TIDMRTO
RNS Number : 5340U
Rentokil Initial PLC
30 July 2020
This announcement contains inside information and the person
responsible for making this announcement is
Daragh Fagan, Group General Counsel and Company Secretary.
2020 Interim Results
A highly resilient performance in H1, despite the global
COVID-19 crisis.
We have continued to deliver our core Pest and Hygiene services
and have moved at pace to generate new revenues from disinfection
services. Decisive action on costs has contained profit reduction
from lower revenues, while tight focus on capex and working capital
has resulted in very good Free Cash Flow
Results H1 2020 Growth
GBPm AER AER CER
Ongoing Revenue 1,283.3 0.5% 1.0%
Revenue 1,291.0 (0.6%) (0.1%)
Ongoing Operating
Profit 138.8 (10.2%) (9.4%)
Operating Profit 100.5 (19.9%) (19.5%)
Adjusted profit before
tax 125.6 (11.3%) (10.5%)
Profit before tax 61.8 (45.7%) (45.2%)
Free Cash Flow 143.5
Adjusted EPS 5.30p (11.5%) (10.4%)
EPS 2.54p (46.5%) (46.2%)
2020 Interim Highlights (at CER unless otherwise stated)
-- 1.0% increase in Ongoing Revenue (Q1 2020: +7.2%, Q2: -4.4%)
despite major disruption from COVID-19 crisis across Group
operations
-- 1.0% growth in Pest Control (Q1 2020: +9.3%, Q2: -5.9%),
reflecting our essential service status and ability to
continue to serve customers during the crisis
-- 10.5% growth in Hygiene (Q1 2020: +4.6%, Q2: +16.3%),
strong global demand for hygiene products and disinfection
services has more than offset washrooms service declines
from temporary business closures
-- International expansion of Hygiene category in 2020
- 20 new markets, including the US
-- H1 Revenue from disinfection services of GBP49m - in
addition to our existing c.1,000 Specialist Hygiene colleagues,
we trained c.7,000 colleagues in H1 to provide this service
alongside their existing roles in Hygiene, Pest Control
and Ambius - now available in 66 countries
-- 12.9% decline in Protect & Enhance (Q1: +1.9%, Q2: -27.3%),
principally driven by weak performance from France Workwear
(down 18.5% year on year)
-- 9.4% decline in Ongoing Operating Profit reflecting a GBP23m
increase in bad debt provision and additional costs of personal
protective equipment (PPE)
-- Strong Free Cash Flow of GBP143.5m, delivered through tight
controls over costs, capex and working capital
-- Liquidity headroom in excess of GBP800m following repayment
of the Group's revolving credit facility (RCF) in Q2 and
COVID Corporate Financing Facility (CCFF) in July
-- M&A:
o 8 businesses acquired in Q1: 7 in Pest Control, 1 in
Hygiene - with combined annualised revenues of c.GBP19m.
Cash spend on current and prior year M&A of GBP50.3m
o Capital allocation model reinstated for H2 with resumption
of M&A programme - anticipated spend of at least GBP100m
for the remainder of the year
-- Dividend - no interim dividend but we would expect to propose
a dividend for 2020 if trading continues in line with our
expectations in H2
Andy Ransom, CEO of Rentokil Initial plc, said:
"We have delivered an excellent performance in H1, keeping our
essential services on the road for our customers who remained open
during the pandemic. We also moved at pace to develop new revenues
to offset service shortfalls, particularly in our Hygiene business,
and have taken decisive action on costs, with many of our people
making personal sacrifices, and enabling us to contain the profit
reduction on lower revenue in Q2. We have also tightly controlled
costs, capex and working capital to deliver a very good performance
on Free Cash Flow.
"Despite a severe global pandemic and associated country
lockdowns, we delivered H1 ongoing revenues ahead of the same
period last year. This is tribute to our 43,000 colleagues around
the world, who have demonstrated a remarkable ability to adapt to
an unprecedented change in their daily working environment, while
remaining focused on delivering excellent customer service. On
behalf of the Board, I would like to publicly thank all our
colleagues for their commitment over the last few months, which has
been nothing short of outstanding.
"While the COVID-19 pandemic is far from over and our thoughts
remain with everyone affected, at Rentokil Initial we have moved
from the Crisis Phase into the Recovery Phase. The majority of our
colleagues are now back at work, we have repaid the Bank of
England's CCFF and our own RCF, and we have resumed our M&A
programme.
"Our purpose at Rentokil Initial is Protecting People, Enhancing
Lives and never has this been more important than in the last three
months. Our Pest Control operations have been steady and reliable,
supporting our customers through the crisis and into restart. Our
Hygiene business, which was more impacted by customer shutdowns,
has moved from being considered a low interest (but nonetheless
required service) to arguably one of the world's most important
business categories. We are now expanding our Hygiene category into
new countries as well as launching additional services. Further,
Hygiene disinfection services are playing a vital role for
customers as part of the restart period.
"While it is impossible to predict the future development of the
COVID-19 pandemic, or its economic impact, ours is a high quality
and resilient business and we are entering the second half of 2020
with positive momentum."
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Non-GAAP measures
This statement includes certain financial performance measures
which are not GAAP measures as defined under International
Financial Reporting Standards (IFRS). These include Ongoing
Revenue, Ongoing Operating Profit, Adjusted profit before tax and
Free Cash Flow. Management believes these measures provide valuable
additional information for users of the financial statements in
order to understand the underlying trading performance. 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, and
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 Profit and Adjusted
profit before tax exclude certain items that could distort the
underlying trading 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 13 on page 24.
Joint ventures: the term 'joint venture' is used to describe the
Company's 57% ownership of Rentokil PCI, however our interest in
PCI has been consolidated in our Financial Statements.
Summary of performance (at CER unless stated otherwise)
Ongoing Revenue rose by 1.0% to GBP1,294.7m in H1 (Q1 2020:
+7.2%, Q2: -4.4%), a very good performance despite the disruption
from the COVID-19 crisis across our Group operations. Total Revenue
of GBP1,302.4m declined by 0.1% and by 0.6% at actual exchange
rates. Ongoing Operating Profit declined by 9.4% during the half to
GBP140.5m, reflecting an increase in bad debt provisions of GBP23m
and additional costs of personal protective equipment. We delivered
a very good Free Cash Flow performance in the half of GBP143.5m
reflecting tight control over costs, capex and working capital.
Revenue (at CER)
Regional analysis of performance in Q1 and Q2 vs. 2019
Ongoing Revenue at CER
Q1 Q2 Q1 Q2
GBPm GBPm % change % change
====== ====== ========== ==========
France 74.5 57.4 (1.4) (25.6)
====== ====== ========== ==========
Benelux 23.1 22.6 4.6 (3.4)
====== ====== ========== ==========
Germany 26.3 29.1 7.3 7.9
====== ====== ========== ==========
Southern Europe 33.6 33.3 2.6 (1.6)
====== ====== ========== ==========
Latin America 15.5 15.2 23.7 3.1
====== ====== ========== ==========
Total Europe 173.0 157.6 3.3 (10.5)
====== ====== ========== ==========
UK & Ireland 77.3 59.6 3.4 (21.2)
====== ====== ========== ==========
Rest of World 41.0 37.6 9.8 (4.5)
====== ====== ========== ==========
UK & Rest of World 118.3 97.2 5.5 (15.5)
====== ====== ========== ==========
Asia 63.6 56.2 12.2 (5.5)
====== ====== ========== ==========
North America 241.6 299.8 10.4 5.7
====== ====== ========== ==========
Pacific 47.9 39.5 3.2 (14.5)
====== ====== ========== ==========
Ongoing operations 644.4 650.3 7.2 (4.4)
====== ====== ========== ==========
Category analysis of performance in Q1 and Q2 vs 2019
Ongoing Revenue at CER
Q1 Q2 Q1 Q2
GBPm GBPm % change % change
====== ====== ========== ==========
Pest Control 411.6 424.2 9.3 (5.9)
====== ====== ========== ==========
- Growth 345.8 373.6 8.6 (3.7)
====== ====== ========== ==========
- Emerging 65.8 50.6 13.3 (19.3)
====== ====== ========== ==========
Hygiene 139.8 157.4 4.6 16.3
====== ====== ========== ==========
Protect & Enhance 93.0 68.7 1.9 (27.3)
====== ====== ========== ==========
Ongoing operations 644.4 650.3 7.2 (4.4)
====== ====== ========== ==========
Our Pest Control category grew by 9.3% in Q1, declined by 5.9%
in Q2 reflecting temporary business shut downs, and delivered
overall growth of 1.0% for the half. This resilient performance
reflects our essential service status in the majority of our
markets (allowing our frontline services to continue to operate),
the largely contractual nature of the portfolio and the fact that
it is has been somewhat less impacted by temporary business
shutdowns than our Hygiene and Protect & Enhance (P&E)
categories.
Our core Hygiene operations, also designated essential services,
have been more impacted than Pest Control because of our inability
to perform regular weekly washroom services for a substantial
number of customers (particularly in the Hospitality and Leisure
sector) which closed their premises during the crisis. Shortfalls
in washrooms service provision have been more than offset however
by strong global demand from both Hygiene and Pest Control
customers for hygiene products (such as hand sanitisers) and other
hygiene services including general & specialist biohazard
disinfection, deep clean services and precautionary disinfection
risk assessment surveys. As a result, Ongoing Revenue increased by
10.5% in H1 (Q1: +4.6%, Q2: +16.3%), with disinfection revenues in
H1 amounting to GBP49m.
Ongoing Revenue in our Protect & Enhance category declined
by 12.9% in H1 (Q1: +1.9%, Q2: -27.3%), principally driven by
France Workwear which was significantly impacted by disruption in
the HORECA sector, and which saw a revenue decline of 18.5% in H1.
Our Ambius and Property Care businesses also declined during the
period by 6.2% and 26.6% respectively, reflecting the more
discretionary nature of Ambius products and the continued weakness
in the UK housing market impacting our Property Care business.
Revenues have been recognised in compliance with IFRS 15 and
reflect invoices raised less credit note provisions. We consider
our approach to be prudent and do not expect any revenue reversals
in H2.
Greater detail of how our categories were impacted by the
COVID-19 crisis can be found in the regional performance reviews on
page 6 and 7 and in the Strategic Review on pages 7 to 11.
Profit (at CER)
Profits were impacted in the first half by the impact of
COVID-19 related net revenue reductions in Q2, with Ongoing
Operating Profit falling by 9.4% in H1. Significant actions were
taken to mitigate the revenue reductions with cost savings in the
half of GBP87m. These savings were offset however by an increased
bad debt provision of GBP23m, increased costs of personal
protective equipment of GBP8.8m (predominantly driven by the need
for comprehensive PPE during the provision of disinfection
services), and increased restructuring costs (of GBP5m versus GBP3m
in the prior year).
Our bad debt provision in the half reflects the increased risk
of bad debts as a result of the COVID-19 crisis. We note that
insolvencies to date have been low, however we have provided based
on the risk of future insolvencies.
Adjusted profit before tax at actual exchange rates of
GBP125.6m, which excludes the impact of one-off items, fell by
11.3%. Adjusted interest of GBP17.7m was GBP5.2m lower than in the
prior year, reflecting lower interest charge on borrowings and
despite the impact of drawing on our GBP550m RCF.
One-off items were a GBP4.5m net credit at actual exchange rates
which includes GBP7m of acquisition and integration costs, a cash
receipt of GBP2m related to a prior-year disposal, a non-cash
credit of GBP7m relating to the closure of a pension scheme in
North America and profit on the sale and leaseback of a property of
GBP2m.
Cost reduction, cash preservation and liquidity (at AER)
Our key priority at the peak of the crisis was the preservation
of the ongoing cash flow of the business and we therefore
identified GBP100m+ of cost savings and GBP400m of cash savings for
2020. These measures, some of which were temporary, have enabled us
to be highly cash generative in the first half of the year. Given
our positive trading position and strong balance sheet, we now
intend to reinstate our capital allocation model and to invest in
the Recovery Phase of the crisis, steadily increasing our levels of
capex and resuming M&A.
Cost savings of GBP87m during the half included salary
reductions across senior management grades, cancellation of H1
bonus schemes and postponement of the 2020 LTIP grant, as well as
tight control over discretionary spend. Cash savings included
withdrawal of dividend payments and suspension of our M&A
programme, reducing cash tax payments in line with local statutory
schemes and tight control over capital expenditure.
We have heightened our focus on working capital management in
order to optimise inventory levels and mitigate the increased risk
around the delay and non-payment of receivables. Collection of
receivables has been impacted by the crisis and our collection rate
reduced by 9.0% versus last year during the early months of the
crisis. The trend has improved towards the end of Q2, with the June
collection rate up 2% on the prior year, with some variation across
the regions. In line with local statutory schemes we deferred
GBP73m of payments for taxes and social security costs. The
majority of these amounts will be paid in H2. The H1 impact of
these measures is Free Cash Flow delivery of GBP143.5m.
Cash spent on current and prior year acquisitions totalled
GBP50m, with proceeds from disposals of GBP2m. The reduced level of
M&A, combined with the suspension of dividend payments and the
Free Cash Flow noted above, resulted in an underlying decrease in
net debt of GBP95m. Sterling has weakened significantly in H1 and
this was the main reason for an increase in debt of GBP124m from
foreign exchange translation and other items. Consequently, taking
all of the above into account, there was an overall increase in net
debt of GBP29m and closing net debt of GBP1,102m.
Dividend
As announced on 25 March 2020, we made the very difficult
decision to suspend dividend payments and therefore we will not be
paying an interim dividend. However, we are a strong business, now
in the Recovery Phase, and would expect to propose a dividend for
2020 if trading continues in line with our expectations in H2.
Funding
On 16 June 2020 the Group repaid GBP550m drawn under its RCF at
the start of the COVID-19 pandemic. This amount can be re-drawn at
any time up to and including 22 July 2024. On 27 July 2020 the
Group repaid the GBP600m borrowed under the Bank of England's CCFF
scheme. All RCF and CCFF repayments were made using cash. Following
the repayment of the RCF and CCFF the Group has liquidity headroom
in excess of GBP800m. As at 30 June 2020 the net debt to EBITDA
ratio was 1.9x, in line with the ratio at 31 December 2019. We
remain committed to maintaining a BBB credit rating and are
confident in doing so.
M&A
Prior to suspending our M&A activity in Q2, we acquired
eight businesses - seven in Pest Control (including three in North
America and a new market entry in Tanzania) and one in Hygiene -
with combined annualised revenues of c.GBP19m in the year prior to
purchase for a cash spend of GBP29m. In addition a further GBP23m
of deferred payments were made relating to prior year acquisitions
bringing the total cash outflow, net of cash acquired, to
GBP50m.
While the COVID-19 pandemic is far from over, we have moved from
the Crisis Phase into the Recovery Phase and are therefore
reinstating our capital allocation model and resuming M&A
activity. We are engaging with pipeline opportunities and, as
before, will continue to target high-quality bolt-ons in areas
where we can build density that have demonstrated their resilience
through the pandemic. While M&A remains an opportunistic
activity with no guarantees or certainties, we would expect to
spend at least GBP100m on acquisitions for the remainder of this
year.
Outlook for H2 2020
Given the prevailing uncertainties around the COVID-19 situation
and its impact on our performance, we withdrew guidance in our
statement on 25 March 2020. Since then, we have traded resiliently
in H1 with the sequential trend through Q2 encouraging. Some
significant uncertainties remain, in particular with regard to how
the demand for our services will unfold as more countries emerge
from lockdown and as businesses deal with the economic reality post
COVID-19, and this therefore makes providing specific guidance for
2020 and beyond difficult at this time. Based on the items below,
and notwithstanding continued uncertainty, we would currently
expect the outcome for the full year to be moderately better than
anticipated.
Profit:
-- Revenues were down 12.1% in April due to COVID-19, but
rose by 4.2% in June. Assuming a continued gradual resumption
in business activity we expect to make further progress
in the second half. However, there is a risk that a second
wave of the virus and/or economic pressures arising from
the virus will impact revenues adversely;
-- Revenue from disinfection services in H1 amounted to GBP49m.
These revenues are directly related to the impact of the
virus and hence it is difficult to forecast the quantum
of these for H2 and beyond;
-- We generated cost savings of GBP87m in the first half
as a response to the crisis. Following from our expectation
of a reduced impact of the virus in H2, we are looking
to return colleagues to work and restore normal salaries.
Consequently H2 cost savings are expected to reduce to
GBP35m;
-- As noted above, the impact of the virus on the global
economy is impossible to forecast. We have increased our
provision for bad debts in H1 by GBP23m against receivable
balances at the half year and estimate that we will require
a further GBP15m increase in the provision in H2; and
-- Current economic uncertainty around the virus, as well
as Brexit arrangements, has resulted in a significant
weakening in sterling in H1. As a result, based on current
exchange rates, there would be a minimal FX impact on
our 2020 profits compared with the GBP10m to GBP15m adverse
impact from foreign exchange previously guided to at the
time of our preliminary results on 27 February 2020.
Cash:
Similar to profit guidance, providing guidance on aspects of
cash flow is also challenging given the uncertainty created by
COVID-19. However we have more control over certain items, such as
investment in capex and M&A:
-- Working capital outflow for the year is expected to be
in the range of GBP10m to GBP20m - while working capital
flows have been strong in the first half, we expect that
there will be a net outflow in the second half;
-- Net capex is estimated to amount to GBP225m to GBP235m
- given our strong cash performance in H1, we are planning
to increase our investment levels in H2 and therefore
our guidance on this has increased;
-- Cash interest is expected to be in the region of c.GBP40m
- this reflects the carry costs of holding the RCF and
CCFF during Q2, both of which are now repaid;
-- Cash tax payments of GBP50m to GBP60m - given our strong
cash performance in H1 we now restore our original guidance
for cash tax payments for the year; and
-- M&A expenditure of GBP100m+ in H2 - having resumed our
M&A activity we plan to spend at least GBP100m on acquisitions
during the remainder of the year.
Enquiries:
Investors Katharine Rentokil
/ Analysts: Rycroft Initial plc 01276 536585 / 07811 270734
Malcolm Rentokil
Media: Padley Initial plc 07788 978 199
A presentation of the Company's 2020 interim results will be
held today via a webcast at 9.00am. To access the webcast, please
go to our website, www.rentokil-initial.com. The formal
presentation of results will be followed by Q&A. To ask a
question, please dial:
From the UK: 020 3936 2999
All other locations : +44 20 3936 2999
Access code : 282756
An operator will register your details and put you through to
ask questions in turn. To listen only, please remain on the
webcast.
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.
Our North America region has to date been the least affected of
all our regions by the COVID-19 crisis and as a result has
performed very robustly in H1. While we saw more significant
impacts in coastal states including New York and California, the
mid-west and south east regions were less impacted. However, there
has been an increase in COVID-19 cases in July in certain states,
including Florida and Texas. Demand for Residential pest control
(which accounts for 40% of Pest Services revenue) was strong but
Commercial pest services were impacted to an extent by business
closures. Ambius and Brand Standards have been the most impacted by
the crisis, reflecting the more discretionary nature of Ambius
products and Brand Standards' exposure to the fast food sector,
which has suffered from temporary business closures. The region
launched disinfection services in late March 2020 to generate new
revenues and mitigate the impact of the pandemic on the core
business.
Ongoing Revenue in the region grew by 7.8% to GBP541.4m in H1
(+10.4% in Q1 and +5.7% in Q2), aided by a steady performance in
Pest Control and very good demand for disinfection services. Pest
Control revenue grew 4.1% in the half (+10.3% in Q1, -0.6% in Q2).
Pest services revenue increased by 10% driven by strong Residential
performance. Ongoing Operating Profit growth of 15.7% reflects
revenue growth and rapid and effective cost control to offset the
impact of the COVID-19 crisis. Three pest control businesses were
acquired in the region in Q1 with combined annualised revenues of
c.$10m (c.GBP7m) in the year prior to purchase.
Our stated ambition for our North American business is for it to
become a $1.5bn revenue, 18% Net Operating Margin business. Despite
delivering a good revenue performance in H1 in challenging
conditions, the crisis has inevitably impacted on growth - both
organic and through lower levels of M&A activity - meaning that
the achievement of our 2020 revenue goal of $1.5bn revenue may be
deferred into 2021.
We have continued to make progress towards our 18% margin
target, growing by 90 basis points to 13% in H1, partly
attributable to short-term cost actions taken to mitigate the
revenue impact of COVID-19. As we have stated previously, the
underlying drivers of our margin improvement plan are organic and
acquisitive revenue growth, greater service density and our
IT-enabled Best of Breed programme. As noted above, the crisis has
impacted on growth in H1 and we also suspended our Best of Breed
programme in Q2 to preserve cash. This has resulted in a delay to a
number of IT initiatives designed to improve sales and service
productivity. Additionally the migration of acquisitions onto the
core operating systems was paused during Q2. Despite this, we
remain confident in achieving our 18% margin target, although the
timing of this may be slightly delayed.
Our Europe region has seen a mixed impact from the COVID-19
crisis. While some countries were less impacted by the crisis due
to early and effective lockdowns, such as Germany, other countries
including France and parts of Southern Europe were more severely
impacted. COVID-19 reached Latin America (which is reported within
the Europe region) later than other countries and our businesses
there continue to be impacted by the crisis at this time. Hygiene
was the region's best performing category, aided by disinfection
and product sales. Pest Control delivered a steady performance
during the period with France Workwear most impacted by the impact
of the virus, being particularly affected by temporary business
closures in the French HORECA sector.
Ongoing Revenue in the Europe region fell by 3.8% in H1 (-10.5%
in Q2), largely attributed to France Workwear which declined by
18.5% in H1 (-34.3% in Q2). Hygiene grew by 4.9% in H1 (+11.3% in
Q2), while Pest Control grew by 0.7% (-8.9% in Q2). Both categories
saw net gains to their portfolios from new business and additional
sales to existing customers, with Pest Control growing 3.5% and
Hygiene by 1.5%. On a country basis, our operations in Germany
delivered a robust performance, growing by 7.7% in H1 and 7.9% in
Q2. Southern Europe and Benelux were broadly flat year on year (but
fell by 1.6% and 3.4% respectively in the second quarter). Latin
America performed well overall in H1, growing by 12.5%, but by only
3.1% in Q2 as COVID-19 began to take hold across the region.
Ongoing Operating Profit for the Europe region declined by 27.3%
in H1, with good growth in Germany offset by a fall in profits from
France and in Southern Europe. The region acquired three businesses
in Q1 - one hygiene business in Spain, one pest control business in
Colombia and one further pest control business in the Netherlands -
with total combined annualised revenues of c.GBP7m in the year
prior to purchase.
Our UK and ROW region was significantly impacted by the crisis,
principally our UK and Ireland Washrooms businesses, which were
unable to service customers within many sectors, but primarily the
HORECA sector. Conversely, our Specialist Hygiene, Medical Hygiene
and Products businesses performed well during the period,
benefiting from increased disinfection services. UK Pest Control
saw declines in both quarters, impacted by temporary business
closures and suspensions. Ambius and Property Care were most
impacted as a result of customers cutting their spend on more
discretionary services such as interior landscaping and plants, and
Property Care being impacted by the stall in the UK housing
market.
Regional Ongoing Revenue for UK and ROW declined by 5.1% in H1
(-15.5% in Q2), impacted by UK and Ireland Washrooms (down 15.9% in
H1, -34.3% in Q2). UK Pest Control declined by 9.1% in H1 (-18.7%
in Q2), Revenues were supported during the period by new contract
wins, including a new contract win with a major UK retailer to
install PestConnect - our digital connected pest control monitoring
system - across two thirds of its UK estate. Regional Ongoing
Operating Profit declined by 17.2% in H1 reflecting lower revenues
in UK and Ireland Washrooms and Property Care. Our Rest of World
operations acquired a small pest control business in Dar es Salaam,
Tanzania in Q1, with annualised revenues in the year prior to
purchase of c.GBP1m.
In our Asia region, China, Hong Kong and South Korea were among
the first countries in our Group to be impacted by the COVID-19
crisis and as a result, were the first to emerge, with strong
demand for disinfection and hygiene product sales offsetting falls
in contract revenue from other countries. India and Malaysia
experienced the worst impacts from the crisis reflecting the nature
of their lockdowns. Regional Ongoing Revenue rose by 3.2% in H1
(Q2: -5.5%), aided by very strong performances from Indonesia
(+41%), Hong Kong (+22%) and South Korea (+26%), but was held back
by India and Malaysia. Ongoing Operating Profit in Asia increased
by 1% in H1 with good performances in Singapore, Indonesia, Hong
Kong and South Korea but once again offset by weaker performances
in India and Malaysia. The region made one acquisition during H1,
acquiring a pest control business in Singapore with annualised
revenues in the year prior to purchase of c.GBP3m.
In the Pacific region Ongoing Revenue fell by 5.7% (-14.5% in
Q2), with all operations in the region impacted by the crisis as a
result of government restrictions, particularly in New Zealand
which entered into extreme lockdown in late March. Pacific Pest
Control fell by 3.5% in H1 (-9.1% in Q2) while Hygiene declined by
6.9% in H1 (Q2: -18.8%). Ongoing Operating Profit in the region
fell by 10.2% in H1, reflecting lower revenues. No businesses have
been acquired by the region this year to date.
Our share of Profits from Associates at AER amounted to GBP4.3m
(2019: GBP12.3m), GBPnil (2019: GBP8.0m) relating to our disposed
joint venture with Haniel and GBP4.3m (2019: GBP4.3m) to our
Japanese associate.
STRATEGIC REVIEW
Our approach to managing through the COVID-19 crisis has been to
address the challenge through three phases: 1. the Crisis Phase; 2.
the Recovery Phase; and 3. Strategic Opportunities in the
medium-term. We provide a summary of these phases below.
Crisis Phase
We had a good start to the year with Ongoing Revenues in line
with last year, despite the unprecedented speed of the COVID-19
crisis, which disrupted our operations most severely from mid-March
and throughout April. April was our most difficult month, during
which Ongoing Revenues fell by 12.1% year on year. However, the
rate of revenue decline improved in May to 5.7% and we returned to
positive growth of 4.2% in June.
We took decisive actions to protect our colleagues and
customers, and to support our financial stability during this time.
We moved 8,500 colleagues to home working, and implemented strict
protocols and additional PPE for our frontline technicians so that
they could safely continue to serve our customers during the
crisis. We moved rapidly to train around 7,000 colleagues to carry
out disinfection services across 60 countries in less than one
month. We also acted swiftly to reduce costs, conserve cash and
boost liquidity. Approximately 45% of colleagues shared the
sacrifice with pay waiver, furlough, temporary layoff and/or bonus
suspension. We identified c.GBP100m+ of cost savings and c.GBP400m
of cash preservation measures for the full year, suspending our
M&A and dividend programmes, and applying for the Bank of
England's CCFF.
Recovery Phase
We are now into the Recovery Phase. While some customer sectors
have been less affected by the crisis (notably supermarkets),
others, such as hotels, will likely take longer to recover.
As businesses begin to reopen their premises, we anticipate some
of our customers will have an increased requirement for our Pest
Control and Hygiene services, and we are supporting them by
offering pre-opening specialist disinfection and hand hygiene
services as well as advice on how to adhere to stricter hygiene
protocols.
The crisis has also highlighted the benefits to the Group from
different ways of working and these will be reviewed as to which of
these should be made permanent in the future. One notable example
is the greater productivity and performance by several of our
Accounts Receivables teams who worked from home during the
crisis.
Our purpose at Rentokil Initial is Protecting People, Enhancing
Lives and never has this been more important than in the last three
months. Our Pest Control operations have been steady and reliable,
supporting our customers through the crisis and into restart. Our
Hygiene business, which was more impacted by customer shutdowns,
has moved from being considered a low interest (but nonetheless
required service) to arguably one of the world's most important
business categories. Further, Hygiene disinfection services are
playing a vital role for customers as part of the restart
period.
Strategic Opportunities in the medium term
As the world emerges from the crisis, we have a strategic hand
to play that is stronger than before - particularly in Hygiene -
and are ideally placed to provide services that a post-pandemic
world will require. These include supporting customers in the 'new
normal' as consumer expectations for hygiene standards increase and
potential new workplace regulations. We will expand our digital
range of products, while moving increasingly towards digital sales
and customer engagement. Finally, we will extend our Hygiene
services beyond the washroom with a focus on hand, air and surface
sanitising. We aim to support these activities by brand campaigns
to underscore the expertise and experience of Rentokil and
Initial.
We plan to increase our international footprint into 20 new
Hygiene markets by the end of this year - with new markets in North
America, Latin and Central America, MENAT and Europe.
Supporting our colleagues, customers and communities
Our priority during this crisis has been to protect our people,
our customers and the communities we serve. Our people are our
business and prioritising their health and safety, while
maintaining back office effectiveness and reducing costs, has been
our aim throughout. As at 30 June, 178 colleagues had been tested
positive for COVID-19, including one colleague who was on long-term
sick leave with a serious health condition, sadly passing away.
We have protected our operational colleagues by implementing
strict safety protocols and providing additional PPE. Back-office
teams were moved to working from home. We have minimised
redundancies by making a collective sacrifice across the Group with
regards to pay waivers, suspension of bonus payments and the
Company's LTIP scheme, furloughs and temporary lay-offs. These
measures have delivered GBP87m of cost savings in H1. The majority
of our colleagues are now back at work on normal pay and conditions
and we expect to have our workforce very close to its full
complement by the end of the third quarter.
We achieved a record safety and training performance in Q2, with
Lost Time Accidents reduced by 20% and Working Days Lost down by
23% year on year. Online training was at an all-time high, up 63%
on the prior year, with new U+ (our online university) courses
including 'Leading Remotely - Teams, Performance Management and
Hiring' and the development of a new virtual classroom.
We also undertook a survey in Q2 to assess whether colleagues
felt safe, productive, and sufficiently supported by their managers
and systems to enable them to effectively fulfil their roles during
the crisis, with c.90% of colleagues answering that they believed
the Company was doing the right things to succeed.
We have continued to demonstrate our values and commitment to
the communities we serve. We held over 250 local events in May to
publicly thank health and other public sector workers, and have
donated disinfection services to emergency services, pest control
treatments to care homes, and sanitiser and care packages to
hospital staff.
One of the first actions we took as the crisis deepened in March
was to take immediate steps to ensure our key services were
authorised as 'essential'. Government and state level liaison
across the world allowed our technicians in Pest Control, Hygiene,
Medical and disinfection to continue to serve customers, including
supermarkets, hospitals, food producers and pharmaceuticals. In the
US, all 50 states identified Pest Control as an essential
service.
Rentokil Pest Control
Overall, Pest Control has been less impacted by the crisis. This
is because as an essential service, it is part of the public health
agenda allowing our customers license to trade. It is also because
as a portfolio business, and with c.80% of our revenues being
contracted, any shortfalls in service during certain months can
often be made up in subsequent months, if required. Throughout the
period jobbing work has remained strong, aided in part by warmer
weather and also by the fact that residential customers remaining
within their homes during lockdown are seeking to have identified
pest problems swiftly dealt with. In commercial Pest Control we
have experienced four different scenarios during the pandemic:
1. Customer premises closed and the customer requested a suspension
of all pest control services;
2. Customer premises closed but they requested a continuation
of exterior/perimeter pest control services;
3. Customer premises closed but they requested both exterior
work and interior work to protect valuable internal infrastructures
(such as IT systems); and
4. Customers have remained operational throughout the crisis,
requiring normal levels of pest control service provision.
Pest Control performance has varied by country and reflects the
severity and duration of lockdowns. Trading was most impacted in
April, improved in May and strengthened further in June. Ongoing
Revenue rose by 1.0% in H1 with Ongoing Operating Profit declining
by 10.0%. As outlined within the regional performance review,
countries which performed most strongly include Germany (+5.4%),
Indonesia (+52.7%), Sweden (+16.3%), Thailand (+12.9%) and the US
(4.6%). Our operations in those countries which have had the most
extreme lockdown regimes have been considerably more impacted and
these include India (-24.5%), Ireland (-11.3%) and New Zealand
(-6.7%).
Different customer segments have also been impacted differently.
While offices and the HORECA segment have been the most affected,
demand from other customers including food retail, pharmaceutical
companies and residential customers have typically increased. We
saw no discernible impact on customer retention, pricing, bad debt
or business failures in Q2, but clearly we will be very focused on
the impacts of the economic environment over the coming months.
Rising customer demand for digital and remote monitoring
services
We are the leaders in digital pest control and are seeing
greater customer focus on digital devices and reporting. This
reflects demand for less physical contact between customers and
service providers, greater speed of response and 24/7 remote
monitoring for a fast reaction to a public health threat. Our
myRentokil online customer portal provides secure access to
real-time information that provides easy access to documentation
required for pest control, including service recommendations and
responding to audits. Currently c.96% of commercial customers use
the portal in over 40 countries.
PestConnect is our award-winning remote monitoring system for
rodents and the "world's smartest mousetrap". It provides our
customers with a complete remote pest detection solution and full
traceability. We have a growing range of units, mainly rodents but
also other pests such as insects. We have seen increased demand for
the product in Q2 as customers (including hospitals) have sought to
minimise physical on-site interactions with service providers and
we installed 40,000 PestConnect units across 2,200 customer
locations around the world. We are currently installing our largest
contract to date for a major retailer. This customer's stated
requirements were for rapid, proactive and sustainable pest
control.
We are strongly positioned to capitalise on a 'digital first'
approach post the COVID-19 crisis and to use our expertise in
digital sales and customer engagement in a more socially distanced
world. Our plans include major brand marketing campaigns, dedicated
COVID web pages, email campaigns, enhanced social media content,
live webinars for customers, blogs and campaigns through Google My
Business. In addition, we are conducting customer account review
meetings online and developing digital selling skills training for
our sales colleagues across the Group.
During the second quarter we conducted a series of
sector-specific digital marketing campaigns to highlight the
services we can offer to customers as part of their restart
programmes and for a post COVID-19 world. For example we sent
900,000 emails in the UK with a very high 'open rate' of over 60%
(versus an average services sector rate of 22%). In the US, online
sessions of our Western and JC Ehrlich websites rose by 48% and 26%
respectively. We also undertook a series of webinars to build
engagement with customers on key Pest Control and Hygiene topics.
Post the pandemic, we anticipate a greater degree of digital sales
and marketing activity rather than face-to-face interaction where
we will benefit from our trusted brands, service expertise and
digital leadership.
Initial Hygiene
Our Hygiene washrooms operations, while also designated as
essential services, have typically been more impacted than Pest
Control because of our customer lockdowns, particularly in the
HORECA, Offices and Schools sectors, which were closed and which
had no requirements therefore for services such as soap refills or
collection of waste bins. However, service shortfalls have been
more than offset by increased global demand for hygiene products
(such as hand sanitisers) and other hygiene services, particularly
disinfection services.
As a result, Ongoing Revenue for the category rose by 10.5% in
H1 (+16.3% in Q2). While we anticipate demand for disinfection
services will continue in Q3 and Q4, if the COVID crisis recedes
then it is likely to slow down towards the end of the year as more
businesses reopen.
As with Pest Control, performance from our Hygiene business has
varied by geography and lockdown regime. April was also our weakest
month, but trading improved in May and June. Strong performances in
Benelux (+16.9%), Germany (+35.3%), Hong Kong (+46.6%), Philippines
(+86.7%) and Spain (+68.0%) have been offset by more impacted
countries such as France (-5.2%), Italy (-9.9%) and New Zealand
(-13.3%).
While the COVID-19 crisis has brought the short-term impact of
lockdowns, it has also brought what we believe will be a
longer-term change in attitudes towards the importance of hygiene.
Initial Hygiene is a high-quality business ideally positioned to
capitalise on new growth opportunities as increased importance of
hand, surface and air hygiene, tighter regulation, higher standards
and increased usage of hygiene products and services rise around
the world. The hand sanitiser market, for example, is projected to
grow by 11.5% every year for the next five years, to reach c.$3bn
by 2025 (source: Infinium Global Research).
Unprecedented demand for hand hygiene products in Q2
Customer demand for soaps, hand drying products and sanitisers
rose significantly in the second quarter. We sold around 400,000
dispensers (soaps and sanitisers) in H1, twice that of our total
sales in 2019, while refills of soaps and hand sanitisers were ten
times greater than for the full year 2019. Hand sanitiser revenues
of c.GBP9m in H1 - were up by c.GBP6.5m year on year. As the world
adapts to a 'new normal' of particularly high standards of hygiene,
empty or missing soap dispensers will no longer be acceptable, hand
drying facilities must be available at all times and sanitisers
will become a vital third step in ensuring effective hand
hygiene.
Hygiene and opportunities for growth
We see four main opportunities for growth for our Hygiene
category. They are:
1. Inside washrooms - which are high-risk areas for COVID-19
and other viruses. We offer a complete range of products
and services, particularly no-touch, to avoid cross infection;
2. Digital leadership - we continue to develop digital products
for enhanced services combined with greater reporting and
insight;
3. International expansion - by entering new markets in both
established and emerging markets; and
4. Using our expertise outside washrooms - and expanding into
additional hand hygiene products and services, surface hygiene
and disinfection services.
Washrooms are high risk areas for COVID-19 and other viruses -
they are small spaces, with smooth surfaces and often high levels
of traffic. 'No touch' washrooms are the most effective way to
avoid cross-contamination, particularly prevalent within the
cubicle setting. Toilet paper dispensers that seal away paper until
use, 'no-touch' feminine hygiene units and toilet seat cleaners all
prevent cross-contamination. Our Signature Range of washrooms
products have been designed with antimicrobial surfaces which also
reduce cross contamination, as do our 'no touch' auto-lift lids on
bins and auto dispense of paper towels and soaps. Air care quality
is also an important indicator of washroom cleanliness, with air
sterilisers providing an ongoing method of removing potentially
harmful pathogens from the air.
We are of the view that the COVID-19 pandemic will provide a
potential springboard for increased Digital Hygiene services and we
are taking our digital expertise from Pest Control and expanding it
into Hygiene. Increased regulations and the threat of fines and
reputational damage drove early take up of digital pest control and
we anticipate the same trend will occur within digital hygiene. Our
connected hygiene solutions currently comprise digital taps and
soap dispensers, hand wash and footfall monitoring and air care. In
addition, our myInitial online reporting platform provides
transparency of service, including signature capture, service
history and details, dates of visits and reporting facilities.
By the end of 2020 we will have launched Hygiene in c.20 new
countries, bringing the total number of countries in which we
provide hygiene services to c.66. We launched our first hygiene
services in North America in June 2020 with hand and air hygiene
products. Initially, this is being delivered through Ambius which
has considerable expertise in wellbeing and an existing business of
scale. We currently operate in 10 markets in Latin and Central
America, providing hygiene services in Colombia and Chile and we
enhanced this in June by providing hygiene services (including hand
sanitisers, surface wipes and air care) in the remaining eight
markets. In MENAT we have launched hygiene services in the UAE,
Saudi Arabia, Jordan and Turkey. As part of the Haniel JV announced
in 2016 we exited 10 European hygiene markets: Belgium,
Netherlands, Luxembourg, Germany, Austria, Switzerland, Czech
Republic, Slovakia, Poland and Sweden. Post the sale of our
remaining stake in the JV in 2019 and, as of June 2020, we are now
free to re-enter these markets.
We have been actively seeking to expand our services outside of
washrooms, specifically into air care, which is a valuable and high
growth market and estimated to be worth $17.5bn, with a CAGR of
10.5% to 2024. (source: Technavio). From a relatively low interest
sector, hygiene has now become one of the world's most important,
presenting opportunities for us to provide hand, air and surface
hygiene products in multiple environments, including offices,
kitchens and reception areas. Since the pandemic, awareness of how
viruses are transmitted via droplets produced by coughs and sneezes
has risen. In addition, indoor air quality affects health,
wellbeing and productivity. Our current air care product range
features air purification, air sterilisation and air scenting
products. We are also due to launch our new air filtration product,
InspireAir72 which utilises a medical grade, multi-layer filter to
capture 99.97% of harmful particulates and which can clean a 36m(2)
office space in 10 minutes.
Hygiene disinfection services
We are proud of the way our teams across the world pivoted at
great speed to provide disinfection services in more than 60
countries. In addition to our existing c.1,000 Specialist Hygiene
colleagues, we trained c.7,000 colleagues in H1 to provide this
service alongside their existing roles in Hygiene, Pest Control and
Ambius, sourced PPE and began selling disinfection to customers
within three weeks. GBP49m of revenues were generated in the first
half of the year with Net Operating Margins broadly comparable to
those in Pest Control. The service, used within multiple customer
sectors including offices, shops, schools, airports, emergency
vehicles and public transport, involves targeting hygiene hots
spots like door handles and washrooms, and then uses ultra-low
disinfection fogging to thoroughly disinfect the area. As experts
in hygiene, we have developed Standard Operating Procedures to
ensure maximum service efficacy and consistent global standards.
These included a 19-stage donning sequence for PPE and removal of
all waste from sites in line with guidance set out by public health
authorities in order to prevent cross contamination.
Customers who have used our disinfection services during the
pandemic have done so to protect their people and their customers
and to keep their business fully operational during the pandemic.
Ensuring their premises are safe and hygienic is also vital in
protecting their brand and reputation. Customers using our service
in Q2 included a global distributor requiring weekly disinfection
of its centres at specific times of the night. In addition, we are
carrying out daily disinfection services for a public transport
customer, disinfecting 4,000 buses every day, seven days a week,
until the end of 2020. We would expect disinfection service
revenues to continue in Q3 and into Q4.
Protect & Enhance
Our Protect & Enhance businesses have been the most impacted
by the COVID-19 crisis. The businesses within the category are
Workwear, Ambius, UK Property Care and Dental Waste. Ongoing
Revenue declined by 12.9% in H1, principally driven by France
Workwear which declined by 18.5%. Ambius' Ongoing Revenue fell by
6.2% in H1, with Property Care and Dental declining by 15.9%.
Ongoing Operating Profit for the category fell by 51.3%.
The category has a high exposure to the HORECA sector - for
which we supply interior plants, ambient scenting and workwear -
and hotels, bars and restaurant chains have been predominantly
closed during the crisis and in many places will be the last to be
reopened. Our UK Property Care business was impacted by both
ongoing weakness in the property market and also by customers
unwilling to allow external service providers into their homes.
As with our other categories, April was the weakest month for
France Workwear, with May and June seeing progressive improvements
in performance. Volumes in Q2 were down 40.3% across all customer
segments versus their pre-COVID average. Actions taken by the
business to protect cost and cash have included reducing working
hours for around 1,500 employees and cutting spend on capital
expenditure by 19% on H1 2019.
Despite the disruption caused by the crisis, our project to
separate the Hygiene and Workwear businesses in France is
proceeding well and we are on track to transfer the Washrooms
portfolio currently within the Workwear business to Hygiene by the
end of this year. We will also be opening five dedicated Hygiene
branches in France in the second half which will complete national
coverage of hygiene service provision in the country.
Brand strength and expertise
Our brands are widely recognised and trusted around the world
and this, together with our reputation as experts in our field, is
differentiating us further from other industry players in a
post-COVID world.
Demand for better hygiene products and services is set to
increase and our recent survey of UK office workers has shown that
88% of responders expect companies to provide them with hand
sanitiser, 56% stated 'they will now consciously wash their hands
more thoroughly' and 54% now expect companies to provide regular
disinfection services. The strength of our brands, our unrivalled
training and expertise in products and treatments, and the quality
of our service delivery gives our customers complete reassurance of
a job well done.
Financial Review
Central and regional overheads
Central and regional overheads of GBP37.5m at CER were GBP4.6m
lower than prior year (2019: GBP42.1m) with the cost saving actions
offsetting the impact of increased LTIP costs, centrally sourced
PPE and the flow through of prior year investment in
innovation.
Restructuring costs
With the exception of integration costs for significant
acquisitions, the Company reports restructuring costs within
operating profit. Costs associated with significant acquisitions
are reported as one-off items and excluded from operating
profit.
Restructuring costs of GBP5.2m at CER (2019: GBP3.3m) consisted
mainly of costs in respect of initiatives focused on our North
America transformation programme from Q1, together with severance
costs as a result of COVID-19.
One-off items and amortisation (at CER)
One-off items were a GBP4.5m net credit at actual exchange rates
which includes GBP6.7m of acquisition and integration costs, a cash
receipt of GBP2.0m related to a prior year disposal, a non-cash
credit of GBP7.4m relating to the closure of a pension scheme in
North America and profit on the sale and leaseback of a property of
GBP1.8m.
The amortisation charge of GBP43m for the period includes GBP8m
relating to an impairment of goodwill arising from the acquisition
of PCI reflecting the impact of COVID-19 on the business in the
first half of the year.
UK defined benefit pension scheme buy-out
In December 2018 the Company reached agreement for a bulk
annuity insurance buy-in for its UK Defined Benefit Pension Scheme
("the Scheme") with Pensions Insurance Corporation. The buy-in has
been secured in contemplation of a full buy-out and winding up of
the Scheme with an expected pre-tax cash surplus of cGBP30m.
COVID-19 has made the process for winding-up the scheme more
challenging and while we still anticipate that the surplus will be
returned to the company in 2020, there is a risk that this may slip
into 2021.
Interest (at AER)
Adjusted interest of GBP17.7m was GBP5.2m lower than in the
prior year, reflecting the impact of our 2019 refinancing and
despite the impact of drawing down our RCF at the start of the
COVID-19 pandemic.
Tax
The income tax charge for the year at actual exchange rates was
GBP14.7m on the reported profit before tax of GBP61.8m. After
adjusting the reported profit before tax for the amortisation and
impairment of intangible assets (excluding computer software),
one-off items and net interest adjustments, the Adjusted Effective
Tax Rate for 2020 at AER was 22% (2019: 22%). This compares with a
blended rate of tax for the countries in which the Group operates
of 23% (2019: 23%).
Net debt and cash flow
GBPm at actual exchange rates Year to Date
--------------------------------
H1 2020 H1 2019 Change
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- --------
Adjusted Operating Profit 139.0 152.2 (13.2)
One-off items - operating 4.5 9.8 (5.3)
Depreciation 109.3 105.5 3.8
Other (3.2) 3.5 (6.7)
---------- ---------- --------
EBITDA 249.6 271.0 (21.4)
Working capital 19.1 (27.8) 46.9
Movement on provisions 1.8 (4.0) 5.8
Capex - additions (102.3) (113.9) 11.6
Capex - disposals 5.0 1.7 3.3
---------- ---------- --------
Operating cash flow - continuing
operations 173.2 127.0 46.2
Interest (16.2) (11.8) (4.4)
Tax (13.5) (19.3) 5.8
Free Cash Flow - continuing operations 143.5 95.9 47.6
Acquisitions (50.3) (120.9) 70.6
Disposal of companies and businesses 2.0 - 2.0
Dividends - (58.1) 58.1
---------- ---------- --------
Underlying (decrease)/increase
in net debt 95.2 (83.1) 178.3
Foreign exchange translation and
other items (124.2) (21.3) (102.9)
IFRS 16 lease obligations on transition - (184.0) 184.0
---------- ---------- --------
Increase in net debt (29.0) (288.4) 259.4
Opening net debt (1,073.0) (1,153.5) 80.5
Closing net debt (1,102.0) (1,441.9) 339.9
========== ========== ========
Operating cash inflow (GBP173.2m at AER for continuing
operations) was GBP46.2m higher than in 2019, principally driven by
favourable working capital of GBP46.9m and capex savings of
GBP11.6m as a result of a freeze on any non-essential capex from
the second quarter onwards. This was partially offset by a GBP13.2m
decrease in Adjusted Operating Profit.
Interest payments of GBP16.2m are GBP4.4m higher than in the
prior year due to phasing but also reflecting the drawdown of the
RCF and CCFF in Q2, while tax payments decreased by GBP5.8m due to
the phasing of payments agreed with the relevant authorities as
part of COVID-19 cash protection measures. This resulted in Free
Cash Flow from continuing operations of GBP143.5m, an increase of
GBP47.6m on the prior year.
Cash spent on current and prior year acquisitions totalled
GBP50.3m, with proceeds from disposals of GBP2.0m. This resulted in
an underlying decrease in net debt of GBP95.2m. Foreign exchange
translation and other items of GBP124.2m is primarily due to the
weakening impact of Sterling against the Euro and Dollar as well as
the non-cash impact of reduced US interest rates on derivatives
used to fix the rates on our US$ debt. Overall this led to an
overall increase in net debt of GBP29.0m and closing net debt of
GBP1,102.0m.
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
severe but plausible downside case. Further detail can be found in
Note 2 on page 18.
Brexit
We are a global business with c.90% of revenues derived from
outside the UK and with minimal cross-border trading. The global
economic environment, and in particular the Brexit arrangements,
continues to drive uncertainty with high levels of volatility in
exchange and commodity markets and with international trading
arrangements potentially subject to significant change. We continue
to monitor the potential implications of geopolitical change on our
trading and financing environment and in relation to Brexit we are
taking short term measures to ensure we have access to adequate
stock and equipment in both the UK and Europe in 2020. We remain of
the view that the defensive nature of our core categories, combined
with the geographic location and spread of our operations, place us
in a relatively strong position to mitigate such risks going
forward and to take advantage of any potential opportunities that
the changes may bring.
Consolidated statement of profit or loss and other comprehensive
income
For the period ended 30 June
6 months to 30 June 2020 6 months to 30 June 2019
Notes GBPm GBPm
=========================================================== ===== ======================== ========================
Revenue 4 1,291.0 1,298.9
Operating profit 100.5 125.5
Finance income 3.4 2.0
Finance cost (46.4) (26.0)
Share of profit from associates, net of tax of GBP2.1m
(2019: GBP5.4m) 4.3 12.3
=========================================================== ===== ======================== ========================
Profit before income tax 61.8 113.8
Income tax expense(1) (14.7) (25.8)
=========================================================== ===== ======================== ========================
Profit for the period attributable to the Company's equity
holders (including non-controlling
interests of GBP0.1m (2019: GBPnil)) 47.1 88.0
=========================================================== ===== ======================== ========================
Other comprehensive income:
Items that are not reclassified subsequently to the income
statement:
Re-measurement of net defined benefit asset (10.3) (0.1)
Tax related to items taken to other comprehensive income 3.1 -
Items that may be reclassified subsequently to the income
statement:
Net exchange adjustments offset in reserves 23.9 (2.8)
Effective portion of changes in fair value of cash flow
hedge (6.0) 0.6
=========================================================== ===== ======================== ========================
Total comprehensive income for the period (including
non-controlling interests of GBP0.1m
(2019: GBPnil)) 57.8 85.7
=========================================================== ===== ======================== ========================
Earnings per share attributable to the Company's equity
holders:
Basic 2.54p 4.75p
=========================================================== ===== ======================== ========================
Diluted 2.52p 4.73p
=========================================================== ===== ======================== ========================
Non-GAAP measures
Operating profit 100.5 125.5
Adjusted for:
Amortisation and impairment of intangible assets (excluding
computer software) 4 43.0 36.5
One-off items 4 (4.5) (9.8)
Adjusted operating profit 139.0 152.2
Finance income 3.4 2.0
Finance cost (46.4) (26.0)
Share of profit from associates, net of tax of GBP2.1m
(2019: GBP5.4m) 4.3 12.3
Net interest adjustments 25.3 1.1
Adjusted profit before income tax 125.6 141.6
Basic adjusted earnings per share attributable to the
Company's equity holders 5.30p 5.99p
=========================================================== ===== ======================== ========================
The weighted average number of ordinary shares in issue is
1,852m (HY 2019: 1,847m). For the diluted EPS calculation the
adjustment for share options and LTIPs is 8.4m (HY 2019:
10.3m).
(1) Taxation includes GBP15.8m (HY 2019: GBP13.4m) in respect of
overseas taxation.
Consolidated balance sheet
At 30 June At 31 December
2020 2019
Notes GBPm GBPm
==================================== ====== =========== ===============
Assets
Non-current assets
Intangible assets 1,763.7 1,673.4
Property, plant and equipment 406.6 391.7
Right-of-use assets 223.0 221.2
Investments in associated
undertakings 36.5 29.7
Other investments 0.3 0.3
Deferred tax assets 30.6 29.3
Contract costs 69.7 65.4
Retirement benefit assets 8 31.8 37.4
Other receivables 12.9 12.7
Derivative financial instruments 11 1.3 7.6
===================================== ====== =========== ===============
2,576.4 2,468.7
==================================== ====== =========== ===============
Current assets
Other investments 2.7 1.7
Inventories 148.6 106.5
Trade and other receivables 593.0 500.7
Current tax assets 7.0 7.0
Derivative financial instruments 11 0.8 0.2
Cash and cash equivalents 973.6 309.6
===================================== ====== =========== ===============
1,725.7 925.7
==================================== ====== =========== ===============
Liabilities
Current liabilities
Trade and other payables (806.3) (660.7)
Current tax liabilities (77.0) (72.9)
Provisions for other liabilities
and charges (25.7) (25.1)
Bank and other short-term
borrowings 10 (663.7) (84.6)
Lease liabilities (76.4) (72.0)
Derivative financial instruments 11 (0.5) (0.5)
===================================== ====== =========== ===============
(1,649.6) (915.8)
==================================== ====== =========== ===============
Net current assets 76.1 9.9
===================================== ====== =========== ===============
Non-current liabilities
Other payables(1) (48.6) (57.7)
Bank and other long-term
borrowings 10 (1,134.4) (1,059.3)
Lease liabilities (141.8) (144.7)
Deferred tax liabilities (114.7) (110.8)
Retirement benefit obligations 8 (37.3) (37.5)
Provisions for other liabilities
and charges (38.0) (34.0)
Derivative financial instruments 11 (64.5) (32.3)
===================================== ====== =========== ===============
(1,579.3) (1,476.3)
==================================== ====== =========== ===============
Net assets 1,073.2 1,002.3
===================================== ====== =========== ===============
Equity
Capital and reserves attributable to the
company's equity holders
Called up share capital 18.5 18.5
Share premium account 6.8 6.8
Other reserves (1,849.8) (1,867.7)
Retained profits 2,897.0 2,844.1
===================================== ====== =========== ===============
1,072.5 1,001.7
Non-controlling interests 0.7 0.6
===================================== ====== =========== ===============
Total equity 1,073.2 1,002.3
===================================== ====== =========== ===============
(1) Non-current other payables includes GBP27.4m Put Option
liability related to the PCI India acquisition (2019:
GBP37.3m).
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 2019 18.4 6.8 (1,824.2) 2,631.2 0.4 832.6
=================================== =========== ========== =========== =========== ============== =========
Profit for the period - - - 88.0 - 88.0
Other comprehensive income:
Net exchange adjustments
offset in reserves - - (2.8) - - (2.8)
Remeasurement of net defined
benefit asset - - - (0.1) - (0.1)
Effective portion of changes
in fair value of cash flow
hedge - - 0.6 - - 0.6
----------------------------------- ----------- ---------- ----------- ----------- -------------- ---------
Total comprehensive income
for the period - - (2.2) 87.9 - 85.7
Transactions with owners:
Shares issued in the period 0.1 - - - - 0.1
Dividends paid to equity
shareholders - - - (58.1) - (58.1)
Dividends paid to non-controlling
interests - - - - (0.1) (0.1)
Cost of share options and
long-term incentive plan - - - 2.8 - 2.8
Movement in the carrying
value of put options - - - (4.3) - (4.3)
=================================== =========== ========== =========== =========== ============== =========
At 30 June 2019 18.5 6.8 (1,826.4) 2,659.5 0.3 858.7
=================================== =========== ========== =========== =========== ============== =========
At 1 January 2020 18.5 6.8 (1,867.7) 2,844.1 0.6 1,002.3
=================================== =========== ========== =========== =========== ============== =========
Profit for the period - - - 47.0 0.1 47.1
Other comprehensive income:
Net exchange adjustments
offset in reserves - - 22.5 - - 22.5
Cost of hedging - - 1.4 - - 1.4
Remeasurement of net defined
benefit asset - - - (10.3) - (10.3)
Effective portion of changes
in fair value of cash flow
hedge - - (6.0) - - (6.0)
Tax related to items taken
directly to other comprehensive
income - - - 3.1 - 3.1
Total comprehensive income
for the period - - 17.9 39.8 0.1 57.8
Transactions with owners:
Cost of share options and
long-term incentive plan - - - 2.8 - 2.8
Movement in the carrying
value of put options - - - 10.3 - 10.3
=================================== =========== ========== =========== =========== ============== =========
At 30 June 2020 18.5 6.8 (1,849.8) 2,897.0 0.7 1,073.2
=================================== =========== ========== =========== =========== ============== =========
Shares of GBP0.1m (2019: GBP0.1m) have been netted against
retained earnings. This represents 9.7m (HY 2019: 9.8m) shares held
by the Rentokil Initial Employee Share Trust. The market value of
these shares at 30 June 2020 was GBP50.0m (HY 2019: GBP38.7m).
Dividend income from, and voting rights on, the shares held by the
Trust have been waived.
Analysis of other reserves
Cash
Capital flow Cost
reduction Legal hedge Translation of
reserve reserve reserve reserve hedging Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================== =========== ========= ========= ============ ========= ==========
At 1 January 2019 (1,722.7) 10.4 1.0 (112.9) - (1,824.2)
============================== =========== ========= ========= ============ ========= ==========
Net exchange adjustments
offset in reserves - - - (2.8) - (2.8)
Effective portion of changes
in fair value of cash flow
hedge - - 0.6 - - 0.6
Total comprehensive income
for the period - - 0.6 (2.8) - (2.2)
============================== =========== ========= ========= ============ ========= ==========
At 30 June 2019 (1,722.7) 10.4 1.6 (115.7) - (1,826.4)
============================== =========== ========= ========= ============ ========= ==========
At 1 January 2020 (1,722.7) 10.4 0.5 (155.9) - (1,867.7)
============================== =========== ========= ========= ============ ========= ==========
Net exchange adjustments
offset in reserves - - - 22.5 - 22.5
Effective portion of changes
in fair value of cash flow
hedge - - (6.0) - - (6.0)
Cost of hedging - - - - 1.4 1.4
============================== =========== ========= ========= ============ ========= ==========
Total comprehensive income
for the period - - (6.0) 22.5 1.4 17.9
============================== =========== ========= ========= ============ ========= ==========
At 30 June 2020 (1,722.7) 10.4 (5.5) (133.4) 1.4 (1,849.8)
============================== =========== ========= ========= ============ ========= ==========
Consolidated cash flow statement
6 months 6 months
to 30 to 30
June June
2020 2019
Notes GBPm GBPm
============================================== ====== ========= =========
Profit for the period 47.1 88.0
Adjustments for:
- Tax 14.7 25.8
- Share of profit from associates (4.3) (12.3)
- Interest income (3.4) (2.0)
- Interest expense 46.4 26.0
Reversal of non-cash items:
- Depreciation and impairment of property,
plant and equipment 101.8 99.1
- Amortisation and impairment of intangible
assets(1) 43.0 36.5
- Amortisation of computer software 7.5 6.4
- Other non-cash items (3.2) (13.1)
Changes in working capital (excluding
the effects of acquisitions and exchange
differences on consolidation):
- Inventories (36.1) (9.8)
- Contract costs (1.0) (1.9)
- Trade and other receivables (73.9) (55.2)
- Accrued income 9.5 3.3
- Trade and other payables and provisions 102.2 22.4
- Deferred income 20.2 9.4
============================================== ====== ========= =========
Cash generated from operating activities 270.5 222.6
Interest received 3.3 2.0
Interest paid(2) (19.5) (13.8)
Income tax paid (13.5) (19.3)
============================================== ====== ========= =========
Net cash generated from operating activities 240.8 191.5
============================================== ====== ========= =========
Cash flows from investing activities
Purchase of property, plant and equipment (61.5) (72.6)
Purchase of intangible fixed assets (11.6) (12.6)
Proceeds from sale of property, plant
and equipment 5.0 1.7
Acquisition of companies and businesses,
net of cash acquired 5 (50.3) (120.8)
Disposal of companies and businesses 2.0 -
Dividends received from associates - 16.6
Net cash flows from investing activities (116.4) (187.7)
============================================== ====== ========= =========
Cash flows from financing activities
Dividends paid to equity shareholders - (58.1)
Capital element of lease payments (41.7) (40.1)
Cash outflow on settlement of debt related
foreign exchange forward contracts 1.1 0.2
Net investment in term deposits (1.0) (0.5)
Proceeds from new debt 1,153.4 434.8
Debt repayments (592.2) (17.0)
============================================== ====== ========= =========
Net cash flows from financing activities 519.6 319.3
============================================== ====== ========= =========
Net increase in cash and cash equivalents 644.0 323.1
Cash and cash equivalents at beginning
of year 273.9 100.9
Exchange losses on cash and cash equivalents 8.7 5.1
============================================== ====== ========= =========
Cash and cash equivalents at end of the
financial period 926.6 429.1
============================================== ====== ========= =========
(1) Excluding computer software.
(2) Interest paid includes interest on lease payments of GBP3.6m (2019: GBP4.0m).
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 2020 was approved on 29 July 2020 for issue on
30 July 2020.
On page 86 of the Annual Report 2019 we set out the Group's
approach to risk management and on pages 55 to 59 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 2019 other than in respect of
the emergence of COVID-19. The impact of the COVID-19 pandemic has
been mitigated by taking action to reduce cost, preserve cash and
introduce new revenue streams until such time as the business can
operate normally again. More details of the impact of COVID-19 are
discussed in the regional performance section of this
statement.
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
2019. 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 2019 results please refer to the
Annual Report 2019 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 2019 except for the changes described in
Note 3.
The interim financial statements have been prepared on a going
concern basis which the directors consider to be appropriate for
the following reasons:
-- The directors have prepared cash flow forecasts for the
period ending December 2021, taking account of severe but
plausible downside scenarios including the impact of COVID-19,
whereby the group has assumed:
* a decline in revenue and earnings throughout the
remainder of 2020 with quarterly revenues reducing by
up to 20% versus the same period last year;
* the possibility of a second COVID lock-down which
could reduce revenue and earnings in 2021, revenue up
to 14% lower than 2019 pre-COVID levels.
Even if these downside scenarios were to occur the Group
forecasts that it will have sufficient funds to meet its
liabilities as they fall due for this period.
-- The Group utilised its Revolving Credit Facility (RCF)
and the Bank of England COVID Corporate Financing Facility
(CCFF) to support its liquidity position during lockdown.
Additionally the Group applied further mitigations to support
its cash position, for example through deferring future
acquisitions and the suspension of the 2019 dividend as
announced in April 2020.
The Group has since repaid the RCF and the CCFF and its
assessment of the severe but plausible downside scenario
forecast is that it will remain within its borrowing facilities
headroom and in compliance with all its banking covenants.
Consequently, the directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial
statements on a going concern basis.
3. Accounting policies
The preparation of the interim financial information for the
half-year ended 30 June 2020 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.
Significant seasonal or cyclical variations in the Group's total
revenues are not experienced during the financial year.
Changes in 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 2019. 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 2020.
3. Accounting policies (continued)
A number of new standards are effective from 1 January 2020 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 2020:
- Amendments to References to Conceptual Framework in IFRS Standards
- Amendments to IFRS 3 - definition of a business
- Amendments to IAS 1 and IAS 8 - definition of material
- Amendments to IFRS 9, IAS 39 and IFRS 7 - interest rate benchmark reform
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 2019 or
30 June 2019. 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 Group's Executive Leadership
Team responsible for the review of Group performance. The operating
businesses within each segment report to the Regional Managing
Directors.
Disaggregated revenue under IFRS 15 is the same as the segmental
analysis below. Restructuring costs and central and regional
overheads are also presented centrally as they are not targeted or
managed at reportable segment level. 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 13.
Operating Operating
Revenue Revenue profit profit
30 June 2020 30 June 2019 30 June 2020 30 June 2019
GBPm GBPm GBPm GBPm
=============================================== ============= ============= ============= =============
France 131.4 152.7 4.3 22.0
Benelux 45.5 45.5 12.4 12.3
Germany 55.4 51.4 17.1 14.7
Southern Europe 66.6 66.6 8.6 10.2
Latin America 27.0 27.8 2.3 3.0
=============================================== ============= ============= ============= =============
Europe 325.9 344.0 44.7 62.2
=============================================== ============= ============= ============= =============
UK & Ireland 136.9 150.4 23.5 30.9
Rest of World 75.2 76.8 15.1 16.7
=============================================== ============= ============= ============= =============
UK & Rest of World 212.1 227.2 38.6 47.6
=============================================== ============= ============= ============= =============
Asia 117.7 115.2 11.9 11.7
North America 543.9 496.8 70.6 60.1
Pacific 83.7 93.2 15.7 18.4
Central and regional overheads - - (37.5) (42.1)
Restructuring costs - - (5.2) (3.3)
=============================================== ============= ============= ============= =============
Ongoing operations at actual exchange rates 1,283.3 1,276.4 138.8 154.6
Disposed businesses(1 2) 7.7 22.5 0.2 (2.4)
=============================================== ============= ============= ============= =============
Continuing operations at actual exchange rates 1,291.0 1,298.9 139.0 152.2
One-off items - operating 4.5 9.8
Amortisation of intangible assets (3) (43.0) (36.5)
Operating profit 100.5 125.5
=============================================== ============= ============= ============= =============
(1) Disposed business for 2019 is restated for businesses
disposed in 2020.
(2) Includes revenue of GBP4.2m (2019: GBP5.5m) from product
sales by the Group to CWS-boco International GmbH.
(3) Excluding computer software.
One-off items
One-off items - operating is a gain of GBP4.5m (2019: gain of
GBP9.8m). In April 2020 the recently acquired Florida Pest Control
defined benefit pension scheme was closed to future accrual of
benefits realising a non-cash gain of GBP7.4m. Additionally, a sale
and leaseback arrangement on a property in the US resulted in a
gain of GBP1.8m and there were additional proceeds received for the
sale of the MPCL business of GBP2.0m. This is offset by other
one-off costs of GBP6.7m which primarily relate to the ongoing
acquisition programme.
Analysis of revenue by business category
Revenue Revenue
30 June 30 June
2020 2019
GBPm GBPm
===================== ======== ========
Pest Control 829.8 822.0
Hygiene 292.6 269.1
Protect & Enhance 160.9 185.3
Disposed businesses 7.7 22.5
Total 1,291.0 1,298.9
======================= ======== ========
4. Segmental information (continued)
Analysis of revenue by type
Revenue Revenue
30 June 30 June
2020 2019
GBPm GBPm
========================== ======== ========
Recognised over time
Contract service revenue 886.0 920.0
Recognised at a point
in time
Job work 263.7 237.9
Sale of goods 141.3 141.0
Total 1,291.0 1,298.9
============================ ======== ========
Amortisation and impairment of intangible assets
Amortisation Amortisation
and impairment and impairment
of intangibles(1) of intangibles(1)
======================
30 June 30 June
2020 2019
GBPm GBPm
====================== =================== ===================
Europe 4.6 6.6
UK & Rest of World 5.7 5.5
Asia 11.7 2.7
North America 15.9 17.2
Pacific 1.8 1.9
Central and regional 3.3 2.6
Total 43.0 36.5
======================== =================== ===================
(1) Excluding computer software.
5. Business combinations
The Group purchased 100% of either the share capital or the
trade and assets of eight companies and businesses in the period.
An overview of the acquisitions in the year can be found on page 4
under the M&A heading. The Group acquires companies and
businesses as part of its growth strategy.
The total consideration in respect of acquisitions in the
current year was GBP37.4m. Details of goodwill and the fair value
of net assets acquired are as follows:
6 months 6 months
to to 30
30 June June
2020 2019
GBPm GBPm
============================== ========= =========
Purchase consideration:
- Cash paid 29.3 102.1
- Deferred and contingent
consideration 8.1 18.2
================================ ========= =========
Total purchase consideration 37.4 120.3
Fair value of net assets
acquired (15.2) (24.0)
================================ ========= =========
Goodwill from current period
acquisitions 22.2 96.3
================================ ========= =========
Goodwill represents the synergies, workforce and other benefits
expected as a result of combining the respective businesses.
Deferred consideration of GBP1.7m and contingent consideration
of GBP6.4m 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 provisional
fair values will be materially finalised in the 2020 financial
statements. 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.
5. Business combinations (continued)
6 months 6 months
to to 30
30 June June
2020 2019
GBPm GBPm
================================= ========= =========
Non-current assets
- Intangible assets 16.1 19.3
- Property, plant and equipment 1.4 4.4
Current assets 5.2 6.2
Current liabilities (4.2) (4.6)
Non-current liabilities (3.3) (1.3)
==================================== ========= =========
Net assets acquired 15.2 24.0
==================================== ========= =========
Acquired receivables are disclosed at fair value and represent
the best estimate of the contractual cash flows expected to be
collected. From the dates of acquisition to 30 June 2020, these
acquisitions contributed GBP6.0m to revenue and GBP1.2m to
operating profit. If the acquisitions had occurred on 1 January
2020, the revenue and operating profit of the combined entity would
have amounted to GBP1,292.8m and GBP100.6m respectively.
In relation to prior period acquisitions, there has been an
adjustment to the provisional fair values resulting in an increase
to goodwill of GBP0.2m.
In addition GBP23.1m was paid in respect of deferred and
contingent consideration for prior year acquisitions resulting in
the total cash outflow in the period from current and past period
acquisitions, net of cash acquired, of GBP50.3m.
Two small acquisitions were made in July, however the initial
accounting is incomplete at the date these accounts are authorised
for issue and therefore not included in the above information.
6. Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group's share of the net identifiable
assets of the acquired business at the date of acquisition. It is
recognised as an intangible asset. Goodwill arising on the
acquisition of an associate is included in investments in
associates.
Goodwill is tested annually for impairment and carried at cost
less accumulated impairment losses. Due to the unprecedented global
situation brought about by the COVID-19 pandemic and the global
economic impact, the Group has taken the decision perform
additional goodwill impairment reviews at the half year for
selected cash generating units (CGUs). The goodwill balance at 30
June 2020 is GBP1,433.2, and of this balance GBP1,155.0m was
reviewed covering 81% of the total goodwill and 17 CGUs.
For the purpose of impairment testing, goodwill is allocated to
CGUs identified according to country of operation and reportable
business unit. The way in which CGUs are identified has not changed
from prior periods. Newly acquired entities might be a single CGU
until such time that they can be integrated. Gains and losses on
the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
The recoverable amount of a CGU is determined based on the
higher of value-in-use calculations using cash flow projections and
fair value less costs to sell if appropriate. The cash flow
projections in year one are based on financial budgets approved by
management, which are prepared as part of the Group's normal
planning process. Cash flows for years two to five use management's
expectation of sales growth, operating costs and margin, based on
past experience and expectations regarding future performance and
profitability for each CGU. Cash flows beyond the five-year period
are extrapolated using estimated long-term growth rates (LTGR).
For the Rentokil PCI CGU in India the assumptions made in
estimating the value of the future cash flows are an LTGR of 3.99%,
a post-tax discount rate of 10.9% and cash flows based on a
short-term average growth in revenue 7.6%. The impairment
assessment has revealed an impairment of GBP8.1m. A one percentage
point reduction in the terminal operating margin assumption would
have resulted in an impairment of GBP13.2m and a one percentage
point increase to the post-tax discount rate would have resulted in
an impairment of GBP19.4m.
For all other goodwill balances reviewed it can be demonstrated
that there is headroom in the recoverable amount of the CGU
goodwill balances based on the assumptions made, and there is not
considered to be any reasonably likely scenario under which
material impairment could be expected to occur based on the testing
performed. A further review will be undertaken at the year end.
7. Dividends
6 months 6 months
to to Year to
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
====================================== ========== ========= =============
2018 final dividend paid - 3.16p per
share - 58.1 58.1
2019 interim dividend paid - 1.51p
per share - - 27.7
- 58.1 85.8
================================================= ========= =============
The final dividend proposed in the Annual Report 2019 was
withdrawn due to the COVID-19 pandemic and therefore not paid. The
directors have not declared an interim dividend for 2020. The
Company has a progressive dividend policy; however this has been
temporarily suspended due to the global COVID-19 pandemic. The
directors will consider the level of final dividend for 2020 based
on the year-end results.
8. 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 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. On 4 December 2018 the
Group signed an agreement with Pension Insurance Corporation plc
(PIC) for PIC to take over the payment of the liabilities in the
scheme via a buy-in, which is anticipated to convert to a full
buy-out before the end of 2020. The trustee purchased an insurance
policy that covers all retirement benefit obligations within the
scheme, thereby removing exposure to the significant risks within
the scheme (including changes in bond yields, inflation and
longevity). The scheme's insurer (PIC) is now responsible for
ensuring there are sufficient assets to meet all future pension
obligations, and is subject to EU solvency regulations. There is no
volatility associated with the insurance policy asset as under IAS
19 its value is deemed to match the scheme liabilities. Asset
volatility is limited only to the assets remaining in the scheme
following this transaction which are expected to be returned to the
company on wind-up of the scheme.
The Group achieved buy-in within the value of the assets held by
the scheme and was not required to make any further contributions.
While there are still some adjustments expected to the final price
it is anticipated that there will be surplus assets when the scheme
finally winds up in 2020. These assets are recognised as a
retirement benefit asset. This asset has been recognised at
management's estimate of the value of surplus that will be returned
from the scheme to the Group (subject to tax at 35%). At 30 June
2020 the retirement benefit asset amounted to GBP31.1m (December
2019: GBP36.6m). It remains subject to certain estimates and
assumptions made at the balance sheet date which could lead the
overall surplus available to change.
Other schemes currently in an accounting surplus position total
GBP0.7m and other schemes currently in an accounting deficit
position total GBP37.3m.
9. Net debt
At 30 At 31
June December
2020 2019
GBPm GBPm
======================================== ========== ==========
Current
Cash and cash equivalents in the
Consolidated Balance Sheet 973.6 309.6
Other investments 2.7 1.7
Fair value of debt-related derivatives - (0.3)
Bank and other short-term borrowings:
* Bank overdraft (47.0) (35.7)
* Term loan - (37.7)
* Commercial Paper (CCFF) (597.0) -
* Other overseas loans (9.7) (6.4)
* Bond accrual (10.0) (4.8)
Lease liabilities (76.4) (72.0)
========================================= ========== ==========
236.2 154.4
======================================== ========== ==========
Non-current
Other investments - 0.1
Fair value of debt-related derivatives (62.0) (23.5)
Bank and other long-term borrowings:
* Bond debt (1,126.9) (1,051.5)
* Other overseas loans (7.5) (7.8)
Lease liabilities (141.8) (144.7)
========================================= ========== ==========
(1,338.2) (1,227.4)
======================================== ========== ==========
Total net debt (1,102.0) (1,073.0)
========================================= ========== ==========
Fair value is equal to carrying value for all elements of net
debt with the exception of bond debt which has a carrying value of
GBP1,126.9m (2019: GBP1,051.5m) and a fair value of GBP1,140.4m
(2019: GBP1,082.7m).
10. Bank and other borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are classified as current
liabilities unless the Group has a continuing right to defer
settlement of the liability for at least 12 months after the
balance sheet date.
The Group's bank debt comprises:
Drawn Interest
at rate at
30 June 30 June
2020 Headroom 2020
Facility
amount
GBPm GBPm GBPm %
============================== ========= ========= ========= =========
Non-current
GBP550m RCF due August 2024 550.0 - 550.0 1.85%
Average cost of bank debt at
period end rates 1.85%
============================== ========= ========= ========= =========
The Group has a committed GBP550m revolving credit facility
(RCF) which is available for cash drawings up to GBP550m. The
maturity date is August 2024 with a one-year extension option. As
at 30 June 2020 the facility was undrawn (2019: GBPnil).
The Group repaid a $50m Term Loan on maturity in June 2020.
The Group's short-term note debt comprises:
Drawn Interest
at rate at
30 June 30 June
2020 Headroom 2020
Facility
amount
GBPm GBPm GBPm %
================================= ========= ========= ========= =========
Current
GBP600m Commercial Paper due
April 2021 600.0 600.0 - 0.51%
Average cost of short-term note
debt at period end rates 0.51%
================================= ========= ========= ========= =========
At 30 June 2020, the Group has issued a GBP600m short-term
Commercial Paper with a maturity date of April 2021 under the Bank
of England's COVID Corporate Financing Facility (CCFF) scheme.
The Group's medium-term notes and bond debt comprises:
Bond interest Effective hedged
coupon interest rate
===================================== =============== =================
Non-current
EUR350m bond due October 2021 Fixed 3.25% Fixed 3.35%
EUR400m bond due November 2024 Fixed 0.95% Fixed 1.65%
EUR500m bond due May 2026 Fixed 0.875% Fixed 1.24%
Average cost of bond debt at period
end rates 1.95%
====================================================== =================
In May 2020 the Group redeemed GBP1.6m of perpetual
debentures.
The effective interest rate reflects the interest rate after the
impact of cross currency interest rate swaps.
11. Derivative financial instruments
The Group uses derivative financial instruments in support of
its hedging strategy which is to hold debt in proportion to the
Group profit and cash flow which are mainly EUR and USD.
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; and
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 1 Current bid price
in active markets
Financial liabilities 1 Current ask price
traded in active markets
Long-term debt 1 Quoted market prices
Liquidity fund 1 Quoted market prices or dealer
quotes for similar instruments
Interest rate/currency 2 Market swap rates at the balance
swaps sheet date
Forward foreign exchange 2 Forward exchange market rates
contracts at the balance sheet date
Borrowings not traded 2 Cash flows discounted at current
in active markets market rates
Financial instruments 2 or 3 Valuation assumptions based
not traded in active markets 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 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.
11. Derivative financial instruments (continued)
Fair value Fair value Fair value Fair Value
assets assets liabilities liabilities
30 June 31 December 30 June 31 December
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
================================== =========== ============ ============= =============
Interest rate swaps (level
2):
* non-hedge 0.1 - (23.5) (3.1)
* cash flow hedge 1.1 0.1 (1.0) (20.5)
* net investment hedge 0.1 7.6 (40.0) (9.1)
Foreign exchange swaps (level
2):
* non-hedge 0.4 0.1 (0.5) (0.1)
Metal hedging option (level
2):
* non-hedge 0.4 - - -
2.1 7.8 (65.0) (32.8)
================================== =========== ============ ============= =============
Analysed as follows:
Current portion 0.8 0.2 (0.5) (0.5)
Non-current portion 1.3 7.6 (64.5) (32.3)
================================== =========== ============ ============= =============
2.1 7.8 (65.0) (32.8)
================================== =========== ============ ============= =============
12. Events occurring after the balance sheet date
On 27 July 2020 the Group repaid the GBP600m borrowed under the
Bank of England's CCFF scheme.
There were no other significant events occurring after the
balance sheet date.
13. 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, often revenue and profit measures are presented at CER.
CER is calculated by translating 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 2019 1.2790 and
GBP/EUR FY 2019 1.1419. Comparisons are to the six months ended 30
June 2019 (H1 2019) 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); and
-- Net interest adjustments.
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 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.
Other non-cash gains and losses that can cause material
fluctuations and distort understanding of the performance of the
business such as net interest on pension schemes, interest fair
value adjustments and the excess IFRS 16 interest above the
operating profit benefit reported in the year. These adjustments
are made to aid year-on-year 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.
13. 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 2020 H1 2020 H1 2019 H1 2019
AER CER AER CER
GBPm GBPm GBPm GBPm AER CER
========
Ongoing Revenue 1,283.3 1,294.7 1,276.4 1,281.9 0.5% 1.0%
Revenue - disposed and
closed businesses 7.7 7.7 22.5 22.4 (65.8%) (65.6%)
============================= ======== ======== ========= ======== ======== ========
Revenue 1,291.0 1,302.4 1,298.9 1,304.3 (0.6%) (0.1%)
============================= ======== ======== ========= ======== ======== ========
Ongoing Operating Profit 138.8 140.5 154.6 155.1 (10.2%) (9.4%)
Operating Profit - disposed
and closed businesses 0.2 0.2 (2.4) (2.4) 108.3% 108.3%
============================= ======== ======== ========= ======== ======== ========
Adjusted Operating Profit 139.0 140.7 152.2 152.7 (8.7%) (7.9%)
============================= ======== ======== ========= ======== ======== ========
One-off items - Operating 4.5 4.4 9.8 9.7 (54.0%) (54.6%)
Amortisation and impairment
of intangible assets(1) (43.0) (43.8) (36.5) (36.7) (17.8%) (19.4%)
============================= ======== ======== ========= ======== ======== ========
Operating profit 100.5 101.3 125.5 125.7 (19.9%) (19.5)%
============================= ======== ======== ========= ======== ======== ========
Share of profit from
associates (net of tax) 4.3 4.2 12.3 12.4 (65.0%) (66.1%)
Net interest payable
(excluding pensions/IFRS
16) (17.7) (17.8) (22.9) (23.0) 22.8% 22.6%
Net interest adjustments (25.3) (25.3) (1.1) (1.2) - -
============================= ======== ======== ========= ======== ======== ========
Profit before tax 61.8 62.4 113.8 113.9 (45.7%) (45.2)%
============================= ======== ======== ========= ======== ======== ========
Net interest adjustments 25.3 25.3 1.1 1.2 - -
One-off items - operating (4.5) (4.4) (9.8) (9.7) 54.0% 54.6%
Amortisation and impairment
of intangible assets(1) 43.0 43.8 36.5 36.7 17.8% 19.4%
============================= ======== ======== ========= ======== ======== ========
Adjusted profit before
tax 125.6 127.1 141.6 142.1 (11.3%) (10.5%)
============================= ======== ======== ========= ======== ======== ========
Basic earnings per share 2.54p 2.56p 4.75p 4.76p (46.5%) (46.2%)
Basic adjusted earnings
per share 5.30p 5.36p 5.99p 5.98p (11.5%) (10.4%)
============================= ======== ======== ========= ======== ======== ========
(1) Excluding computer software.
13. Alternative performance measures (continued)
Regional Analysis
Ongoing Revenue Ongoing Operating Profit
======================= ==================================
Change from Change from
H1 2020 HY 2019 H1 2020 HY 2019
======================= ================== ================ ================ ================
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
======================= ======== ======== ======= ======= ======= ======= ======= =======
France 131.4 131.9 (14.0) (13.7) 4.3 4.3 (80.5) (80.4)
Benelux 45.5 45.7 0.1 0.5 12.4 12.5 0.9 1.3
Germany 55.4 55.4 7.9 7.7 17.1 17.0 16.0 15.5
Southern Europe 66.6 66.9 - 0.5 8.6 8.6 (16.2) (15.8)
Latin America 27.0 30.7 (2.9) 12.5 2.3 2.8 (22.5) (3.3)
======================= ======== ======== ======= ======= ======= ======= ======= =======
Total Europe 325.9 330.6 (5.3) (3.8) 44.7 45.2 (28.3) (27.3)
======================= ======== ======== ======= ======= ======= ======= ======= =======
UK & Ireland 136.9 136.9 (9.0) (9.0) 23.5 23.6 (23.9) (23.3)
Rest of World 75.2 78.6 (2.1) 2.5 15.1 15.7 (9.5) (5.9)
======================= ======== ======== ======= ======= ======= ======= ======= =======
UK & Rest of World 212.1 215.5 (6.7) (5.1) 38.6 39.3 (18.8) (17.2)
======================= ======== ======== ======= ======= ======= ======= ======= =======
Asia 117.7 119.8 2.2 3.2 11.9 12.0 1.3 1.0
North America 543.9 541.4 9.5 7.8 70.6 70.3 17.5 15.7
Pacific 83.7 87.4 (10.1) (5.7) 15.7 16.4 (14.4) (10.2)
Central and regional
overheads - - - - (37.5) (37.5) 11.0 11.0
Restructuring costs - - - - (5.2) (5.2) (56.6) (56.1)
Ongoing operations 1,283.3 1,294.7 0.5 1.0 138.8 140.5 (10.2) (9.4)
======================= ======== ======== ======= ======= ======= ======= =======
Disposed businesses 7.7 7.7 (65.6) (65.6) 0.2 0.2 108.6 108.6
======================= ======== ======== ======= ======= ======= ======= ======= =======
Continuing operations 1,291.0 1,302.4 (0.6) (0.1) 139.0 140.7 (8.7) (7.9)
======================= ======== ======== ======= ======= ======= ======= ======= =======
Category Analysis
Ongoing Revenue Ongoing Operating Profit
======================= ==================================
Change from Change from
H1 2020 HY 2019 H1 2020 HY 2019
======================= ================== ================ ================ ================
AER CER AER CER AER CER AER CER
GBPm GBPm % % GBPm GBPm % %
======================= ======== ======== ======= ======= ======= ======= ======= =======
Pest Control 829.8 835.8 0.9 1.0 125.1 125.4 (9.8) (10.0)
- Growth 718.3 719.4 2.4 1.8 115.0 115.4 (6.1) (6.4)
- Emerging 111.5 116.4 (7.5) (3.6) 10.1 10.0 (37.4) (37.4)
Hygiene 292.6 297.2 8.7 10.5 49.2 50.2 7.9 10.0
Protect & Enhance 160.9 161.7 (13.2) (12.9) 7.2 7.6 (54.4) (51.3)
Central and regional
overheads - - - - (37.5) (37.5) 11.0 11.0
Restructuring
costs - - - - (5.2) (5.2) (56.6) (56.1)
Ongoing operations 1,283.3 1,294.7 0.5 1.0 138.8 140.5 (10.2) (9.4)
======================= ======== ======== ======= ======= ======= ======= =======
Disposed businesses 7.7 7.7 (65.6) (65.6) 0.2 0.2 108.6 108.6
======================= ======== ======== ======= ======= ======= ======= ======= =======
Continuing operations 1,291.0 1,302.4 (0.6) (0.1) 139.0 140.7 (8.7) (7.9)
----------------------- -------- -------- ------- ------- ------- ------- ------- -------
13. 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 2020 H1 2019 Variance
% % % points
========================== ======== ======== ==========
France 3.3 14.4 (11.1)
Benelux 27.3 27.0 0.3
Germany 30.8 28.7 2.1
Southern Europe 12.9 15.3 (2.4)
Latin America 8.9 10.4 (1.5)
========================== ======== ======== ==========
Total Europe 13.7 18.1 (4.4)
========================== ======== ======== ==========
UK & Ireland 17.3 20.5 (3.2)
Rest of World 20.0 21.8 (1.8)
========================== ======== ======== ==========
UK & Rest of World 18.3 20.9 (2.6)
========================== ======== ======== ==========
Asia 10.0 10.2 (0.2)
North America 13.0 12.1 0.9
Pacific 18.8 19.7 (0.9)
Ongoing operations(1) 10.9 12.1 (1.2)
========================== ======== ======== ==========
Disposed businesses 2.6 (10.5) 13.1
========================== ======== ======== ==========
Continuing operations(1) 10.8 11.7 (0.9)
========================== ======== ======== ==========
H1 2020 H1 2019 Variance
% % % points
========================== ======== ======== ==========
Pest Control 15.0 16.8 (1.8)
- Growth 16.0 17.4 (1.4)
- Emerging 8.6 13.3 (4.7)
Hygiene 16.9 16.9 -
Protect & Enhance 4.7 8.4 (3.7)
Ongoing operations(1) 10.9 12.1 (1.2)
========================== ======== ======== ==========
Disposed businesses 2.6 (10.5) 13.1
========================== ======== ======== ==========
Continuing operations(1) 10.8 11.7 (0.9)
========================== ======== ======== ==========
(1) Operating Margin for ongoing operations and continuing
operations is calculated after central and regional overheads and
restructuring costs.
Adjusted Interest
Adjusted interest is calculated by adjusting the reported
finance income and costs by the net interest credit from pensions,
interest fair value adjustments and IFRS 16 interest
adjustments.
H1 2020 H1 2019
AER AER
GBPm GBPm
=================================== ======== ========
Net finance costs (43.0) (24.0)
Net interest credit from pensions 0.1 0.1
Interest fair value adjustments 24.1 (1.0)
IFRS 16 interest adjustment 1.1 2.0
=================================== ======== ========
Adjusted interest (17.7) (22.9)
=================================== ======== ========
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 2020 H1 2019
AER AER
GBPm GBPm
======================================== ======== ========
Net cash from operating activities 240.8 191.5
Purchase of property, plant, equipment
and intangible fixed assets (73.1) (85.2)
Leased property, plant and equipment (29.2) (28.7)
Proceeds from sale of property, plant,
equipment and software 5.0 1.7
Dividends received from associates - 16.6
Free Cash Flow 143.5 95.9
======================================== ======== ========
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 2020 H1 2019
AER AER
GBPm GBPm
================================================== ======== ========
Income tax expense 14.7 25.8
Tax adjustments on:
Amortisation and impairment of intangible assets
(excluding computer software) 8.4 9.1
One-off items - operating (0.7) 1.8
One-off items - pension - (6.2)
Net interest adjustments 4.8 0.3
Adjusted income tax expense (a) 27.2 30.8
Adjusted profit before income tax (b) 125.6 141.6
================================================== ======== ========
Effective Tax Rate (a/b) 21.7% 21.8%
================================================== ======== ========
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
29 July 2020
The directors of Rentokil Initial plc are listed in the Rentokil
Initial plc Annual Report for 31 December 2019. A list of the
current directors is maintained on the Rentokil Initial website:
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 2020 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 2020 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
This information is provided by RNS, 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
IR DKLFLBDLEBBZ
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