Rentokil Initial (RTO) H2 2015 earnings summary

Executive summary

• FY 2015 ongoing revenue grew 6.5% at CER, including 1.8% organic growth; adjusted operating profit rose 8.5% at CER.

• Pest Control led growth and Hygiene returned to profitable growth, while France remained challenging and European Workwear was pressured.

• Free cash flow reached £147.7m; further progress was expected in 2016.

Financial highlights

• Continuing-operations revenue was £1,837.2m, up 5.5% at CER; ongoing revenue was £1,813.9m, up 6.5%.

• Ongoing adjusted PBITA was £252.8m, up 8.5% at CER; adjusted PBTA was £198.0m at AER, up 3.8%.

• PBT was £174.7m at CER, up 7.0%; adjusted EPS was 8.99p at CER, up 11.7%.

• Operating cash flow was £220.7m versus £209.5m; free cash flow was £147.7m versus £128.9m.

• Final dividend was 2.06p; total proposed dividend was 2.93p, up 13.1% year on year.

Outlook and guidance

• Further progress expected in 2016; medium-term targets were mid-single-digit revenue growth, high-single-digit profit growth and sustainable free cash flow above £110m annually.

• Free cash flow target was above £110m in 2016 and £120m in 2017; 2016 assumptions included ~£10m working-capital outflow and ~£200m net CapEx.

• 2016 guidance included ~£7m above-the-line restructuring costs, ~£5m Steritech integration costs within one-offs, ~24% adjusted effective tax rate and £37m interest costs.

• Cash interest was expected to be ~£12m above the P&L impact due to payment timing; then-current FX rates implied a ~£15m favorable reported-profit impact.

• German and Southern European trading expected to remain positive; France and Benelux conditions challenging, with a considerably lower European profit decline anticipated in 2016.