Rentokil Initial (RTO) H2 2017 earnings summary

Executive summary

• 2017 ongoing revenue and operating profit grew 14.5% and 14.8% at CER; organic growth accelerated to 3.8% from 3% after portfolio changes.

• Free cash flow was £175.8m, above the £150m target; year-end net debt fell to £927.3m after the Haniel transaction.

• Pest Control and Hygiene generated ~90% of operating profit; strategy focused on core markets, digital differentiation and targeted acquisitions.

• Recommended final dividend of 2.74p took full-year dividend growth to 15.1%.

Financial highlights

• Continuing-operations ongoing revenue was £2,203.8m AER / £2,093.0m CER, up 20.6% / 14.5%; ongoing operating profit was £294.6m / £275.4m, up 22.8% / 14.8%.

• Adjusted PBTA was £286.9m AER / £267.8m CER, up 13.8% / 6.2%; adjusted EPS rose 13.6% at actual exchange rates to 12.19p.

• Operating cash flow was £258.4m versus £247.8m; continuing free cash flow rose to £175.8m from £156.4m.

• Net debt declined £311m to £927.3m; £451.9m net proceeds from the Haniel contribution and French laundry disposals helped fund £281.1m of acquisitions.

Outlook and guidance

• 2018 acquisition spend planned at £200m–£250m; medium-term targets include 5%–8% revenue growth, ~10% profit growth and ~90% free-cash-flow conversion.

• 2018 guidance: adjusted effective tax rate 22.5%, cash tax £45m–£50m, interest costs ~£46m, working-capital outflow ~£15m and net CapEx £165m–£175m.

• Central and regional overheads expected ~£4m higher; restructuring costs ~£7m and associates’ profit £20m–£25m.

• Prevailing exchange rates could reduce 2018 profit by £10m–£15m; France targeted a return to revenue and profit growth by year-end.