Interim Results for the six months ended 30 June 2017

27 Jul 2017

Accelerated Organic Revenue growth and strong execution of M&A

This statement includes certain financial performance measures which are not GAAP measures as defined under International Financial Reporting Standards (IFRS). An explanation of the measures used along with reconciliation to the nearest IFRS measures is provided in Note 12 on page 24.

Interim Highlights

• Further delivery of financial targets - Ongoing Revenue growth of 16.0%, Ongoing Operating Profit growth of 13.0% and Free Cash Flow of £68.1m
• Continued improvement in Organic Revenue growth - total Organic Revenue growth of 4.2% driven by Pest Control, +6.5% and Hygiene, +3.0%. Flat Organic Revenue in France Workwear of -0.1% (H1 2016: -3.7%)
• Particularly strong execution of M&A - £206.8m spend on M&A in first half including:
  • Joint venture with India’s largest pest control company, PCI, a strategically important step in a country with significant growth potential - 57% stake acquired with annualised revenues in the year prior to acquisition of £47m
  • Five pest control acquisitions in the US with combined annualised revenues of £61m reinforce our position as the number three player in the key North American market
  • 19 further acquisitions (13 in Pest Control, five in Hygiene and one in Protect & Enhance) with combined annualised revenues of £67m  
• Completion of joint venture with Haniel to create a leading provider of workwear and hygiene services in Europe on 30 June 2017 and proposed divestment of eight laundries in France to Regie Linge Developpement (RLD). We aim to return our remaining France workwear operations to profitable growth by end 2018
• 15.2% increase in interim dividend of 1.14p
• Expectations for the full year unchanged

Commenting on today’s interim results Andy Ransom, CEO of Rentokil Initial plc, said:

“I am pleased with our performance in H1 and the continued momentum in the business. Pest Control has performed well across the regions and we remain encouraged by the progress we are delivering in Hygiene. We have significantly accelerated our M&A activity this year, acquiring 24 high quality pest control and hygiene businesses across 15 countries, strengthening our already leading positions in key growth territories.

“Our joint venture with Haniel represents a step change in the execution of our strategy. It is a great deal for both our companies and gives us a valuable stake in a leading European Workwear and Hygiene business while at the same time allowing us to redeploy the proceeds from the divestment into Pest Control and Hygiene, which now represent over 90% of operating profit. We are a stronger and more focused business going forward, operating in higher growth markets, with improving levels of organic growth, reduced capital intensity and high levels of cash generation. As a reflection of this, we are increasing our guidance for revenue, profit and cash delivery over the medium term.

“Prospects in the majority of our markets are good and, while conditions in France remain difficult, we are confident of meeting our expectations for 2017.”

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. In particular, following the completion of the Haniel JV on 30 June 2017, the financial results of the businesses contributed to the JV have been removed from Ongoing Revenue and Ongoing profit measures. The financial results of the French workwear businesses that are proposed to be sold to RLD have also been excluded, recognising an expected completion of the transaction in the second half of 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 12 on page 24.

Revenue

Excluding the financial performance of disposed businesses and businesses held for sale, Ongoing Revenue increased by 16.0% in the first half, with all regions contributing to growth. Both North America and Asia grew revenues by 29.7%, while the UK and ROW grew by 7.1%, Pacific by 8.9% and Europe by 4.3%. Group Organic Revenue growth was 4.2% and growth from acquired businesses was 11.8%. Ongoing Revenue in Pest Control grew strongly at 25.8% during H1, of which 6.5% was Organic Revenue, while Hygiene continued its positive growth trajectory, reporting increased revenues of 3.7%. Our Protect & Enhance businesses (which include our France workwear operations, our global Ambius business and our UK Property Care operations) reported revenue growth of 0.6% during the period. Total Revenue at actual exchange rates increased by 25.0%, reflecting the favourable impact of foreign exchange movements.

Profit

Excluding the results of disposed businesses and businesses held for sale, Ongoing Operating Profit increased by 13.0% in H1, reflecting growth in all regions but offset by lower profits in France and an increase in central and regional overheads from investments in digital capability and increased charges for Long Term Incentive Plans as a result of the share price performance of the Company. Restructuring costs amounted to £3.8m at CER (H1 2016: £4.4m) 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 rates grew by 637.4% to £592.9m. Profit before tax is after a net profit on disposal of businesses of £462.5m including the profit on disposal of the businesses transferred into the Haniel joint venture of £481.6m and a loss of £19.1m in relation to the write-down of the eight French laundries’ assets proposed to be divested to RLD. Other one-off costs amounted to £7.7m (H1 2016: £2.1m).

Adjusted profit before tax at actual exchange rates of £126.3m, which excludes the net profit from disposal of businesses, was favourably impacted by foreign exchange movements of £9.0m, due mainly to the weakening of Sterling against the Euro and the US Dollar in the year.

Cash

Free Cash Flow from continuing operations at actual exchange rates amounted to £68.1m, driven by the increased profit delivery in H1 and a year-on-year reduction in interest payments following the bond refinancing in Q1 2016, offset by an increase in capex (in line with revenue) and adverse working capital phasing. Spend on current and prior-year acquisitions (including the Rentokil PCI joint venture in India) totalled £206.8m, net proceeds received to date from the completion of the JV with Haniel were £396.1m and dividend payments were £43.5m (a £6.0m, 16.0% increase on the prior year). Foreign exchange translation and other items increased net debt by £0.7m, leaving an overall decrease in net debt of £213.2m and closing net debt of £1,025.5m.

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 had a particularly strong six months of M&A activity, acquiring 25 businesses – 19 in Pest Control, five in Hygiene and one in Protect & Enhance with combined annualised revenues in the year prior to acquisition of £175m and total spend including prior year acquisitions of £206.8m. 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 five businesses, including Allgood Pest Solutions. In addition, we have become the clear market leader in India and in the Kingdom of Saudi Arabia and the Gulf Cooperation Council countries through the Rentokil PCI joint venture in India and the acquisition of Sames. We expect underlying M&A activity for the remainder of the year to continue in line with H1 but do not currently anticipate as many larger deals as those executed this year to date. We expect a further £50m spend on M&A in H2.

Enquiries:

A presentation for investors and analysts will be held on Thursday 27 July 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 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.

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