REG - Rentokil Initial PLC - Final Results <Origin Href="QuoteRef">RTO.L</Origin> - Part 3
23/02/2017 07:06
- Part 3: For the preceding part double click ID:nRSW6086Xb
2016 2015
£m £m
Authorised
4,100,000,000 ordinary shares of 1p each 41.0 41.0
Issued and fully paid
At 31 December - 1,829,332,965 shares (2015: 1,822,832,965) 18.3 18.2
17. Reconciliation of net change in cash and cash equivalents to net debt
2016 2015
£m £m
Net decrease in cash and cash equivalents (5.2) (88.0)
Movement on finance leases (0.9) 0.1
Movement on other investments (89.7) 47.8
Movement on loans 100.9 (232.5)
Decrease/(increase) in debt resulting from cash flows 5.1 (272.6)
Foreign exchange translation and other items (217.2) 21.0
Movement on net debt in the year (212.1) (251.6)
Opening net debt (1,026.6) (775.0)
Closing net debt (1,238.7) (1,026.6)
18. Operating cash and Free Cash Flow
2016£m 2015
£m
Operating profit 232.4 187.8
Adjustments for:
- Depreciation and impairment of property, plant and equipment 188.3 162.3
- Amortisation and impairment of intangible assets (excluding computer software) 43.4 31.8
- Amortisation and impairment of computer software 12.4 10.4
- Other non-cash items 2.3 8.6
Changes in working capital (excluding the effects of acquisitions and exchange differences on consolidation):
- Inventories (3.6) 2.0
- Trade and other receivables (34.6) (4.8)
- Trade and other payables and provisions 12.0 (5.8)
Cash generated from operating activities before special pension contributions 452.6 392.3
Special pension contributions (1.0) (0.9)
Cash generated from operating activities 451.6 391.4
Add back: special pension contributions 1.0 0.9
452.6 392.3
Purchase of property, plant and equipment (186.2) (159.2)
Purchase of intangible fixed assets (21.0) (13.1)
Leased property, plant and equipment (14.6) (9.0)
Proceeds from sale of property, plant and equipment 6.3 6.7
Dividends received from associates 10.3 2.1
Operating cash flow1 247.4 219.8
Interest received 12.7 10.2
Interest paid (66.0) (53.7)
Interest element of finance lease payments (1.3) (0.7)
Income tax paid (35.8) (27.9)
Special pension contributions (1.0) (0.9)
Free Cash Flow 156.0 146.8
Add back: Free Cash Flow - discontinued operations 0.4 0.9
Free Cash Flow from continuing operations 156.4 147.7
1Operating cash flow includes non-ongoing operations of £(0.4)m (2015: £(0.9)m)
19. Business combinations
During the year the Group purchased 100% of the share capital or trade and assets of 41 companies and businesses. The total
consideration in respect of these acquisitions was £107.1m and the cash outflow from current and past period acquisitions,
net of cash acquired, was £109.2m.
From the dates of acquisition to 31 December 2016, these acquisitions contributed £70.2m to revenue and £8.0m to operating
profit.
If the acquisitions had occurred on 1 January 2016 the estimated revenue and operating profit of the Group would have
amounted to £2,237.2m and £233.8m respectively (as reported: £2,168.1m and £232.4m).
19. Business combinations (continued)
Details of goodwill and the fair value of net assets acquired are as follows:
2016 2015
£m £m
Purchase consideration:
- Cash paid 82.9 360.0
- Deferred and contingent consideration 24.2 26.0
Total purchase consideration 107.1 386.0
Fair value of net assets acquired (60.0) (80.3)
Goodwill from current year acquisitions 47.1 305.7
Goodwill represents the synergies, workforce and other benefits expected as a result of combining the respective
businesses.
Deferred consideration of £9.5m and contingent consideration of £14.7m is payable in respect of the above acquisitions.
Contingent consideration is based on a variety of conditions including revenue and profit targets being met. Both deferred
and contingent consideration are payable over the next 4 years. The Group incurred acquisition-related costs of £1.9m. The
Group has included the contingent and deferred consideration based on the fair value of the consideration at the
acquisition date.
The provisional fair value1 of assets and liabilities arising from acquisitions in the year are as follows:
2016 2015
£m £m
Non-current assets
- Intangible assets2 46.2 107.8
- Property, plant and equipment 4.0 5.9
Current assets3 39.7 19.7
Current liabilities (23.3) (18.9)
Non-current liabilities4 (6.6) (34.2)
Net assets acquired 60.0 80.3
1 the provisional fair values will be finalised in the 2017 financial statements. The fair values are provisional since
the acquisition accounting has not yet been finalised as a result of the proximity of many acquisitions to the year end
2 includes £38.1m (2015: £96.2m) of customer lists and relationships and £7.9m (2015: £11.6m) of other intangibles
3 includes trade and other receivables of £24.1m (2015: £18.6m) which represents the gross and fair value of the assets
acquired
4 includes (£6.4m) of deferred tax relating to acquired intangibles (2015: £31.0m)
The cash outflow from current and past acquisitions are as follows:
2016 2015
£m £m
Total purchase consideration 107.1 386.0
Consideration payable in future periods (24.2) (26.0)
Purchase consideration paid in cash 82.9 360.0
Cash and cash equivalents in acquired companies and businesses (2.2) (0.1)
Cash outflow on current period acquisitions 80.7 359.9
Deferred consideration paid 28.5 9.3
Cash outflow on current and past acquisitions 109.2 369.2
20. Related party transactions
Nippon Calmic Ltd (49%) was an associate during 2016 and 2015. There are no significant transactions between Nippon Calmic
Ltd and other Group companies.
The Group bears the costs of administration and independent pension advice of the Rentokil Initial 2016 Pension Scheme. The
total amount of costs in the year ended 31 December 2016 was £1.9m (2015: £2.5m) of which £0.2m (2015: £0.2m) was recharged
to the scheme.
21. Events occurring after the balance sheet date
There were no significant post balance sheet events affecting the Group since 31 December 2016.
22. 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 which 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 performance against the prior period. The major
exchange rates used are £/$ FY 2016 1.3556 (FY 2015 1.5288) and £/E FY 2016 1.2299 (FY 2015 1.3770). Comparisons are to the
year ended 31 December 2015 (2015) 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 amortisation and impairment of intangible assets (excluding computer software) and one-off items
(see below).
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 2.
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 by removing distortions caused by non-recurring expenses and income, and
the amortisation and impairment of intangible assets arising on the acquisition of businesses. Adjusted profit measures are
calculated by adding the following items back to the equivalent GAAP profit measure:
· Amortisation and impairment of intangible assets (excluding software)
· One-off items
· Net interest credit from pensions
Intangible assets (excluding computer software) are recognised on the acquisition of businesses which 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 non-recurring expenses or income which will have a non-recurring impact on the 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. One-off items are analysed in Note 2.
The net interest credit from pensions has the potential to vary significantly dependent on actuarial revaluations of the
pension schemes. In order to ensure year on year comparability this is added back to arrive at adjusted measures.
Prior to 2016 restructuring costs were an adjustment in arriving at adjusted profit measures. In 2016 they are no longer
adjusted for, but are presented in the segmental analysis in order to provide comparability with 2015. Central and
regional costs are overhead costs which cannot be allocated to any specific segment.
Adjusted earnings per share is earnings per share before the after tax effects of amortisation and impairment of
intangibles (excluding computer software), one-off items and net interest credit from pensions.
22. Alternative performance measures (continued)
A reconciliation of non-GAAP measures to the comparable GAAP equivalents is provided below at both AER and CER:
2016AER£m 2016CER£m 2015£m % change
AER CER
Ongoing Revenue 2,157.7 1,956.0 1,736.8 24.2% 12.6%
Revenue - disposed and closed businesses 10.4 9.3 22.2 (53.2%) (58.1%)
Revenue 2,168.1 1,965.3 1,759.0 23.2% 11.7%
Ongoing Operating Profit 284.9 252.3 226.3 25.8% 11.5%
Operating Profit - disposed and closed businesses (0.5) (0.5) (1.3) 59.8% 64.1%
Adjusted Operating Profit 284.4 251.8 225.0 26.3% 11.9%
One-off items (8.6) (7.9) (5.4) (57.5%) (44.6%)
Amortisation and impairment of intangible assets (43.4) (39.6) (31.8) (36.8%) (24.6%)
Operating profit 232.4 204.3 187.8 23.7% 8.8%
Share of profit from associates (net of tax) 6.2 5.0 4.7 32.3% 7.0%
Net interest payable (excluding pensions) (38.5) (34.9) (39.6) 2.7% 11.7%
Net interest credit from pensions 8.4 8.4 6.1 37.6% 38.2%
Profit before tax 208.5 182.8 159.0 31.0% 15.0%
Net interest credit from pensions (8.4) (8.4) (6.1) 37.6% 38.2%
One-off items 8.6 7.9 5.4 (57.5%) (44.6%)
Amortisation and impairment of intangible assets 43.4 39.6 31.8 (36.8%) (24.6%)
Adjusted profit before tax 252.1 221.9 190.1 32.5% 16.7%
Basic earnings per share 9.19p 7.92p 6.83p 34.6% 16.0%
Basic adjusted earnings per share 10.73p 9.30p 7.98p 34.5% 16.5%
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.
The table below reconciles organic measures by region and category to the comparable GAAP measures.
Europe UK and ROW Asia North America Pacific Total
£m % £m % £m % £m % £m % £m %
2015 Ongoing Revenue (as reported) 741.2 - 330.5 - 106.1 - 436.5 - 122.5 - 1,736.8 -
Proforma revenue from 2015 and 2016 acquisitions 3.6 0.5 1.4 0.4 4.1 3.9 149.1 34.1 8.2 6.7 166.4 9.6
Organic Revenue growth 6.7 0.9 13.4 4.1 8.7 8.1 19.0 4.4 5.0 4.0 52.8 3.0
2016 Ongoing Revenue (as reported) 751.5 1.4 345.3 4.5 118.9 12.0 604.6 38.5 135.7 10.7 1,956.0 12.6
Pest Control Hygiene Workwear Other Total
£m % £m % £m % £m % £m %
2015 Ongoing Revenue (as reported) 786.0 - 425.5 - 347.1 - 178.2 - 1,736.8 -
Proforma revenue from 2015 and 2016 acquisitions 158.1 20.2 7.4 1.7 0.0 0.0 0.9 0.5 166.4 9.6
Organic growth 45.1 5.7 13.1 3.1 (4.4) (1.3) (1.0) (0.7) 52.8 3.0
2016 Ongoing Revenue (as reported) 989.2 25.9 446.0 4.8 342.7 (1.3) 178.1 (0.2) 1,956.0 12.6
22. Alternative performance measures (continued)
Segmental analysis
Segmental information has been presented in accordance with IFRS 8 "Operating Segments" (Note 2). The "Regional" reporting
segments reflect the internal management organisation and reporting structure of the Group. The "Category" reporting
segment reflects the different operational categories of Pest Control, Hygiene, Workwear and Other. Other represents a
number of smaller businesses outside of the main categories, the largest being the Plants business.
In addition, the business uses a "Quadrant" analysis tool for capital allocation and operational management. Businesses
are grouped by Geography and Category into a growth-potential and profit-contribution matrix. Using this approach enables
the business to introduce different growth levers to maximise impact, and apply differential investment hurdle rates.
Segmental analysis is presented at CER unless otherwise stated.
Regional Analysis
Ongoing Revenue Ongoing Operating Profit
2016 Change fromFY 2015 2016 Change fromFY 2015
CER£m AER£m CER% AER% CER£m AER£m CER% AER%
France 298.9 334.7 (0.9) 10.9 40.1 44.9 (14.1) (3.8)
Benelux 190.5 213.3 (0.1) 11.8 35.6 39.9 2.1 14.3
Germany 175.5 196.2 4.1 16.4 44.9 50.2 2.5 14.5
Southern Europe 62.5 69.9 2.4 14.6 10.7 12.0 6.3 19.0
Latin America 24.1 26.0 26.1 35.8 3.6 3.9 29.8 41.0
Total Europe 751.5 840.1 1.4 13.3 134.9 150.9 (2.4) 9.1
UK & Ireland 233.7 235.8 4.6 5.5 44.6 45.7 4.8 7.5
Rest of World 111.6 119.7 4.4 12.0 25.7 27.5 4.1 11.1
UK & Rest of World 345.3 355.5 4.5 7.6 70.3 73.2 4.6 8.8
Asia 118.9 130.4 12.0 22.8 12.4 13.4 31.1 42.5
North America 604.6 680.4 38.5 55.9 81.5 91.8 44.5 62.8
Pacific 135.7 151.3 10.7 23.5 28.4 31.7 11.9 24.8
Central and regional overheads - - - - (68.1) (68.2) (9.0) (9.2)
Restructuring costs - - - - (7.1) (7.9) 10.3 (0.1)
Ongoing operations 1,956.0 2,157.7 12.6 24.2 252.3 284.9 11.5 25.8
Disposed businesses 9.3 10.4 (58.1) (53.2) (0.5) (0.5) 64.1 59.8
Continuing operations 1,965.3 2,168.1 11.7 23.2 251.8 284.4 11.9 26.3
Category Analysis
Ongoing Revenue Ongoing Operating Profit
2016 Change fromFY 2015 2016 Change fromFY 2015
CER£m AER£m CER% AER% CER£m AER£m CER% AER%
Pest Control 989.2 1,094.5 25.9 39.3 184.4 203.1 25.1 37.7
Hygiene 446.0 486.0 4.8 14.2 86.1 94.4 3.9 14.0
Workwear 342.7 383.7 (1.3) 10.5 39.8 44.5 (14.5) (4.2)
Other 178.1 193.5 (0.2) 8.4 17.2 19.0 (13.7) (5.0)
Central and regional overheads - - - - (68.1) (68.2) (9.0) (9.2)
Restructuring costs - - - - (7.1) (7.9) 10.3 (0.1)
Ongoing operations 1,956.0 2,157.7 12.6 24.2 252.3 284.9 11.5 25.8
Disposed businesses 9.3 10.4 (58.1) (53.2) (0.5) (0.5) 64.1 59.8
Continuing operations 1,965.3 2,168.1 11.7 23.2 251.8 284.4 11.9 26.3
22. Alternative performance measures (continued)
Quadrant Analysis
Ongoing Revenue Ongoing Operating Profit
2016 Change fromFY 2015 2016 Change fromFY 2015
CER£m AER£m CER% AER% CER£m AER£m CER% AER%
Emerging 164.2 179.2 18.7 29.5 21.0 22.9 31.4 43.1
Growth 1,192.9 1,311.2 19.7 31.6 211.1 232.1 17.7 29.4
Protect & Enhance 540.6 602.0 (0.7) 10.5 85.8 95.3 (7.0) 3.3
Manage for Value 58.3 65.3 1.3 13.4 9.6 10.7 4.4 16.9
Central and regional overheads - - - - (68.1) (68.2) (9.0) (9.2)
Restructuring costs - - - - (7.1) (7.9) 10.3 (0.1)
Ongoing operations 1,956.0 2,157.7 12.6 24.2 252.3 284.9 11.5 25.8
Disposed businesses 9.3 10.4 (58.1) (53.2) (0.5) (0.5) 64.1 59.8
Continuing operations 1,965.3 2,168.1 11.7 23.2 251.8 284.4 11.9 26.3
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:
2016% 2015% Variance%
France 13.4 15.5 (2.1)
Benelux 18.7 18.3 0.4
Germany 25.6 26.0 (0.4)
Southern Europe 17.1 16.5 0.6
Latin America 15.0 14.5 0.5
Total Europe 18.0 18.7 (0.7)
UK & Ireland 19.1 19.0 0.1
Rest of World 23.1 23.1 -
UK & Rest of World 20.4 20.4 -
Asia 10.4 8.9 1.5
North America 13.5 12.9 0.6
Pacific 20.9 20.7 0.2
Ongoing operations1 12.9 13.0 (0.1)
Disposed businesses (5.3) (6.1) 0.8
Continuing operations1 12.8 12.8 -
2016% 2015% Variance%
Pest Control 18.6 18.8 (0.2)
Hygiene 19.3 19.5 (0.2)
Workwear 11.6 13.4 (1.8)
Other 9.6 11.1 (1.5)
Ongoing operations1 12.9 13.0 (0.1)
Disposed businesses (5.3) (6.1) 0.8
Continuing operations1 12.8 12.8 -
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:
22. Alternative performance measures (continued)
2016AER£m 2015AER£m
Net cash from operating activities 362.5 320.0
Purchase of property, plant, equipment and intangible fixed assets (207.2) (172.3)
Leased property, plant and equipment (14.6) (9.0)
Proceeds from sale of property, plant, equipment and software 6.3 6.7
Interest element of finance lease payments (1.3) (0.7)
Dividends received from associates 10.3 2.1
Free Cash Flow 156.0 146.8
Free Cash Flow - continuing operations 156.4 147.7
Free Cash Flow - discontinued operations (0.4) (0.9)
Adjusted Effective Tax Rate
Adjusted 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.
2016£m 2015£m
Unadjusted income tax expense 40.7 34.7
Tax adjustments on:
Amortisation and impairment of intangible assets (excluding computer software) 14.1 9.1
One-off items - operating 3.1 2.3
Net interest credit from pensions (1.6) (1.2)
Adjusted income tax expense (a) 56.3 44.9
Adjusted profit before income tax (b) 252.1 190.1
Adjusted Effective Tax Rate (a/b) 22.3% 23.6%
23. Legal statements
The financial information for the year ended 31 December 2016 contained in this preliminary announcement was approved by
the Board on 22 February 2017.
The financial information in this statement does not constitute the company's statutory accounts for the years ended 31
December 2016 or 2015. The financial information for 2015 and 2016 is derived from the statutory accounts for 2015 (which
have been delivered to the registrar of companies) and 2016 (which will be delivered to the registrar of companies
following the AGM in May 2017). The auditors have reported on the 2015 and 2016 accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying
their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The statutory accounts for 2016 are prepared in accordance with International Financial Reporting Standards ("IFRS") as
adopted for use in the European Union. The accounting policies (that comply with IFRS) used by Rentokil Initial plc ("the
Group") are consistent with those set out in the 2015 Annual Report. A full list of policies will be presented in the 2016
Annual Report. For details of new policies applicable to the Group in 2016 and their impact please refer to Note 1.
24. 2016 Annual Report
Copies of the 2016 Annual Report will be sent to shareholders who have elected to receive hard copies on 5 April 2017 and
will also be available from the company's registered office at Riverbank, Meadows Business Park, Blackwater, Camberley,
Surrey, GU17 9AB and at www.rentokil-initial.com in PDF format.
25. Financial calendar
The Annual General Meeting will be held at the Hilton Hotel (Ascot Suite), Gatwick Airport, South Terminal, Crawley, West
Sussex, RH6 0LL on Wednesday 10 May 2017 at 12 noon.
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