TIDMRTO
RNS Number : 2295W
Rentokil Initial PLC
31 July 2018
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2018
Continued positive momentum across our businesses with full year
guidance unchanged.
Results H1 2018 Growth
GBPm AER AER CER
Ongoing Revenue 1,166.5 10.5% 14.2%
Revenue 1,176.1 (4.7%) (1.8%)
Ongoing Operating
Profit 134.5 10.7% 13.1%
Operating Profit 108.5 (24.6%) (23.3%)
Adjusted profit before
tax 124.5 (1.5%) 0.9%
Profit before tax 109.5 (81.5%) (81.3%)
Free Cash Flow 73.0
Adjusted EPS 5.25p (1.9%) (0.1%)
EPS 4.69p (85.2%) (85.0%)
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 GBP73.0m at AER, a GBP4.9m 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 GBP117.3m. Cash spend
on current and prior year M&A of GBP164.9m
-- 20 Pest Control acquisitions and 3 in Hygiene
o 8 Pest Control acquisitions in North America, with combined
annualised revenues of c. GBP27m
o 12 other Pest Control acquisitions in Emerging and Growth
markets inc. Brazil and Costa Rica
o Acquisition of Cannon Hygiene in H1 with annualised revenues
of GBP77m 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
o M&A pipeline strong for H2, remain on track to spend
GBP200m to GBP250m for the year funded by cash held on the balance
sheet
-- 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.
Revenue
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 GBP1,176.1m 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.
Profit
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
GBP4.3m at CER (2017: GBP3.9m) 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 GBP109.5m
(H1 2017: GBP592.9m), GBP483.4m lower than last year which
benefited from a GBP462.5m net profit on the disposal of the
Group's Hygiene and Workwear assets to the Haniel joint venture. A
net one-off credit of GBP2.4m at CER (2017: GBP7.7m 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 GBP6.0m
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 GBP124.5m
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 GBP2.9m 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%.
Cash
Operating cash inflow (GBP105.3m at AER for continuing
operations) was GBP11.4m 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 EUR9.5m is due to be received in Q3 2018. Interest
payments of GBP7.3m are GBP1.0m higher than in the prior year and
tax payments increased by GBP5.5m. This has resulted in Free Cash
Flow from continuing operations of GBP73.0m, an increase of GBP4.9m
on the prior year. Cash spent on acquisitions totalled GBP164.9m.
Dividend payments amounted to GBP50.2m (a GBP6.7m, 15.4% increase
on the prior year). Foreign exchange translation and other items
increased net debt by GBP21.3m, leaving an overall increase in net
debt of GBP163.4m and closing net debt of GBP1,090.7m.
M&A
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 GBP117.3m. Total spend, including prior-year acquisitions, was
GBP164.9m. 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 GBP200m to GBP250m which will be funded by
cash held on the balance sheet at the beginning of the year.
Enquiries:
Investors Katharine Rentokil Initial
/ Analysts: Rycroft plc 01276 536585 / 07811 270734
Rentokil Initial
Media: Malcolm Padley plc 07788 978 199
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.
REGIONAL PERFORMANCE
Due to the international nature of the Group, foreign exchange
movements can have a significant impact on regional performance. In
order to help understand the underlying trading performance, unless
otherwise stated, percentage movements in Ongoing Revenue and
Ongoing Operating Profit are presented at constant exchange
rates.
In North America Ongoing Revenue grew 12.8% in H1, of which
10.3% was growth through acquisition and 2.5% was organic. Pest
Control grew 13.8% (+2.5% Organic). Organic Revenue growth in H1
was lower than the 5.6% achieved in H1 2017 and reflects a number
of factors including the impact of Hurricane Irma last September on
our Puerto Rico business, an unseasonably cold March and April
which delayed the start of the pest season and strong comparatives
in 2017 (especially in product sales). Adjusting for the impact of
Puerto Rico, Pest Control Organic growth from January to the end of
April was 3.3% but improved to 4.4% when weather patterns returned
to normal from May. With the impact from Puerto Rico lapping in Q4
and with less challenging comparatives than in H1, we expect
Organic Revenue growth to improve in North America in the second
half.
Ongoing Operating Profit growth of 9.4% reflects the combined
impact from higher revenues and acquisitions. Net Operating Margins
at 11.6% were 0.3% points below the prior year, reflecting in part
the dilutive impact of acquisitions but also reflecting lower
levels of Organic Revenue growth. Eight Pest Control businesses
were acquired in the region in the first half with combined
annualised revenues of c. GBP27m in the year prior to purchase.
Our plan in North America is to create a business with GBP1.5bn
revenue and margins of 18% by the end of 2020. In H1 we have made
good progress towards this with strong revenue from businesses
acquired in the region during 2017 and the addition of a further
$35m (GBP27m) of annualised revenues from new businesses acquired
in the first six months of 2018. Our Best of Breed programme,
details of which can be found on page 6, is proceeding well. As
stated above, we expect Organic Revenue growth to improve in H2
assuming the resumption of normal weather patterns for the
remainder of the year.
Ongoing Revenue for Europe rose by 12.1% (+3.3% Organic),
reflecting an excellent performance in Southern Europe (+60.2%),
continued strong growth in Germany (+12.4%) and an improved
performance in France, which grew by 1.2%. Latin America, managed
by the Europe region, once again performed well rising by 17.9%.
Ongoing Revenue from our European Hygiene operations grew by 35.4%,
benefiting strongly from the contribution from CWS Italy which was
acquired in 2017. Ongoing Revenue from our Pest Control businesses
grew by 7.4%. Overall Ongoing Operating Profit for the Europe
region grew by 10.8%, with good growth in Southern Europe and
Germany. Profits in France grew in H1 and the business is well
placed to achieve its plan to return to profitable growth in 2018
as a whole. Net Operating Margins for the region fell by 0.2%
points to 17.9%, reflecting improvements in France, Germany and
Latin America but offset by a decline in Southern Europe as a
result of the dilutive effect of the CWS acquisition. However, this
business, which was loss-making prior to acquisition, returned to
profit during the period. The Europe region acquired six new
businesses in the first half in Europe and Latin America, including
four in Pest Control and two in Hygiene, with combined annualised
revenues of c. GBP8.7m in the year prior to purchase.
The UK & Rest of World region delivered a good performance
during the period, with an overall increase in Ongoing Revenue of
17.1%, comprising Organic Revenue growth of 1.7% and growth through
acquisition of 15.4%. The region delivered continued growth from UK
Pest Control and Hygiene, which grew organically by 4.2%, with Pest
Control continuing to benefit from increased jobbing work. The
otherwise good performances in the region were, however, dampened
by UK Property Care which continues to experience weak market
conditions. The Rest of World operations delivered good Ongoing
Revenue growth of 13.1% across all of its regional clusters in the
Nordics, Caribbean, Africa and MENAT. Overall Ongoing Operating
Profit for the region grew by 13.9%, reflecting higher revenues.
Net Operating Margins for the region fell by 0.5% points to 19.3%,
again impacted by reduced profits in UK Property Care.
In January the region acquired the UK businesses of Cannon
Hygiene Services. We are holding the Cannon business separate from
our existing Hygiene operations while we respond to further queries
from the Competition & Markets Authority. The business is
trading well and we retain all profits accruing under our
ownership. The region also acquired two Pest Control companies in
Sweden and the United Arab Emirates which generated c. GBP4.6m of
revenues in the year prior to purchase.
The Asia region has had a good first half. Ongoing Revenue
increased by 23.5% (+6.9% Organic Revenue growth) with both Pest
Control and Hygiene performing well. An overall good performance in
the first half was impacted in part by strong 2017 comparatives
associated with the introduction of Goods and Services Tax last
July in India. Ongoing Operating Profit in the region grew by 25.6%
in H1 2018, reflecting the leverage from higher revenues. Net
Operating Margins increased by 0.1% points to 9.9%, with growth in
Hygiene margins being offset by the dilutive effect of the
lower-margin PCI business. The region acquired three Pest Control
businesses in the half in Singapore and Malaysia with combined
annualised revenues of c. GBP1.5m in the year prior to
purchase.
In the Pacific region Ongoing Revenue grew by 12.1%, (+3.1%
organic), driven by solid performances across our core Pest Control
and Hygiene categories and the acquisition of the Cannon Hygiene
businesses in New Zealand and Australia. Ongoing Operating Profit
in the region grew by 5.6%. Net Operating Margins declined by 1.2%
points to 19.7% as a result of the dilutive impact of the Cannon
acquisition. In addition to Cannon, we acquired three small Pest
Control companies in New Zealand with combined annualised revenues
of c. GBP0.6m in the year prior to purchase.
STRATEGY UPDATE
Since February 2014 we have implemented an effective and
consistent strategy - called our RIGHT WAY plan - at pace and this
strategy has delivered consistent progress against our financial
targets. We are now a stronger and more focused business, operating
in higher growth markets, with improving levels of organic growth,
reduced capital intensity and high levels of cash generation. The
proceeds we have received from our joint venture with Haniel gives
us greater flexibility to invest in our higher growth categories of
Pest Control and Hygiene, which in H1 represented just over 90% of
Ongoing Operating Profit.
Pest Control - a resilient and growing market
Pest Control is an attractive, non-cyclical growth market worth
c. $18bn and expected to deliver a CAGR of around 5%* through to
2023*. Approximately 46% of the global market is Commercial pest
control, 35% is Residential and 19% is Termite. North America is
the world's single largest market and worth 50% of the total. The
market is highly fragmented and comprises some 40,000 pest control
operators globally. Pest control has multiple growth drivers
including increasing pest pressures, climate change, urbanisation,
growing middle classes, rising consumer expectations for hygiene
standards and increasing workplace and food regulations.
Vector control is an important growth sector within the global
pest control market and is estimated to be worth an additional
$3.1bn. Vector control interrupts or eliminates local transmission
of diseases, reduces vulnerability to disease and prevents
secondary infection from introduced diseases to prevent further
outbreaks. The most frequent vector control activity is mosquito
control. Asia and Latin America are considered to be particularly
important markets because of the dangers to public health from
mosquito-borne diseases, notably dengue fever, Zika, and
malaria,
* Source: Various market reports including Allied Market
Research and Genesis Market Research.
Rentokil - the world's largest commercial pest control
company
We are strengthening our position as global leaders in pest
control through increased organic growth and by establishing
stronger market positions particularly in Growth and Emerging
markets, and through digital expertise, innovation and
acquisitions. The business has delivered a four-year revenue CAGR
of 18.2%. Pest Control accounts for 63% of Ongoing Revenue and 68%
of Ongoing Operating Profit and generated a Net Operating Margin of
16.4% in H1. In the first six months of the year Ongoing Revenue
and Ongoing Operating Profit in Pest Control grew by 13.0% and 9.2%
respectively. Organic Revenue rose by 4.0% (+4.7% adjusting for
Puerto Rico) with growth through acquisition of 9.0%.
Growth markets
These markets include North America, the UK, Australia, New
Zealand and the Caribbean. North America is particularly important
to us as the world's largest pest control market. Rentokil North
America provides national pest control coverage, supported by 300+
branches, 45 distribution centres and over 8,000 colleagues. 75% of
revenues are contracted with the remaining 25% comprised of jobbing
revenue. Our strategy in this region is to build density through
organic initiatives and successful M&A. Organic initiatives
include growth in national and international accounts, product
innovation, harnessing the digital opportunity and leveraging our
B2B sales capability in our core sectors of food processing, food
retail, healthcare and offices. We have a proven track record in
M&A, achieved through high quality and disciplined target
identification, due diligence, integration and performance
evaluation. North America is a key market for M&A and, as the
'buyer of choice', our pipeline remains particularly strong.
North America has delivered a four-year revenue CAGR of 24.9%.
Through a balanced programme of organic and acquisitive growth, we
plan to generate $1.5bn revenues and Net Operating Margins of c.
18% across the entire business by the end of 2020. We plan to
achieve this through organic growth of 4% to 6% per annum,
additional revenues from M&A of 8% to 10% (each year, every
year for three years) and improvements in service quality and
productivity delivered through our Best of Breed programme. This
programme is focused on harmonising our IT platform across North
America, and delivering transformational change programmes focused
on enhanced service productivity, better procurement, streamlining
the back office, and reducing property numbers in order to move
further towards a virtual branch operating model.
In H1 we have made good progress with the plan, with strong
revenue from businesses acquired in the region during 2017 and the
addition of a further $35m (GBP27m) of annualised revenues from new
businesses acquired in the first six months of 2018. In addition,
our Best of Breed programme is proceeding well. As stated on page
4, we expect Organic Revenue growth to improve in H2.
Emerging markets
We have an unrivalled position the markets of Asia, Latin
America, MENAT, Kenya, Fiji and Central America, which combined
represent a strong platform for delivering sustainable, profitable
growth. Asia made good progress in the first half of the year,
delivering 8.2% Organic growth in Pest Control. We now have 7,200
pest technicians and 131 field biologists working from 580
locations across 12 countries in this Region. Latin America has
seen a continuation of its strong performance, delivering Ongoing
Revenue growth of 17.9% in the half. We entered the Costa Rican
market for the first time in February through the acquisition of
Fumigadora which extends our coverage in Latin America to nine
countries. We also acquired ISS Brazil in Sao Paulo to build
further density in this key city. In addition, we continue to
explore opportunities presented by the opening up of public sector
Vector Control contracts in Brazil and will provide an update at
the 2018 Preliminary results in February 2019. Rentokil is the
clear market leader in MENAT, and acquired in Q1 National Pest
Control, the market leader in the UAE with 180 colleagues. We now
have the capacity and footprint to operate across all of the main
Emirates.
Innovation
Innovation underlines our brand positioning as the experts in
pest control and continues to differentiate the business. It is
also an important driver of organic growth and enables us to
enhance our product offering while at the same time meeting
emerging threats and new regulatory requirements. We have a strong
pipeline of innovations in place which target key pest groups of
rodents and insects.
Following the success of our first Lumnia insect light trap
product (the world's first to use LED lighting in place of
fluorescent tubes), we extended the range to include the Lumnia
Ultimate in H1, with Lumnia Compact to follow in H2. Lumnia can
reduce energy consumption for customers by up to 60% versus
traditional units. Sales have been strong, with over 17,000 units
shipped in the first half.
Later this year, we will extend our Connect range with the
launch of multi-catch rodent devices and we will also undertake the
first customer trials, starting in North America, of an innovative
Bed Bug Monitor.
We were delighted to have been awarded The Queen's Award for
Enterprise - Innovation during the first half for our RADAR and
PestConnect system.
Digital products and services
We continue to see unprecedented levels of change in the impact
of technology on our customers and our front-line and back office
colleagues and use IT to improve the quality and consistency of
service delivery, drive innovation and reduce costs. We believe we
are leading the pest control industry in the commercialisation of
the 'Internet-of-Things' through connected devices and have digital
expertise at every stage of the customer journey from web searching
through to e-billing.
We have made further progress in digital pest control in H1. Our
myRentokil online customer portal is now being used in over 750,000
customer sites across 30 countries and in H1 a further 63,000 new
customers began to use the portal. Approximately 1.5m incidents of
pest activity were recorded in the first half of the year.
Connected devices, such as PestConnect, our award-winning remote
monitoring system for rodents, open up opportunities to
revolutionise our business and provide customers with a complete
pest detection solution and full traceability. We now have devices
being used in over 3,500 customer premises across ten
countries.
The first half of this year has seen a record number of visits
to our web estate, with 2.14m organic visits to Rentokil sites in
the month of June alone. Visitor growth has risen by 17% this
year.
We have also made excellent progress in the continued roll out
of smartphone and apps across the group to drive service and sales
productivity in both Pest Control and Hygiene. ServiceTrak is our
smartphone field service app used by technicians to record service
visits - for example, start time, services performed, customer
recommendations, customer signatures and end time. This has now
been deployed in 14 countries and used for 2.3m service visits in
H1. In addition, our service colleagues created 35,000 sales leads
through the app in the first six months of the year. In Hygiene our
new colleagues from Cannon are using the app which brings total
number of users to just over 2,000 globally. In addition, we have
completed a pilot study for a new ServiceTrak app for Ambius
colleagues in New Zealand.
Initial Hygiene
Initial Hygiene is the world's largest hygiene services business
and we see it as a strong complementary business to our Pest
Control operations. Both businesses service the same types of
customers and also share country management, technology,
infrastructure and back office services. Both are route-based
businesses where profit growth is driven by a fundamental
understanding of the importance of density. The megatrends in the
hygiene industry - and the importance of being able to prevent the
spread of diseases, germs and bacteria - such as an increasing
ageing population and adult incontinence, more women at work
requiring feminine hygiene products and services and reputational
risk from poor hygiene standards, are fuelling demand for our
services.
Since 2013 we have delivered an improvement in revenue growth,
established a strong product range, launched the myInitial customer
portal for enhanced customer insight and engagement and have begun
to make acquisitions to build scale and density. Hygiene has
delivered a four-year revenue CAGR of 10.4%. The business is highly
profitable with margins being driven by post code density
(servicing as many customers as possible in any tight geographic
zone) and customer penetration (selling multiple service lines to
customers). Hygiene accounts for 22% of Group revenue and 23% of
Group profits. Ongoing Revenue grew strongly by 30.8% in H1 through
a combination of acquisitive and organic growth. Ongoing Operating
Profit grew by 19.2%.
Our plan for growth in Hygiene
We aim to deliver continued growth in our Hygiene business
through a combination of strong operational focus and targeted
M&A to build city-density. At the heart of our strategy is the
delivery of excellent customer service and product innovation. Our
Initial brand is a leader within the industry and particularly
important in Emerging markets. As with Pest Control, productivity
can be enhanced through the overlay of digital technology. Finally,
we are putting in place country-specific incentive programmes with
local rewards to focus our sales force and front line colleagues on
achieving greater product density and margin expansion.
As our confidence in our Hygiene model grows, so too has our
focus on securing attractive hygiene acquisitions. In 2017 we
acquired the hygiene business of CWS Italy and in January this year
we acquired Cannon Hygiene Services which, with operations in nine
countries, represents a particularly good fit with our existing
Hygiene businesses. We also acquired a small hygiene business
called Mauco Products in Chile in May and purchased Cleanstation in
Portugal at the end of June.
We have made excellent operational progress this year with the
integration of CWS Italy, establishing 49 separate projects to
enhance our capability in service, IT, operational excellence,
products and people. Cannon Hygiene Services has businesses in the
UK, Ireland, Spain, Portugal, South Africa, India, Thailand,
Australia and New Zealand. The acquisition increases our coverage
in key markets enabling us to gain a good level of synergies from
enhanced density and combined infrastructures and all operations
are performing very well under our ownership. The transaction also
marks our entry into the attractive Indian hygiene market where
Cannon is the market leader. Cannon adds GBP77m of global Hygiene
revenues to the Group and replaces a high proportion of the
European Hygiene revenues contributed to the joint venture with
Haniel. In the UK we are holding the Cannon business separate from
our existing Hygiene operations while we respond to further queries
from the Competition & Markets Authority, which has referred
the transaction to a Phase 2 review. We estimate the review will
complete within six months.
Protect & Enhance
The four businesses in this category are Workwear, Ambius,
Property Care and a very small Dental Services operation. Combined,
the businesses represented 9.0% of Ongoing Operating Profit in
H1.
Our Workwear operations in France specialise in the supply and
laundering of workwear, uniforms, cleanroom uniforms and personal
protective garments. After three years of declining profitability,
the business returned to profitable growth in the first half of the
year, some six months ahead of plan. This has been achieved through
an outstanding execution of strategy by our new management team
which has focused on service and product quality to drive customer
retention, together with profit improvement and margin protection
initiatives. While we are greatly encouraged by our performance in
H1, we continue to work towards returning the business to full year
profitable growth by the end of 2018.
Ambius operates in 15 countries with leadership positions in the
US, Canada, Australia and New Zealand. Its product offering
includes interior landscaping, Christmas decorations and premium
scenting. Its strategic focus is on higher-margin green (living)
walls and premium scenting, expanding and exploiting international
agreements and driving lead generation through digital
applications. We are very encouraged by Ambius's performance in the
first half and its return to profitable growth of 7.5% on revenues
up 1.7% during the period.
Our Property Care business is based in the UK. Services include
dry rot and woodworm treatment and damp proofing. We have a leading
position in the industry and have developed a strong operational
capability with certified teams undertaking work in commercial and
social housing. While the business has a defensive cash position
with advance payment required before work is undertaken, trading
continues to be significantly impacted by the slowdown in the UK
property market. The business is small, generating revenues of
GBP11.3m in the first half, but its decline of 22% has pulled back
Organic growth in the UK and RoW region by 2% points. We have a
good business improvement plan for the second half based on better
revenue, leveraging our digital expertise from Pest Control and a
focus on cost and on efficiency measures.
Employer of Choice
One of our key challenges in 2018 is to improve colleague
engagement, enablement, talent and retention (especially short-term
retention) through implementation of our Employer of Choice
programme. We have made good progress in our key project this year
- Project 365 - which has been designed to increase short-term
sales and service colleague retention to 90% by 2020. This would
lead to an annual cost saving of GBP10m. Actions in the first half
of this year included setting regional targets ranging from a 10%
to 20% improvement by the year end, regional workshops to launch
the project, the creation of a new global careers portal for
colleagues and the introduction of a new Line Manager Development
Programme. We measure line manager effectiveness through a
confidential survey for all colleagues. Those line managers
achieving a rating of below 60% are required to participate in a
two-day programme to improve their feedback, communications,
recognition and coaching skills and will receive ongoing support to
help them meet their targeted improvement score of more than
10%.
Annual General Meeting (AGM)
The Company noted in May the outcome of the voting at the AGM on
the resolutions in relation to the proposed Directors' Remuneration
Policy, namely that shareholders representing 75% of the votes cast
voted in favour; 25% voted against. The Company understands that
this outcome was attributable, in large part, to concerns regarding
the increase in bonus opportunity for the CEO and CFO and the
increase in the share plan award for the CEO. Following a detailed
shareholder consultation exercise, the majority of the Company's
shareholders indicated they were supportive of the new Directors'
Remuneration Policy. On that basis the Company remains of the view
that it is in the best interests of the Company and its
shareholders, and has therefore now implemented the new Directors'
Remuneration Policy. This will be reported on in detail in the 2018
Directors' Remuneration Report.
M&A
Acquisitions are core to our strategy - we have the in-house
capability to identify, evaluate and execute acquisitions at pace.
Our model for value-creating M&A is structured around
disciplined evaluation of targets, detailed integration programmes
and careful governance of new businesses under our ownership.
The first six months of this year has seen further strong
activity in M&A, particularly in Pest Control in Growth and
Emerging markets. For the six months year to date we have acquired
23 businesses - 20 in Pest Control and three in Hygiene, including
the January acquisition of Cannon Hygiene Service - with combined
annualised revenues of GBP117.3m in the year prior to purchase.
Total spend, including prior year acquisitions, was GBP164.9m.
Countries in which we have acquired new businesses include Brazil,
Canada, Chile, Costa Rica, Malaysia, the Netherlands, New Zealand,
Portugal, Singapore, Sweden, UAE and the US.
In North America we target companies in cities where we are
sub-scale or have expertise in preferred growth sectors and we are
making steady progress towards our goal of generating revenues of
$1.5bn and margins of 18% by the end of 2020. Key to our success is
delivering organic growth of between 4% and 6% for the next three
years and targeting 8% to 10% growth from acquisitions each year
until the end of 2020. We have had a good first six months of
M&A, acquiring eight Pest Control companies across the region,
which combined generated annualised revenues of c. GBP27m in the
year prior to purchase. The pipeline of opportunities remains very
strong and we are confident of further high quality acquisitions in
the second half of the year.
In March we acquired California-based Lake Management business
Aquatic Environments. This follows our 2017 entry into this sector
through the purchase of Vector Disease Acquisition LLC which has
Lake Management operations as well as mosquito services. The
transaction represents a strategic entry into Lake Management on
the west coast of the US and will create a platform on which we can
build density through subsequent bolt-on deals.
Going forward, we will continue to execute a differentiated
approach to capital investment and M&A, with clear expectations
and IRRs by business line. 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.
Cash spend on current and prior-year acquisitions amounted to
GBP164.9m in the first half and our anticipated spend on
acquisitions for the whole of 2018 is estimated to be in the region
of GBP200m to GBP250m.
M&A analysis
We monitor the integration and performance of acquired
businesses very closely to ensure that they are continuing to meet
our financial hurdles. We have acquired 54 businesses between
October 2015 and March 2017 and the M&A programme continues to
meet expectations and deliver returns in line with its targeted
levels of IRR.
FINANCIAL REVIEW
Central and regional overheads
Central and regional overheads of GBP39.7m at CER were GBP2.0m
higher than prior year (2017: GBP37.7m) reflecting the central cost
reduction programme following the Haniel joint venture offset by
investments in digital capability and deployment costs.
Restructuring costs
With the exception of integration costs for significant
acquisitions, the Company reports restructuring costs within
operating profit. Integration costs associated with significant
acquisitions are reported as one-off items and excluded from
operating profit.
Restructuring costs of GBP4.3m at CER (2017: GBP3.9m) consisted
mainly of costs in respect of initiatives focused on driving
operational efficiency in North America, France and the UK.
One-off items
A net one-off credit of GBP2.4m at CER (2017: GBP7.7m 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 GBP6.0m
non-cash gain as a result of member options exercises on the UK
defined benefit pension scheme.
Interest
Net interest payable (excluding the net interest credit from
pensions) at actual exchange rates was GBP22.2m compared to
GBP20.6m in the prior year, a net increase of GBP1.6m reflecting
movements as a result of the strengthening of sterling against the
US dollar and a change in the net debt currency mix (higher coupon
US dollar debt). The average cost of net debt for the Group in the
first half was 4.1%.
Profit from associates
Of the share of profit from associates at CER of GBP12.2m (2017:
GBP3.7m), GBP8.0m (2017: GBPnil) relates to our CWS-boco
International GmbH associate and GBP4.2m (2017: GBP3.7m) to our
Japanese associate. Both businesses are performing well, and we are
particularly encouraged by the Haniel joint venture.
Tax
The income tax expense for the half year at actual exchange
rates was GBP23.2m on the reported profit before tax of GBP109.5m.
After adjusting the reported profit before tax for the amortisation
and impairment of intangible assets (excluding computer software),
one-off items and the net interest credit from pensions, the
Adjusted Effective Tax Rate (ETR) for H1 2018 at AER was 22.3%
(2017: 22.3%). This compares with a blended rate of tax for the
countries in which the Group operates of 22% (2017: 24%).
Net debt and cash flow
GBPm at actual exchange rates Year to Date
--------------------------------
H1 2018 H1 2017 Change
GBPm GBPm GBPm
---------------------------------------- ---------- ---------- --------
Adjusted Operating Profit 134.5 143.1 (8.6)
One-off items - operating 2.6 (7.7) 10.3
Depreciation 72.8 107.3 (34.5)
Other 0.8 3.1 (2.3)
---------- ---------- --------
EBITDA 210.7 245.8 (35.1)
Working capital (14.0) (24.1) 10.1
Movement on provisions (7.0) (6.0) (1.0)
Capex - additions (85.8) (124.8) 39.0
Capex - disposals 1.4 3.0 (1.6)
---------- ---------- --------
Operating cash flow - continuing
operations 105.3 93.9 11.4
Interest (7.3) (6.3) (1.0)
Tax (25.0) (19.5) (5.5)
Free Cash Flow - continuing operations 73.0 68.1 4.9
Acquisitions (164.9) (206.8) 41.9
Disposal of companies and businesses - 396.1 (396.1)
Dividends (50.2) (43.5) (6.7)
Foreign exchange translation and
other items (21.3) (0.7) (20.6)
--------
(Increase) / decrease in net debt (163.4) 213.2 (376.6)
Opening net debt (927.3) (1,238.7) 311.4
---------- ---------- --------
Closing net debt (1,090.7) (1,025.5) (65.2)
========== ========== ========
Operating cash inflow (GBP105.3m at AER for continuing
operations) was GBP11.4m 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 EUR9.5m is due to be received in Q3 2018.
Interest payments of GBP7.3m are GBP1.0m higher than in the
prior year, reflecting the increased charge to the Profit &
Loss account and tax payments increased by GBP5.5m, reflecting
phasing issues and the impact of the US tax reforms. This resulted
in Free Cash Flow from continuing operations of GBP73.0m, an
increase of GBP4.9m on the prior year.
Cash spent on acquisitions totalled GBP164.9m. Dividend payments
amounted to GBP50.2m (a GBP6.7m, 15.4% increase on the prior year).
Foreign exchange translation and other items increased net debt by
GBP21.3m, leaving an overall increase in net debt of GBP163.4m and
closing net debt of GBP1,090.7m.
Pensions
At 30 June 2018 the Company's UK defined benefit pension scheme
('the Scheme'), which is closed to new members, was valued at an
accounting surplus of GBP373.2m on the Company's balance sheet.
Following the most recent triennial actuarial valuation as at 31
December 2015 the Trustee and the Company agreed that the Scheme is
now fully funded on a technical provisions basis. The Trustee has
therefore agreed annual payments will not be required going
forward. Because the Scheme is fully funded on a technical
provisions basis, GBP9.0m of payments previously held in escrow was
released to the Company in February 2017. The funding position will
be reviewed at the next actuarial valuation, which is scheduled for
31 December 2018.
The Scheme is in a strong financial position and, given this,
the Trustee has been considering the future of the Scheme. At 31
December 2017 the Scheme was estimated to be close to the level at
which it would be able to secure member's benefits using insurance
policies - known as 'buy-out'. No decision has yet been made on
this but carrying out a buy-out would replace Rentokil Initial plc
as sponsor of the Scheme with a fully authorised UK insurance
company which would become responsible for paying pensions in line
with the Scheme rules. This would remove the pension Scheme from
the Company's balance sheet without any cash payments being
required by the Company.
Funding
At 30 June 2018 the Group had net debt of GBP1,090.7m
representing an increase of GBP163.4m in net debt as at 31 December
2017. At 30 June 2018 the Group had GBP454m of centrally held funds
and available undrawn committed facilities. On 13 March 2018 the
Group repaid a EUR50m bond using cash on the balance sheet. The
Company is currently working with its banks to amend and extend its
revolving credit facility with a view to increasing the committed
amount available for cash drawings from GBP360m to GBP600m and
extending the term to 2023 with two one-year extension options.
This will cover any refinancing risk associated with the maturity
of the EUR500m bond in September 2019, which is the next debt
maturity.
The ratio of net debt to EBITDA at 30 June 2018 was 2.4x and
reflects the timing of acquisition spend in H1. We are committed to
maintaining a BBB credit rating and, based on our expectations for
the remainder of 2018, we are confident in doing so.
Going Concern
The Directors continue to adopt the going concern basis in
preparing the accounts on the basis that the Group's strong
liquidity position and ability to reduce capital expenditure or
expenditure on bolt-on acquisitions are sufficient to meet the
Group's forecast funding needs, including those modelled in a
downside case.
Dividend
Following an encouraging performance in the first half of 2018,
and in anticipation of further progress for the remainder of the
year, the Board is declaring an interim dividend of 1.311p per
share, payable to shareholders on the register at the close of
business on 10 August 2018, to be paid on 12 September 2018.
GUIDANCE FOR 2018 (at CER unless otherwise stated)
With the exception of foreign exchange, our previous guidance
for the year is unchanged. Central and regional overheads are
expected to be GBP4m above the prior year. We estimate that
restructuring costs (reported within Ongoing Operating Profit) will
be at c. GBP7m, in line with 2017.
Profit from associates, including our share of the adjusted
profit from the Haniel joint venture, is estimated to be in the
region of GBP20m to GBP25m.
Interest costs are estimated to be c. GBP46m with cash interest
estimated to be broadly in line with the P&L impact.
Recent movements on exchange rates have reduced the negative
impact of currency movements on our profit (and Free Cash Flow) and
this is now expected to be in the region of GBP5m to GBP10m, versus
our previous guidance in February of negative GBP10m to GBP15m.
However, this potential GBP5m improvement is expected to be largely
offset by higher fuel prices which have increased fuel costs by c.
GBP2m in the first half.
Our current estimate for the Adjusted Effective Tax Rate in 2018
is 22.5% (in line with 2017) with cash tax payable in the region of
GBP45m to GBP50m.
Capital expenditure is estimated to be in the region of GBP165m
to GBP175m and working capital outflow is anticipated to be
GBP15m.
Consolidated statement of profit or loss and other comprehensive
income
For the period ended 30 June
6 months to 30 June 2018 6 months to 30 June 2017*
Notes GBPm GBPm
========================================================== ===== ======================== =========================
Revenue 4 1,176.1 1,233.6
Operating profit 108.5 143.8
Net profit on disposal of businesses - 462.5
Profit before interest and income tax 108.5 606.3
Finance income 15.2 7.2
Finance cost (26.4) (24.4)
Share of profit from associates, net of tax of GBP5.2m
(2017: GBP1.9m) 12.2 3.8
========================================================== ===== ======================== =========================
Profit before income tax 109.5 592.9
Income tax expense(1) (23.2) (13.3)
========================================================== ===== ======================== =========================
Profit for the year attributable to the Company's equity
holders (including non-controlling
interests of GBP0.1m (2017: GBP0.1m)) 86.3 579.6
========================================================== ===== ======================== =========================
Other comprehensive income:
Items that are not reclassified subsequently to the income
statement:
Re-measurement of net defined benefit asset 7 37.7 (9.5)
Tax related to items taken to other comprehensive income (8.1) 1.7
Items that may be reclassified subsequently to the income
statement:
Net exchange adjustments offset in reserves (4.1) (22.5)
Other items 10.4 (36.0)
========================================================== ===== ======================== =========================
Total comprehensive income for the year (including
non-controlling interests of GBP0.1m (2017:
GBP0.1m)) 122.2 513.3
========================================================== ===== ======================== =========================
(1) taxation includes GBP15.2m (HY 2017: GBP13.3m) in
respect of overseas taxation.
Earnings per share attributable to the Company's equity
holders:
Basic 4.69p 31.62p
========================================================== ===== ======================== =========================
Diluted 4.66p 31.49p
========================================================== ===== ======================== =========================
Non-GAAP measures
Operating profit 108.5 143.8
Adjusted for:
Amortisation and impairment of intangible assets
(excluding computer software) 4 28.6 25.9
One-off items - operating 4 (2.6) 7.7
Reversal of depreciation - assets held-for-sale - (34.3)
========================================================== ===== ======================== =========================
Adjusted operating profit 134.5 143.1
Finance income 15.2 7.2
Add back: Net interest credit from pensions (4.0) (3.4)
Add back: Interest fair value adjustments (7.0) -
Finance cost (26.4) (24.4)
Share of profit from associates, net of tax of GBP5.2m
(2017: GBP1.9m) 12.2 3.8
========================================================== ===== ======================== =========================
Adjusted profit before income tax 124.5 126.3
Basic adjusted earnings per share attributable to the
Company's equity holders 5.25p 5.36p
========================================================== ===== ======================== =========================
The weighted average number of ordinary shares in issue is
1.839m (HY 2017: 1,833m). For the diluted EPS calculation the
adjustment for share options and LTIPs is 12.9m (HY 2017:
7.7m).
* The Group has initially applied IFRS 15 and IFRS 9 at 1
January 2018. Under the transition methods chosen comparative
information is not restated. See Note 3.
Consolidated balance sheet
At 30 June At 31 December
2018 2017*
Notes GBPm GBPm
============================================= =========== ===============
Assets
Non-current assets
Intangible assets 1,361.2 1,220.2
Property, plant and equipment 408.1 390.2
Investments in associated
undertakings 290.9 278.7
Other investments 0.2 0.2
Deferred tax assets 3.9 3.4
Contract costs 3 46.9 -
Retirement benefit assets 7 374.2 326.2
Other receivables 11.3 11.0
Derivative financial instruments 9 14.9 13.7
========================================= =========== ===============
2,511.6 2.243.6
========================================= =========== ===============
Current assets
Other investments 1.4 0.5
Inventories 100.4 84.3
Trade and other receivables 491.1 449.8
Current tax assets 17.0 13.1
Derivative financial instruments 9 1.5 6.3
Cash and cash equivalents 161.4 310.1
========================================= =========== ===============
772.8 864.1
========================================= =========== ===============
Liabilities
Current liabilities
Trade and other payables (593.3) (535.7)
Current tax liabilities (79.4) (79.5)
Provisions for other liabilities
and charges (28.4) (25.3)
Bank and other short-term
borrowings 8 (37.7) (68.0)
Derivative financial instruments 9 (1.1) (5.3)
========================================= =========== ===============
(739.9) (713.8)
========================================= =========== ===============
Net current assets 32.9 150.3
========================================= =========== ===============
Non-current liabilities
Other payables(1) (76.3) (76.0)
Bank and other long-term
borrowings 8 (1,210.5) (1,166.9)
Deferred tax liabilities (130.5) (109.3)
Retirement benefit obligations 7 (24.7) (26.1)
Provisions for other liabilities
and charges (47.3) (55.0)
Derivative financial instruments 9 (24.6) (26.6)
========================================= =========== ===============
(1,513.9) (1,459.9)
========================================= =========== ===============
Net assets 1,030.6 934.0
========================================= =========== ===============
Equity
Capital and reserves attributable to the
company's equity holders
Called up share capital 18.4 18.4
Share premium account 6.8 6.8
Other reserves (1,842.3) (1,848.6)
Retained profits 2,847.3 2,757.1
========================================= =========== ===============
1,030.2 933.7
Non-controlling interests 0.4 0.3
========================================= =========== ===============
Total equity 1,030.6 934.0
========================================= =========== ===============
* The Group has initially applied IFRS 15 and IFRS 9 at 1
January 2018. Under the transition methods chosen comparative
information is not restated. See Note 3.
(1) non-current other payables includes GBP49.0m of contingent
consideration related to the PCI India acquisition (2017:
GBP47.7m).
Consolidated statement of changes in equity
Called Share Non-
up share premium Other Retained controlling Total
capital account reserves earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
==================================== =========== ========== =========== =========== ============== =========
At 1 January 2017 18.3 6.8 (1,763.5) 2,099.0 0.1 360.7
Profit for the period - - - 579.5 0.1 579.6
Other comprehensive income:
Net exchange adjustments
offset in reserves - - (22.5) - - (22.5)
Remeasurement of net defined
benefit asset - - (9.5) - (9.5)
Effective portion of changes
in fair value of cash flow
hedge - - 6.2 - - 6.2
Cumulative exchange recycled
to income statement on disposal
of foreign operations - - (42.2) - - (42.2)
Tax related to remeasurement
of net defined benefit asset - - 1.7 - 1.7
==================================== =========== ========== =========== =========== ============== =========
Total comprehensive income
for the period - - (58.5) 571.7 0.1 513.3
Transactions with owners:
Dividends paid to equity
shareholders - - - (43.5) - (43.5)
Issue of ordinary shares 0.1 - - - - 0.1
Cost of share options and
long-term incentive plan - - - 3.6 - 3.6
==================================== =========== ========== =========== =========== ============== =========
At 30 June 2017 18.4 6.8 (1,822.0) 2,630.8 0.2 834.2
==================================== =========== ========== =========== =========== ============== =========
At 1 January 2018 18.4 6.8 (1,848.6) 2,757.1 0.3 934.0
==================================== =========== ========== =========== =========== ============== =========
Adjustment on initial application
of IFRS 15 - - - 25.2 - 25.2
==================================== =========== ========== =========== =========== ============== =========
Adjusted balance at 1 January
2018 18.4 6.8 (1,848.6) 2,782.3 0.3 959.2
Profit for the period - - - 86.2 0.1 86.3
Other comprehensive income:
Net exchange adjustments
offset in reserves - - (4.1) - - (4.1)
Remeasurement of net defined
benefit asset - - - 37.7 - 37.7
Effective portion of changes
in fair value of cash flow
hedge - - 10.4 - - 10.4
Tax related to remeasurement
of net defined benefit asset - - - (8.1) - (8.1)
==================================== =========== ========== =========== =========== ============== =========
Total comprehensive income
for the period - - 6.3 115.8 0.1 122.2
Transactions with owners:
Dividends paid to equity
shareholders - - - (50.2) - (50.2)
Cost of share options and
long-term incentive plan - - - 2.8 - 2.8
Movement in the carrying
value of put options - - - (3.4) - (3.4)
==================================== =========== ========== =========== =========== ============== =========
At 30 June 2018 18.4 6.8 (1,842.3) 2,847.3 0.4 1,030.6
==================================== =========== ========== =========== =========== ============== =========
* The Group has initially applied IFRS 15 and IFRS 9 at 1
January 2018. Under the transition methods chosen comparative
information is not restated. See Note 3.
Shares of GBP0.1m (2017: GBP0.1m) have been netted against
retained earnings. This represents 9.5m (HY 2017: 7.9m) shares held
by the Rentokil Initial Employee Share Trust. The market value of
these shares at 30 June 2018 was GBP32.7m (HY 2017: GBP21.6m).
Dividend income from, and voting rights on, the shares held by the
Trust have been waived.
Analysis of other reserves
Cash
Capital flow
reduction Legal hedge Translation
reserve reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm
================================= =========== ========= ========= ============ ==========
At 1 January 2017 (1,722.7) 10.4 (5.9) (45.3) (1,763.5)
Net exchange adjustments
offset in reserves - - - (22.5) (22.5)
Effective portion of changes
in fair value of cash
flow hedge - - 6.2 - 6.2
Cumulative exchange recycled
to income statement on
disposal of foreign operations - - - (42.2) (42.2)
================================= =========== ========= ========= ============ ==========
Total comprehensive income
for the period - - 6.2 (64.7) (58.5)
================================= =========== ========= ========= ============ ==========
At 30 June 2017 (1,722.7) 10.4 0.3 (110.0) (1,822.0)
================================= =========== ========= ========= ============ ==========
At 1 January 2018 (1,722.7) 10.4 (8.5) (127.8) (1,848.6)
================================= =========== ========= ========= ============ ==========
Net exchange adjustments
offset in reserves - - - (4.1) (4.1)
Effective portion of changes
in fair value of cash
flow hedge - - 10.4 - 10.4
================================= =========== ========= ========= ============ ==========
Total comprehensive income
for the period - - 10.4 (4.1) 6.3
================================= =========== ========= ========= ============ ==========
At 30 June 2018 (1,722.7) 10.4 1.9 (131.9) (1,842.3)
================================= =========== ========= ========= ============ ==========
Consolidated cash flow statement
6 months 6 months
to 30 to 30
June June
2018 2017*
Notes GBPm GBPm
============================================== ====== ========= =========
Profit for the period 86.3 579.6
Adjustments for:
- Tax 23.2 13.3
- Share of profit from associates (12.2) (3.8)
- Net interest credit from pensions (4.0) (3.4)
- Interest fair value adjustments (7.0) -
- Interest income (4.2) (3.8)
- Interest expense 26.4 24.4
Reversal of non-cash items:
- Depreciation and impairment of property,
plant and equipment 63.2 66.6
- Amortisation and impairment of intangible
assets(1) 28.6 25.9
- Amortisation of computer software 9.6 6.4
- Other non-cash items 0.8 3.1
- Profit on sale of businesses - (462.5)
Changes in working capital (excluding
the effects of acquisitions and exchange
differences on consolidation):
- Inventories (12.1) (7.6)
- Contract costs (0.8) -
- Trade and other receivables (29.0) (38.5)
- Accrued income (12.4) -
- Trade and other payables and provisions 15.8 16.0
- Deferred income 17.5 -
============================================== ====== ========= =========
Cash generated from operating activities 189.7 215.7
Interest received 1.0 8.2
Interest paid(2) (8.3) (14.5)
Income tax paid (25.0) (19.5)
============================================== ====== ========= =========
Net cash generated from operating activities 157.4 189.9
============================================== ====== ========= =========
Cash flows from investing activities
Purchase of property, plant and equipment (72.2) (107.3)
Purchase of intangible fixed assets (10.3) (7.4)
Proceeds from sale of property, plant
and equipment 1.4 3.0
Acquisition of companies and businesses,
net of cash acquired 5 (164.9) (206.8)
Disposal of companies and businesses (net
of disposal costs) - 396.1
============================================== ====== ========= =========
Net cash flows from investing activities (246.0) 77.6
============================================== ====== ========= =========
Cash flows from financing activities
Issue of ordinary share capital - 0.1
Dividends paid to equity shareholders (50.2) (43.5)
Capital element of finance lease payments (7.0) (8.5)
Cash outflow on settlement of debt related
foreign exchange forward contracts 2.9 (43.5)
Proceeds from issue of debt 44.5 225.0
Net investment in term deposits (0.9) 6.4
Net loan repayments (44.3) (10.5)
============================================== ====== ========= =========
Net cash flows from financing activities (55.0) 125.5
============================================== ====== ========= =========
Net (decrease)/increase in cash and cash
equivalents (143.6) 393.0
Cash and cash equivalents at beginning
of year 304.1 105.9
Exchange losses on cash and cash equivalents (5.1) (4.5)
============================================== ====== ========= =========
Cash and cash equivalents at end of the
financial period 155.4 494.4
============================================== ====== ========= =========
* The Group has initially applied IFRS 15 and IFRS 9 at 1
January 2018. Under the transition methods chosen comparative
information is not restated. See Note 3.
(1) excluding computer software.
(2) interest paid includes interest on finance lease payments of
GBP0.7m (2017: GBP0.7m).
1. General information
The Company is a public limited company incorporated and
domiciled in the UK with a listing on the London Stock Exchange.
The address of its registered office is Rentokil Initial plc,
Riverbank, Meadows Business Park, Blackwater, Camberley, Surrey,
GU17 9AB.
The consolidated half-yearly financial information for the
half-year to 30 June 2018 was approved for issue on 30 July
2018.
On pages 69 to 70 of the Annual Report 2017 we set out the
Group's approach to risk management and on pages 42 to 47 we define
the principal risks that are most relevant to the Group. These
risks are described in detail and have mitigating actions assigned
to each of them. In our view the principal risks remain unchanged
from those indicated in the Annual Report 2017 and actions continue
to be taken to substantially mitigate the impact of such risks,
should they materialise.
These interim financial results do not comprise statutory
accounts within the meaning of Section 435 of the Companies Act
2006, and should be read in conjunction with the Annual Report
2017. Those accounts have been reported upon by the Group's auditor
and delivered to the registrar of companies. The report of the
auditor was unqualified, did not include a reference to any matters
to which the auditor drew attention by way of emphasis without
qualifying their report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
For all information relating to 2017 results please refer to the
Annual Report 2017 which can be accessed here:
http://www.rentokil-initial.com/investors/year-in-review.aspx
2. Basis of preparation
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the EU. As required by the Disclosure and
Transparency Rules of the Financial Conduct Authority, the interim
financial statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of
the Company's published consolidated financial statements for the
year ended 31 December 2017 except for the changes described in
Note 3.
This is the first set of the Group's financial statements where
IFRS 15 and IFRS 9 have been applied. Changes to significant
accounting policies are described in Note 3.
After reviewing Group cash balances, borrowing facilities and
projected cash flows, the directors believe that the Group has
adequate resources to continue operations for the foreseeable
future. For this reason they continue to adopt the going concern
basis in preparing the consolidated financial statements.
3. Accounting policies
The preparation of the interim financial information for the
half-year ended 30 June 2018 requires management to make estimates
and assumptions that affect the reported amounts of revenues,
expenses, assets, liabilities and disclosure of contingent
liabilities at the date of the statement. If in the future such
estimates and assumptions, which are based on management's best
judgement at the date of the statement, deviate from the actual
circumstances, the original estimates and assumptions will be
modified as appropriate in the year in which the circumstances
change.
The significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those described in the last annual
financial statements, except for new significant judgements and key
sources of estimation and uncertainty related to the application of
IFRS 15 and IFRS 9, which are described below.
Significant seasonal or cyclical variations in the group's total
revenues are not experienced during the financial year.
Changes in significant accounting policies
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the Group's consolidated financial statements as at and for the
year ended 31 December 2017. The changes in accounting policies are
also expected to be reflected in the Group's consolidated financial
statements as at and for the year ending 31 December 2018.
The Group has initially adopted IFRS 15 Revenue from Contracts
with Customers (see A) and IFRS 9 Financial Instruments (see B)
from 1 January 2018.
The effect of initially applying IFRS 15 Revenue from Contracts
with Customers is the capitalisation and amortisation of commission
fees previously expensed as incurred (see A below). There was no
material effect of initially applying IFRS 9 Financial Instruments
(see B below).
A. IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaces IAS
18 Revenue, IAS 11 Construction Contracts and related
interpretations.
The Group has applied IFRS 15 using the cumulative effect method
(adopting all practical expedients); therefore, comparative
information has not been restated and continues to be reported
under IAS 18 and IAS 11. Substantially all of the Group's revenue
is within the scope of IFRS 15, but no material changes to the
timing of revenue recognition are required. Under IFRS 15 revenue
is recognised when a customer obtains control of goods or services
in line with identifiable performance obligations. In the majority
of cases the Group considers that the contracts it enters into are
contracts for bundled services which should be accounted for as a
single performance obligation. Therefore as under IAS 18 previously
the majority of revenue across the Group will continue to be
recognised evenly over the course of the contract because this
reflects the timing of the provision of the service.
The Group previously recognised commission fees payable related
to contracts as selling expenses when they were incurred. Under
IFRS 15, the Group capitalises these commission fees, when they are
incremental, as costs of obtaining contracts and, if they are
expected to be recovered, it amortises them consistently over the
lives of the contracts to which they relate. The value of the
initial adjustment was GBP30.1m net of GBP11.8m tax. The related
amortisation for the reporting period was GBP10.5m with the net
impact on the income statement being a reduction in costs of
GBP1.7m. Where the expected amortisation period is one year or
less, the Group has adopted the available practical expedient to
expense these commission fees as incurred. Due to the high volume
of contracts entered into by the Group, when calculating the
commission fees to be capitalised judgements are made at a country
and category level as to the amounts capitalised and the duration
of the amortisation.
The following table summarises the impacts of adopting IFRS 15
on the Group's interim balance sheet as at 30 June 2018. There was
no material impact on the Group's interim statement of profit or
loss and other comprehensive income or statement of cash flows for
the six month period ended 30 June 2018.
Impact on the interim consolidated balance sheet
30 June 2018 Amounts without
adoption
As reported Adjustments of IFRS 15
GBPm GBPm GBPm
================================== ========================= ============ ================
Assets
Contract costs 46.9 46.9 -
================================== ========================= ============ ================
Non-current assets 46.9 46.9 -
================================== ========================= ============ ================
Trade and other receivables 46.9 (5.0) 51.9
Accrued income (1 January 2018:
GBP16.7m) 9.2 - 9.2
================================== ========================= ============ ================
Current assets 56.1 (5.0) 61.1
================================== ========================= ============ ================
Liabilities
Deferred income (1 January 2018:
(GBP114.8m)) (132.4) (4.9) (127.5)
================================== ========================= ============ ================
Current liabilities (132.4) (4.9) (127.5)
================================== ========================= ============ ================
Liabilities
Deferred tax liabilities (133.5) (11.8) (121.7)
Non-current liabilities (133.5) (11.8) (121.7)
---------------------------------- ------------------------- ------------ ----------------
Equity
Retained profits (2,847.3) (25.2) (2,822.1)
Total equity (2,847.3) (25.2) (2,822.1)
================================== ========================= ============ ================
B. IFRS 9 Financial Instruments
IFRS 9 Financial Instruments sets out requirements for
recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. This
standard replaces IAS 39 Financial Instruments: Recognition and
Measurement.
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities, and
the adoption of IFRS 9 has not had a significant effect on the
Group's accounting policies related to financial liabilities and
derivative financial instruments (for derivatives that are used as
hedging instruments, see (ii) below).
The impact of IFRS 9 on the classification and measurement of
financial assets is set out below.
IFRS 9 eliminates the previous IAS 39 categories for financial
assets of held to maturity, loans and receivables and available for
sale. Under IFRS 9, on initial recognition, a financial asset is
classified at: measured at:
- amortised cost;
- fair value through other comprehensive income (FVTOCI) - debt investment;
- FVTOCI - equity investment; or
- fair value through profit or loss (FVTPL).
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. Derivatives embedded
in contracts where the host is a financial asset in the scope of
the standard are never separated. Instead, the hybrid financial
instrument as a whole is assessed for classification.
Financial assets are subject to new rules regarding provisions
for impairment, however as the Group has minimal financial assets
(other than trade debtors), and a history of minimal impairments
against these assets, the impact on transition is not material.
The Group has elected to measure loss allowances for trade
receivables and contract assets at an amount equal to lifetime
ECLs.
3. Accounting policies (continued)
i. Classification and measurement of financial assets and financial liabilities
The following table and the accompanying notes below explain the
original measurement categories under IAS 39 and the new
measurement categories under IFRS 9 for each class of the Group's
financial assets as at 1 January 2018.
Original New carrying
carrying amount
amount under
New classification under IFRS
Original classification under IFRS IAS 39 9
under IAS 39 9 GBPm GBPm
============================= ========================= ======================= ========== =============
Financial assets
Interest rate swaps Fair value Fair value
used for hedging - hedging instrument - hedging instrument 19.0 19.0
Forward exchange contracts Fair value Fair value
used for hedging - hedging instrument - hedging instrument 1.0 1.0
Trade and other receivables Loans and receivables Amortised cost 449.8 449.8
Cash and cash equivalents
- Cash and short term
deposits Loans and receivables Amortised cost 225.2 225.2
Cash and cash equivalents
- Liquidity funds Loans and receivables FVTPL 84.9 84.9
Derivatives FVTPL FVTPL - -
============================= ========================= ======================= ========== =============
Total financial assets 779.9 779.9
================================================================================= ========== =============
ii. Hedge accounting
The Group has elected to adopt the new general hedge accounting
model in IFRS 9. This requires the Group to ensure that hedge
accounting relationships are aligned with its risk management
objectives and strategy, and to apply a more qualitative and
forward-looking approach to assessing hedge effectiveness.
The Group uses forward foreign exchange contracts to hedge the
variability in cash flows arising from changes in foreign exchange
rates relating to foreign currency borrowings, receivables, sales
and inventory purchases. The Group designates only the change in
fair value of the spot element of the forward exchange contract as
the hedging instrument in cash flow hedging relationships. The
effective portion of changes in fair value of hedging instruments
is accumulated in a cash flow hedge reserve as a separate component
of equity.
Under IAS 39, the change in fair value of the forward element of
the forward exchange contracts ('forward points') was recognised
immediately in profit or loss. Under IFRS 9 the forward points are
accounted for as a cost of hedging and are recognised in OCI. The
Group has not changed the accounting for forward contracts under
IFRS 9.
The Group generally uses cross currency interest rate swaps to
achieve appropriate net debt currency mix. Cross currency swaps are
generally either a cash flow hedge or a net investment hedge
accounting relationship expect where there is a natural translation
risk offset in the profit and loss account. A cross currency swap
in a net investment hedge will be accounted on the forward basis
where all changes in fair value will be reported to reserves except
basis risk which is amortised over the remaining term of the swap
contract.
Under IAS 39, for all cash flow hedges, the amounts accumulated
in the cash flow hedge reserve were reclassified to profit or loss
as a reclassification adjustment in the same period as the hedged
expected cash flows affected profit or loss. The same approaches
also apply under IFRS 9 to the amounts accumulated in the cost of
hedging reserve.
iii. Transition
Changes in accounting policies resulting from the adoption of
IFRS 9 have been applied retrospectively, except as described
below.
- Changes to hedge accounting policies have been applied prospectively.
- All hedging relationships designated under IAS 39 at 31
December 2017 met the criteria for hedge accounting under IFRS 9 at
1 January 2018 and are therefore regarded as continuing hedging
relationships.
Other changes in accounting policies
The Group is considering the impact on the financial statements
of IFRS 16 Leases (effective 1 January 2019). As a result of the
changes within IFRS 16, the majority of existing operating leases
will be accounted for as right of use assets, which will be largely
offset by corresponding lease liabilities. The lease liability will
increase net debt. It is anticipated that operating expenses will
decrease and financing costs will increase as the operating lease
expense is replaced by depreciation and interest. Depreciation will
be straight-line over the life of the lease but the financing
charge will decrease over the lease term. The overall phasing
impact on net profit is not expected to be material.
A number of other new standards are effective from 1 January
2018 but they do not have a material effect on the Group's
financial statements.
The Group has adopted the following amendments to standards with
effect from 1 January 2018:
- Amendments to IFRS 2 Share Based Payments
- Annual Improvements to IFRSs - 2014-2016 Cycle (IAS 28
Investments in Associates and Joint Ventures)
- IFRIC 22 Foreign Currency Transactions and Advance Consideration
These standards have had no impact on the financial position or
performance of the Group. Consequently, no adjustment has been made
to the comparative financial information as at 31 December 2017 or
30 June 2017. The Group has not early adopted any standard,
interpretation or amendment that was issued but is not yet
effective.
4. Segmental information
Segmental information has been presented in accordance with IFRS
8 Operating Segments. Reporting segments reflect the internal
management organisation and reporting structures. Each segment is
headed by a Regional Managing Director who reports directly to the
Chief Executive and is a member of the Company Executive Leadership
Team responsible for the review of Group performance. The operating
businesses within each segment report to the Regional Managing
Directors.
Given the international nature of the Group, foreign exchange
movements can have a significant impact on regional performance and
as a result the segmental analysis is presented at constant
currency rates. Restructuring costs and Central and Regional
overheads are also presented centrally as they are not directly
attributable to any reportable segment. The basis of presentation
is consistent with the information reviewed by internal management.
Revenue and profit are from Ongoing operations which is defined and
reconciled to the nearest equivalent GAAP measure in Note 11.
Operating Operating
Revenue Revenue profit profit
30 June 2018 30 June 2017* 30 June 2018 30 June 2017*
GBPm GBPm GBPm GBPm
================================================= ============= ============== ============= ==============
France 147.7 146.0 21.9 20.9
Benelux 42.8 41.7 11.4 11.9
Germany 44.2 39.3 13.0 11.3
Southern Europe 61.7 38.5 7.9 6.0
Latin America 24.9 21.1 3.2 1.8
================================================= ============= ============== ============= ==============
Europe 321.3 286.6 57.4 51.9
================================================= ============= ============== ============= ==============
UK & Ireland 147.0 123.2 26.1 22.7
Rest of World 73.1 64.5 16.3 14.5
================================================= ============= ============== ============= ==============
UK & Rest of World 220.1 187.7 42.4 37.2
================================================= ============= ============== ============= ==============
Asia 106.4 86.1 10.6 8.4
North America 452.3 401.0 52.3 47.8
Pacific 97.4 86.9 19.1 18.1
Central and regional overheads - - (39.7) (37.7)
Restructuring costs - - (4.3) (3.9)
================================================= ============= ============== ============= ==============
Ongoing operations at constant exchange rates 1,197.5 1,048.3 137.8 121.8
Disposed businesses(1 2) 9.6 181.3 - 55.7
================================================= ============= ============== ============= ==============
Continuing operations at constant exchange rates 1,207.1 1,229.6 137.8 177.5
Foreign exchange (31.0) 4.0 (3.3) (0.1)
================================================= ============= ============== ============= ==============
Continuing operations at actual exchange rates 1,176.1 1,233.6 134.5 177.4
================================================= ============= ============== ============= ==============
One-off items - operating 2.6 (7.7)
Amortisation of intangible assets (3) (28.6) (25.9)
Operating profit 108.5 143.8
================================================= ============= ============== ============= ==============
* The Group has initially applied IFRS 15 and IFRS 9 at 1
January 2018. Under the transition methods chosen comparative
information is not restated. See Note 3.
(1) disposed business for 2017 is restated for businesses
disposed in 2018.
(2) includes revenue of GBP7.9m (2017: GBPnil) from product
sales by the Group to CWS-boco International GmbH. Prior to 30 June
2017, this revenue was classified as intergroup revenue and
eliminated on consolidation.
(3) excluding computer software.
Amortisation and impairment of intangible assets
Amortisation Amortisation
and impairment and impairment
of intangibles(1) of intangibles(1)
============================
30 June 30 June
2018 2017
GBPm GBPm
============================ =================== ===================
Europe 3.0 3.1
UK & Rest of World 5.6 3.5
Asia 1.5 1.4
North America 15.4 13.4
Pacific 1.7 1.2
Central and regional 2.4 1.9
Total at constant exchange
rates 29.6 24.5
Foreign exchange (1.0) 1.4
============================== =================== ===================
Total at actual exchange
rates 28.6 25.9
============================== =================== ===================
(1) excluding computer software.
One-off items - operating income of GBP2.6m (2017: GBP7.7m
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
GBP6.0m non-cash gain as a result of member options exercises on
the UK defined benefit pension scheme.
5. Business combinations
The Group purchased 100% of either the share capital or the
trade and assets of 23 companies and businesses in the period. The
total consideration in respect of acquisitions in the current year
was GBP163.8m. Details of goodwill and the fair value of net assets
acquired are as follows:
6 months 6 months
to to
30 June 30 June
2018 2017
GBPm GBPm
=========================================== ========= =========
Purchase consideration:
- Cash paid 148.8 207.5
- Deferred and contingent consideration 15.0 74.1
=========================================== ========= =========
Total purchase consideration 163.8 281.6
Fair value of net assets acquired (67.9) (56.5)
=========================================== ========= =========
Goodwill from current period acquisitions 95.9 225.1
=========================================== ========= =========
Goodwill represents the synergies, workforce and other benefits
expected as a result of combining the respective businesses.
Deferred consideration of GBP4.1m and contingent consideration
of GBP10.9m is payable in respect of the above acquisitions.
Contingent consideration is payable based on a variety of
conditions including revenue and profit targets being met.
The provisional fair value of assets and liabilities arising
from acquisitions in the period are shown below. The fair values
are provisional as the acquisition accounting has not yet been
finalised, primarily due to the proximity of the acquisitions to
the period end.
6 months 6 months
to to
30 June 30 June
2018 2017
GBPm GBPm
================================= ========= =========
Non-current assets
- Intangible assets 54.9 45.9
- Property, plant and equipment 11.3 11.7
Current assets 20.7 25.6
Current liabilities (15.3) (20.0)
Non-current liabilities (3.7) (6.7)
================================= ========= =========
Net assets acquired 67.9 56.5
================================= ========= =========
From the dates of acquisition to 30 June 2018, these
acquisitions contributed GBP49.1m to revenue and GBP8.1m to
operating profit. If the acquisitions had occurred on 1 January
2018, the revenue and operating profit of the combined entity would
have amounted to GBP1,182.1m and GBP112.4m respectively.
In relation to prior period acquisitions, there has been an
adjustment to the provisional fair values of acquired intangibles
resulting in a decrease to goodwill of GBP20.2m.
In addition GBP19.7m was paid in respect of deferred and
contingent consideration for current and prior year acquisitions
resulting in the total cash outflow in the period from current and
past period acquisitions, net of cash acquired, of GBP164.9m.
6. Dividends
6 months 6 months
to to Year to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
====================================== ========= ========= =============
2016 final dividend paid - 2.06p per
share - 43.5 43.5
2017 interim dividend paid - 1.14p
per share - - 20.8
2017 final dividend paid - 2.74p per
share 50.2 - -
====================================== ========= ========= =============
50.2 43.5 64.3
====================================== ========= ========= =============
The directors have declared an interim dividend of 1.311p per
share amounting to GBP24.2m payable on 12 September 2018 to
shareholders on the register at 10 August 2018. The Company has a
progressive dividend policy and will take a view on the level of
any growth for 2018 based on the year-end results. These interim
financial statements do not reflect this dividend payable.
7. Retirement benefit obligations
Apart from the legally required social security state schemes,
the Group operates a number of pension schemes around the world
covering many of its employees. The major schemes are of the
defined benefit type with assets held in separate trustee
administered funds.
The principal scheme in the Group is the Rentokil Initial 2015
Pension Scheme in the United Kingdom ("the scheme"). It has a
number of defined benefit sections which are all now closed to new
members and future accrual of benefits. At 30 June 2018 the scheme
was valued at an accounting surplus of GBP373.2m (December 2017:
GBP325.4m) on the Group's balance sheet.
Other schemes currently in an accounting surplus position total
GBP1.0m and other schemes currently in an accounting deficit
position total GBP24.7m
The scheme is re-appraised semi-annually by independent
actuaries based upon actuarial assumptions in accordance with IAS
19 requirements. The principal assumptions used for the scheme are
shown below:
At 31
At 30 June December
2018 2017
GBPm GBPm
========================== =========== ===========
Weighted average %
Discount rate 2.8% 2.5%
Future salary increases N/A N/A
Future pension increases 3.4% 3.4%
RPI Inflation 3.4% 3.5%
CPI Inflation 2.3% 2.4%
========================== =========== ===========
The trustees of the scheme value the liabilities on a different
basis and in the most recent valuation at 31 December 2015, it was
agreed that the scheme is now fully funded and no contributions are
required from the company at this time. The funding position will
be reviewed at the next triennial actuarial valuation, which is due
to be carried out at 31 December 2018.
8. Bank and other borrowings
At 30 At 31
June December
2018 2017
GBPm GBPm
================================= ======== ==========
Non-current
RCF and other bank borrowings 84.3 37.0
Bond debt 1,101.5 1,102.2
Finance lease liabilities 24.7 27.7
================================== ======== ==========
1,210.5 1,166.9
================================= ======== ==========
Current
Bank overdrafts 6.0 6.0
Bank borrowings 1.2 0.7
Bond debt - 44.9
Bond interest accruals 20.8 6.8
Finance lease liabilities 9.7 9.6
================================== ======== ==========
37.7 68.0
================================= ======== ==========
Total bank and other borrowings 1,248.2 1,234.9
================================== ======== ==========
At 30 June 2018, the Group has a GBP420m revolving credit
facility (RCF) which is available for cash drawings up to GBP360m,
and for guarantees and letters of credit up to GBP60m. The maturity
date is January 2022. As at 30 June 2018 GBPnil was drawn under the
part of the facility available for cash drawings and GBP35m under
the part available for guarantees.
The Group also has a US$25m revolving credit facility, maturing
December 2019, on terms in line with the main RCF. At 30 June 2018,
nothing was drawn on this facility.
In addition the Group has a Term Loan of USD $50m, fully drawn
at 30 June 2018. The cost of borrowing on this facility was
2.16%.
Medium-term notes and bond debt comprises:
Bond interest Effective hedged
coupon interest rate
===================================== =========================== =================
Non-current
EUR500m bond due September 2019 Fixed 3.375% Fixed 3.62%
EUR350m bond due October 2021 Fixed 3.25% Fixed 4.05%
EUR400m bond due November 2024 Fixed 0.95% Fixed 3.12%
$50m term loan Floating (3m Libor+0.05%) Fixed 2.16%
GBP1.3m perpetual debentures Fixed 5.00% Fixed 5.00%
GBP0.3m perpetual debentures Fixed 4.50% Fixed 4.50%
===================================== =========================== =================
Average cost of bond debt at period
end rates 3.54%
================================================================== =================
8. Bank and other borrowings (continued)
The carrying values and the fair values of the Group's
non-current borrowings are shown in the table below. Fair values
are based on cash flows discounted at the current market rates.
Carrying Carrying
amount amount Fair Value Fair Value
30 June 31 December 30 June 31 December
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
=============================== ========= ============ =========== ============
Bank borrowings 84.3 39.4 84.3 39.4
EUR500m bond due September
2019 441.7 443.0 460.7 469.7
EUR350m bond due October 2021 307.8 308.6 338.1 341.8
EUR400m bond due November
2024 351.0 347.2 350.1 351.0
GBP1.6m perpetual debentures 1.0 1.0 1.7 1.7
Finance lease liabilities 24.7 27.7 24.7 27.7
=============================== ========= ============ =========== ============
1,210.5 1,166.9 1,259.6 1,231.3
=============================== ========= ============ =========== ============
9. Derivative financial instruments
For all financial instruments held by the Group, those that are
held at fair value are to be classified by reference to the source
of inputs used to derive the fair value. The following hierarchy is
used:
Level 1 - unadjusted quoted prices in active markets for
identical assets or liabilities;
Level 2 - inputs other than quoted prices that are observable
for the asset or liability either directly as prices or indirectly
through modelling based on prices;
Level 3 - inputs for the asset or liability that are not based
on observable market data.
Hierarchy
Financial instrument level Valuation method
=================================== ========== ===========================================
Financial assets traded in 1 Current bid price
active markets
Financial liabilities traded 1 Current ask price
in active markets
Long-term debt 1 Quoted market prices or dealer quotes
for similar instruments
Interest rate/currency swaps 1 Market swap rates at the balance
sheet date
Forward foreign exchange contracts 1 Forward exchange market rates at
the balance sheet date
Liquidity fund 1 Quoted market prices or dealer quotes
for similar instruments
Borrowings not traded in active 2 Cash flows discounted at current
markets market rates
Financial instruments not 2 or 3 Valuation assumptions based on market
traded in active markets conditions at the balance sheet date
Trade payables and receivables 3 Nominal value less estimated credit
adjustments
Other financial instruments 3 Variety of techniques including discounted
cash flows
=================================== ========== ===========================================
The Group holds all derivatives at fair value, using discounted
cash flow models based on market rates that are observable;
therefore all derivative financial instruments and
available-for-sale assets held by the Group fall into Level 2.
Contingent consideration payable on acquisitions by the Group falls
into Level 3. No financial instruments have moved between levels in
the period.
Fair value Fair value Fair value Fair Value
assets assets liabilities liabilities
30 June 31 December 30 June 31 December
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
================================== =========== ============ ============= =============
Interest rate swaps:
* non-hedge 9.9 - (13.3) (4.6)
* cash flow hedge 6.2 4.9 - (12.2)
* net investment hedge 0.2 14.1 (11.8) (9.9)
* fair value hedge - - - (5.0)
Foreign exchange swaps:
* non-hedge 0.1 0.1 (0.6) (0.2)
* net investment hedge - 0.6 - -
Foreign exchange swaps:
* non-hedge - 0.3 - -
================================== =========== ============ ============= =============
16.4 20.0 (25.7) (31.9)
================================== =========== ============ ============= =============
Analysed as follows:
Current portion 1.5 6.3 (1.1) (5.3)
Non-current portion 14.9 13.7 (24.6) (26.6)
================================== =========== ============ ============= =============
16.4 20.0 (25.7) (31.9)
================================== =========== ============ ============= =============
10. Events occurring after the balance sheet date
There were no significant events occurring after the balance
sheet date.
11. Alternative performance measures
Definitions and reconciliation of non-GAAP measures to GAAP
measures
The Group uses a number of measures to present the financial
performance of the business that are not GAAP measures as defined
under IFRS. Management believes these measures provide valuable
additional information for users of the financial statements in
order to understand the underlying trading performance. The Group's
internal strategic planning process is also based on these measures
and they are used for incentive purposes. They should be viewed as
complements to, and not replacements for, the comparable GAAP
measures.
Constant exchange rates (CER)
Given the international nature of the Group's operations,
foreign exchange movements can have a significant impact on the
reported results of the Group when they are translated into
sterling (the functional reporting currency of the Group). In order
to help understand the underlying trading performance of the
business, unless otherwise stated, percentage movements for revenue
and profit measures are presented at constant exchange rates (CER).
Constant exchange rates are calculated by retranslating current
year reported numbers at the full year average exchange rates for
the prior year, in order to give management and other users of the
accounts better visibility of underlying trading performance
against the prior period. The major exchange rates used are GBP/$
FY 2017 1.2968 (FY 2016 1.3556) and GBP/EUR FY 2017 1.1461 (FY 2016
1.2299). Comparisons are to the six months ended 30 June 2017 (H1
2017) unless otherwise stated.
Ongoing Revenue and Ongoing Operating Profit
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. Ongoing Operating Profit is an adjusted measure and is
presented before items including amortisation and impairment of
intangible assets (excluding computer software), one-off items and
net profit on disposal of businesses (see below for full
details).
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. A reconciliation of Ongoing Revenue and Ongoing
Operating Profit measures to the equivalent GAAP measure is
provided in the table below and in the segmental analysis in Note
4.
Adjusted profit and earnings per share measures
Adjusted profit measures are used to give management and other
users of the accounts a clear understanding of the underlying
profitability of the business over time. Adjusted profit measures
are calculated by adding the following items back to the equivalent
GAAP profit measure:
-- Amortisation and impairment of intangible assets (excluding computer software)
-- One-off items (operating and associates)
-- Net interest credit from pensions
-- Fair value adjustments to derivatives recognised as finance income/cost
Intangible assets (excluding computer software) are recognised
on the acquisition of businesses that, by their nature, can vary by
size and amount each year. As a result, amortisation of intangibles
is added back to assist with the understanding of the underlying
trading performance of the business and to allow comparability
across regions and categories.
One-off items are significant expenses or income that will have
a distortive impact on the underlying profitability of the Group.
Typical examples are costs related to the acquisition of businesses
(including aborted acquisitions), gain or loss on disposal or
closure of a business, material gains or losses on disposal of
fixed assets, adjustments to legacy property-related provisions
(vacant property and environmental liabilities), and payments or
receipts as a result of legal disputes. Similar adjustments where
appropriate are also made to the share of profits from
associates.
Where fair value adjustments to derivatives are recognised in
the income statement, these are adjusted for in adjusted profit
measures to reflect the underlying business performance at
contracted prices.
Prior to 2016 restructuring costs were adjusted in arriving at
adjusted profit measures. Although they are no longer adjusted for,
they are presented in the segmental analysis in order to provide
comparability.
Adjusted earnings per share is calculated by dividing adjusted
profit after tax from continuing operations attributable to equity
holders of the Company by the weighted average number of ordinary
shares in issue.
11. Alternative performance measures (continued)
A reconciliation of non-GAAP measures to the comparable GAAP
equivalents is provided below at both AER and CER:
% change
=========
H1 2018 H1 2018 H1 2017 H1 2017
AER CER AER CER
GBPm GBPm GBPm GBPm AER CER
=========
Ongoing Revenue 1,166.5 1,197.5 1,055.2 1,048.3 10.5% 14.2%
Revenue - disposed and
closed businesses(1) 9.6 9.6 178.4 181.3 (94.6%) (94.7%)
=============================== ========= ========= ========= ========= ========= =========
Revenue 1,176.1 1,207.1 1,233.6 1,229.6 (4.7%) (1.8%)
=============================== ========= ========= ========= ========= ========= =========
Ongoing Operating Profit 134.5 137.8 121.5 121.8 10.7% 13.1%
Operating Profit - disposed
and closed businesses - - 55.9 55.7 - -
=============================== ========= ========= ========= ========= ========= =========
Operating profit - continuing
operations 134.5 137.8 177.4 177.5 (24.2%) (22.4%)
Depreciation - held
for sale assets - - (34.3) (34.3) - -
=============================== ========= ========= ========= ========= ========= =========
Adjusted Operating Profit 134.5 137.8 143.1 143.2 (6.0%) (3.8%)
=============================== ========= ========= ========= ========= ========= =========
One-off items - Operating 2.6 2.4 (7.7) (7.7) - -
Depreciation - held
for sale - - 34.3 34.3 - -
Amortisation and impairment
of intangible assets (28.6) (29.6) (25.9) (25.5) (10.4%) (15.8%)
=============================== ========= ========= ========= ========= ========= =========
Operating profit 108.5 110.6 143.8 144.3 (24.6%) (23.3%)
=============================== ========= ========= ========= ========= ========= =========
Profit on disposal of
businesses - - 462.5 463.5 - -
Share of profit from
associates (net of tax) 12.2 12.2 3.8 3.7 220.6% 227.7%
Net interest payable
(excluding pensions) (22.2) (22.6) (20.6) (20.7) (7.6%) (9.4%)
Net interest credit
from pensions 4.0 4.0 3.4 3.4 16.8% 17.0%
Interest fair value
adjustments 7.0 7.0 - - - -
=============================== ========= ========= ========= ========= ========= =========
Profit before tax 109.5 111.2 592.9 594.2 (81.5%) (81.3%)
=============================== ========= ========= ========= ========= ========= =========
Net interest credit
from pensions (4.0) (4.0) (3.4) (3.4) 16.8% 17.0%
Interest fair value
adjustments (7.0) (7.0) - - - -
One-off items - operating (2.6) (2.4) 7.7 7.7 - -
Profit on disposal of
businesses - - (462.5) (463.5) - -
Depreciation - held-for-sale
assets - - (34.3) (34.3) - -
Amortisation and impairment
of intangible assets 28.6 29.6 25.9 25.5 (10.4%) (15.8%)
=============================== ========= ========= ========= ========= ========= =========
Adjusted profit before
tax 124.5 127.4 126.3 126.2 (1.5%) 0.9%
=============================== ========= ========= ========= ========= ========= =========
Basic earnings per share 4.69p 4.76p 31.62p 31.68p (85.2%) (85.0%)
Basic adjusted earnings
per share 5.25p 5.37p 5.36p 5.38p (1.9%) (0.1%)
=============================== ========= ========= ========= ========= ========= =========
(1) includes revenue of GBP7.9m (2017: GBPnil) from product
sales by the Group to CWS-boco International GmbH. Prior to 30 June
2017, this revenue was classified as intergroup revenue and
eliminated on consolidation.
11. Alternative performance measures (continued)
Organic Revenue Measures
Acquisitions are a core part of the Group's growth strategy.
Organic Revenue growth measures are used to help understand the
underlying performance of the Group. Organic Revenue growth
represents the growth in Ongoing Revenue excluding the effect of
businesses acquired during the year. Acquired businesses are
included in organic measures in the year following acquisition, and
the comparative period is adjusted to include an estimated full
year performance for growth calculations (pro forma revenue).
UK and North
Europe RoW Asia America Pacific Total
GBPm % GBPm % GBPm % GBPm % GBPm % GBPm %
-------------------- ------ ----- ------ ----- ------ ----- ------ ----- ----- ----- -------- -----
H1 2017 Ongoing
Revenue (as
reported) 286.6 - 187.7 - 86.1 - 401.0 - 86.9 - 1,048.3 -
Pro forma revenue
from 2017 and
2018 acquisitions 25.4 8.8 29.0 15.4 14.3 16.6 41.3 10.3 7.8 9.0 117.8 11.2
Organic Revenue
growth 9.3 3.3 3.4 1.7 6.0 6.9 10.0 2.5 2.7 3.1 31.4 3.0
-------------------- ------ ----- ------ ----- ------ ----- ------ ----- ----- ----- -------- -----
H1 2018 Ongoing
Revenue (as
reported) 321.3 12.1 220.1 17.1 106.4 23.5 452.3 12.8 97.4 12.1 1,197.5 14.2
-------------------- ------ ----- ------ ----- ------ ----- ------ ----- ----- ----- -------- -----
Protect
Pest Control Hygiene & Enhance Total
GBPm % GBPm % GBPm % GBPm %
----------------------------- -------- ----- ------ ----- ------- ---- -------- -----
H1 2017 Ongoing Revenue
(as reported) 663.8 - 201.5 - 183.0 - 1,048.3 -
Pro forma revenue from
2017 and 2018 acquisitions 59.6 9.0 57.8 28.7 0.4 0.2 117.8 11.2
Organic growth 27.0 4.0 4.4 2.1 0.0 0.0 31.4 3.0
----------------------------- -------- ----- ------ ----- ------- ---- -------- -----
H1 2018 Ongoing Revenue
(as reported) 750.4 13.0 263.7 30.8 183.4 0.2 1,197.5 14.2
----------------------------- -------- ----- ------ ----- ------- ---- -------- -----
11. Alternative performance measures (continued)
Segmental analysis
Segmental information has been presented in accordance with IFRS
8 Operating Segments (Note 4). The "Geographic" reporting segments
reflect the internal management organisation and reporting
structure of the Group. The "Category" reporting segment has been
revised in 2017 and now combines with the quadrant analysis to give
new operational categories of Pest Control, Hygiene, and Protect
& Enhance (made up of the businesses of workwear, plants and
property care). Segmental analysis is presented at CER unless
otherwise stated.
Regional Analysis
Ongoing Revenue Ongoing Operating Profit
======================= ==================================
Change from Change from
H1 2018 HY 2017 H1 2018 HY 2017
======================= ================== ================ ================ ================
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
======================= ======== ======== ======= ======= ======= ======= ======= =======
France 149.2 147.7 4.0 1.2 22.1 21.9 11.1 4.9
Benelux 43.2 42.8 5.4 2.6 11.5 11.4 (2.0) (4.7)
Germany 44.3 44.2 14.1 12.4 13.0 13.0 16.4 15.0
Southern Europe 62.3 61.7 64.6 60.2 8.0 7.9 37.7 34.1
Latin America 23.9 24.9 11.9 17.9 3.1 3.2 74.8 79.8
======================= ======== ======== ======= ======= ======= ======= ======= =======
Total Europe 322.9 321.3 14.3 12.1 57.7 57.4 14.5 10.8
======================= ======== ======== ======= ======= ======= ======= ======= =======
UK & Ireland 147.1 147.0 19.6 19.3 26.6 26.1 18.6 14.8
Rest of World 71.9 73.1 10.5 13.1 16.0 16.3 9.6 12.5
======================= ======== ======== ======= ======= ======= ======= ======= =======
UK & Rest of World 219.0 220.1 16.4 17.1 42.6 42.4 15.1 13.9
======================= ======== ======== ======= ======= ======= ======= ======= =======
Asia 102.9 106.4 17.9 23.5 10.3 10.6 20.6 25.6
North America 429.0 452.3 4.7 12.8 49.6 52.3 1.6 9.4
Pacific 92.7 97.4 5.5 12.1 18.2 19.1 (0.7) 5.6
Central and regional
overheads - - - - (39.7) (39.7) (5.4) (5.5)
Restructuring costs - - - - (4.2) (4.3) (7.1) (10.6)
Ongoing operations 1,166.5 1,197.5 10.5 14.2 134.5 137.8 10.7 13.1
======================= ======== ======== ======= ======= ======= ======= =======
Disposed businesses 9.6 9.6 (94.6) (94.7) - - - -
======================= ======== ======== ======= ======= ======= ======= ======= =======
Continuing operations 1,176.1 1,207.1 (4.7) (1.8) 134.5 137.8 (24.2) (22.4)
======================= ======== ======== ======= ======= ======= ======= ======= =======
Depreciation -
held for sale - - - - - - - -
======================= ======== ======== ======= ======= ======= ======= ======= =======
Adjusted - Continuing
operations 1,176.1 1,207.1 (4.7) (1.8) 134.5 137.8 (6.0) (3.8)
======================= ======== ======== ======= ======= ======= ======= ======= =======
Category Analysis
Ongoing Revenue Ongoing Operating Profit
======================= ==================================
Change from Change from
H1 2018 HY 2017 H1 2018 HY 2017
======================= ================== ================ ================ ================
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
======================= ======== ======== ======= ======= ======= ======= ======= =======
Pest Control 723.3 750.4 7.6 13.0 119.8 123.1 5.3 9.0
- Growth 617.3 640.0 6.8 12.0 105.1 107.9 5.6 9.1
- Emerging 106.0 110.4 12.9 19.1 14.7 15.2 3.3 8.3
Hygiene 261.2 263.7 29.7 30.8 41.7 42.3 17.3 19.2
Protect & Enhance 182.0 183.4 - 0.2 16.9 16.4 22.4 9.9
Central and regional
overheads - - - - (39.7) (39.7) (5.4) (5.5)
Restructuring
costs - - - - (4.2) (4.3) (7.1) (10.6)
Ongoing operations 1,166.5 1,197.5 10.5 14.2 134.5 137.8 10.7 13.1
======================= ======== ======== ======= ======= ======= ======= =======
Disposed businesses 9.6 9.6 (94.6) (94.7) - - - -
======================= ======== ======== ======= ======= ======= ======= ======= =======
Continuing operations 1,176.1 1,207.1 (4.7) (1.8) 134.5 137.8 (24.2) (22.4)
----------------------- -------- -------- ------- ------- ------- ------- ------- -------
11. Alternative performance measures (continued)
Operating Margin
Operating Margin is calculated by dividing Ongoing Operating
Profit by Ongoing Revenue, expressed as a percentage. Net operating
margin by region and category is shown in the tables below:
H1 2018 H1 2017 Variance
% % % points
========================== ======== ======== ==========
France 14.9 14.3 0.6
Benelux 26.5 28.6 (2.1)
Germany 29.4 28.7 0.7
Southern Europe 12.9 15.4 (2.5)
Latin America 12.8 8.4 4.4
========================== ======== ======== ==========
Total Europe 17.9 18.1 (0.2)
========================== ======== ======== ==========
UK & Ireland 17.8 18.5 (0.7)
Rest of World 22.2 22.4 (0.2)
========================== ======== ======== ==========
UK & Rest of World 19.3 19.8 (0.5)
========================== ======== ======== ==========
Asia 9.9 9.8 0.1
North America 11.6 11.9 (0.3)
Pacific 19.7 20.9 (1.2)
Ongoing operations(1) 11.5 11.6 (0.1)
========================== ======== ======== ==========
Disposed businesses - 11.8 (11.8)
========================== ======== ======== ==========
Continuing operations(1) 11.4 11.6 (0.2)
========================== ======== ======== ==========
H1 2018 H1 2017 Variance
% % % points
========================== ======== ======== ==========
Pest Control 16.4 17.0 (0.6)
- Growth 16.9 17.3 (0.4)
- Emerging 13.8 15.1 (1.3)
Hygiene 16.0 17.6 (1.6)
Protect & Enhance 9.0 8.2 0.8
Ongoing operations(1) 11.5 11.6 (0.1)
========================== ======== ======== ==========
Disposed businesses - 11.8 (11.8)
========================== ======== ======== ==========
Continuing operations(1) 11.4 11.6 (0.2)
========================== ======== ======== ==========
(1) Operating Margin for ongoing operations and continuing
operations is calculated after central and regional overheads and
restructuring costs.
Free Cash Flow
The Group aims to generate sustainable cash flow (Free Cash
Flow) in order to support its acquisition programme and to fund
dividend payments to shareholders. Free Cash Flow is measured as
net cash from operating activities, adjusted for cash flows related
to the purchase and sale of property, plant, equipment and
intangible fixed assets, and dividends received from associates.
These items are considered by management to be non-discretionary,
as continued investment in these assets is required to support the
day-to-day operations of the business. A reconciliation of Free
Cash Flow from Net Cash from Operating Activities is provided in
the table below:
H1 2018 H1 2017
AER AER
GBPm GBPm
======================================== ======== ========
Net cash from operating activities 157.4 189.9
Purchase of property, plant, equipment
and intangible fixed assets (82.5) (114.7)
Leased property, plant and equipment (3.3) (10.1)
Proceeds from sale of property, plant,
equipment and software 1.4 3.0
Free Cash Flow 73.0 68.1
======================================== ======== ========
Free Cash Flow - continuing operations 73.0 68.1
---------------------------------------- -------- --------
11. Alternative performance measures (continued)
Adjusted Free Cash Flow Conversion
Adjusted Free Cash Flow Conversion is calculated by dividing
Adjusted Profit from continuing operations attributable to equity
holders of the Company (further adjusted for any post tax profits
and one-offs from the CWS-boco International GmbH associate) by
Adjusted Free Cash Flow, expressed as a percentage. Adjusted Free
Cash Flow is measured as Free Cash Flow adjusted for one-off items
- operating and product development additions.
H1 2018 H1 2017
AER AER
GBPm GBPm
====================================================== ======== ========
Adjusted profit after tax from continuing operations
attributable to equity holders of the Company 96.7 98.2
Share of profit of CWS-boco International GmbH
associate (net of tax) (8.1) -
88.6 98.2
====================================================== ======== ========
Free Cash Flow from continuing operations 73.0 68.1
One-off items - operating(1) 3.4 7.7
Product development additions 2.0 2.0
====================================================== ======== ========
78.4 77.8
====================================================== ======== ========
Adjusted Free Cash Flow conversion 88.5% 79.2%
====================================================== ======== ========
(1) excluding GBP6.0m (2017: GBPnil) non-cash gain as a result
of member options exercises on the UK defined benefit pension
scheme.
Effective Tax Rate
Effective Tax Rate is calculated by dividing adjusted income tax
expense by adjusted profit before income tax, expressed as a
percentage. The measure is used by management to assess the rate of
tax applied to the Group's adjusted profit before tax from
continuing operations.
H1 2018 H1 2017
AER AER
GBPm GBPm
================================================== ======== ========
Income tax expense 23.2 13.3
Tax adjustments on:
Amortisation and impairment of intangible assets
(excluding computer software) 6.9 8.3
One-off items - operating (0.3) 2.3
Disposal of businesses - 4.8
Net interest credit from pensions (0.7) (0.6)
Interest fair value adjustments (1.3) -
Adjusted income tax expense (a) 27.8 28.1
Adjusted profit before income tax (b) 124.5 126.3
================================================== ======== ========
Effective Tax Rate (a/b) 22.3% 22.3%
================================================== ======== ========
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU
- the interim management report includes a fair review of the information required by:
-- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
-- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so
By Order of the Board
Andy Ransom
Chief Executive
30 July 2018
The directors of Rentokil Initial plc are listed in the Rentokil
Initial plc Annual Report for 31 December 2017. A list of the
current directors is maintained on the Rentokil Initial website:
rentokil-initial.com
INDEPENT REVIEW REPORT TO RENTOKIL INITIAL PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises consolidated
statement of profit or loss and other comprehensive income,
consolidated balance sheet, consolidated statement of changes in
equity, analysis of other reserves, consolidated cash flow
statement and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Michael Maloney
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
, the news service of the London Stock Exchange. RNS is approved by
the Financial Conduct Authority to act as a Primary Information
Provider in the United Kingdom. Terms and conditions relating to
the use and distribution of this information may apply. For further
information, please contact rns@lseg.com or visit www.rns.com.
END
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