Rentokil Initial Interim Half-Year 2018 Results
|Ongoing Operating Profit||134.5||10.7%||13.1%|
|Adjusted profit before tax||124.5||(1.5%)||0.9%|
|Profit before tax||109.5||(81.5%)||(81.3%)|
|Free cash flow||73.0|
|Dividend per share||1.311p||15.0%|
This statement includes certain financial performance measures which are not GAAP measures as defined under International Financial Reporting Standards (IFRS). Ongoing Revenue and Ongoing Operating Profit measures represent the performance of the continuing operations of the Group (including acquisitions) after removing the effect of disposed or closed businesses, including the impact of the businesses transferred to the Haniel joint venture on 30 June 2017. An explanation of the measures used along with reconciliation to the nearest IFRS measures is provided in Note 11 on page 24.
H1 Highlights (at CER unless otherwise stated)
- Revenue and profit in excess of medium-term financial targets - Ongoing Revenue growth of 14.2% and Ongoing Operating Profit growth of 13.1%
- Ongoing Organic Revenue growth of 3.0% in line with financial targets but impacted by continued disruption of Pest Control services in Puerto Rico and an unseasonably cold March and April in North America. Adjusting for Puerto Rico, Group Organic growth of 3.4%
- Pest Control revenue up 13.0% (+4.0% Organic, ex. Puerto Rico +4.7%) driven by strong innovation and digital performance, as recognised by The Queen’s Award for Enterprise - Innovation
- Hygiene revenue up 30.8% (+2.1% Organic) reflecting acquisitions of CWS Italy and Cannon Hygiene
- Encouraging performance in France which returned to profitable growth in H1 – well placed to deliver full year profitable growth by the end of 2018
- Free Cash Flow of £73.0m at AER, a £4.9m increase on H1 2017, representing 91% cash conversion over the last 12 months
- Continued strong execution of M&A- 23 businesses acquired with combined annualised revenues of £117.3m. Cash spend on current and prior year M&A of £164.9m
- 20 Pest Control acquisitions and 3 in Hygiene
- 8 Pest Control acquisitions in North America, with combined annualised revenues of c. £27m
- 12 other Pest Control acquisitions in Emerging and Growth markets inc. Brazil and Costa Rica
- Acquisition of Cannon Hygiene in H1 with annualised revenues of £77m across 9 countries – all operations performing well. Cannon UK business continues to be run separately from our UK Initial business pending ongoing review by the CMA
- M&A pipeline strong for H2, remain on track to spend £200m to £250m for the year funded by cash held on the balance sheet
- 20 Pest Control acquisitions and 3 in Hygiene
- 15.0% increase in interim dividend of 1.311p per share
- Our guidance for the full year is unchanged
Andy Ransom, CEO of Rentokil Initial plc, said:
“I am pleased with our performance in the first half, with revenue, profit and cash all in excess of our medium-term targets. Pest Control has performed well, despite a late start to the pest season in North America. Encouragingly, our Europe region has continued to improve, with France returning to profitable growth after three years of decline.
“M&A has again been strong in the period, with 20 Pest Control companies acquired in Growth and Emerging markets and 3 high-quality Hygiene acquisitions. We continue to see a full pipeline of value-enhancing acquisition opportunities going forward.
“As a result of our performance in H1, our guidance for the full year is unchanged.”
This statement includes certain financial performance measures which are not GAAP measures as defined under International Financial Reporting Standards (IFRS). Ongoing Revenue and Ongoing Operating Profit represent the performance of the continuing operations of the Group (including acquisitions) after removing the effect of disposed or closed businesses, including the impact of the businesses transferred to the Haniel joint venture on 30 June 2017. Ongoing measures enable the users of the accounts to focus on the performance of the businesses retained by the Group and that will therefore contribute to the future performance. Ongoing Revenue and Ongoing Operating Profit are presented at CER unless otherwise stated. An explanation of the measures used along with reconciliation to the nearest IFRS measures is provided in Note 11 on page 24.
Joint ventures: the term ‘joint venture’ is used to describe the Company’s relationship with Haniel, however our 17.8% interest in CWS-boco is accounted for as an associate. The term is also used to describe the Company’s relationship with PCI, however our interest in PCI has been consolidated in our Financial Statements.
Ongoing Revenue, which excludes disposed businesses, increased by 14.2% in H1, with all regions contributing to growth. Organic Revenue growth of 3.0% has been affected by the ongoing impact of last September’s hurricane on our operations in Puerto Rico and unseasonably cold weather in March and April in North America. Adjusting for the impact of Puerto Rico, Group Organic growth was 3.4%, in line with our medium-term target of 3% to 4%. Acquisitions have performed well during the period, contributing 11.2% to Ongoing Revenue in H1.
Ongoing Revenue in Pest Control grew by 13.0% during the half (4.0% Organic), performance once again impacted by Puerto Rico and a late start to the pest season in North America. Adjusting for the impact of Puerto Rico, Pest Control Organic growth was 4.7%. Hygiene reported increased revenues of 30.8%, up 2.1% on an Organic basis, aided by the acquisition of Cannon Hygiene Services in January and CWS Italy. Ongoing Revenue in our Protect & Enhance businesses increased by 0.2%, reflecting continued good improvement in our French Workwear business but offset by ongoing pressures in UK Property Care.
Total Revenue of £1,176.1m declined by 1.8% at constant exchange rates (down 4.7% at actual exchange rates) reflecting the disposal of businesses to the Haniel joint venture and the sale of eight French laundries to RLD in the prior year.
Ongoing Operating Profit, which excludes the results of disposed businesses, increased by 13.1% in the first six months of the year, reflecting growth in all regions. Restructuring costs amounted to £4.3m at CER (2017: £3.9m) consisting mainly of costs in respect of initiatives focused on driving operational efficiency in North America, France and the UK.
Profit before tax at actual exchange rates amounted to £109.5m (H1 2017: £592.9m), £483.4m lower than last year which benefited from a £462.5m net profit on the disposal of the Group’s Hygiene and Workwear assets to the Haniel joint venture. A net one-off credit of £2.4m at CER (2017: £7.7m one-off cost) primarily relates to the acquisition and integration costs of Cannon Hygiene Services (acquired in January this year) and the ongoing acquisition programme in the US, offset by a £6.0m non-cash gain as a result of member options exercises on the UK defined benefit pension scheme.
Adjusted profit before tax at actual exchange rates of £124.5m fell by 1.5% year on year, reflecting the impact of the Haniel joint venture transaction and the negative impact of foreign exchange movements of £2.9m due to the strengthening of sterling against the US dollar. Adjusting for the joint venture, adjusted profit before tax at actual exchange rates grew by 11.4%.
Operating cash inflow (£105.3m at AER for continuing operations) was £11.4m higher than in 2017. Lower levels of EBITDA were more than offset by improved working capital and a reduction in capex levels following the transfer of the Workwear and Hygiene assets to Haniel and RLD. The first cash dividend from the Haniel joint venture in relation to the six months ended 31 December 2017 of €9.5m is due to be received in Q3 2018. Interest payments of £7.3m are £1.0m higher than in the prior year and tax payments increased by £5.5m. This has resulted in Free Cash Flow from continuing operations of £73.0m, an increase of £4.9m on the prior year. Cash spent on acquisitions totalled £164.9m. Dividend payments amounted to £50.2m (a £6.7m, 15.4% increase on the prior year). Foreign exchange translation and other items increased net debt by £21.3m, leaving an overall increase in net debt of £163.4m and closing net debt of £1,090.7m.
In line with our strategy we have continued our M&A programme to pursue targets in higher growth markets and in areas which add local density to our existing operations. We have acquired 23 businesses - 20 in Pest Control and three in Hygiene - with combined annualised revenues in the year prior to acquisition of £117.3m. Total spend, including prior-year acquisitions, was £164.9m. In North America we have continued to reinforce our presence as the number three player in the world’s largest pest control market through the acquisition of eight businesses. We will continue to seek further acquisition opportunities in the second half of 2018 in both Pest Control and Hygiene and the pipeline of prospects remains strong. Our guidance for M&A spend this year remains in the range of £200m to £250m which will be funded by cash held on the balance sheet at the beginning of the year.
A presentation for investors and analysts will be held on Tuesday 31 July 2018 at 9.15am in the Sidney Suite Conference Room, 1st Floor, The Grange Tower Bridge Hotel, 45 Prescot Street, London E1 8GP. This will be available via a live audio web cast at www.rentokil-initial.com.
This announcement contains statements that are, or may be, forward-looking regarding the group's financial position and results, business strategy, plans and objectives. Such statements involve risk and uncertainty because they relate to future events and circumstances and there are accordingly a number of factors which might cause actual results and performance to differ materially from those expressed or implied by such statements. Forward-looking statements speak only as of the date they are made and no representation or warranty, whether expressed or implied, is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Other than in accordance with the Company’s legal or regulatory obligations (including under the Listing Rules and the Disclosure, Guidance and Transparency Rules), the Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Information contained in this announcement relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance. Nothing in this announcement should be construed as a profit forecast.
Katharine Rycrof, Rentokil Initial plc
Telephone: +44 (0)1276 536585 / +44 (0)7811 270734
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Rentokil Initial plc
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