Strong Organic Growth from Rentokil Initial
Preliminary Results for the year ended 31 December 2016
23 Feb 2017
Accelerated Organic Revenue growth and strong execution of M&A
|Results||H2 2016||Growth||FY 2016||Growth|
|Ongoing Operating Profit||170.6||33.2%||11.8%||284.9||25.8%||11.5%|
|Adjusted profit before tax||153.8||39.9%||16.6%||252.1||32.5%||16.7%|
|Profit before tax||128.1||44.2%||19.5%||208.5||31.0%||15.0%|
|Free cash flow||156.4|
|Dividend per share||3.37p||15.0%|
This statement includes certain financial performance measures which are not GAAP measures as defined under International Financial Reporting Standards (IFRS). An explanation of the measures used along with a reconciliation to the nearest IFRS measures is provided in Note 22 on page 28.
- Very good overall performance - Ongoing Revenue growth of 12.6% (2015: +7.0%), Ongoing Operating Profit growth of 11.5% (2015: +9.1%) and Free Cash Flow of £156.4m (2015: £147.7m), all in excess of our stated financial targets
- Acceleration in Organic Revenue growth - total Organic Revenue growth of 3.0% (2015: +1.8%). Pest Control 5.7% (2015: +4.6%), Hygiene 3.1% (2015: +2.3%); reduced level of Organic Revenue decline in Workwear of -1.3% (FY 2015: -3.2%)
- Strong execution of M&A - 41 acquisitions made in 2016 for £107m (35 in Pest Control, five in Hygiene and one in Other) with combined annualised revenues of £124m
- December 2016 agreement of joint venture (“JV”) with Haniel to create a leading provider of workwear and hygiene services in Europe. Completion expected mid-2017, subject to competition clearance
- Proposed 15.5% increase in final dividend of 2.38p to bring total dividend for 2016 to 3.37p, +15.0%
Commenting on the results for 2016 Andy Ransom, CEO of Rentokil Initial plc, said:
“In 2016 we have continued to execute our strategy at pace. Our Organic Revenue growth of 3.0% is at its highest level for 10 years with accelerated growth in Pest Control and Hygiene showing continued performance momentum. In addition, we have exceeded our financial targets, growing Ongoing Revenues by 12.6%, Ongoing Operating Profit by 11.5% and delivering £156m in Free Cash Flow.
“2016 has also seen strong execution of M&A. We continue to migrate our revenues into Emerging and Growth markets and have acquired 41 companies in the year with combined annualised revenues of some £124m. In addition, we were delighted to enter into an agreement with Haniel at the end of the year to create a leading provider of Workwear & Hygiene services across Europe. The transaction fits well with our capital allocation model. Cash proceeds will be reinvested in Pest Control and Hygiene and we intend to increase our spend on M&A in 2017 to at least £150m as we continue to identify a particularly strong pipeline of value-enhancing opportunities. At the same time we are creating value in our Protect & Enhance markets through retaining an 18% stake in the combined business.
“Prospects in the majority of our markets are good and, while conditions in France remain difficult, we are confident of making further progress in the coming year.”
Ongoing Revenue increased by 12.6% in 2016, comprising Organic Revenue growth of 3.0% and growth from acquired businesses of 9.6%. Ongoing Revenue in Pest Control grew strongly at 25.9% during the year, of which 5.7% was Organic Revenue growth. Ongoing Revenue Growth in the Emerging (+18.7%) and Growth (+19.7%) markets was particularly strong, fuelled by acquisitions in Growth markets as well as good Organic Revenue growth in Asia, the UK, Germany and North America. We were encouraged by our performance in our Manage for Value (MFV) markets this year, which grew by 1.3%, reflecting ongoing focus on customer retention. Ongoing Revenue in our Protect & Enhance markets declined slightly by 0.7%, a reflection of ongoing economic and competitive pressures in our European Workwear business, most notably France. Revenue at actual exchange rates increased by 23.2% reflecting the favourable impact of foreign exchange.
Ongoing Operating Profit increased by 11.5% in 2016, reflecting growth in North America, the UK, Asia, Pacific and Latin America, but offset by lower profits in France and an increase in Central and Regional overheads reflecting increased charges for Long Term Incentive Plans as a result of the share price growth in 2016. Adjusted profit before tax at actual exchange rates of £252.1m was favourably impacted by foreign exchange of £30.2m, due mainly to the weakening of Sterling against the Euro and the US Dollar in the year. In line with our guidance at the beginning of the year restructuring costs amounted to £7.1m at CER.
One-off items of £7.9m at CER (2015: £5.4m) primarily relate to the integration costs of the Steritech acquisition (£5.6m) and the costs incurred for the Company’s transaction with Haniel in 2016 of £1.5m. Profit before tax at actual rates grew by 31.0% to £208.5m.
Free Cash Flow from continuing operations at actual exchange rates amounted to £156.4m in 2016, driven by continued strong operating cash flow and favourable foreign exchange movements. Spend on current and prioryear acquisitions of £109.2m and dividends of £55.5m were largely funded from Free Cash Flow. Net debt increased by £212.1m to £1,238.7m (31 December 2015: £1,026.6m), primarily driven by adverse exchange and other movements of £203.7m from the weakness of Sterling in the year.
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. This year we have acquired 41 businesses for £107m with combined annualised revenues of £124m. 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 17 businesses, including the July acquisition of Residex. The integration of all acquisitions is progressing well and Steritech - our largest Pest Control acquisition to date – delivered c. $30m profits in the year, at the top end of our expectations.
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