Interim Results
Rentokil Initial PLC
30 August 2001
Rentokil Initial plc
Interim Results for the half year to 30th June 2001
RENTOKIL INITIAL DELIVERING STRONG GROWTH AFTER
MAJOR RESTRUCTURING
* Turnover (continuing businesses) +8.6% to £1101.0m
* Operating profits (continuing businesses) +7.7% to £206.1m
* Earnings per Share +12.1% to 6.10p
* Dividend +10.0% to 1.43p
* Excellent performances in Hygiene and Parcels Delivery businesses and
geographically in Continental Europe.
* New business model improves management performance.
* Board continues to expect strong growth in Earnings per Share for 2001.
Following the major restructuring of our business last year, our strategy to
concentrate on accelerating organic growth whilst maintaining and, where
possible, improving operating margins, has produced very encouraging results
in the first half of 2001. These results reinforce our expectations for the
full year.
Our new business model, introduced in the second half of last year, has
resulted in strong improvements in management performance. This new model
involves revised budgeting procedures, new incentives, and a greater
concentration upon sales and service productivity using new technology.
Increased geographic density of customers, in order to further improve
productivity, is a specific priority. e-Business initiatives continue to
improve service, sales and procurement.
Specifically, turnover of continuing businesses increased by 8.6% to £1101.0m,
up 7.7% at constant exchange rates. Operating profits of continuing businesses
increased by 7.7% to £206.1m, up 8.0% at constant exchange rates.
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.
Earnings per share increased by 12.1% to 6.10p, benefiting from the good
increase in operating profits, the strong cash flow and the share buy-back
programme.
Segmental Commentary (at constant exchange rates)
Hygiene Services was up by 10.1% in turnover at £333.6m and 10.3% in operating
profits at £93.3m. Continental Europe was up by 16.3% in turnover at £190.6m,
with strong performances in France, The Netherlands, Italy, Portugal, Spain
and Switzerland. Germany was also strong, helped by last year's acquisition.
UK turnover was up by 2.8% at £98.4m, North America up 4.7% at £3.7m with a
good performance in USA, and Asia Pacific up by 2.8% at £40.9m with sound
performances in Australia, Malaysia, South Korea, Hong Kong, Indonesia and
Thailand.
Security Services turnover was up by 4.3% at £247.3m with operating profits
flat at £22.5m. Both turnover and operating profits were adversely impacted by
the restructuring of our Belgian cash-in-transit business. Continental Europe
turnover was up 1.1% at £56.5m with good performances in France and The
Netherlands. North America turnover was up by 6.3% at £72.1m with a good
performance in USA. UK turnover was up by 4.7% at £118.7m.
Pest Control Services turnover was up by 4.3% at £100.4m and operating profits
up by 8.0% at £36.6m. UK turnover was up by 2.1% at £33.5m and Continental
Europe up by 6.1% at £42.9m, with good performances in France, Ireland, Italy,
Portugal and Norway. North America turnover was up by 2.9% at £7.7m and Asia
Pacific and Africa turnover up by 4.5% at £16.3m, with good performances in
South Africa, Thailand and Indonesia.
Tropical Plants turnover grew by 33.0% to £60.4m and operating profits by 6.9%
to £9.3m. North America turnover was up by 52.2% at £36.9m, helped by last
year's acquisition in USA which, itself, adversely impacted on operating
profits due to a number of loss making branches which are being restructured
over the next nine months. Continental Europe turnover was up by 23.9% at
£11.8m with excellent performances across the region. UK turnover was flat at
£6.5m in comparison with a very successful performance in 2000 linked to
millennium celebrations. Asia Pacific turnover was up by 2.6% at £5.2m with a
sound performance in South Africa.
Conferencing turnover grew by 12.5% to £36.1m with operating profits up by
only 5.6% to £13.3m due to first time impact of FRS 15 and set up costs of a
number of major new developments.
Parcels delivery turnover was up by an outstanding 32.5% at £91.0m with
operating profits at £12.6m up by 35.5% with our UK business enjoying the
benefits of a number of new and former customer gains and productivity
benefits from our new distribution hub.
Facilities Management continued to improve, with the decline in turnover
caused by the remnants of the two large contracts lost in 1999 slowing to 3.3%
and with operating profits down by 3.6% to £18.5m. New contract gains should
produce growth in turnover in the second half.
Geographic Commentary (at constant exchange rates)
As a result of the major restructuring of 2000, the company's activities
should be resilient to any downturn in the world's economies.
UK turnover grew by 3.7% to £540.0m and operating profits by 3.6% to £107.5m.
Hygiene turnover was up by 2.8% at £98.4m, Security up by 4.7% to £118.7m,
Tropical Plants flat at £6.5m, Pest Control up by 2.1% at £33.5m, with
Conferencing up by 12.5% to £36.1m, Facilities Management improving and
excellent growth from Parcels Delivery.
Continental Europe turnover was up by 11.6% to £323.5m with operating profits
up 14.1% to £64.6m. Hygiene turnover was up by 16.3% to £190.6m, Security up
by 1.1% at £56.5m, Tropical Plants up by 23.9% to £11.8m and Pest Control up
by 6.1% to £42.9m.
North America turnover was up by 13.3% to £159.5m and operating profits by
2.2% to £9.4m. Hygiene turnover was up by 4.7% to £3.7m, Security was up by
6.3% to £72.1m, Tropical Plants up by 52.2% to £36.9m and Pest Control up by
2.9% to £7.7m.
Asia Pacific and Africa turnover at £78.0m was up by 9.1% and operating
profits by 15.5% to £24.6m. Hygiene turnover was up by 2.8% to £40.9m,
Tropical Plants turnover up by 2.6% to £5.2m, with Pest Control turnover up by
4.5% to £16.3m.
Cash Flow before acquisitions, disposals, dividends and share buy-backs, has
been very strong at £109m.
Acquisitions Seven bolt-on acquisitions have been made (in our Tropical Plants
and Security businesses) at a total cost of £8m.
Share buy-back We have purchased 120 million shares this year at a cost of
£236m although no purchases have been made for three months.
Borrowings Net borrowings at the half year were £1145.6m
Dividend The Board has announced a 10% increase in the Interim Dividend to
1.43 p.
Prospects for 2001
We expect the favourable trends exhibited in the first six months to broadly
continue throughout the year.
Our new business model and other initiatives, together with bolt-on
acquisitions, are leading to accelerating organic turnover growth and improved
operating margin.
Our concentration on bolt-on acquisitions will continue to be directed
principally towards Hygiene and Security, primarily in North America, UK and
Continental Europe.
With this improving performance, strong cash flow and the benefits of our
share buy-back programme to date, the Board continues to expect strong
earnings per share growth in 2001 over the 11.71p achieved in 2000.
Issued for: Rentokil Initial plc, Felcourt, East Grinstead, West Sussex
Press enquiries: Sir Clive Thompson, Chief Executive )(01342) 833022
R C Payne, Finance Director )
SEGMENTAL ANALYSIS
6 months to 6 months to Year to 31st
30th June 30th June December
2001 2000 2000
£m £m £m
At June 2001 average exchange
rates
Business Turnover
Analysis
Continuing operations:
Hygiene 333.6 303.0 622.1
Security 247.3 237.1 484.0
Pest Control 100.4 96.3 195.7
Tropical Plants 60.4 45.4 108.3
Conferencing 36.1 32.1 67.9
Parcels Delivery 91.0 68.7 157.5
Facilities Management 232.2 240.1 467.4
Total continuing operations 1,101.0 1,022.7 2,102.9
at June 2001 average rates
Exchange - (8.7) (15.9)
As reported 1,101.0 1,014.0 2,087.0
Discontinued operations at - 428.7 558.0
June 2001 average rates
Exchange - (18.3) (12.9)
As reported - 410.4 545.1
Total as reported 1,101.0 1,424.4 2,632.1
Operating Profits
Continuing operations:
Hygiene 93.3 84.6 180.8
Security 22.5 22.6 47.7
Pest Control 36.6 33.9 70.3
Tropical Plants 9.3 8.7 22.3
Conferencing 13.3 12.6 25.7
Parcels Delivery 12.6 9.3 27.1
Facilities Management 18.5 19.2 37.1
Total continuing operations 206.1 190.9 411.0
at June 2001 average rates
Exchange - 0.4 0.1
As reported 206.1 191.3 411.1
Discontinued operations - 17.6 18.0
at June 2001 average rates
Exchange - (1.0) (0.7)
As reported - 16.6 17.3
Share of profit of 0.1 0.2 0.4
other associate
Exceptional items - 7.0 7.0
Total as reported 206.2 215.1 435.8
* 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.
SEGMENTAL ANALYSIS
6 months to 6 months to Year to 31st
30th June 30th June December
2001 2000 2000
£m £m £m
At June 2001 average
exchange rates
Geographic Turnover
Analysis
Continuing operations:
United Kingdom 540.0 520.6 1,053.2
Continental Europe 323.5 289.8 600.5
North America 159.5 140.8 302.5
Asia, Pacific & Africa 78.0 71.5 146.7
Total continuing operations 1,101.0 1,022.7 2,102.9
at June 2001 average rates
Exchange - (8.7) (15.9)
As reported 1,101.0 1,014.0 2,087.0
Discontinued operations at - 428.7 558.0
June 2001 average rates
Exchange - (18.3) (12.9)
As reported 1,101.0 410.4 545.1
Total as reported 1,101.0 1,424.4 2,632.1
Operating Profit
Continuing operations:
United Kingdom 107.5 103.8 220.0
Continental Europe 64.6 56.6 123.4
North America 9.4 9.2 19.9
Asia, Pacific & Africa 24.6 21.3 47.7
Total continuing operations 206.1 190.9 411.0
at June 2001average rates
Exchange - 0.4 0.1
As reported 206.1 191.3 411.1
Discontinued operations at - 17.6 18.0
June 2001 average rates
Exchange - (1.0) (0.7)
As reported - 16.6 17.3
Share of profit of other 0.1 0.2 0.4
associate
Exceptional items - 7.0 7.0
Total as reported 206.2 215.1 435.8
* 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.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
6 months to 6 months to Year to 31st
30th June 30th June December
2001 2000 2000
£m £m £m
Turnover (including share of associate
and franchisees)
Continuing operations 1,097.0 1,014.0 2,087.0
Acquisitions 4.0 - -
Total continuing operations 1,101.0 1,014.0 2,087.0
Discontinued operations - 410.4 545.1
1,101.0 1,424.4 2,632.1
Less: (9.6) (9.9) (19.7)
Share of turnover of associate (36.0) (26.1) (67.3)
Turnover of franchisees
Turnover 1,055.4 1,388.4 2,545.1
Operating expenses (851.1) (1,175.2) (2,113.1)
Operating profit
Continuing operations 204.0 189.6 407.7
Acquisitions 0.3 - -
Total continuing operations 204.3 189.6 407.7
Discontinued operations - 16.6 17.3
Exceptional items - 7.0 7.0
204.3 213.2 432.0
Share of profit of associates
Continuing 1.8 1.7 3.4
Other 0.1 0.2 0.4
Profit on ordinary activities before 206.2 215.1 435.8
interest
Interest payable (net) (31.5) (7.6) (34.7)
Profit on ordinary activities before 174.7 207.5 401.1
taxation
Tax on profit on ordinary activities (50.1) (59.1) (114.3)
Profit on ordinary activities after 124.6 148.4 286.8
taxation
Minority interests (0.7) (0.7) (1.2)
Profit attributable to shareholders 123.9 147.7 285.6
Dividends (25.7) (29.4) (93.2)
Profit retained 98.2 118.3 192.4
Earnings per 1p share 6.10p 5.44p 11.71p
Diluted earnings per 1p share 6.08p 5.43p 11.69p
Dividends per 1p share 1.43p 1.30p 4.53p
Weighted average number of shares 2,031 2,715 2,439
(million)
* 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.
CONSOLIDATED BALANCE SHEET
Year to
6 months to 6 months to 31st
30th June 30th June December
2001 2000 2000
£m £m £m
Fixed assets
Intangible assets 126.6 58.6 120.2
Tangible assets 555.1 604.4 561.7
Interest in associates 12.3 11.5 11.3
Other investments 146.5 316.6 146.5
840.5 991.1 839.7
Current assets
Stocks 47.0 49.2 44.2
Debtors 480.5 521.8 489.7
Short term deposits and cash 162.5 506.5 271.1
690.0 1,077.5 805.0
Creditors - amounts
falling due within
one year
Creditors (628.7) (860.2) (675.3)
Bank and other borrowings (1,275.9) (299.2) (312.2)
(1,904.6) (1,159.4) (987.5)
Net current (liabilities)/ (1,214.6) (81.9) (182.5)
assets
Total assets less current (374.1) 909.2 657.2
liabilities
Creditors - amounts
falling due after
more than one year
Creditors (9.1) (8.7) (10.7)
Bank and other borrowings (32.2) (732.9) (921.7)
(41.3) (741.6) (932.4)
Provisions for
liabilities and
charges
Provisions for liabilities (247.5) (277.3) (246.7)
and charges
Net (liabilities)/assets (662.9) (109.7) (521.9)
Equity capital
and reserves
Called up share capital 19.6 30.9 20.8
Share premium account 39.1 36.0 36.7
Capital redemption reserve 18.2 5.8 17.0
Other reserves 4.1 5.2 4.8
Profit and loss account (749.6) (364.7) (606.7)
Equity shareholders' funds (668.6) (286.8) (527.4)
Equity minority interests 5.7 177.1 5.5
Capital employed (662.9) (109.7) (521.9)
CONSOLIDATED CASH FLOW STATEMENT
6 months 6 months Year to
to to 31st
30th June 30th June December
2001 2000 2000
£m £m £m
Operating
activities
Operating profit 204.3 213.2 432.0
Depreciation charge 73.1 92.3 165.1
Net movement in working capital (6.4) (11.4) (12.6)
Exceptional items - (7.0) (7.0)
271.0 287.1 577.5
Associates'
dividends
Dividends received from associates - - 1.5
Interest/
Dividends
Interest received 8.9 20.0 24.5
Interest paid (42.0) (29.6) (61.8)
Dividends paid to minority (0.4) (0.5) (0.8)
interests
(33.5) (10.1) (38.1)
Taxation
Tax paid (50.6) (53.6) (136.9)
Capital
expenditure
and financial
investment
Purchase of tangible fixed assets (86.9) (121.3) (214.3)
Less: financed by leases 3.7 4.6 8.1
(83.2) (116.7) (206.2)
Sale of tangible fixed assets 5.2 12.2 21.6
(78.0) (104.5) (184.6)
Purchase of own shares for
employee share option scheme - (2.0) (2.0)
(78.0) (106.5) (186.6)
Acquisitions
and
disposals
Purchase of companies and (7.9) (1.1) (103.4)
businesses
Less: debt acquired - - 22.3
(7.9) (1.1) (81.1)
Disposal of companies and 4.3 518.2 605.4
businesses
Less: - loan notes received - (145.6) (157.0)
- net debt disposed - (9.5) (10.2)
4.3 363.1 438.2
Equity
dividends
paid
Dividends paid to shareholders (64.3) (80.9) (109.1)
Net cash
inflow
Before use of liquid resources and 41.0 398.0 465.4
financing
Management of
liquid
resources
Movement in short term deposits
with banks (30.1) (1.7) (4.5)
Financing
Issue of ordinary share capital 2.4 0.3 1.0
Own shares purchased for share (236.4) (820.1) (1,303.8)
buy-back
Net loan movement 185.3 537.9 649.7
Finance lease movements (6.3) (7.0) (14.6)
Net cash (outflow)/inflow from (55.0) (288.9) (667.7)
financing
Net cash
Increase in net cash (44.1) 107.4 (206.8)
CONSOLIDATED CASH FLOW STATEMENT
6 months 6 months Year to
to to 31st
30th June 30th June December
2001 2000 2000
£m £m £m
Reconciliation
to net debt
Net debt at 1st January (962.8) (88.8) (88.8)
Cash flows (44.1) 107.4 (206.8)
Acquired with subsidiaries - - (22.3)-
Net debt disposed with - 9.5 10.2
subsidiaries
Movement in loans and deposits (155.2) (536.2) (645.2)
Movements in finance leases 2.6 2.4 6.5
Exchange adjustments 13.9 (19.9) (16.4)
Closing net debt (1,145.6) (525.6) (962.8)
SHAREHOLDERS' FUNDS MOVEMENTS
6 months 6 months Year to
to to 31st
30th June 30th June December
2001 2000 2000
£m £m £m
Profit attributable to 123.9 147.7 285.6
shareholders
Dividends (25.7) (29.4) (93.2)
New share capital issued 2.4 8.3 1.0
Own shares purchased/cancelled (236.4) (1,002.1) (1,303.8)
Write off of Ratin investment - (11.0) (14.2)
Goodwill written back on disposed (9.0) 142.8 144.4
businesses
Exchange translation adjustments 3.6 5.3 1.2
Net movement in equity (141.2) (738.4) (979.0)
shareholders'
funds
Opening equity shareholders' (527.4) 451.6 451.6
funds
Closing equity shareholders' (668.6) (286.8) (527.4)
funds
NOTES
1. The profit and loss accounts and cash flow statements for the half
years to 30th June 2000 and 2001 and for the year to 31st December
2000 have been translated at average rates of exchange for the
relevant periods. Balance sheets have been translated at period end
rates.
2. Between 1st January 2001 and 30th June 2001, the company had
purchased 120m of its own shares in the market (representing 5.8%
of the company's issued share capital at 1st January 2001) under
the authority given by shareholders at the extraordinary general
meeting held on 26th September 2000. 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. Since the
start of the buy-back programme in March 2000, the company has
purchased 898m of its own shares in the market, representing 31.3%
of the company's issued share capital at 1st March 2000. The
shareholders, at the annual general meeting on 31st May 2001,
authorised further buy-backs of up to 294m shares representing 15%
of the company's issued share capital at that date.
NOTES 3. Goodwill represents the excess of the fair value of the
consideration paid over the aggregate of the fair values of
(continued) the net tangible assets acquired. Goodwill in respect of
acquisitions made since 1st 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. Normally, it is considered that the goodwill
relating to the acquisitions made by the company is an
inseparable part of the total value of the relevant business
and that 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 economic life.
Where it is considered that the value of the business or its
goodwill do have a measurable economic life, the goodwill will
be amortised through the profit and loss account by equal
annual instalments over such useful economic life. The
potential economic lives of businesses and goodwill are
reviewed annually and revised where appropriate.
Where the useful economic life does not exceed 20 years,
goodwill will be subject to an impairment review at the end of
the year of acquisition and at any other time if 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 businesses and
goodwill are assessed for impairment against carrying values
on an annual basis in accordance with FRS 11. Any impairment
will be charged to the profit and loss account in the period
in which it arises. The directors have reviewed the
acquisitions made in the six months to 30th June 2001 and
determined that these businesses have indefinite useful lives
and hence the goodwill is not being amortised.
4. The financial information has been prepared on the basis of
the accounting policies set out in the full year 2000
accounts. Full year 2000 figures are taken from the accounts
filed with the Registrar of Companies. The results for the six
months to 30th June 2001 and 30th June 2000 have not been
audited but have been reviewed by PricewaterhouseCoopers, the
company's auditors.
5. Tax comprises UK Corporation Tax (less double taxation relief)
£21.4m (2000: £33.2m) and overseas tax £28.7m (2000: £25.9m).
6. The financial information in this statement does not
constitute statutory accounts within the meaning of s.240 of
the Companies Act 1985.
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.
Financial Calendar
* Interim dividend to be paid on 2nd November 2001 to shareholders on the
register on 5th October 2001.
* Interim report expected to be despatched to shareholders in early
September 2001.
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 5 to 11. 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 2001.
PricewaterhouseCoopers
Chartered Accountants
1 Embankment Place
London
WC2N 6RH 29th August 2001
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