REG - Rentokil Initial PLC - Half Yearly Report <Origin Href="QuoteRef">RTO.L</Origin> - Part 3
29/10/2014 09:15
- Part 3: For the preceding part double click ID:nRSA9643Nb
- 5.5
One-off items - financing 1.5 - 1.5
Share of profit from associates (net of tax) 4.3 - 4.3
Profit before income tax 122.6 (10.4) 112.2
Income tax expense (31.4) 2.5 (28.9)
Profit for the period from continuing operations 91.2 (7.9) 83.3
4. Segmental information
Segmental information has been presented in accordance with IFRS 8 "Operating Segments" which the group has implemented
with effect from 1 January 2009.
As described on page 22 of the Annual Report 2013, in 2014 the group has changed parts of the way it manages its
businesses, with a resulting change to the segmental analysis under IFRS 8 - Operating Segments. The East and West regions
have been replaced by regional clusters. Prior-year comparisons have been restated. References to adjusted operating
profit and adjusted profit before tax also exclude reorganisation costs and one-off items that have had a significant
impact on the results of the group.
Restated Restated
Revenue RestatedRevenue RestatedRevenue Adjusted operating profit Adjustedoperating profit Adjustedoperating profit
Continuing operations(at actual exchange rates) 6 months to 30 June 2014£m 6 months to 30 June 2013£m Year to 31 December 2013£m 6 months to 30 June 2014£m 6 months to 30 June 2013£m Year to 31 December 2013£m
France 179.4 183.0 369.8 28.6 27.5 64.2
Benelux 113.2 126.8 247.8 17.7 23.9 51.2
Germany 98.3 100.6 202.8 21.6 22.0 46.3
Other Europe 40.2 37.0 74.9 5.7 5.2 12.6
Europe 431.1 447.4 895.3 73.6 78.6 174.3
UK & Ireland 94.7 90.7 184.3 17.6 17.3 38.2
Rest of World 56.7 61.5 121.1 13.3 14.2 29.2
UK & Rest of World 151.4 152.2 305.4 30.9 31.5 67.4
Asia 46.2 52.8 103.7 3.1 3.3 7.7
North America 160.7 166.0 344.3 14.6 13.3 37.1
Pacific 65.0 75.9 142.7 12.7 14.2 27.1
Central and divisional costs - - - (34.7) (40.2) (77.5)
Total segmental 854.4 894.3 1,791.4 100.2 100.7 236.1
Reorganisation costs - - - (3.1) (19.1) (47.4)
One-off items - operating - - - 0.8 (1.4) (4.6)
Amortisation of intangible assets1 - - - (9.7) (10.1) (20.2)
Impairment of goodwill - - - - - (3.4)
Operating profit - - - 88.2 70.1 160.5
Interest payable and similar charges - - - (29.3) (35.2) (70.5)
Interest receivable - - - 4.4 7.2 10.9
Net interest credit from pensions - - - 1.3 2.9 5.5
One-offs - financing - - - - - 1.5
Share of profit from associates (net of tax)- Asia - - - 2.2 3.1 4.3
Profit before income tax - - - 66.8 48.1 112.2
Income tax expense - - - (14.8) (11.0) (28.9)
Total for the period from continuing operations 854.4 894.3 1,791.4 52.0 37.1 83.3
83.3
Reorganisation costs and one off items - operating (at actual exchange rates) 6 months to 30 June 2014 6 months to 30 June 2013 Year to 31 December 2013
£m £m £m
Europe (0.6) 14.9 24.9
UK & Rest of World 0.8 1.8 7.4
Asia 0.2 0.2 0.6
North America 0.6 1.4 2.1
Pacific 0.3 1.2 2.3
Central and divisional 1.0 1.0 14.7
2.3 20.5 52.0
Amortisation and impairment of intangibles1(at actual exchange rates) 6 months to 30 June 2014 6 months to 30 June 2013 Year to 31 December 2013
£m £m £m
Europe 1.9 2.1 4.1
UK & Rest of World 1.5 1.3 3.3
Asia 0.5 0.6 4.5
North America 5.0 5.6 10.4
Pacific 0.1 0.2 0.3
Central and divisional 0.7 0.3 1.0
9.7 10.1 23.6
1 excluding computer software
4. Segmental information (continued)
Reorganisation costs and one-off items - operating(before tax at actual exchange rates) 6 months to 30 June 2014 Restated6 months to 30 June 2013 RestatedYear to 31 December 2013
£m £m £m
Europe
Reorganisation costs - France1 1.2 4.0 9.9
Reorganisation costs - Benelux1 - 5.1 7.1
Reorganisation costs - Germany1 - 4.6 4.9
Reorganisation costs - Other Europe1 0.4 1.2 1.9
Acquisition/disposal/impairment costs2 (2.2) - 1.1
Total - Europe (0.6) 14.9 24.9
UK & Rest of World
Reorganisation costs - UK & Ireland1 0.3 1.3 5.7
Reorganisation costs - Rest of World1 - 0.5 1.7
Acquisition costs - UK Pest 0.5 - -
Total - UK & Rest of World 0.8 1.8 7.4
Asia
Reorganisation costs - Asia1 0.2 0.2 0.4
Loss on disposal - South Korea - - 0.2
Total - Asia 0.2 0.2 0.6
North America
Acquisition and integration costs - Western Exterminator 0.6 1.8 2.5
Release of unpaid contingent consideration - (0.4) (0.4)
Total North America 0.6 1.4 2.1
Pacific
Reorganisation costs - Australia1 0.3 1.2 2.3
Total Pacific 0.3 1.2 2.3
Central and divisional overheads
Reorganisation costs - Central and divisional overheads1 0.7 1.0 13.5
Vacant property provisions 0.3 - 1.2
Total - Central and divisional overheads 1.0 1.0 14.7
Total 2.3 20.5 52.0
Classified as:
Reorganisation costs 3.1 19.1 47.4
One-off items (0.8) 1.4 4.6
Total 2.3 20.5 52.0
Additional notes in respect of 2013/14 one-off items
1 relates to the reorganisation of business units into the integrated country operating model and includes redundancy of
employees and office closure costs
2 relates to the costs and consideration received for the disposal of the Spain Medical Services business, impairment of
the flat linen business (2013) and other acquisition costs
5. Discontinued operations and disposals
On 18 March 2014 the group sold the Initial Facilities (IF) division. The division was not previously classified as held
for sale or as a discontinued operation. The comparative consolidated income statement has been re-presented to show the
discontinued operation separately from continuing operations. Management committed to a plan to sell this division early in
2014, following a decision to concentrate on the group's core international businesses in pest control, hygiene and
workwear.
On 26 April 2013 the group sold the City Link (CL) division. The comparative consolidated income statement has been
re-presented to show the discontinued operation separately from continuing operations.
The results of the discontinued operations are as follows:
6 months to 30 June 2014 6 months to 30 June 2013 (IF) 6 months to 30 June 2013 (CL) 6 months to 30 June 2013 (TOTAL) Year to 31 December 2013 (IF) Year to 31 December 2013 (CL) Year to 31 December 2013 (TOTAL)
£m £m £m £m £m £m £m
Revenue 85.5 272.0 94.8 366.8 535.7 94.8 630.5
Operating expenses (84.8) (268.1) (109.0) (377.1) (524.9) (109.0) (633.9)
Operating profit / (loss) 0.7 3.9 (14.2) (10.3) 10.8 (14.2) (3.4)
Interest payable - (0.1) - (0.1) (0.4) - (0.4)
Income tax benefit / (charge) (0.5) (1.0) 2.8 1.8 (2.5) 2.7 0.2
Operating profit/(loss) net of tax 0.2 2.8 (11.4) (8.6) 7.9 (11.5) (3.6)
Profit / (loss) on sale of discontinued operation 135.6 - (39.0) (39.0) - (41.0) (41.0)
Profit / (loss) for the period 135.8 2.8 (50.4) (47.6) 7.9 (52.5) (44.6)
Basic earnings per share (note 6) 7.47p (2.62p) (2.45p)
Diluted earnings per share (note 6) 7.45p (2.62p) (2.45p)
7.47p
(2.62p)
(2.45p)
Diluted earnings per share (note 6)
7.45p
(2.62p)
(2.45p)
The profit from discontinued operations of £135.8m (HY 2013: loss of £47.6m, FY 2013: loss of £44.6m) is attributable
entirely to the owners of the Company.
Details of cash flows from discontinued operations are as follows:
6 months to 30 June 2014 6 months to 30 June 2013 (IF) 6 months to 30 June 2013 (CL) 6 months to 30 June 2013 (TOTAL) Year to 31 December 2013 (IF) Year to 31 December 2013 (CL) Year to 31 December 2013 (TOTAL)
£m £m £m £m £m £m £m
Net cash used in operating activities (33.0) (22.4) (22.4) (44.8) 8.2 (22.4) (14.2)
Net cash generated in investing activities 232.4 (2.6) (3.7) (6.3) (4.4) (3.7) (8.1)
Effect on cash flows 199.4 (25.0) (26.1) (51.1) 3.8 (26.1) (22.3)
(26.1)
(22.3)
Details of net assets disposed and disposal proceeds for HY2014 (Initial Facilities disposal) are as follows:
30 June 2014
£m
Non-current assets
- Intangible assets 39.8
- Property, plant and equipment 7.7
Current assets 138.1
Current liabilities (81.6)
Net assets and liabilities 104.0
Cumulative FX recycled 0.6
Pension curtailment (0.6)
Costs of disposal 10.4
Consideration (250.0)
Profit on disposal (135.6)
Consideration 250.0
Cash and cash equivalents disposed of (16.3)
Net cash outflow from discontinued operations 233.7
233.7
Details of net assets disposed and disposal proceeds for HY2013 (City Link disposal) are as follows:
30 June 2013
£m
Non-current assets
- Intangible assets 4.9
- Property, plant and equipment 12.5
Current assets 46.8
Current liabilities (38.9)
Non-current liabilities (1.2)
Net assets and liabilities 24.1
Costs of disposal 14.9
Consideration -
Loss on disposal 39.0
Consideration -
Cash and cash equivalents disposed of (3.1)
Net cash outflow from discontinued operations (3.1)
(3.1)
6. Earnings per share
Basic
Basic earnings per share is calculated by dividing the
profit attributable to equity holders of the company by
the weighted average number of shares in issue during
the period, excluding those held in the Rentokil Initial
Employee Share Trust for UK employees (see note at the
bottom of the condensed consolidated statement of
changes in equity), which are treated as cancelled.
6 months to 30 June 2014 Restated6 months to 30 June 2013 RestatedYear to 31 December 2013
£m £m £m
Profit from continuing operations attributable to equity 51.9 36.2 82.1
holders of the Company
Profit/(loss) from discontinued operations attributable 135.8 (47.6) (44.6)
to equity holders of the Company
Weighted average number of ordinary shares in issue 1,817.1 1,817.0 1,817.1
(million)
Basic earnings per share from continuing operations 2.86p 1.99p 4.52p
Basic earnings per share from discontinued operations 7.47p (2.62p) (2.45p)
Basic earnings per share from continuing and 10.33p (0.63p) 2.06p
discontinued operations
Diluted
For diluted earnings per share, the weighted average
number of ordinary shares in issue is adjusted to
include all potential dilutive ordinary shares. The
group has two types of potential dilutive ordinary
shares - those share options granted to employees where
the exercise price is less than the average market price
of the Company's ordinary shares during the period; and
the contingent issuable shares under the group's long
-term incentive share plans, to the extent the
performance conditions have been met at the end of the
period.
6 months to 30 June 2014 Restated6 months to 30 June 2013 Year to 31 December 2013
£m £m £m
Profit from continuing operations attributable to equity 51.9 36.2 82.1
holders of the Company
Profit/(loss) from discontinued operations attributable 135.8 (47.6) (44.6)
to equity holders of the Company
Weighted average number of ordinary shares in issue 1,817.1 1,817.0 1,817.1
(million)
Adjustment for share options and LTIPs 3 5.9 6.3 6.0
Weighted average number of ordinary shares for diluted 1,823.0 1,823.3 1,823.1
earnings per share
Diluted earnings per share from continuing operations 2.85p 1.99p 4.50p
Diluted earnings per share from discontinued operations 7.45p (2.62p) (2.45p)
Diluted earnings per share from continuing and 10.30p (0.63p) 2.06p
discontinued operations
Adjusted
Adjusted earnings per share is the basic earnings per share adjusted for the after tax effects of reorganisation costs and
one-off items, amortisation and impairment of intangibles1 and net interest credit from pensions. Prior year comparatives
have been restated to reflect the change in definition of adjusted earnings per share in 2013.
6 months to 30 June 2014 Restated 6 months to 30 June 2013 RestatedYear to 31 December 2013
£m £m £m
Profit from continuing operations attributable to equity holders of the Company 51.9 36.2 82.1
Reorganisation costs and one-off items, amortisation and impairment of intangibles1 before tax and net interest credit from pensions 10.7 27.7 68.6
Tax on reorganisation costs and one-off items, amortisation and impairment of intangibles1 and net interest credit from pensions (3.4) (8.6) (17.0)
After tax effect of reorganisation costs and one-off items, amortisation and impairment of intangibles1 and net interest credit from pensions attributable to non-controlling interests - - -
Adjusted profit from continuing operations attributable to equity holders of the Company 59.2 55.3 133.7
Weighted average number of ordinary shares in issue (million) 1,817.1 1,817.0 1,817.1
Adjusted earnings per share from continuing operations 3.26p 3.04p 7.36p
Diluted adjusted
6 months to 30 June 2014 Restated 6 months to 30 June 2013 RestatedYear to 31 December 2013
£m £m £m
Adjusted profit attributable to equity holders of the company 59.2 55.3 133.7
Weighted average number of ordinary shares in issue (million) 1,817.1 1,817.0 1,817.1
Adjustment for share options and LTIPs 5.9 6.3 6.0
Weighted average number of ordinary shares for diluted earnings per share 1,823.0 1,823.3 1,823.1
Diluted adjusted earnings per share from continuing operations 3.25p 3.03p 7.33p
7.33p
1excluding computer software
7. Dividends
6 months to 30 June 2014 6 months to 30 June 2013 Year to 31 December 2013
£m £m £m
2012 final dividend paid - 1.43p per share - 25.9 25.9
2013 interim dividend paid - 0.70p per share - - 12.7
2013 final dividend paid - 1.61p per share 29.2 - -
29.2 25.9 38.6
The directors have declared an interim dividend of 0.77p per share amounting to £14.0m payable on 16 September 2014 to shareholders on the register at 15 August 2014. The Company has a progressive dividend policy and will take a view on the level of any growth for 2014 based on the year-end results. These interim financial statements do not reflect this dividend payable.
The directors have declared an interim dividend of 0.77p per share amounting to £14.0m payable on 16 September 2014 to
shareholders on the register at 15 August 2014. The Company has a progressive dividend policy and will take a view on the
level of any growth for 2014 based on the year-end results. These interim financial statements do not reflect this
dividend payable.
8. Bank and other borrowings
30 June 2014 30 June 2013 31 December 2013
£m £m £m
Non-current
RCF and other bank borrowings 0.3 0.2 0.2
Bond debt 982.1 736.1 1,008.6
Finance lease liabilities 17.3 18.6 13.7
999.7 754.9 1,022.5
Current
Bank overdrafts 3.6 3.2 0.4
Bank borrowings 2.5 0.4 0.5
Bond debt - 464.2 402.7
Bond accruals 21.4 20.5 33.4
Finance lease liabilities 5.0 3.9 7.2
32.5 492.2 444.2
Total bank and other borrowings 1,032.2 1,247.1 1,466.7
Medium term notes and bond debt comprises:
Bond interest coupon Effective hedged interest rate
Non current
£300m bond due March 2016 Fixed 5.75% Fixed 4.48%
E500m bond due September 2019 Fixed 3.375% Fixed 3.57%
E350m bond due October 2021 Fixed 3.25% Fixed 3.90%
£1.3m debentures Fixed 5.00% Fixed 5.00%
£0.3m debentures Fixed 4.50% Fixed 4.50%
Average cost of bond debt at period end rates 3.94%
The group has one committed Revolving Credit Facility ('RCF'), a £270m facility expiring in December 2016. During the six
months to 30 June 2014 the RCF was undrawn. The marginal cost of borrowing under the RCF at the period end was 1.5%.
The group's RCF, bank borrowings and bonds are held at amortised cost.
The £300m bond was re-valued for changes in interest rates during the period March 2006 to April 2009, during which the
group paid floating interest rates. At the end of this period, the group reverted to paying fixed interest rates and
revaluation of the bond ceased as the hedge relationship ended. The bond is recorded in the financial statements at
amortised cost and revaluation differences are amortised to the consolidated income statement over the life of the bond
thus producing the effective rate indicated above.
The carrying values and the fair values of the group's non-current borrowings are shown below. Fair values are based on
cashflows discounted at the current market rates:
Carrying amount Carrying amount Carrying amount Fair Value Fair Value Fair Value
30 June 2014 30 June 2013 31 December 2013 30 June 2014 30 June 2013 31 December 2013
£m £m £m £m £m £m
Bank borrowings 0.3 0.2 0.2 0.3 0.2 0.2
£300m bond due March 2016 306.7 310.5 308.6 321.6 326.6 323.7
E500m bond due September 2019 397.8 424.6 412.4 436.2 438.8 430.2
E350m bond due October 2021 276.6 - 286.6 301.0 - 288.7
£1.6m debentures 1.0 1.0 1.0 1.7 2.4 1.7
Finance lease liabilities 17.3 18.6 13.7 17.3 18.6 13.7
999.7 754.9 1,022.5 1078.1 786.6 1,058.2
The carrying values and the fair values of the group's bonds repaid in the last 12 month are shown. Fair values are based
on cashflows discounted at the current market rates:
Carrying amount Carrying amount Carrying amount Fair Value Fair Value Fair Value
30 June 2014 30 June 2013 31 December 2013 30 June 2014 30 June 2013 31 December 2013
£m £m £m £m £m £m
£50m bond due September 2013 - 50.0 - - 50.3 -
E500m bond due March 2014 (E14.5m repaid in 2012) - 414.2 402.7 - 427.0 406.2
- 464.2 402.7 - 477.3 406.2
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.
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 by the group falls into Level 3. No financial instruments have moved between levels in
the period.
9. 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 Pension Scheme ("RIPS") in the United Kingdom, which has a number
of defined benefit sections which are now closed to new entrants (other than the Initial No2 Section, accounting for 0.5%
of the total scheme's liabilities, which remains open). Actuarial valuations of the UK scheme are usually carried out
every three years.
Actuarial valuations of the UK scheme are usually carried out every three years. At 30th June the group's UK defined
benefit pension scheme, which is closed to new members, was valued at an accounting surplus of £94.4m on the group's
balance sheet. The trustees value the scheme on a different basis and based on the valuation of 31 March 2013 the plan is
99% funded with an estimated deficit of £18m. This deficit is anticipated to be met by the investment return on pension
assets over the period of the recovery plan. In order to mitigate the risk that it does not, annual contributions of c.£3m
per annum over the next six years will be paid into a joint escrow account by the group. In the event that the deficit is
not cleared by the time of the 31 March 2019 valuation it will be funded from the escrow account. The group has recognised
the pension surplus as an asset because the group has a right to reduce future pension contributions.
These defined benefit schemes are re-appraised bi-annually by independent actuaries based upon actuarial assumptions in
accordance with IAS 19 requirements. The principal assumptions used for the UK RIPS scheme are shown below.
30 June 2014 30 June 2013 31 December 2013
£m £m £m
Weighted average %
Discount rate 4.2% 4.6% 4.4%
Future salary increases 4.3% 4.3% 4.3%
Future pension increases 3.3% 3.4% 3.4%
RPI Inflation 3.5% 3.6% 3.6%
CPI Inflation 2.5% 2.6% 2.6%
2.6%
The amounts recognised in the balance sheet for the total of the UK RIPS and other1 schemes are determined as follows:
30 June 2014 30 June 2013 31 December 2013
£m £m £m
Present value of funded obligations (1,236.8) (1,170.2) (1,216.6)
Fair value of plan assets 1,320.8 1,284.0 1,277.3
84.0 113.8 60.7
Present value of unfunded obligations (12.7) (13.7) (13.7)
Net pension asset 71.3 100.1 47.0
Presented in the balance sheet as:
Retirement benefit assets 94.4 124.6 70.6
Retirement benefit obligation (23.1) (24.5) (23.6)
71.3 100.1 47.0
The fair value of plan assets at the balance sheet date for the total of the UK RIPS and other1 schemes is analysed as
follows:
30 June 2014 30 June 2013 31 December 2013
£m £m £m
Equity instruments 349.9 358.3 369.1
Debt instruments 687.4 236.7 612.5
Property 0.5 1.1 0.5
Other 140.3 8.3 154.0
Interest and inflation rate hedging instruments 142.7 73.6 141.2
Short term deposits - 606.0 -
1,320.8 1,284.0 1,277.3
1,284.0
1,277.3
The amounts recognised in the income statement for the total of the UK RIPS and other1 schemes are as follows:
30 June 2014 Restated 30 June 2013 Restated31 December 2013
£m £m £m
Current service cost2 0.8 1.1 1.8
Past service cost incl. curtailments2 (0.8) - (0.4)
Administrative expenses2 0.8 0.8 1.8
Net interest credit2 (1.3) (2.9) (5.5)
Total pension income (0.5) (1.0) (2.3)
(1.0)
(2.3)
1 other retirement benefit plans are predominantly made up of defined benefit plans situated in Ireland, Germany,
Australia, Belgium, Norway and France.
2 service costs and administrative expenses are charged to operating expenses and the net interest credit is shown
separately on the face of the income statement.
10. Reconciliation of net increase / (decrease) in cash and cash equivalents to net debt
6 months to 30 June 2014 6 months to 30 June 2013 Year to 31 December 2013
£m £m £m
Net decrease in cash and cash equivalents (25.0) (104.4) (78.4)
Movement on finance leases (1.3) (2.5) (2.3)
Movement on other investments (241.4) 2.1 292.1
Movement on loans 397.5 - (240.4)
(Increase) / decrease in debt resulting from cash flows 129.8 (104.8) (29.0)
Foreign exchange translation and other items 46.1 (27.8) (17.0)
Debt on acquisitions and disposals (0.3)
Other non-cash movements - - 0.7
Movement on net debt in the period 175.6 (132.6) (45.3)
Opening net debt (1,034.8) (989.5) (989.5)
Closing net debt (859.2) (1,122.1) (1,034.8)
Closing net debt comprises:
Cash and cash equivalents 117.3 122.9 143.8
Other investments1 50.6 2.1 292.1
Fair value of debt-related derivatives 5.1 - (4.0)
Bank and other short-term borrowings (32.5) (492.2) (444.2)
Bank and other long-term borrowings (999.7) (754.9) (1,022.5)
Total net debt (859.2) (1,122.1) (1,034.8)
1 other investments include term bank deposits maturing in more than 3 months
11. Operating and free cash flow
6 months to 30 June 2014 6 months to 30 June 2013 Year to 31 December 2013
£m £m £m
Cash generated from operating activities 116.0 80.5 335.4
Add back: special pension contribution - 12.5 13.6
116.0 93.0 349.0
Purchase of property, plant and equipment (PPE) (92.2) (98.9) (201.1)
Purchase of intangible fixed assets (5.6) (14.0) (27.6)
Leased property, plant and equipment (5.3) (6.1) (10.3)
Proceeds from sale of PPE 3.1
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