REG - Rentokil Initial PLC - Half-year Report <Origin Href="QuoteRef">RTO.L</Origin> - Part 3
27/07/2017 07:06
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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
Borrowings not traded in active markets 2 Cash flows discounted at current market rates
Financial instruments not traded in active markets 2 or 3 Valuation assumptions based on market 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 which 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 assets Fair value assets Fair value liabilities Fair Value liabilities
30 June 2017 31 December 2016 30 June 2017 31 December 2016
£m £m £m £m
Interest rate swaps:
- non-hedge - - (6.3) (6.0)
- cash flow hedge 3.6 1.3 (0.1) (0.2)
- net investment hedge 0.1 - (12.4) (65.9)
Foreign exchange forwards:
- cash flow hedge - - - (6.0)
- non-hedge 1.1 (1.3) -
Foreign exchange swaps:
- non-hedge - 0.3 (0.2) (0.5)
4.8 1.6 (20.3) (78.6)
Analysed as follows:
Current portion 1.3 1.6 (1.5) (56.8)
Non-current portion 3.5 - (18.8) (21.8)
4.8 1.6 (20.3) (78.6)
11. Events occurring after the balance sheet date
Bank borrowings of £307.9m were repaid on 3 July 2017 (£154.3m) and 5 July
2017 (£153.6m). Additionally the Group entered into a EUR/USD cross currency
interest rate swap on 3 July 2017 converting Euro debt of E141.3m to USD debt
of $161.1m.
There were no other significant events occurring after the balance sheet
date.
12. Alternative performance measures
Definitions and reconciliation of non-GAAP measures to GAAP measures
The Group uses a number of measures to present the financial performance of
the business which are not GAAP measures as defined under IFRS. Management
believes these measures provide valuable additional information for users of
the financial statements in order to understand the underlying trading
performance. The Group's internal strategic planning process is also based on
these measures and they are used for incentive purposes. They should be
viewed as complements to, and not replacements for, the comparable GAAP
measures.
Constant exchange rates (CER)
Given the international nature of the Group's operations, foreign exchange
movements can have a significant impact on the reported results of the Group
when they are translated into sterling (the functional reporting currency of
the Group). In order to help understand the underlying trading performance of
the business, unless otherwise stated, percentage movements for revenue and
profit measures are presented at constant exchange rates (CER). Constant
exchange rates are calculated by retranslating current year reported numbers
at the full year average exchange rates for the prior year, in order to give
management and other users of the accounts better visibility of underlying
performance against the prior period. The major exchange rates used are £/$
FY 2016 1.3556 (FY 2015 1.5288) and £/E FY 2016 1.2299 (FY 2015 1.3770).
Comparisons are to the period ended 30 June 2016 (2016) 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), one-off items (see below),
gain or loss on disposal of businesses, and add-back of depreciation on
held-for-sale assets.
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
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 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 profit on disposal of businesses
· Depreciation - held-for-sale assets
· 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 4.
Given the size, the net profit on disposal of businesses of £409.0m has been
separately presented on the face of the consolidated statement of profit or
loss below operating profit.
In addition, following the announcement of the joint venture (JV) with Haniel
in December 2016 the assets of the businesses being contributed into the JV
were reported as 'held for sale'. In accordance with IFRS 5, - Non-current
Assets Held for Sale and Discontinued Operations - the assets were not
depreciated from that point which has increased the profitability of the
disposed businesses by £34.3m in the first half. In order to avoid this
distorting the underlying performance of the business the non-depreciation
benefit has been added back in arriving at our adjusted profit measures
(Adjusted EPS and Adjusted PBTA).
Prior to 2016 restructuring costs were an adjustment 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. Central and
regional costs are overhead costs which cannot be allocated to any specific
segment.
Adjusted earnings per share is earnings per share calculated on adjusted
profit after tax.
12. Alternative performance measures (continued)
A reconciliation of non-GAAP measures to the comparable GAAP equivalents is
provided below at both AER and CER:
H1 2017AER£m H1 2017CER£m H1 2016AER£m H1 2016CER£m % change
AER CER
Ongoing Revenue 1,056.0 996.6 822.6 859.1 28.4% 16.0%
Revenue - disposed and closed businesses 177.6 168.3 164.5 172.0 7.9% (2.1%)
Revenue 1,233.6 1,164.9 987.1 1,031.1 25.0% 13.0%
Ongoing Operating Profit 122.1 113.4 94.7 100.4 29.2% 13.0%
Operating Profit - disposed and closed businesses 55.3 52.5 19.3 20.2 186.7% 160.1%
Operating Profit - continuing operations 177.4 165.9 114.0 120.6 55.9% 37.7%
Depreciation - held-for-sale assets (34.3) (32.6) - - - -
Adjusted Operating Profit 143.1 133.3 114.0 120.6 25.7% 10.6%
One-off items - Operating (7.7) (7.3) (2.1) (2.2) (266.7%) (231.8%)
Depreciation - held-for-sale assets 34.3 32.6 - - - -
Amortisation and impairment of intangible assets (25.9) (24.5) (20.1) (20.9) (28.9%) (17.0%)
Operating profit 143.8 134.1 91.8 97.5 56.6% 37.5%
Profit on disposal of businesses 462.5 461.4 - - - -
Share of profit from associates (net of tax) 3.8 3.6 3.0 3.2 27.5% 13.2%
Net interest payable (excluding pensions) (20.6) (19.6) (18.7) (19.5) (10.2%) (1.3%)
Net interest credit from pensions 3.4 3.4 4.3 4.3 (21.4%) (21.1%)
Profit before tax 592.9 582.9 80.4 85.5 637.4% 581.8%
Net interest credit from pensions (3.4) (3.4) (4.3) (4.3) (21.4%) (21.1%)
One-off items - Operating 7.7 7.3 2.1 2.2 (266.7%) (231.8%)
Profit on disposal of businesses (462.5) (461.4) - - - -
Depreciation - held-for-sale assets (34.3) (32.6) - - - -
Amortisation and impairment of intangible assets 25.9 24.5 20.1 20.9 (28.9%) (17.0%)
Adjusted profit before tax 126.3 117.3 98.3 104.3 28.5% 12.5%
Basic earnings per share 31.62p 31.13p 3.56p 3.81p 788.2% 717.1%
Basic adjusted earnings per share 5.36p 4.97p 4.20p 4.48p 27.6% 10.9%
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 category to the comparable GAAP measures.
Europe UK and ROW Asia North America Pacific Total
£m % £m % £m % £m % £m % £m %
H1 2016 Ongoing Revenue (as reported) 252.9 - 170.5 - 63.5 - 298.0 - 74.2 - 859.1 -
Pro forma revenue from 2016 and 2017 acquisitions 3.3 1.3 8.5 5.0 14.2 22.3 71.8 24.1 3.1 4.2 100.9 11.8
Organic Revenue growth 7.8 3.0 3.7 2.1 4.7 7.4 16.9 5.6 3.5 4.7 36.6 4.2
H1 2017 Ongoing Revenue (as reported) 264.0 4.3 182.7 7.1 82.4 29.7 386.7 29.7 80.8 8.9 996.6 16.0
Pest Control Hygiene Protect & Enhance Total
£m % £m % £m % £m %
H1 2016 Ongoing Revenue (as reported) 502.1 - 184.5 - 172.5 - 859.1 -
Pro forma revenue from 2016 and 2017 acquisitions 96.7 19.3 1.3 0.7 2.9 1.7 100.9 11.8
Organic growth 32.8 6.5 5.6 3.0 (1.8) (1.1) 36.6 4.2
H1 2017 Ongoing Revenue (as reported) 631.6 25.8 191.4 3.7 173.6 0.6 996.6 16.0
12. 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 non-core businesses of Workwear, Ambius and
Property Care).
Segmental analysis is presented at CER unless otherwise stated.
Regional Analysis
Revenue Operating Profit
H1 2017 Change fromHY 2016 H1 2017 Change fromHY 2016
AER£m CER£m AER% CER% AER£m CER£m AER% CER%
France 144.0 136.6 11.0 0.6 20.6 19.5 0.1 (9.3)
Benelux 41.0 38.9 11.4 1.0 11.7 11.1 17.4 6.4
Germany 38.8 36.8 21.7 10.2 11.2 10.6 23.2 11.4
Southern Europe 37.9 35.9 16.7 5.8 5.8 5.5 22.0 10.4
Latin America 17.7 15.8 67.6 38.8 1.6 1.5 14.8 0.5
Total Europe 279.4 264.0 15.7 4.3 50.9 48.2 11.2 0.6
UK & Ireland 123.0 122.5 6.5 5.6 22.4 22.2 4.5 2.9
Rest of World 64.9 60.2 25.4 10.3 14.4 13.3 23.8 8.2
UK & Rest of World 187.9 182.7 12.4 7.1 36.8 35.5 11.3 4.8
Asia 87.4 82.4 44.2 29.7 8.5 8.2 42.3 30.5
North America 413.5 386.7 45.9 29.7 49.0 45.8 45.7 29.5
Pacific 87.8 80.8 25.8 8.9 18.3 16.9 26.0 8.9
Central and regional overheads - - - - (37.5) (37.4) (9.7) (9.6)
Restructuring costs - - - - (3.9) (3.8) 7.4 13.6
Ongoing operations 1,056.0 996.6 28.4 16.0 122.1 113.4 29.2 13.0
Disposed businesses 177.6 168.3 7.9 (2.1) 55.3 52.5 186.7 160.1
Continuing operations 1,233.6 1,164.9 25.0 13.0 177.4 165.9 55.9 37.7
Depreciation - held-for-sale assets - - - - (34.3) (32.6) - -
Adjusted - Continuing operations 1,233.6 1,164.9 25.0 13.0 143.1 133.3 25.7 10.6
Category Analysis1
Revenue Operating Profit
H1 2017 Change fromHY 2016 H1 2017 Change fromHY 2016
AER£m CER£m AER% CER% AER£m CER£m AER% CER%
Pest Control 672.0 631.6 40.2 25.8 113.8 107.6 34.3 21.4
- Growth 578.1 543.9 36.0 22.2 99.6 94.1 29.1 16.8
- Emerging 93.9 87.7 72.7 53.4 14.2 13.5 87.2 68.2
Hygiene 201.4 191.4 13.6 3.7 35.5 33.6 21.1 9.9
Protect & Enhance 182.6 173.6 10.1 0.6 14.2 13.4 (25.0) (32.1)
Central and regional overheads - - - - (37.5) (37.4) (9.7) (9.6)
Restructuring costs - - - - (3.9) (3.8) 7.4 13.6
Ongoing operations 1,056.0 996.6 28.4 16.0 122.1 113.4 29.2 13.0
Disposed businesses 177.6 168.3 7.9 (2.1) 55.3 52.5 186.7 160.1
Continuing operations 1,233.6 1,164.9 25.0 13.0 177.4 165.9 55.9 37.7
Depreciation - held-for-sale assets - - - - (34.3) (32.6) - -
Adjusted - Continuing operations 1,233.6 1,164.9 25.0 13.0 143.1 133.3 25.7 10.6
1 The "Category" reporting segment has been revised in 2017, this
table is restated
12. 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 2017% H1 2016% Variance%
France 14.3 15.8 (1.5)
Benelux 28.6 27.1 1.5
Germany 28.7 28.4 0.3
Southern Europe 15.4 14.8 0.6
Latin America 9.2 12.9 (3.7)
Total Europe 18.2 18.9 (0.7)
UK & Ireland 18.1 18.6 (0.5)
Rest of World 22.1 22.6 (0.5)
UK & Rest of World 19.4 19.9 (0.5)
Asia 9.9 9.8 0.1
North America 11.9 11.9 -
Pacific 20.9 20.9 -
Ongoing operations1 11.4 11.7 (0.3)
Disposed businesses 11.8 11.7 0.1
Continuing operations1 11.4 11.7 (0.3)
H1 2017% H1 20162% Variance%
Pest Control 17.0 17.6 (0.6)
- Growth 17.3 18.1 (0.8)
- Emerging 15.3 14.0 1.3
Hygiene 17.6 16.6 1.0
Protect & Enhance 7.7 11.4 (3.7)
Ongoing operations1 11.4 11.7 (0.3)
Disposed businesses 11.8 11.7 0.1
Continuing operations1 11.4 11.7 (0.3)
1 Operating Margin for ongoing operations and continuing
operations is calculated after central and regional overheads and
restructuring costs
2 The "Category" reporting segment has been revised in 2017, this
table is restated
Free Cash Flow
The Group aims to generate sustainable cash flow (Free Cash Flow) in order the
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 2017AER£m H1 2016AER£m
Net cash from operating activities 190.6 159.0
Purchase of property, plant, equipment and intangible fixed assets (114.7) (97.8)
Leased property, plant and equipment (10.1) (6.8)
Proceeds from sale of property, plant, equipment and software 3.0 3.3
Interest element of finance lease payments (0.7) (0.6)
Free Cash Flow 68.1 57.1
12. Alternative performance measures (continued)
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.
H1 2017£m H1 2016£m
Unadjusted income tax expense 13.3 15.3
Tax adjustments on:
Amortisation and impairment of intangible assets (excluding computer software) 8.3 6.6
One-off items - operating 2.3 0.6
Net interest credit from pensions (0.6) (0.8)
Profits and losses on disposal of businesses and reversal of depreciation on assets held for sale 4.8 -
Adjusted income tax expense (a) 28.1 21.7
Adjusted profit before income tax (b) 126.3 98.3
Adjusted Effective Tax Rate (a/b) 22.2% 22.1%
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:
o DTR 4.2.7R of the Disclosure 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
o DTR 4.2.8R of the Disclosure 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
26 July 2017
The directors of Rentokil Initial plc are listed in the Rentokil Initial plc
Annual Report for 31 December 2016. A list of the current directors is
maintained on the Rentokil Initial website: www.rentokil-initial.com
INDEPENDENT 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 2017 which comprises the condensed consolidated income statement,
condensed consolidated balance sheet, condensed consolidated statement of
comprehensive income, condensed consolidated statement of changes in equity,
condensed consolidated cash flow 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 2017 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.
Paul Sawdon
for and on behalf of KPMG LLP,
Chartered Accountants
15 Canada Square
London
E14 5GL
26 July 2017
This information is provided by RNS
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