Rentokil Initial (RTO) H2 2016 earnings summary

Executive summary

• 2016 ongoing revenue was £1,956.0m CER, up 12.6%; organic growth accelerated to 3.0% from 1.8% in 2015 and reached 3.5% in H2.

• Ongoing operating profit rose 11.5% CER; free cash flow was £156.4m, above the £110m+ target, and the total dividend increased 15.0%.

• Strategy advanced through 41 acquisitions, Pest Control growth and a proposed European Workwear and Hygiene JV with Haniel; management was confident of further progress in 2017.

Financial highlights

• Ongoing revenue was £1,956.0m CER / £2,157.7m AER, up 12.6% / 24.2%; ongoing operating profit was £252.3m CER / £284.9m AER, up 11.5% / 25.8%.

• Adjusted PBTA was £221.9m CER / £252.1m AER, up 16.7% / 32.5%; PBT was £182.8m CER / £208.5m AER, up 15.0% / 31.0%.

• Adjusted EPS was 9.30p CER / 10.73p AER, up 16.5% / 34.5%; the 3.37p dividend rose 15.0%, including a proposed final dividend of 2.38p.

• Free cash flow was £156.4m versus £147.7m in 2015; operating cash flow was £247.8m versus £220.7m at actual exchange rates.

Outlook and guidance

• 2017 free cash flow target was raised to a minimum £130m from £120m+; Sterling benefits of £15m–£20m to profit at current rates were expected to be offset by the Haniel JV impact.

• 2017 guidance included overheads ~£2m higher, restructuring costs ~£7m, Haniel one-off costs ~£15m including £10m cash, interest of £42m and an adjusted effective tax rate of 22.5%.

• Cash-flow guidance: cash tax £40m–£45m, working-capital outflow ~£10m and net capex £235m–£245m, subject to FX movements.

• Prospects were considered good in most markets; Europe was expected to record a 2017 profit decline broadly similar to 2016, with France remaining challenging.