Rentokil Initial (RTO) H1 2016 earnings summary

Executive summary

• H1 ongoing revenue rose 11.5% at CER, including 2.5% organic growth; adjusted ongoing operating profit increased 11.0% at CER.

• Pest Control and North America led growth; full-year revenue, profit and cash expectations remained unchanged.

• Growth and Emerging markets represented ~70% of revenue after Residex.

Financial highlights

• Ongoing revenue was £979.5m at AER and £928.4m at CER, up 16.3% and 11.5%, respectively.

• Adjusted ongoing PBITA was £114.3m at AER and £107.1m at CER, up 16.2% and 11.0%, respectively.

• Adjusted PBTA rose 22.5% at AER to £98.3m; adjusted EPS was 3.90p, up 17.1%.

• Free cash flow from continuing operations was £57.1m versus £55.4m; operating cash flow was £97.7m and EBITDA £207.3m.

Outlook and guidance

• FY 2016 revenue, profit and cash expectations were unchanged; free cash flow guidance was above £110m.

• Annual M&A spend guidance was £70m–£80m; net CapEx was £210m–£220m and working-capital outflow ~£10m.

• Guidance included ~£7m restructuring costs, ~£5m one-off costs, £37m interest costs, adjusted tax rate of 22% and cash tax of £35m–£40m.

• At prevailing rates, currency was estimated to benefit FY profit by ~£26m; Steritech remained on track for its 2016 profit target of $25m–$30m.

• 2017 free cash flow target was raised to £120m+ per annum.