 6.3% to £436.8m, up 6.6%
at constant exchange rates.
Earnings per share increased by 13.6% to 13.30p, benefiting from the good
increase in operating profits, the strong cash flow and the share buy-back
programme.
The Board has proposed a 10.5% increase in the Final Dividend to 3.57p per
share, giving a full year dividend of 5.00p per share, an increase of 10.4% over
2000.
2001 pre-tax profits were £374.3m. Pre-tax profit comparisons are difficult to
make due to the sale of a large number of businesses in 2000 and the share
buy-back programme increasing the company's interest payments, although such
comparisons will be more meaningful in 2002.
Commenting on the results, Chief Executive, Sir Clive Thompson said:
'These are very good results. Our improving rate of organic growth has delivered
turnover ahead of expectations. Our operating profits are in line with
expectations and, because our strong cash generation has reduced interest costs,
pre-tax profits and earnings per share are both slightly ahead of expectations.
There have been strong improvements in management performance driven by our new
business model which has led to the acceleration of organic growth. In order to
maintain and improve margins in a very competitive price environment, we have
concentrated upon productivity improvements in the following areas:
SALES
Retention of sales staff through improved:-
• Sales management
• Recruitment
• Incentives
• Training
Database Marketing and Leads Exchange initiatives to:-
• Reduce cold calling
• Improve sales productivity
• Increase localised density of clients
SERVICE
Customer retention by improving:-
• Quality of service
• Training to improve customer relationships
Service Productivity by improving:-
• Use of e.business technology
• Routing to increase productivity from localised density of clients
PROCUREMENT
Move towards achievement of £25m per annum of cost savings through co-ordination
of purchasing.'
SEGMENTAL COMMENTARY (at constant exchange rates)
Hygiene Services was up by 8.1% in turnover at £670.8m and 7.5% in operating
profits at £193.4m. Continental Europe was up by 12.1% in turnover at £387.5m,
with strong performances in France, The Netherlands, Italy, Portugal and
Switzerland. Germany was also strong, helped, particularly in the first half, by
the acquisition in the second half of 2000. UK turnover was up by 2.9% at
£195.2m, North America up 3.3% at £7.4m with a good performance in USA, and Asia
Pacific up by 3.5% at £80.7m with good performances in Australia, Malaysia,
South Korea, Hong Kong, Indonesia and Thailand.
Security Services turnover was up by 5.1% at £508.2m with operating profits
increasing by 2.7% to £49.0m. Both turnover and operating profits were adversely
impacted, particularly in the first half, by the restructuring of our Belgian
cash-in-transit business. Continental Europe turnover was up 4.2% at £117.1m
with good performances in France and The Netherlands. North America turnover was
up by 6.1% at £150.1m with a good second half performance in USA. UK turnover
was up by 4.9% at £241.0m.
Pest Control Services turnover was up by 4.8% at £204.3 m and operating profits
up by 8.7% at £76.1m. UK turnover was up by 2.4% at £68.1m and Continental
Europe up by 6.8% at £88.2m, with good performances in France, Ireland, Italy,
Portugal and Norway. North America turnover was up by 6.2% at £16.1m and Asia
Pacific and Africa turnover up by 4.1% at £31.9m, with good performances in
Malaysia and Indonesia.
Tropical Plants turnover grew by 16.4% to £125.6m and operating profits by 5.9%
to £23.5m. North America turnover was up by 20.8% at £78.9m, with the first half
helped by the acquisition in the USA in the second half of 2000. As previously
reported, the second half in the USA was adversely impacted by a decline in
seasonal activity in the normally buoyant festive season. Continental Europe
turnover was up by 20.5% at £23.6m. UK turnover was up by 1.0% at £13.3m. Asia
Pacific and Africa turnover was flat at £9.8m.
Conferencing turnover grew by 10.0% to £74.7m with operating profits up by 8.2%
to £27.8m which would have been greater but for the start up costs of a number
of major new developments scheduled to come on stream in 2002.
Parcels Delivery turnover was up by 23.6% at £194.6m with operating profits at
£31.4m up by 15.9% with our UK business continuing to enjoy the benefits of a
number of new and former customer gains and productivity benefits from our new
distribution hub, which came on stream in the second half of 2000, and with our,
much smaller, African business also producing strong turnover growth to £32.8m.
Facilities Management continued to improve with turnover growth in the second
half of 2.0% compared with the first half decline in turnover of 3.3%. As a
result of this improving trend in the second half, turnover for the full year at
£464.2m was only down 0.7%. Operating profits were down by 4.0% to £35.6m with
start up costs of some new contracts holding back second half profit growth.
GEOGRAPHIC COMMENTARY (at constant exchange rates)
As a result of the strategic restructuring of the business in 2000, partly to
minimise the exposure to cyclical businesses, the company's activities are
exhibiting good resilience to the current downturn in the world's economies.
UK turnover grew by 3.7% to £1092.1m and operating profits by 1.4% to £223.0 m.
Hygiene turnover was up by 2.9% at £195.2m, Security up by 4.9% to £241.0m, Pest
Control up by 2.4% at £68.1m, Tropical Plants up by 1.0% at £13.3m, with
Conferencing up by 10.0% to £74.7m, Facilities Management improving and
excellent growth from Parcels Delivery.
Continental Europe turnover was up by 10.0% to £660.5m with operating profits up
13.9% to £140.6m. Hygiene turnover was up by 12.1% to £387.5m, Security up by
4.2% at £117.1m, Pest Control up by 6.8% to £88.2m and Tropical Plants up by
20.5% to £23.6m.
North America turnover was up by 8.7% to £328.4m and operating profits by 6.5%
to £21.2m. Hygiene turnover was up by 3.3% to £7.4m, Security was up by 6.1% to
£150.1m, Pest Control up by 6.2% to £16.1m and Tropical Plants up by 20.8% to
£78.9m.
Asia Pacific and Africa turnover at £161.4m was up by 12.4% with operating
profits up by 12.1% to £52.0m. Hygiene turnover was up by 3.5% to £80.7m,
Tropical Plants turnover flat at £9.8m, with Pest Control turnover up by 4.1% to
£31.9m and Parcels Delivery growing strongly.
CASH FLOW before acquisitions, disposals, dividends and share buy-backs, has
been strong at £219m.
BORROWINGS Net borrowings at the year end were £1127m.
ACQUISITIONS 14 bolt-on acquisitions have been made (in our Hygiene, Security,
Pest Control and Tropical Plants businesses) which, together with deferred
consideration on earlier acquisitions, cost a total of £21m. Subsequent to the
year end, a further 4 bolt-on acquisitions have been made in our Hygiene and
Tropical Plants businesses in Scandinavia, Germany and USA at a total cost of
£21m.
SHARE BUY-BACK We purchased 136 million shares in 2001 at a cost of £278 million
with the most recent purchases made at 260p per share. At current market
borrowing rates share purchases, based on 2001 results, are earnings per share
enhancing up to 411p per share. Current issued share capital is 1950 million
shares.
FRS 17 (PENSIONS ACCOUNTING) Based upon professional actuarial assumptions, the
company's UK defined benefit pension scheme remains in surplus and, were FRS 17
to be fully implemented in 2002, the earnings of the company would be unchanged
from those to be reported under the existing accounting standard (SSAP 24).
PROSPECTS FOR 2002
We plan to continue to:
• Drive turnover from accelerating organic growth.
• Maintain and, where possible, improve profit margins.
• Make bolt-on acquisitions primarily in Hygiene and Security in North
America, UK and Continental Europe.
• Generate strong cash flow.
We expect good growth in turnover across our services with pre-tax profits
growing faster than turnover. The Board expects another year of strong growth in
earnings per share which could be further enhanced by the continuation, as
planned, of our share buy-back programme.
For further information:-
Sir Clive Thompson, Chief Executive ) 01342 833022
Roger Payne, Finance Director )
SEGMENTAL ANALYSIS
At 2001 average rates of exchange Year to 31st Year to 31st
December 2001 December 2000
£m £m
(restated)
Business Turnover
Analysis
Continuing operations:
Specialised services
- Hygiene 670.8 620.4
- Security 508.2 483.6
- Pest Control 204.3 194.9
- Tropical Plants 125.6 107.9
- Conferencing 74.7 67.9
- Parcels Delivery 194.6 157.5
Facilities Management 464.2 467.3
Total continuing operations at December 2001 2,242.4 2,099.5
average rates
Exchange - (12.5)
Continuing operations 2,242.4 2,087.0
Discontinued operations at December 2001 - 558.0
average rates
Exchange - (12.9)
Discontinued operations - 545.1
Total 2,242.4 2,632.1
Operating profits
Continuing operations:
Specialised services
- Hygiene 193.4 179.9
- Security 49.0 47.7
- Pest Control 76.1 70.0
- Tropical Plants 23.5 22.2
- Conferencing 27.8 25.7
- Parcels Delivery 31.4 27.1
Facilities Management 35.6 37.1
Total continuing operations at December 2001 436.8 409.7
average rates
Exchange - 1.4
Continuing operations 436.8 411.1
Discontinued operations at December 2001 - 18.0
average rates
Exchange - (0.7)
Discontinued operations - 17.3
Share of profit of other associate 0.3 0.4
Exceptional items - 7.0
Total 437.1 435.8
SEGMENTAL ANALYSIS
At 2001 average rates of exchange Year to 31st Year to 31st
December 2001 December 2000
£m £m
(restated)
Geographic Turnover
Analysis
Continuing operations:
United Kingdom 1,092.1 1,053.2
Continental Europe 660.5 600.7
North America 328.4 302.0
Asia Pacific & Africa 161.4 143.6
Total continuing operations at December 2001 2,242.4 2,099.5
average rates
Exchange - (12.5)
Continuing operations 2,242.4 2,087.0
Discontinued operations at December 2001 - 558.0
average rates
Exchange - (12.9)
Discontinued operations - 545.1
Total 2,242.4 2,632.1
Operating profits
Continuing operations:
United Kingdom 223.0 220.0
Continental Europe 140.6 123.4
North America 21.2 19.9
Asia Pacific & Africa 52.0 46.4
Total continuing operations at December 2001 436.8 409.7
average rates
Exchange - 1.4
Continuing operations 436.8 411.1
Discontinued operations at December 2001 - 18.0
average rates
Exchange - (0.7)
Discontinued operations - 17.3
Share of profit of other associate 0.3 0.4
Exceptional items - 7.0
Total 437.1 435.8
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year to 31st Year to 31st
December 2001 December 2000
£m £m
(restated)
Turnover (including share of associates and franchisees)
Continuing operations 2,228.1 2,087.0
Acquisitions 14.3 -
Total continuing operations 2,242.4 2,087.0
Discontinued operations - 545.1
2,242.4 2,632.1
Less:
Share of turnover of associate (19.5) (19.7)
Turnover of franchisees (79.0) (67.3)
Turnover 2,143.9 2,545.1
Operating expenses (1,710.8) (2,113.1)
Operating profit
Continuing operations before exceptional item 431.8 407.7
Exceptional item - (12.8)
431.8 394.9
Acquisitions 1.3 -
Continuing operations 433.1 394.9
Discontinued operations before exceptional item - 17.3
Exceptional item - 19.8
Discontinued operations - 37.1
433.1 432.0
Share of profit of associates
Continuing - mainstream 3.7 3.4
- other 0.3 0.4
4.0 3.8
Total operating profit 437.1 435.8
Profit and loss on disposals - -
Profit on ordinary activities before interest 437.1 435.8
Interest payable (net) (62.8) (34.7)
Profit on ordinary activities before taxation 374.3 401.1
Tax on profit on ordinary activities (108.2) (114.3)
Profit on ordinary activities after taxation 266.1 286.8
Minority interests (0.9) (1.2)
Profit attributable to shareholders 265.2 285.6
Equity dividends (94.9) (93.2)
Profit retained for the year 170.3 192.4
Earnings per 1p share 13.30p 11.71p
Diluted earnings per 1p share 13.26p 11.69p
Dividends per 1p share 5.00p 4.53p
Weighted average number of shares (million) 1,994 2,439
Number of shares in issue at 31st December (million) 1,950 2,083
CONSOLIDATED BALANCE SHEET
At 31st At 31st
December 2001 December 2000
£m £m
Fixed assets Intangible assets 138.4 120.2
Tangible assets 591.3 561.7
Investments in associates 12.0 11.3
Other investments 146.5 146.5
888.2 839.7
Current assets Stocks 48.2 44.2
Debtors 488.8 489.7
Short term deposits and cash 389.6 271.1
926.6 805.0
Creditors - amounts
falling due within Creditors (691.6) (675.3)
one year Bank and other borrowings (371.9) (312.2)
(1,063.5) (987.5)
Net current liabilities (136.9) (182.5)
Total assets less current liabilities 751.3 657.2
Creditors - amounts Creditors (11.7) (10.7)
falling due after more Bank and other borrowings (1,144.7) (921.7)
than one year
(1,156.4) (932.4)
Provisions for Provisions for liabilities and charges (236.0) (246.7)
liabilities and charges
Net liabilities (641.1) (521.9)
Equity capital Called up share capital 19.5 20.8
and reserves Share premium account 41.1 36.7
Capital redemption reserve 18.3 17.0
Other reserves 5.4 4.8
Profit and loss account (731.0) (606.7)
Equity shareholders' funds (646.7) (527.4)
Equity minority interests 5.6 5.5
Capital employed (641.1) (521.9)
CONSOLIDATED CASH FLOW STATEMENT
Year to 31st Year to 31st
December 2001 December 2000
£m £m
Operating Operating profit 433.1 432.0
activities Depreciation charge 144.6 165.1
Net movement in working capital (1.6) (12.6)
Non cash exceptional items - (7.0)
Net cash inflow from operating activities 576.1 577.5
Associates' Dividends received from associates 1.1 1.5
dividends
Returns on Interest received 33.6 24.5
investments and Interest paid (93.0) (59.1)
servicing of Interest element of finance lease payments (2.6) (2.7)
finance Dividends paid to minority interests (0.7) (0.8)
Net cash outflow from returns on investments (62.7) (38.1)
and servicing of finance
Taxation Tax paid (112.1) (136.9)
Capital Purchase of tangible fixed assets (200.3) (214.3)
expenditure Less: financed by leases 8.0 8.1
and financial (192.3) (206.2)
investment
Sale of tangible fixed assets 16.1 21.6
Net cash outflow from capital expenditure (176.2) (184.6)
Purchase of own shares for employee - (2.0)
share option schemes
Net cash outflow from capital expenditure (176.2) (186.6)
and financial investment
Acquisitions Purchase of companies and businesses (21.1) (103.4)
and disposals Less: net debt acquired - 22.3
Net cash outflow on acquisitions (21.1) (81.1)
Disposal of companies and businesses 1.9 605.4
Less:- loan notes and deferred consideration - (157.0)
- net debt disposed - (10.2)
Net cash inflow on disposals 1.9 438.2
Equity
dividends paid Dividends paid to shareholders (92.3) (109.1)
Net cash inflow Net cash inflow before use of liquid resources 114.7 465.4
and financing
Management of Movement in short term deposits (249.4) (4.5)
liquid resources with banks
Financing Issue of ordinary share capital 4.4 1.0
Own shares purchased for share buy-back (277.9) (1,303.8)
Net loan movement 229.0 649.7
Net finance lease movements (13.5) (14.6)
Net cash outflow from financing (58.0) (667.7)
Net cash Net cash outflow (192.7) (206.8)
CONSOLIDATED CASH FLOW STATEMENT (Continued)
Year to 31st Year to 31st
December 2001 December 2000
£m £m
Reconciliation of Net debt at 1st January (962.8) (88.8)
movement in net Cash flows (192.7) (206.8)
debt Acquisitions - (22.3)
Disposals - 10.2
Movement in deposits and loans 20.4 (645.2)
Movements in finance leases 5.5 6.5
Exchange adjustments 2.6 (16.4)
Net debt at 31st December (1,127.0) (962.8)
EQUITY SHAREHOLDERS' FUNDS MOVEMENTS
Year to 31st Year to 31st
December 2001 December 2000
£m £m
Profit for the financial year 265.2 285.6
attributable
to shareholders
Dividends (94.9) (93.2)
New share capital issued 4.4 1.0
Own shares purchased/cancelled (277.9) (1,303.8)
Write off of Ratin investment - (14.2)
Goodwill written back on disposed (11.5) 144.4
businesses
Exchange adjustments (4.6) 1.2
Net movement in equity shareholders' (119.3) (979.0)
funds
Opening equity shareholders' funds (527.4) 451.6
Closing equity shareholders' funds (646.7) (527.4)
NOTES
1. The profit and loss accounts and cash flow statements
for the year to 31st December 2001 and 31st December
2000, have been translated at average rates of exchange
for the relevant periods. Balance sheets have been
translated at period end rates. The segmental and
geographic commentaries are at constant 2001 exchange
rates.
2. 2000 turnover has been restated to exclude the share of
turnover of an associate which is not considered to be a
mainstream business. The share of profit for that
associate is also now shown separately from other
associates and excluded from the business and
geographic analysis.
3. During the year the company purchased a further 136m of
its own shares in the market (representing 6.5% of the
company's issued share capital at January 2001) under
the authorities given by shareholders at previous annual
and extraordinary general meetings. These shares have
been or were being cancelled and their nominal value
transferred to the capital redemption reserve on the
balance sheet. These shares have been excluded in
calculating the weighted average number of shares in
issue after the date of their purchase by the company.
As at 31st December 2001 authority had been given to
purchase a further 278 million shares.
4. During the year the company disposed of two businesses
realising net proceeds of £1.9m resulting in neither a
profit or loss on disposal.
5. Goodwill represents the excess of the fair value of the
consideration given over the aggregate of the fair
values of the identifiable net assets acquired.
Goodwill in respect of acquisitions made prior to
January 1998 remains eliminated against reserves. This
will be charged in the profit and loss account on
subsequent disposal of the business to which it relates.
NOTES
(Continued) 5. Goodwill in respect of acquisitions made since 1st
(Cont) January 1998 is shown as an asset and (in accordance
with FRS 10) each acquisition is assessed to determine
the useful economic life of the business and the
goodwill. For the types of business normally acquired by
the company, the board considers that the goodwill is an
inseparable part of the total value of the relevant
business. These are service businesses which are not
subject to high volatility in fashions or markets and
demand for these services is likely to continue for the
foreseeable future. Such businesses, if properly
managed, should grow in value over the years and hence
neither the value of the business nor the goodwill have
a measurable useful economic life and the goodwill is
not amortised. This treatment of goodwill represents a
departure from the Companies Act 1985 ('Act') which
requires goodwill to be amortised over its useful
economic life. However, such departure is permitted
under the Act in order to give a true and fair view. The
directors believe that it is not possible to identify
a finite life for goodwill in respect of acquisitions
and accordingly, the treatment of goodwill identified
above is necessary in order to give a true and fair
view. In view of the inability to identify a finite life
for goodwill in respect of acquisitions, it is not
possible to quantify the effects of such departure from
the Act. In the event that it could be considered that
the value of the business or its goodwill does have a
measurable economic life, then the goodwill would be
amortised through the profit and loss account by equal
instalments over such useful economic life. The
potential lives of the businesses and goodwill are
reviewed annually and revised where appropriate.
In the event that the useful economic life did not
exceed 20 years, goodwill would be subject to an
impairment review at the end of the year of acquisition
and at any other time in the event that the directors
believe that an impairment may have occurred. Where the
goodwill is assigned a useful economic life which is in
excess of 20 years or is indefinite, the value of the
relevant businesses and goodwill are assessed for
impairment against carrying values on an annual basis in
accordance with FRS 11. Any impairment would be charged
to the profit and loss account in the period in which it
arises.
6. Tax comprises UK Corporation Tax (less double taxation
relief) £37.8m (2000: £52.1m) and overseas tax £70.4m
(2000: £62.2m).
At 28.9% (2000: 28.5%) the company's effective tax rate
is 3.5% (2000: 4.1%) below its underlying tax rate based
on its geographic spread of profits, principally as a
result of benefiting from tax losses £2.7m
(2000: £9.8m), goodwill £1.8m (2000: £2.9m), adjustments
in respect of prior periods £7.8m (2000: £(3.8)m),
exceptional items £Nil (2000: £6.8m) and other items
£0.8m (2000: £0.8m).
7. The financial information has been prepared on the basis
of the accounting policies set out in the full year 2000
accounts.
During the year the company has implemented (in whole)
Financial Reporting Standard (FRS) 18 'Accounting
Policies' as issued by the Accounting Standards Board
(ASB) in 2000. In addition, the company has implemented
(in part) FRS 17 'Retirement Benefits', also issued by
the ASB in 2000, under transitional arrangements which
will require full adoption in the year ended 31st
December 2003. Neither FRS had any financial effect on
the results contained within the financial statements
for the year ended 31st December 2001.
FRS 19 'Deferred Tax' issued by the Accounting Standards
Board in December 2000 will be adopted by the company in
the financial year ended 31 December 2002.
8. The financial information in this statement does not
constitute statutory accounts within the meaning of
s.240 of the Companies Act 1985.
9. Copies of the annual 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.
Financial Calendar
Final dividend to be paid on 7th June 2002 to shareholders on the register
on 3rd May 2002.
Report and Accounts expected to be dispatched to shareholders in April 2002.
Annual General Meeting at The British Library, 96 Euston Road, London NW1
2DB on Thursday 30th May 2002 at 10.30am.
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