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RNS
Rentokil Initial PLC   -  RTO   

Final Results

Released 07:00 27-Feb-2020

RNS Number : 2669E
Rentokil Initial PLC
27 February 2020
 

 

 

Excellent progress in 2019: 4.5% FY Organic Revenue growth our highest level in 15 years

  

 

Results 

FY 2019

Growth

£m

AER

AER

CER

 

 

 

 

Ongoing Revenue

2,676.2

9.9%

8.6%

Revenue

2,714.4

9.8%

8.5%

Ongoing Operating Profit

368.1

11.3%

10.5%

Operating Profit

365.4

11.0%

10.2%

Adjusted profit before tax

340.9

10.7%

9.8%

Profit before tax

338.5

-

-

Free Cash Flow

250.7

 

 

Adjusted EPS

14.43p

10.4%

9.2%

EPS

15.33p

-

-

Dividend per share

5.15p

15.2%

 

 

2019 Highlights

 

Revenue, profit and cash in excess of medium-term targets: Ongoing Revenue up 8.6%, Organic Revenue up 4.5%, Ongoing Operating Profit up 10.5% and Free Cash Flow conversion of 98.6%

10.8% Ongoing Revenue growth in Pest Control (4.9% Organic), driven by strong innovation and digital performance

5.8% Ongoing Revenue growth in Hygiene (4.3% Organic), reflecting very good results in UK, Europe and Pacific and ongoing contributions from acquisitions

3.5% Ongoing Revenue growth in Protect & Enhance (3.2% Organic), due to improved performance from France Workwear, Ambius and UK Property Care

20 basis points improvement in Group Net Operating Margin at 13.8%, 50 basis points improvement in North America margins at 14.2%

Free Cash Flow of £250.7m, a £58.7m increase on the prior year and representing 98.6% conversion

30 bps improvement in customer retention at 86.2%, (50 basis points improvement in Pest Control at 84.7%), 3.7% improvement in colleague retention at 86.9% 

Excellent year for M&A:

 

41 businesses acquired - 30 Pest Control, 8 Hygiene, 3 Protect & Enhance - principally in Growth and Emerging markets.  Combined annualised revenues of £137m for total cash spend of £316.5m

 

14 Pest Control and two Ambius acquisitions in North America with c.$135m (c.£101m) annualised revenues, including Florida Pest Control, a top 20 pest business with annualised revenues of c.$66m (c.£50m)

 

Divestment of 17.8% interest in CWS-boco International GmbH to Haniel on 30 July for cash consideration of €430m

Recommended final dividend of 3.64p, to bring total dividend for 2019 to 5.15p, an increase of 15.2%  

 

 

Commenting on the results, Andy Ransom, CEO of Rentokil Initial plc, said:

"The Company performed strongly in 2019 with a combination of above-target Organic growth and disciplined execution of M&A.  Organic growth was driven by our increasing presence in growth markets, higher levels of customer retention and a strong innovation programme. In particular, our employer of choice programme continues to deliver outstanding results with increased levels of safety, training, motivation and retention of our colleagues.

 

"Looking forward into the new decade, key demographic trends such as urbanisation will enlarge our global pest control and hygiene markets, while we continue to focus on the relentless execution of our plan.  We are confident of delivering further operational and financial progress in 2020."

 

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 21 on page 35.

 

Joint venture: the term 'joint venture' is used to describe the Company's 57% ownership of Rentokil PCI, however this business has been fully consolidated in our Financial Statements and no non-controlling interest is recognised.

 

IFRS 16 - Leases

The new leasing standard, IFRS 16, has been effective from 1 January 2019 and has been adopted from that date with no restatement of prior year comparatives required. This has resulted in a number of leases (largely vehicle and property leases) that were previously accounted for as operating leases (expensed as incurred) now being capitalised as Right of Use (ROU) assets and depreciated over the lease term or useful life with a corresponding lease liability and interest charge.

 

The new standard has not had a material impact on either Adjusted profit before tax or the underlying net cash flows of the business but it has changed the presentation of the profit and loss account, the cash flow statement and the balance sheet as follows:

 

·          On transition, fixed assets and net debt have increased by £176.3m and £184.0m respectively.

 

·          The operating lease charge has been replaced with depreciation of the ROU assets and an interest charge on the corresponding lease liability.

 

·          In 2019 this has increased Operating Profit by c. £3.5m . This is offset by an increased interest charge of c.£6.5m.  This is a non-cash charge and is in excess of the operating profit benefit and the difference has therefore been added back when arriving at the Group's adjusted interest charge to aid year over year comparability.  

 

·          The implementation of IFRS 16 does not impact underlying net cash flows but new leases are now recognised as capital expenditure, which has impacted the way depreciation, EBITDA and capex are reported in the consolidated cash flow statement on page 19.  For 2019, depreciation on IFRS 16 ROU assets was £70m increasing EBITDA by the same amount which was largely offset by a £65m increase in capex and a £6m increase in interest.

 

Revenue

 

Ongoing Revenue, which excludes disposed businesses, increased by 8.6% in 2019, with all regions contributing to growth.  Organic Revenue growth of 4.5% was our highest level of annual growth in 15 years and in excess of our medium-term financial target of 3% to 4% growth per annum.  Organic growth in H2 was 4.8%, with 4.1% in Q4 versus 4.7% in Q4 2018.  Acquisitions performed well during the period, contributing 4.1% to Ongoing Revenue growth.  

 

Ongoing Revenue in Pest Control grew by 10.8% during the year (4.9% Organic) with good performances being delivered across both Growth and Emerging markets, which rose by 10.5% and 12.7% respectively.   Hygiene reported increased revenues of 5.8%, up 4.3% on an Organic basis, aided by strong performances from our Pacific, UK and Europe operations and ongoing good contributions from the Cannon transaction and from our interest in CWS-boco International GmbH prior to disposal.  Ongoing Revenue in our Protect & Enhance businesses increased by 3.5% (3.2% Organic), reflecting improved performances in France Workwear, Ambius and UK Property Care.      

 

Total Revenue of £2,682.8m rose by 8.5% at constant exchange rates and by 9.8% at actual exchange rates, reflecting growth across all main regions and business categories.   

 

Profit

 

Ongoing Operating Profit, which excludes t disposed businesses, increased by 10.5% in the year to £365.5m, again reflecting growth across all five regions.  This resulted in an increase in Net Operating Margins to 13.8% - driven by improvement in a number of key regions and in particular our North American business; but held back slightly by an increase in central costs of £7m, reflecting the impact of the increase in our share price on LTIP costs.  Ongoing Operating Profit benefited by c.£3.5m from the implementation of IFRS 16 which was adopted from 1 January 2019.  Restructuring costs amounted to £7.5m at CER (2018: £7.2m) consisting mainly of costs in respect of initiatives focused on driving operational efficiencies across all regions. 

 

Adjusted profit before tax at actual exchange rates of £340.9m, which excludes the impact of one-off items, increased by 10.7%, reflecting growth in all operating regions.  Adjusted interest costs were £3.6m lower than last year despite the adverse impact of £3.5m from the implementation of IFRS 16.      

 

One-off items at actual exchange rates net to a charge of £14.6m, which includes £25.2m of acquisition integration costs, a gain of £17.4m in respect of the UK Defined Benefit pension scheme buy-out process and a non-cash adjustment of £7m to the holding value of the Cannon and MPCL acquisitions. Intangible asset amortisation at actual exchange rates of £85.2m increased by £23.6m as a result of the M&A programme, resulting in profit before tax at actual exchange rates of £338.5m.  

 

Cash (at AER)

 

Free Cash Flow increased by £58.7m to £250.7m, delivering Free Cash Flow Conversion of 98.6% for the year.  The increase was principally driven by a £36.1m increase in Adjusted Operating Profit and an increase in dividends received from the now disposed CWS-boco International GmbH of £18.0m.  Post the implementation of IFRS 16 from the start of 2019 depreciation and capital expenditure have both increased but they offset and the net impact was broadly cash neutral. 

 

Cash spent on current and prior year acquisitions totalled £316.5m, offset by proceeds from disposals of £391.9m.  Combined with dividend payments of £85.8m - an £11.6m, 15.6% increase on the prior year - this resulted in an underlying decrease in net debt of £240.3m.  The adoption of IFRS 16, which added £184.0m of lease obligations to net debt at 1 January 2019, together with foreign exchange translation and other items, led to an overall decrease in net debt of £80.5m and closing net debt of £1,073.0m.

 

M&A

 

2019 was another excellent year for M&A, with 41 acquisitions in 23 countries and the divestment in July of our 17.8% stake in CWS-boco International GmbH (the JV with Haniel).  During the year we acquired 30 pest control, eight hygiene, and three Ambius businesses, generating annualised revenues in the year prior to purchase of £137m.  Total spend, including prior year acquisitions, was £316.5m.  Countries in which we have acquired new businesses include Australia, Brazil, Canada, Chile, Colombia, Costa Rica, Domincan Republic, Dutch Antilles, Finland, France, Greece, Indonesia, Malaysia, Peru, Poland, Spain, Tanzania, Thailand, UK and US.  We also entered new markets of Jordan, Sri Lanka and Uruguay. 

 

In July 2017 the Group's Workwear and Hygiene assets principally in Germany and Benelux were transferred into a joint venture with Haniel for a cash consideration of €520m and a retained 17.8% share in CWS-boco International GmbH.  On 30 July 2019 we agreed to sell our remaining stake in the JV to Haniel for a cash consideration of €430m.  There is no tax on disposal.  Together with the initial consideration for transferring the businesses into the JV of €520m and dividends received since its formation of c.€29m, the transaction has realised a total cash return of €979m.  The proceeds from the sale have been used to reduce debt and support the Group's M&A programme.

 

Our recent acquisitions continue to perform at or above our required hurdle rates.  Going forward we will continue to execute a differentiated and disciplined approach to capital investment and M&A, with clear IRR hurdles by business line.   We will continue to seek further acquisition opportunities for 2020 and the pipeline of prospects remains strong.  We have made a good start to 2020 and, given the continued strength of our pipeline, our anticipated spend on M&A in 2020 is expected to be in the region of c.£250m.  

 

 

Enquiries:

 

Investors / Analysts:

Katharine  Rycroft

Rentokil Initial plc

01276 536585 / 07811 270734

 

 

 

 

Media:

Malcolm Padley

Rentokil Initial plc  

07788 978 199

 

 

                    

 

 

A presentation for investors and analysts will be held on Thursday 27 February 2020 at 9.15am in the Sidney Suite Conference Room, 1st Floor, The Leonardo Royal Hotel, (formerly the Grange Tower Bridge Hotel), 45 Prescot Street, London E1 8GP.  This will be available via a live audio web cast at www.rentokil-initial.com.

 

 

 

 

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.

 

In North America Ongoing Revenue grew by 11.4% to £1,040.3m ($1,385.8m), of which 6.9% was growth through acquisition and 4.5% was Organic (in line with our Organic growth target of 4% to 5% p.a.).  Pest Control grew 11.9% (+4.4% Organic), improving on the 3.8% Organic growth in 2018, but performance for the year was held back by unusually wet weather conditions in certain parts of the country in the second quarter.  Ongoing Operating Profit growth of 15.3% reflects the combined impact from higher revenues and acquisitions.  14 Pest Control and two Ambius businesses were acquired in the region in 2019 - including Florida Pest Control, a top 20 pest control company in the US - with combined annualised revenues of c.$135m (c.£101m) in the year prior to purchase, considerably ahead of c.$53m (c.£41m) revenues acquired during 2018.  

 

Our stated ambition for our North American business is for it to become a $1.5bn revenue business by the end of 2020 and to deliver 18% Net Operating Margins by the end of 2021.  This year has seen very good progress towards our revenue target as noted above and, given our progress in Organic growth and acquisitions in 2019, we remain confident in achieving our $1.5bn revenue target in 2020. 

 

We are making good progress towards our target of 18% Net Operating Margins in North America by the end of 2021.  Net Operating Margins improved by 50 basis points in 2019 to 14.2%, supported by stronger organic growth, synergies from acquisitions beginning to flow through and savings in property and procurement from our Best of Breed cost savings programme, partially offset by a greater mix of lower-margin product sales. 

 

As we have previously discussed, in addition to operational leverage from increased density, a key dependency for delivery of this margin target is the re-platforming of our IT infrastructure.  The key first step in our IT programme is creating a consistent platform across North America.  We transferred all of our data from the business into the cloud in 2019 and the majority of the business is now on a standard operating system. We also migrated 16 acquisitions onto our core operating system in 2019. Having data in one place and a consistent infrastructure delivers cost benefits in its own right through reduced back office costs and more effective management.  Critically, the re-platforming also allows us to deploy our Group applications across the North America region in the key areas of service, sales and customer communications over the next 12 to 18 months.  The implementation of these applications enables the delivery of Best of Breed margin benefits in 2020 and 2021 meaning that our journey to 18% Net Operating Margins by 2021 is weighted towards the end of this period.

 

Pest Control margins in the North East region of our North America business at over 22% are comparable with the rest of Rentokil Initial's global Pest Control business.  As our North America business grows through both organic revenues and M&A, and we deliver our best of breed programme following the re-platforming of the business, we see medium term opportunity to improve margins in our South East, West and Central regions to similar levels.

 

Ongoing Revenue for Europe rose by 7.1% (+4.8% Organic), reflecting an excellent performance in Germany (+12.6%), continued strong growth in Southern Europe (+4.6%) and an improved performance in Benelux and France, which grew by 6.2% and 4.6% respectively.  Latin America, which is reported within the Europe region, once again performed well with Ongoing Revenue growth of 20.5%.  Ongoing Revenue from our European Hygiene operations grew by 5.2% (3.2% Organic), benefiting from strong performances across the region.  Ongoing Revenue from our Pest Control businesses grew by 11.3%, reflecting a 4.6% uplift in growth from acquisitions and strong Organic growth of 6.7%, attributable to a particularly strong performance from our German operations.  Ongoing Operating Profit for the Europe region grew by 8.3%, with strong growth in Southern Europe, Germany and Benelux.  Net Operating Margins for the Europe region increased by 20 basis points to 19.3%.  The region acquired 11 businesses in Europe and Latin America in the period (three in Hygiene and eight in Pest Control) with total combined annualised revenues of c.£14m in the year prior to purchase. 

 

The UK & Rest of World region delivered a very strong performance, with an overall increase in Ongoing Revenue of 6.3%, comprising acquisition growth of 1.5% and Organic Revenue growth of 4.8%.  The region delivered continued excellent growth from UK Pest Control and Hygiene, which grew organically by 6.3% and 7.9% respectively, with Pest Control benefiting from large contract wins, high levels of customer service, improved customer retention and one-off contracts.  UK Property Care organic growth declined by 2.5% for the year although the second half was better with growth of 2.2%.  The Rest of World operations delivered good Ongoing Revenue growth of 7.0% with contributions across all of its regional clusters in the Nordics, Caribbean, Sub-Saharan Africa and MENAT.  Overall Ongoing Operating Profit for the region grew by 9.3%, reflecting the higher revenues.  Net Operating Margins for the UK & Rest of World region were 0.6% points higher at 22.0%, reflecting profit improvements in UK Property Care.  During the year the region acquired three hygiene, two pest control and one plants business with total acquired annualised revenues in the 12 months prior to acquisition of c.£3m.

 

The Asia region has once again performed well in 2019 with Ongoing Revenue increasing by 11.1% (+4.7% Organic Revenue growth) with both Pest Control and Hygiene trading well.  Our operations in Indonesia delivered an outstanding performance, with Ongoing Revenue growth of 40.3% (Pest Control: 58.2%, Hygiene: 19.7%) and Organic Revenue growth of 14.1% (Pest Control: 20.1%, Hygiene 7.2%).  Acquisitions contributed 26.2% of growth.  Ongoing Operating Profit in Asia grew by 11.1%.  Progress on the integration of PCI, our 2017 acquisition in India, has been steady although progress on the business plan has been slower than we would have expected at this stage.  Asia Net Operating Margins were in line with prior year at 10.3%, held back by margins in Singapore which were adversely impacted by wage inflation, a slowdown in jobbing work and key accounts negotiations.  Four pest control businesses and two hygiene businesses were acquired in 2019 in Indonesia, Malaysia, Sri Lanka and Thailand, with combined annualised revenues of c.£17m.

 

In the Pacific region Ongoing Revenue grew by 2.6%, (+2.3% organic), driven by solid performances across our core Pest Control and Hygiene categories.  Our Hygiene operations in Australia delivered a notably good performance in the period, reflecting the impact of new customer wins in 2018 and 2019.  However, Pest Control was impacted by a decline in fumigation activity - in part due to a change in fumigation regulations which now means that inbound shipments are increasingly being treated at the point of their departure instead of on arrival into the region - along with a consolidation of operating centres. Ongoing Operating Profit in the region grew by 2.5% and Net Operating Margins declined by 0.1% points reflecting fumigation impacts.  Two small pest control businesses were acquired in Australia with annualised revenues of c.£2m in the year prior to acquisition.

 

Our share of Profits from Associates at AER amounted to £15.2m (2018: £19.6m), £7.0m (2018: £12.1m) relating to our CWS-boco joint venture with Haniel and £8.2m (2018: £7.5m) to our Japanese associate.  Following the disposal of our remaining stake in the JV with Haniel in July 2019 there will be no further profit contributions from this business. For the 12 months ended 31 December 2019 the JV with Haniel contributed £9.4m (2018: £16.9m) of adjusted profit and £7.0m (£12.1m) after integration costs, goodwill amortisation and tax.

 

STRATEGY UPDATE

 

Rentokil Initial plc is a strong, global business with leading positions in structural growth markets.  We see excellent opportunities to consolidate our positions in existing markets, enter new markets and lead the industry through differentiated investment into product and service innovation and disciplined and accretive M&A.  Our strategy, culture of outperformance and consistent business model allows us to deliver strong and sustainable value for our shareholders. 

 

2019 performance vs. medium-term guidance

 

In February 2014 we articulated for the first time a series of medium-term financial targets for revenue, profit and cash.  After consistent quarter-on-quarter delivery in excess of these financial targets, they were up-weighted in July 2017.  We have once again performed in excess of our financial targets in 2019:  

 

Ongoing Revenue growth of 5% to 8%                           

2019 +8.6%

Organic Revenue growth of 3% to 4%                              

2019 +4.5%

Ongoing Operating Profit growth of c.10%                                    

2019 +10.5%

Free Cash Flow Conversion of c.90%                                            

2019 98.6%

 

Employer of Choice

 

Our Employer of Choice programme, which aims to improve colleague recruitment, engagement, talent, development, diversity and retention, made further progress in 2019.  In 2018 we launched our Global Recruitment Portal in 17 markets. 92% of global vacancies now go through the site and over 95,000 people visited the site this year, an increase of over 1000% from 2017, resulting in an increase of applications of over 200% and a conversion rate of 24% (best practice conversion is c.20%).  Colleague engagement improved by 2% in 2019 - to a level above the High Performance norm. 

 

We continue to raise the bar in our industry for the quality of our training and development programmes and in 2019 developed c.800 online training courses and videos, an increase of 63% on 2018, resulting in approximately 1.8m views of training content, up 41% on last year. Use of our U+ digital learning platform grew strongly in 2019, with active users hitting 30% for the first time and the average number of content views per colleague per month doubling in the year. We have also seen a large increase in mobile and video usage, with video now accounting for 34% of all U+ views and 32% of U+ sessions now accessed through a mobile device.  We believe line manager quality is vital to retaining colleagues and we have targeted resources to improve standards, with very positive candidate and manager feedback.

 

Project 365 is focused on improving short-term retention - 0-6 months and 6-12 months - and we have made further encouraging progress this year, particularly in Sales colleague retention which at 82.8% and 87.5% is an increase on 2018 of 2.9 percentage points and 3.1 percentage points respectively.  Total Service colleague retention improved by 1.0 percentage point to 86.1% and overall colleague retention increased by 3.7 percentage points to 86.9%, with significant progress made in all regions.

 

Customer service and retention

 

Consistent customer service and delivery are key to retention and organic revenue growth.  In 2019 our State of Service (SOS) KPI of 97.2% was once again significantly ahead of our target 95%.  North America was our highest scoring region with State of Service at 98.1%, followed closely by Asia at 97.6%.  Our Group NPS customer satisfaction score (measured by our Customer Voice Counts surveys) has strengthened further, rising by 2.4 points to 44.5 points with Pest Control our highest performing category - up 3.5 points to 60.2 points.  Group customer retention increased by 0.3% to 86.2% and Pest Control customer retention rose by 0.5% to 84.7%. 

 

Running a responsible business

 

Our responsible business approach is integral to everything we do.  It is central to our RIGHT WAY strategy, is linked to our purpose of Protecting People and Enhancing Lives, to our vision to become a world-class services company, and to our values of Service, Relationship and Teamwork.  This means helping our colleagues have safe and fulfilling work lives, creating a diverse and engaging workplace, supporting customers by developing and delivering products and services responsibly, building strong relationships with suppliers and supporting communities and benefiting the environment by acting in the most effective manner. 

 

We have made significant progress in our key sustainability priority areas in 2019, in particular: safety, people and diversity, service and innovation, the environment and communities.  However, this is not a static programme and we must continually evolve.  We include the following among some of our achievements during the year.  We reduced our carbon emissions intensity by a further 3.7%, also achieving our 5-year target of reducing our emissions intensity by 20% from 2016 a full year earlier than 2020.  Our Lumnia LED fly unit was awarded the PlanetMark for carbon reduction of 62% versus traditional units and we developed a new environment plan, including our commitment to the EV100.  We have also set a new long-term ambition to achieve net zero carbon emissions ahead of the UK Government's 2050 target. The world's largest job site, Indeed.co.uk, awarded Rentokil Initial Britain's Best Workplace in the private sector and we delivered a 15% improvement in Lost Time Accidents and a 26% reduction in Working Days Lost, making 2019 our safest year on record.

 

Pest Control

 

We have strengthened our position as global leaders in pest control through increased organic growth and by establishing stronger market positions, particularly in Emerging and Growth markets, through the introduction of innovative products and services, acquisitions and our determination to be an Employer of Choice across our global operations.

 

The pest control market, currently estimated to be worth c.$20bn globally[1], is resilient and non-cyclical and characterised by strong secular growth drivers.  These include a growing population, increased urbanisation, rising middle classes, climate change, increased pest activity, invasive species, vector-borne diseases, rising customer expectations and tightening regulations. 

 

Pest Control accounts for 64% of Group Ongoing Revenue and 68% of Group Ongoing Operating Profit; it generated a Net Operating Margin of 18% in 2019, an increase of 20 basis points on 2018.  Organic Revenue rose by 4.9% with growth through acquisitions of 5.9%. The category has delivered a five-year Ongoing Revenue CAGR of 16.6%.

 

Our Pest Control USPs are:

 

We are the global leader in pest control, with number one positions in 55 of our 81 markets;

We have a strong Employer of Choice programme and outstanding technical expertise;

Our powerful Rentokil brand is one of world's top 50 most valuable and recognisable services brands[2];

Our core strength is in the attractive commercial sector;

We have unmatched capabilities in innovation and are leaders in digital technology; and

We have a proven and disciplined M&A programme operating within a highly fragmented market of 40,000 companies, 50% in North America.

 

We provide an update below on key areas of growth: digital pest control, innovation and vector control.  

 

The digital revolution and pest control: providing insight, transparency and service efficiency

 

Rentokil has developed the world's leading digital pest control platform providing an unmatched level of monitoring, reporting and insight for our customers who face the risk of increased fines and censure without effective pest management and reporting.

 

PestConnect is the world's most advanced digital system for pest control, using connected rodent control devices with embedded sensors and mobile connectivity, and providing a proactive infestation risk management service.  This year has seen a 56% year-on-year increase in connected devices across the Group, with over 80,000 devices used in over 4,000 customer premises across more than 25 countries. 

 

Our myRentokil online customer portal provides secure 24/7 access to real time information that provides easy access to documentation required for pest control, including reviewing service recommendations and responding to audits. Currently 96% of our commercial customers in over 40 countries use myRentokil and we have seen a 32% increase in usage of the portal year on year.

 

CommandCentre is our central information hub containing data compiled from over 40 countries with 6.5 billion records and populated with historic and current data to track pest trends and identify emerging risks. Nine million messages were sent or received across our digital pest control network every day in 2019, recorded on the central command centre and stored on the Google Cloud Platform.

 

2019 saw the implementation of one of our biggest digital installations to date for a customer with a 73,000 square metre food production facility in Australia, a country in which food safety guidelines are strictly enforced and where customers face fines of up to 10% of their annual turnover for product recalls. More than 400 PestConnect units were installed over two weeks, delivering a new level of pest management service and significantly enhancing service productivity. myRentokil data is available in real-time with CommandCentre, providing 24/7 Internet-of-Things monitoring and our colleagues have also been able to make additional product recommendations to the customer, such as Lumnia, resulting in 120 units being installed across the site.

 

Digital marketing

 

Our focus on delivering new content and localisation is driving record levels of traffic to our websites across the Group.  Overall Rentokil web traffic grew by 30% in 2019, total visits reached 27.4 million sessions (2018: 21.2 million) and conversion of visits to direct enquires rose by 12%.  New online marketing campaigns are underway focused on how our leadership in technology and innovation helps our customers to 'stay one step ahead of pests' through industry-leading levels of monitoring, reporting and insight.

 

Cost reduction through robotics

 

Advances in technology continue to have a tremendous impact on the way our front-line colleagues service our customers and on our own internal systems and processes and we use IT to improve the quality and consistency of service delivery, drive innovation and reduce costs. Over the last 12 months we have deployed 20 process automation/robotics projects in the UK in sales, marketing, finance and HR to free up capacity and reduce costs. This has reduced transactional processing costs from 2.6% of gross revenue to 2.2% and we are now planning to extend our use of robotics across the Group.  In addition, our first AI tool for the effective scheduling of technician appointments was launched during the year. 

 

Service productivity through digital apps

 

We are digitally enabling our frontline colleagues and have migrated c.14,700 technicians in 49 countries from paper-based data capture and PDA mobile devices to Android apps for customer installation and servicing. Our new suite of service apps allows digital interaction with customer sites leading to improved service quality and productivity. Technicians can now take advantage of Android capabilities such as SatNav, Photos, Video learning, Geo-code locations and Speech to Text features.  In addition, we have innovated and commenced deployment of an app to display the customer's floor plan linked to our IoT PestConnect solution and standard barcoded service points. This is giving our field colleagues greater visibility of each customer site and our customers a bespoke view of their sites.

 

Having deployed foundational apps, we can innovate new apps to improve service productivity further.  Future innovations include Pest Heat maps which will use digital floor plans to plot pest activity, allowing technicians to identify key risk areas, and PestID, which uses Google AutoML Vision product (a cloud hosted machine learning service for gaining insights from images) to support our technicians in identifying pest species via an app on their phone.  This will be particularly useful in correctly identifying more difficult to identify insects such as Stored Product Insects.  In addition, working with a global technology leader, we are working on the development of a new AI route optimisation productivity tool capable of providing traffic updates by the millisecond and re-directing the technician's route accordingly.

 

Innovation: focused on delivering new premium services and lowering cost to serve

 

Innovation is a core component of growth for the business and embedded within our cultural DNA.  We encourage and continually empower all our colleagues around the world to innovate in their parts of the business with the desire to improve customer service.  We deploy innovation consistently, targeted at key pest sectors and with potential for new non-toxic solutions and are investing in product and service innovations to support profitable growth and industry leadership.  We have an extensive pipeline of activities in place to support growth in 2020 and in the section below we focus on two key areas of pest control innovation - Lumnia (our LED illuminated fly trap) and rodent products. 

 

Sales of our Lumnia LED fly trap range rose by 32% in 2019, with over 100,000 units sold to date in 52 countries.   Lumnia was created in 2017 following five years of working closely with experts in the LED industry and is the world's first range of illuminated fly traps to use patented LED lighting technology rather than traditional fluorescent tubes.  Lumnia attracts, kills and encapsulates insects hygienically - eliminating the risks of contamination - and is suitable for a diversity of internal environments.  It is also more environmentally friendly than traditional units, reducing carbon emissions by 62% when compared to units containing compact fluorescent lamps. Our products include Lumnia Standard (offices, shops, food retailers) and Lumnia Ultimate (which uses second generation lamps for high-dependency customers). We have now added to this range with Lumnia Colour (which offers customers a choice of coloured units to match their interior décor) and Lumnia Slim.  Further enhancements are planned for 2020.

 

Rodent control accounts for c.$2bn of the global pest control market and continues to grow at c.4% p.a.  In 2019 we launched a range of new remote monitoring products to enhance our proposition and generate speedy responses to infestation threats. Dual AutoGate Connect is a rat and mouse remote monitoring and control unit which, on detecting the presence of a rodent in the unit, opens its 'gate' to provide access to bait and then sends an alert to our CommandCentre, and is a new extension to our range of Autogate products developed in response to changes in regulation of certain uses of permanent baiting. Rat Riddance Connect is an innovative trap that is able to send immediate notification of a rat capture. Rodent Ceiling Trap is a ceiling solution for rodent control in gaps above ceilings and which provides indicator alerts to a capture. Finally, our Multi-Mouse Trap product is a monitoring sensor that can be attached to several live catch products for real-time reporting, allowing for early technician support.

 

After three years of development, we plan to launch in 2020 Eradico, our Global Bait Box, which is an innovative, single-solution, flexible, technology-enabled rodent solution which addresses 57 different needs and market requirements. We will also continue to develop non-toxic pest control solutions (offering both biological and physical methods in place of synthetic chemical products and pesticides) in response to regulatory changes and customer preferences.

 

Vector control

 

The World Health Organisation estimates that vector-borne diseases account from more than 17% of all infectious diseases, causing more than 700,000 deaths annually.  Mosquitoes are the best known disease vector but others include ticks, flies, sandflies, fleas and triatomine bugs. Vector diseases include malaria, dengue fever, leishmaniasis, yellow fever, Chagas disease and Japanese encephalitis.  The vector control market is worth c.$3.1bn and is set to deliver a 7% CAGR to 2025*.  Our vector control business is growing by over 10% per annum and in 2019 we generated revenues of c.$50m.

 

*Reports and Markets, January 2020

 

We have significant experience in vector control (historically gained largely through our operations in Asia) and operate in the three distinct parts of the vector control market: residential, commercial (where increasingly companies are acting with a duty of care towards their employees) and large-scale vector control.  We are focused on building further scale and expertise and aim to be the first choice of residential and commercial customers, including Governments, NGOs and Foundations, to deliver consistent, safe, effective and common services across the world, in particular in the Americas and Asia. 

 

Recent activities have included establishing a global centre for excellence in mosquito and vector control in the US and creating a mosquito laboratory at our Power Centre R&D facility in the UK to study the behaviour of Aedes aegypti mosquitoes - the primary species responsible for transmitting viruses such as Zika, dengue, chikungunya and yellow fever - in order to find new solutions for their control.

 

We have also enhanced our capabilities through key acquisitions in North and Latin America. In the US these include Louisiana-based Mosquito Control Services and VDCI (the US's leading provider of municipal and commercial mosquito control).  Acquisitions in Brazil include Multicontrole and Ecovec (acquired in July 2019).  Ecovec, an international award winning spin-off from a Brazilian University, specialises in the development of information products and services for the monitoring and control of vectors within the area of public health management.

 

Latin America is a key area of growth for vector control and we continue to explore opportunities presented by the opening up of public sector vector control contracts in Brazil, a market currently estimated to be worth c.US$ 1bn per annum.  The Brazilian Ministry of Health reported 1.5 million dengue cases last year - an increase of almost 600% on 2018.  We have an experienced management team in vector control in place and have recently been awarded one contract in Sao Paolo and our pipeline of future contracts is promising.   

 

Initial Hygiene

 

Initial Hygiene is the world's largest hygiene services company offering an extensive range of award-winning products and services to enhance customers' washrooms, while at the same time ensuring they are compliant with legislation.  It is a strongly complementary business to Pest Control, serving similar customers and sharing country management, technology, infrastructure and back office services. Like Pest Control, Hygiene is a route-based business where profit growth is driven by a fundamental understanding of the importance of density.

 

Hygiene megatrends - and the importance of being able to prevent the spread of diseases, germs and bacteria - are fuelling demand for our services. These include a growing and ageing population, rising middle classes, greater household income, increased urbanisation, technology solutions advancing washrooms capabilities, air quality, wellbeing accreditations raising building standards and increased legislation driving higher standards of hygiene.  Growth in the global hygiene services market is broadly correlated to GDP.  We look for annual organic growth in our Hygiene business of 2% to 3%. 

 

Hygiene accounts for 21% of Ongoing Revenue and 22% of Ongoing Operating Profit and generated a Net Operating Margin of 17.8% in 2019, an increase of 40 basis points on 2018.  Organic Revenue rose by 4.3% with growth through acquisitions of 1.5%. The category has delivered a five-year Ongoing Revenue CAGR of 9.1%. Our strategy is to deliver continued growth through a combination of strong operational focus and targeted M&A to build city density. Central to this is the delivery of excellent customer service, product innovation and improvements to service productivity through digital products and applications.

 

Our Hygiene USPs are:

 

We are the global leader in hygiene services, with number one positions in 22 of our 46 markets;

We have a strong Employer of Choice programme with outstanding colleague training and engagement;

We have a powerful Hygiene brand;

We offer a unrivalled range of best-in-class products and services;

We are able to share digital, connected devices and data expertise from Pest Control;

Our operational focus is on route and product density; and

We have a disciplined M&A programme focused on building city-density.

 

In the paragraphs below, we provide an update on two key growth areas: digital products and applications and service extensions.

 

Driving growth through digital products, applications and channels 

 

Digital channels

 

Our digital sales and service tools are increasing productivity and are being utilised to build customer awareness of Initial's multiple product offerings.  For example, our online Hygiene customer portal, myInitial, is being developed to highlight the full spectrum of Hygiene solutions on its home page and is now being used by customers in 18 countries. We continue to digitise service dockets both in field service and presented to customers through the portal. In addition, we track sales leads per driver on a monthly basis.

 

Our smartphone field service app, ServiceTrak, is also improving productivity, the benefits of which include better colleague retention, higher gross margins achieved through greater service productivity and cost savings, and delivery of a more professional service to customers.  Our hygiene technicians use the app to record service visits - for example, start time, services performed, customer recommendations, customer signatures and end time. The app is now being used by just over 3,500 technicians in 31 countries and during the year we completed 20,744 customer site visits on ServiceTrak, all automatically processed to our customer and operational systems, without paperwork or admin.  In 2019 we also generated 31,984 new business leads from service colleagues. 

 

We focus on driving continuous improvements to our web estate around the world to increase customer traffic to our sites and generate new business leads.  During 2019 web traffic to Initial websites increased by 6%, and can be attributed to a number of successful, targeted cross sell, upsell and email campaigns to increase customer visits.  Campaigns include GoogleMyBusiness and Pay Per Click campaigns.  In addition, by using digital tools such as Chatbox and Webchat, our sales representatives can free up more time to focus on sales activities. 

 

Extending our services to build product density and add premium ranges

 

We have been very encouraged by the momentum created in our Hygiene business over the past few years and are becoming increasingly confident in the growth opportunities afforded by the business.  Our focus for continued growth is to target new growth opportunities by building product density and innovating to add new premium products to our hygiene range. These high growth areas include digital hygiene products, air care and route-based service extensions, such as first aid.

 

Digital products

 

The digital hygiene market is expected to deliver a c.10.5% CAGR to 2023, with the global smart washrooms worth some $2.5bn.  During 2019 we have been piloting a number of new digital hygiene products, with our first digital range set for launch in 2020.  These include no-touch digital taps and soap dispensers, hand wash monitoring and cubicle sanitisers.  Digital monitoring of consumables enables more efficient washroom operations at lower cost, with a reduced environmental impact and offering a better guest experience.  Our RapidWater taps and RapidFoam soap dispensers reduce water and soap consumption with one container of RapidFoam providing over 16,000 hand washes, significantly extending periods between refills and reducing the environmental impact from soap usage by up to 98%.  RapidCount is a wireless footfall monitor that provides continuous, 24/7 real-time data to customers, enabling them to observe equipment usage throughout the day, identify which washrooms are at their busiest or quietest and spot busy locations in order to plan an effective maintenance regime.

 

Air care

 

The global air purifiers market is estimated to be worth $33.2bn by 2023 (CAGR of 12.5%). Asia Pacific is expected to be the fastest growing market and will account for 35% of the market share by 2023. Air care gives us an opportunity to broaden our existing Hygiene offer into a higher-growth Wellbeing service offering and we have identified a number of preferred suppliers for next generation air purification and enhancement products which we are now piloting in a number of markets including Australia, which has a strong health and wellbeing culture and a heightened focus on air quality following the recent devastating bushfires across the country.  In Q1, we plan to launch a new wall mounted air purification device which will improve indoor air quality by filtering out air pollutants and odours and will also add to our scenting range with a new multi-fragrance, long-lasting (up to 36 weeks) air nebulizer. 

 

First aid

 

We are pursuing other route-based extensions to our products and services including a first aid kit service solution which we have been piloting in 2019 in Melbourne, and which we will be rolling out across our Pacific operations in 2020. Our planned standard service solution will include installation of the kits (either wall mounted or portable), four service visits per year to replace full modules when used or expired and shipment of additional modules on customer request.

 

Protect & Enhance            

 

The four businesses included in this category are Workwear, Ambius, Property Care and Dental Services.  All are cash-generative businesses which share overheads with our Pest Control and Hygiene businesses.  However, they operate in markets which typically offer lower opportunities for growth.  Combined, the businesses represent 15% of Group Ongoing Revenue and 10% of Group Ongoing Operating Profit and generate a Net Operating Margin of 12.3%, an increase of 40 basis points on 2018.   

 

Revenue performance from Protect & Enhance was very encouraging in 2019, with Ongoing Revenue increasing by 3.5% (3.2% Organic) despite ongoing market challenges.  Workwear, Ambius and Dental Services all posted increased revenues while UK Property Care showed a much reduced rate of revenue decline of 2.5% for the year (versus a decline of 17.4% in 2018) and a return to revenue growth of 2.2% in H2.  However, while Ambius and Dental Services delivered profitable growth of 19.8% for the year, Property Care and France Workwear both declined by £0.4m (363%) and 2.6% respectively.  Underlying profits in Workwear have improved year on year, but had an overall Ongoing Operating Profit decline for 2019, largely due to having now reached the level where statutory employee profit share has been triggered.     

 

2019 saw a marked turnaround in Organic growth in France Workwear which grew by 3.4% versus 0.9% in 2018.  Customer retention and productivity by garment hit record highs during the year, achieved through outstanding execution of strategy by our management team which has focused on service and product quality to drive customer retention, profit improvement and margin protection initiatives. Initiatives included implementation of a programme to fit RFID tags on all garments processed through our facilities to guarantee tracking and solve missing items issues (which account for c.50% of customer complaints). In keeping with our Group commitment to run a responsible business we also deployed our first electric and bio-fuel vans and commenced a recycling garment project with the aim of recycling around one million garments each year. While we are greatly encouraged by our revenue performance in 2019, Ongoing Operating Profit performance was very disappointing and we will continue to work towards returning the business to full operational and financial health through further implementation of our Quality Agenda.

 

We have made the decision to separate our Hygiene and Workwear businesses in France to allow greater specialisation in each area. As we have seen elsewhere across the operations, this focus will enable us to extend our services to our Hygiene customers as well as bringing more direct expertise and innovation. The separation, which will take approximately 12 months, will involve some duplication of cost as we split the businesses and we anticipate this will be in the order of £1m in year one.  As required to support such a change we are in the process of consultation with the appropriate works councils, unions and social partners. 

 

In line with our strategy for Protect & Enhance, service and retention metrics for all businesses are high, with 2019 State of Service at 98.5% and customer retention at 90.2% (the highest level across all our businesses). Customer retention in France Workwear was 92.8%.

 

FINANCIAL REVIEW

 

Central and regional overheads

 

Central and regional overheads of £78.4m at CER were £7.0m higher than prior year (2018: £71.4m) reflecting continued investment to support the Group's innovation and digital programme and the impact of increased LTIP costs given the improvement in the Company's share price.

 

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 £7.5m at CER (2018: £7.2m) consisted mainly of costs in respect of initiatives focused on driving operational efficiency in all regions.

 

One-off items (at AER)

 

One-off items of £14.6m at actual exchange rates include £25.2m of acquisition and integration costs, a gain of £17.4m in respect of the UK Defined Benefit pension scheme buy-out process and a non-cash adjustment of £7m to the holding value of the Cannon and Mitie acquisitions.

 

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 which is expected to complete in 2020.  Good progress towards buy-out is being made and we now anticipate a pre-tax cash surplus of £36m to be returned to the Company on completion in 2020.  During the year adjustments of £17.4m were made to provisional amounts included in the original price and this has been recorded as a gain within one-off items.

 

Interest (at AER)

 

Adjusted interest of £42.1m was £3.6m lower than in the prior year, including £3.5m from the adoption of IFRS 16. The adoption of IFRS 16 at the start of the year has increased the reported interest charge by c.£6.5m.  This is a non-cash change and is in excess of the operating profit benefit from IFRS 16 of c.£3.5m. The difference of c.£3.0m has therefore been added back when arriving at the Group's adjusted interest charge to aid year-on-year comparability.

 

Tax

 

The income tax charge for the year at actual exchange rates was £54.7m on the reported profit before tax of £338.5m.  After adjusting the reported profit before tax for the amortisation and impairment of intangible assets (excluding computer software), one-off items and the profit on the disposal of our interest in the Haniel JV, the Adjusted Effective Tax Rate (ETR) for 2019 at AER was 21.6% (2018: 21.8%).  This compares with a blended rate of tax for the countries in which the Group operates of 23% (2018: 22%).

 

Net debt and cash flow

 

£m at actual exchange rates

Year to Date

 

2019 FY

£m

2018 FY

£m

Change

£m

 

 

 

 

Adjusted Operating Profit

365.4

329.3

36.1

One-off items - operating

(14.6)

(22.2)

7.6

Depreciation

219.8

147.1

72.7

Other

26.1

17.0

9.1

EBITDA

596.7

471.2

125.5

Working capital

(7.0)

6.6

(13.6)

Movement on provisions

(4.0)

(10.8)

6.8

Capex - additions

(245.8)

(186.4)

(59.4)

Capex - disposals

3.2

2.9

0.3

Operating cash flow

343.1

283.5

59.6

Interest

(48.1)

(45.3)

(2.8)

Tax

(43.2)

(45.1)

1.9

Special pension contributions

(1.1)

(1.1)

-

Free Cash Flow

250.7

192.0

58.7

Acquisitions

(316.5)

(298.4)

(18.1)

Disposal of companies and businesses

391.9

(3.1)

395.0

Dividends

(85.8)

(74.2)

(11.6)

Underlying decrease/(increase) in net debt

240.3

(183.7)

424.0

Foreign exchange translation and other items

24.2

(42.5)

66.7

IFRS 16 lease obligations on transition

(184.0)

-

(184.0)

Decrease/(increase) in net debt

80.5

(226.2)

306.7

Opening net debt

(1,153.5)

(927.3)

(226.2)

Closing net debt

(1,073.0)

(1,153.5)

80.5

 

 

 

 

 

Operating cash inflow (£343.1m at AER for continuing operations) was £59.6m higher than in 2018, principally driven by a £36.1m increase in Adjusted Operating Profit and an increase in dividends received from the now disposed 17.8% interest in CWS-boco International GmbH of £18.0m.  Depreciation and capital expenditure have both increased due to the implementation of IFRS 16 from the start of the year but they offset and the net impact was broadly cash neutral.

 

Interest payments of £48.1m are £2.8m higher than in the prior year and tax payments decreased by £1.9m, both reflecting the phasing of payments versus the prior year.  This resulted in Free Cash Flow from continuing operations of £250.7m, an increase of £58.7m on the prior year, delivering an adjusted Free Cash Flow conversion of 98.6% for the last 12 months.

 

Cash spent on current and prior year acquisitions totalled £316.5m, offset by proceeds from disposals of £391.9m.  Combined with dividend payments of £85.8m - an £11.6m, 15.6% increase on the prior year - this resulted in an underlying decrease in net debt of £240.3m.  The adoption of IFRS 16, which added £184.0m of lease obligations to net debt at 1 January 2019, together with foreign exchange translation and other items, led to an overall decrease in net debt of £80.5m and closing net debt of £1,073.0m.

 

Funding

 

In May 2019 the Group issued a €500m bond maturing on 30 May 2026 with a coupon of 0.875%.  The proceeds were used to refinance the €500m bond that matured on 24 September 2019. In August the Group's revolving credit facility (RCF) was extended to 2024 using one of the two one-year extension options. Following the successful refinancing of the September 2019 bond, the Group reduced the commitment under its RCF by £50m to £550m.

 

As at 31 December the Group had £737m of centrally held funds and available undrawn committed facilities.  The ratio of net debt to EBITDA at 31 December was 1.8x, including the estimated full year impact of IFRS 16 (1.7x excluding IFRS 16).

 

We remain committed to maintaining a BBB credit rating and, based on our expectations for 2020, we are confident in doing so.

 

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 downside case. 

 

Dividend

 

Following an encouraging performance in 2019, the Board is recommending a final dividend in respect of 2019 of 3.64p per share, payable to shareholders on the register at the close of business on 14 April 2020, to be paid on 20 May 2020.  This equates to a full year dividend of 5.15p per share, an increase of 15.2% compared to 2018.  The last day for DRIP elections is 28 April 2020.

 

Management Appointment

Jeremy Townsend, Chief Financial Officer, is to retire from the Company in the second half of 2020 in line with his long-held plan to move to a non-executive career. He was appointed in August 2010 and has been an important member of the senior leadership team as we delivered the turnaround of the Company, built a platform for future growth and created significant shareholder value.

 

The Company has excellent succession plans in place and also reviewed the market externally.

 

We are delighted to announce that Stuart Ingall-Tombs will take up the role of Chief Financial Officer later this year as part of an orderly handover with Jeremy.  Stuart is currently Finance Director of our largest region, North America.  He joined the company in May 2007 and was previously the Finance Director of the Europe Region and prior to that Group Financial Controller.  He brings vast experience of the company as well as outstanding leadership and finance experience.

 

Andy Ransom, CEO, Rentokil Initial plc, said:

 

"On behalf of the Board, I would like to thank Jeremy for his significant contribution to the company over the last decade and we wish him every success in the future. The financial strength and capabilities of the company have been transformed under his leadership.

 

"I'm also delighted to congratulate Stuart on his new appointment. Once his replacement in North America is in place and after a sensible handover, he will take up the role of Chief Financial Officer. This is an exciting time for the company with many opportunities to drive profitable growth and to improve our efficiency, and Stuart's operational and financial experience will be invaluable."

 

Coronavirus

 

Following the outbreak of the Coronavirus our priority has been the health and safety of our colleagues, and we are taking all possible actions to support them. 

 

To date, the main impact of the virus has been on our operations in China.  In other parts of the Group customer enquiries for hand-washing and hand-sanitising services are strong.  At this point in time we would expect only a small net impact on the business in Q1. 

 

We are monitoring the situation very closely, looking to mitigate the risk of the impact that the virus may have on our colleagues, customers and supply chain. The majority of products sourced from suppliers in China are covered by existing stocks for the next few months.

 

Should the situation continue for an extended period or become materially worse, this could obviously have a more negative impact during the rest of the year.

 

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 have taken measures to ensure we have access to adequate stock and equipment in both the UK and Europe in 2019.  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.

 

Guidance for 2020 (at CER unless otherwise stated)

 

P&L guidance

 

We have made a good start to the year and we would expect the underlying performance in 2019 to flow into 2020.  We continue to maintain our medium-term targets of Ongoing Revenue growth of 5% to 8% (3% to 4% Organic), Ongoing Operating Profit growth of c.10% and Free Cash Flow conversion of c.90%. 

 

P&L interest costs in 2020 are now expected to be £8m lower than in 2019 due to the lower bond rates and the lower levels of net debt following the sale of our share in the JV with Haniel in July 2019, with cash costs expected to be £14m lower than in 2019.

 

Share of Profits from Associates in 2020 is anticipated to be ~£10m lower than the prior year following the disposal of the Company's interest in the JV with Haniel noted above.

 

At the interim results in July 2019 we guided to a positive FX impact on profits for 2020 of between £10m and £15m.  Due to the recent strength of sterling, this has now reversed and should the recent strength of sterling be maintained throughout the year, it would adversely impact 2020 profits by between £10m and £15m. 

 

All the above items are reflected in current market consensus for 2020.  Based on our performance in 2019 we are confident of another strong performance this year.    

 

Cash flow guidance

 

Working capital outflows in 2020 are estimated in the region of £10m to £20m. Capex, including IFRS 16, is anticipated to be in the region of £260m to £270m.

 

Following the bond refinancing in 2019, cash interest costs are expected to be £14m lower than in 2019.

 

Cash tax flows are likely to be in the range of £55m to £60m in 2020, reflecting the Ongoing Operating Profit growth in North America and the impact of phasing in the UK and Germany.

 

Dividends will no longer be received from the Haniel JV (£26.4m in 2019) - this is partially offset by an anticipated special dividend from our Japanese associate of c.£6m.

 

Following the buy-in of the UK Pension scheme in December 2018, we are committed to convert to a full buy-out before the end of 2020 resulting in a pre-tax cash surplus of c.£30m to be returned to the Company.

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December

 

 

Notes

2019

£m

20181

£m

Revenue

2

2,714.4

2,472.3

Operating profit

 

265.6

245.5

Net gain on disposals

 

103.8

-

Pension settlement2

 

-

(341.6)

Profit/(loss) before interest and income tax

 

369.4

(96.1)

Finance income

4

10.7

17.6

Finance cost

3

(56.8)

(55.2)

Share of profit from associates, net of tax of £7.0m (2018: £8.9m)

 

15.2

19.6

Profit/(loss) before income tax

 

338.5

(114.1)

Income tax (expense)/credit3

5

(54.7)

15.8

Profit/(loss) for the year attributable to the Company's equity holders (including non-controlling interests of £0.3m (2018: £0.2m))

 

283.8

(98.3)

Other comprehensive income:

 

 

 

Items that are not reclassified subsequently to the income statement:

 

 

 

Re-measurement of net defined benefit asset

 

(5.9)

30.1

Tax related to items taken to other comprehensive income

 

0.1

(10.2)

 

Items that may be reclassified subsequently to the income statement:

 

 

 

Net exchange adjustments offset in reserves

 

(38.9)

14.9

Cumulative exchange recycled to income statement on disposal of foreign operations

 

(4.1)

-

Other items

 

(0.5)

9.5

Total comprehensive income for the year (including non-controlling interests of £0.3m (2018: £0.2m))

 

234.5

(54.0)

 

Earnings per share attributable to the Company's equity holders:

 

 

 

Basic

6

15.33p

(5.35)p

Diluted

6

15.24p

(5.35)p

All profit is from continuing operations.

 

 

 

 

Non-GAAP measures shown below are explained in further detail in Note 21 Alternative Performance Measures.

Non-GAAP measures

 

 

 

Operating profit

 

265.6

245.5

Adjusted for:

 

 

 

Amortisation and impairment of intangible assets (excluding computer software)

2

85.2

61.6

One-off items - operating

2

14.6

22.2

Adjusted operating profit

 

365.4

329.3

Finance income

4

10.7

17.6

Net interest adjustments

4

4.0

(8.1)

Finance cost

3

(56.8)

(55.2)

Share of profit from associates, net of tax of £7.0m (2018: £8.9m)

 

15.2

19.6

One-off items - associates

 

2.4

4.8

Adjusted profit before income tax

 

340.9

308.0

Basic adjusted earnings per share attributable to the Company's equity holders

6

14.43p

13.07p

Diluted adjusted earnings per share attributable to the Company's equity holders

6

14.34p

12.97p

1. The Group has applied IFRS 16 at 1 January 2019. Under the transition method chosen comparative information is not restated.

2. Pension settlement consists of £nil (2018: £36.1m) of past service costs and £17.4m (2018: £305.5m) of settlement costs. These settlement costs have been recognised in one-off costs in 2019 - see Note 2.

3. Taxation includes £48.1m (2018: £35.3m) in respect of overseas taxation.

 

 

Consolidated Balance Sheet

At 31 December

 

 

Notes

2019

£m

20181,2

£m

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

8

1,673.4

1,509.1

Property, plant and equipment

9

391.7

436.9

ROU assets

 

221.2

-

Investments in associated undertakings

 

29.7

291.7

Other investments

 

0.3

0.2

Deferred tax assets

 

29.3

3.5

Contract costs

2

65.4

60.9

Retirement benefit assets

13

37.4

21.5

Other receivables

 

12.7

10.8

Derivative financial instruments

 

7.6

5.4

 

 

2,468.7

2,340.0

Current assets

 

 

 

Other investments

 

1.7

2.5

Inventories

 

106.5

103.2

Trade and other receivables

 

500.7

485.7

Current tax assets

 

7.0

16.1

Derivative financial instruments

 

0.2

4.2

Cash and cash equivalents

11

309.6

129.8

 

 

925.7

741.5

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

(660.7)

(607.9)

Current tax liabilities

 

(72.9)

(70.7)

Provisions for other liabilities and charges

14

(25.1)

(28.7)

Bank and other short-term borrowings2

 

(84.6)

(507.1)

Current lease liabilities

 

(72.0)

(14.4)

Derivative financial instruments

 

(0.5)

(15.8)

 

 

(915.8)

(1,244.6)

Net current assets/(liabilities)

 

9.9

(503.1)

Non-current liabilities

 

 

 

Other payables

 

(57.7)

(79.1)

Bank and other long-term borrowings2

 

(1,059.3)

(716.8)

Non-current lease liabilities

 

(144.7)

(27.3)

Deferred tax liabilities

 

(110.8)

(96.0)

Retirement benefit obligations

13

(37.5)

(26.2)

Provisions for other liabilities and charges

14

(34.0)

(42.5)

Derivative financial instruments

 

(32.3)

(16.4)

 

 

(1,476.3)

(1,004.3)

Net assets

 

1,002.3

832.6

Equity

 

 

 

Capital and reserves attributable to the Company's equity holders

Share capital

15

18.5

18.4

Share premium account

 

6.8

6.8

Other reserves

 

(1,867.7)

(1,824.2)

Retained profits

 

2,844.1

2,631.2

 

 

1,001.7

832.2

Non-controlling interests

 

0.6

0.4

Total equity

 

1,002.3

832.6

1. The Group has applied IFRS 16 at 1 January 2019. Under the transition method chosen comparative information is not restated.

2. Bank and other short/long-term borrowings have been restated at December 2018 to reflect the short-term nature of the September 2019 €500m bond at year end which was classified as long-term as well as separating out current and non-current lease commitments onto separate lines.

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December

 

Attributable to equity holders of the Company

 

 

 

               

Called up
share
capital
£m

Share
premium account
£m

Other
reserves
£m

 

Retained earnings
£m

Non-
controlling interests
£m

Total
equity
£m

At 1 January 2018

18.4

6.8

(1,848.6)

2,786.1

0.3

963.0

Profit for the year

-

-

-

(98.5)

0.2

(98.3)

Other comprehensive income:

 

 

 

 

 

 

Net exchange adjustments offset in reserves

-

-

14.9

-

-

14.9

Re-measurement of net defined benefit asset/liability

-

-

-

30.1

-

30.1

Effective portion of changes in fair value of cash flow hedge

-

-

9.5

-

-

9.5

Tax related to items taken directly to other comprehensive income

-

-

-

(10.2)

-

(10.2)

Total comprehensive income  for the year

-

-

24.4

(78.6)

0.2

(54.0)

Transactions with owners:

 

 

 

 

 

 

Dividends paid to equity shareholders

-

-

-

(74.2)

-

(74.2)

Dividends paid to non-controlling interests

-

-

-

-

(0.1)

(0.1)

Cost of share options and long-term incentive plan

-

-

-

5.7

-

5.7

Movement in the carrying value of put options

-

-

-

(7.8)

-

(7.8)

At 31 December 2018

18.4

6.8

(1,824.2)

2,631.2

0.4

832.6

Profit for the year

-

-

-

283.5

0.3

283.8

Other comprehensive income:

 

 

 

 

 

 

Net exchange adjustments offset in reserves

-

-

(38.9)

-

-

(38.9)

Re-measurement of net defined benefit asset/liability

-

-

-

(5.9)

-

(5.9)

Effective portion of changes in fair value of cash flow hedge

-

-

(0.5)

-

-

(0.5)

Cumulative exchange recycled to income statement on disposal of foreign operations

-

-

(4.1)

-

-

(4.1)

Tax related to items taken directly to other comprehensive income

-

-

-

0.1

-

0.1

Total comprehensive income for the year

-

-

(43.5)

277.7

0.3

234.5

Transactions with owners:

 

 

 

 

 

 

Shares issued in the year

0.1

-

-

(0.1)

-

-

Dividends paid to equity shareholders

-

-

-

(85.8)

-

(85.8)

Dividends paid to non-controlling interests

-

-

-

-

(0.1)

(0.1)

Cost of share options and long-term incentive plan

-

-

-

5.3

-

5.3

Tax related items taken directly to equity

-

-

-

2.4

-

2.4

Movement in the carrying value of put options

-

-

-

13.4

-

13.4

At 31 December 2019

18.5

6.8

(1,867.7)

2,844.1

0.6

1,002.3

               

Shares of £0.1m (2018: £0.1m) have been netted against retained earnings. This represents 7.7m (2018: 8.2m) shares held by the Rentokil Initial Employee Share Trust. The market value of these shares at 31 December 2019 was £35.1m (2018: £27.6m). Dividend income from, and voting rights on, the shares held by the Trust have been waived.

 

Consolidated Statement of Changes in Equity (continued)

For the year ended 31 December

Analysis of other reserves

 

Capital
reduction
reserve
£m

Legal reserve
£m

Cash flow
hedge reserve
£m

Translation
reserve
£m

Total
£m

At 1 January 2018

(1,722.7)

10.4

(8.5)

(127.8)

(1,848.6)

Net exchange adjustments offset in reserves

-

-

-

14.9

14.9

Effective portion of changes in fair value of cash flow hedge

-

-

9.5

-

9.5

Total comprehensive expense for the year

-

-

9.5

14.9

24.4

At 31 December 2018

(1,722.7)

10.4

1.0

(112.9)

(1,824.2)

Net exchange adjustments offset in reserves

-

-

-

(38.9)

(38.9)

Effective portion of changes in fair value of cash flow hedge

-

-

(0.5)

-

(0.5)

Cumulative exchange recycled to income statement on disposal of foreign operations

-

-

-

(4.1)

(4.1)

Total comprehensive income for the year

-

-

(0.5)

(43.0)

(43.5)

At 31 December 2019

(1,722.7)

10.4

0.5

(155.9)

(1,867.7)

The capital reduction reserve arose in 2005 as a result of the scheme of arrangement of Rentokil Initial 1927 plc, under section 425 of the Companies Act 1985, to introduce a new holding company, Rentokil Initial plc, and the subsequent reduction in capital approved by the High Court whereby the nominal value of each ordinary share was reduced from 100p to 1p.

The legal reserve represents amounts set aside in compliance with local laws in certain countries in which the Group operates.

 

Consolidated Cash Flow Statement

For the year ended 31 December

Notes

2019
£m

20181
£m

Cash flows from operating activities

 

 

Cash generated from operating activities                                                                           17                                                

554.2

454.0

Interest received

 

10.8

7.7

Interest paid2

 

(58.9)

(53.0)

Income tax paid

 

(43.2)

(45.1)

Net cash flows from operating activities

 

462.9

363.6

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

 

(140.1)

(147.2)

Purchase of intangible fixed assets

 

(30.8)

(22.9)

Proceeds from sale of property, plant and equipment

 

3.2

2.9

Acquisition of companies and businesses, net of cash acquired3

18

(315.7)

(298.4)

Disposal of companies and businesses

 

391.9

(3.1)

Dividends received from associates

 

30.4

11.9

Net cash flows from investing activities

 

(61.1)

(456.8)

Cash flows from financing activities

 

 

 

Dividends paid to equity shareholders

7

(85.8)

(74.2)

Capital element of lease payments

 

(86.3)

(14.7)

Cash outflow on settlement of debt related foreign exchange forward contracts

 

(11.7)

(5.6)

Net investment in term deposits

 

0.7

(2.5)

Proceeds from new debt

 

433.8

25.6

Bond repayments

 

(472.0)

(44.3)

Net cash flows from financing activities

 

(221.3)

(115.7)

Net increase/(decrease) in cash and cash equivalents

 

180.5

(208.9)

Cash and cash equivalents at beginning of year

 

100.9

304.1

Exchange (losses)/gains on cash and cash equivalents

 

(7.5)

5.7

Cash and cash equivalents at end of the financial year

 

273.9

100.9

1. The Group has applied IFRS 16 at 1 January 2019. Under the transition method chosen comparative information is not restated.

2. Interest paid includes interest on lease payments of £8.1m (2018: £1.5m).

3. Includes £nil (2018: £4.0m) related to investment in working capital in acquired businesses.

 

 

Notes to the financial statements

 

1. Changes in accounting policies

 

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with effect from 1 January 2019:

 

·      Amendments to IAS 28 Investments in Associates and Joint Ventures

·      Amendment to IAS 19 Employee Benefits

·      Annual Improvements in IFRSs - 2015-2017 Cycle (IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes, IAS 23 Borrowing Costs)

·      IFRIC 23 Uncertainty over Income Tax Treatments

The application of these amendments has had no material impact on the disclosures of the amounts recognised in the Group's consolidated financial statements. Consequently, no adjustment has been made to the comparative financial information at 31 December 2018.

 

The Group has not early adopted any standard, interpretation or amendment that was issued but is not yet effective.

 

Standards, amendments and interpretations to published standards that are mandatorily effective for the current year

Except as described below, the accounting policies applied in these financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2018.

The Group has adopted IFRS 16 Leases from 1 January 2019. The details of the changes in accounting policies are disclosed below.

The effect of applying IFRS 16 Leases is the creation of a Right-Of-Use (ROU) asset, representing the rights to use the underlying asset, and a lease liability, representing the obligation to make lease payments, for leases longer than 12 months in duration. In addition, a monthly depreciation and interest charge for each lease is charged to the income statement replacing the operating lease charge that was previously charged to operating expenses. 

The Group has applied IFRS 16 using the modified retrospective approach. Accordingly the comparative information presented for 2018 has not been restated, however leases are separately identified on the balance sheet in 2019.

Under IFRS 16, a contract is or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. On transition to IFRS 16 the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases.

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16 the Group recognises ROU assets and lease liabilities for substantially all leases, however the Group has elected to apply the practical expedient not to recognise ROU assets and lease liabilities for some leases of low-value assets. The lease payments associated with these low value assets are recognised as an expense on a straight line basis over the lease term.

The ROU asset is initially measured at cost and subsequently at cost less accumulated depreciation and any impairment losses. The lease liability is initially measured at the present value of the total lease payments that are not already paid at commencement date, discounted using the incremental borrowing rate.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by the lease payments. It is remeasured when there is a change in future lease payments arising from a change in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The Group has applied judgement to determine the lease term for some lease contracts that contain renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and ROU assets recognised.

 

- Impacts on transition

On transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the rate implicit in the lease or appropriate incremental borrowing rate as at 1 January 2019. ROU assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

The Group used the practical expedient not to recognise ROU assets and liabilities for leases with less than 12 months of lease term remaining.

 

1. Changes in accounting policies (continued)

 

The impact on transition is summarised below. Please note these do not include amounts for leases that were previously accounted for as finance leases.

 

1 January 2019

ROU asset

176.3

Lease liability

(184.0)

Balance sheet adjustments to working capital

7.7

 

When measuring lease liabilities for leases that were previously classified as operating leases, the Group discounted lease payments using incremental borrowing rates at 1 January 2019. The average rate applied is 3.6%.

A reconciliation of closing operating lease commitments as at 31 December 2018 and transitional IFRS 16 lease liabilities is shown below:

 

1 January 2019

Operating lease commitment at 31 December 2018

193.2

Exemption for low value assets

(0.5)

Exemption for leases with less than 12 months on the lease term at transition

(2.8)

Extension options reasonably certain to be exercised

9.2

Effect of discounting

(15.2)

Lease liability on transition

184.0

 

- Impacts for the period

The Group has reported a ROU asset of £221.2m separately on the balance sheet and a total lease liability of £216.7m presented within current and non-current liabilities at 31 December 2019.

In relation to the leases under IFRS 16, the Group has recognised depreciation and interest costs instead of operating lease expenses. During the 12 months ended 31 December 2019 the Group recognised £79.0m of depreciation and £8.1m of interest costs for these leases. This includes the depreciation and interest charged for leases previously accounted for as finance leases.

 

2. Revenue recognition and operating segments

 

Revenue recognition

Revenue represents the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Group expects to be entitled. All revenue is considered revenue from contracts with customers as defined by IFRS 15, including job work and sale of goods. Under IFRS 15, revenue is recognised when a customer obtains control of goods or services in line with identifiable performance obligations. In the majority of cases the Group considers that the contracts it enters into are contracts for bundled services which are accounted for as a single performance obligation. Accordingly the majority of revenue across the Group is recognised on an output basis evenly over the course of the contract because the customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs. Job work is short-term contact revenue whereby the period of service is typically less than one month in duration. The performance obligations linked to this revenue type are individual to each job due to their nature with revenue being recognised at a point in time on completion. Where consumables are supplied separately from the service contract, revenue is recognised at the point the goods transfer.

The transaction price reported for all contracts is the price agreed in the contract and there are no material elements of variable consideration, financing component or non-cash consideration. The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining performance obligations because the Group has a right to consideration from customers in an amount that corresponds directly with the value to the customer of the performance obligations completed to date.

There are no circumstances in which the Group acts as an agent.

Disaggregation of revenue into category, region and major type of revenue stream is shown below under segmental reporting and in Note 21.

2. Revenue recognition and operating segments (continued)

Contract costs

Contract costs are mainly incremental costs of obtaining contracts (primarily sales commissions directly related to contracts obtained), and to a lesser extent costs to fulfil contracts which are not within the scope of other standards (mainly incremental costs of putting resources in place to fulfil contracts).

It is anticipated that these costs are recoverable over the life of the contract to which they relate. Accordingly the Group capitalises them as contract costs and amortises them over the expected life of the contracts.  The expected length of contracts across the Group and associated amortisation periods are between 3 and 6 years.

The contract costs recognised in the balance sheet at the period end amounted to £65.4m (2018: £60.9m). The amount of amortisation recognised in the period was £25.9m (2018: £21.9m) and impairment losses were £nil (2018: £nil).

Applying the practical expedient in paragraph 94 of IFRS 15, the Group recognises the incremental costs of obtaining contracts as an expense when incurred if the amortisation period of the assets that the Group otherwise would have recognised is one year or less.

Contract assets

Contract assets relate to the Group's right to consideration for performance obligations satisfied but where the customer has yet to be invoiced. The contract assets are transferred to receivables when the rights become unconditional. This usually occurs when the Group issues an invoice to the customer. All opening balances have been invoiced in the year.

Contract liabilities

Contract liabilities relate to advance consideration received from customers where the performance obligations have yet to be satisfied. All opening balances have subsequently been satisfied in the year. In most business categories where revenue is recognised over time customers are invoiced in advance or simultaneously with performance obligations being satisfied.

Segmental reporting

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 Company Executive Leadership Team responsible for the review of Group performance. The operating businesses within each segment report to the Regional Managing Directors.

Given the international nature of the Group, foreign exchange movements can have a significant impact on regional performance and as a result the segmental analysis is presented at constant exchange rates. Disaggregated revenue under IFRS 15 is the same as the segmental analysis below and is presented at actual exchange rates in Note 21. Restructuring costs and Central and Regional overheads are also presented centrally as they are not directly attributable to any reportable segment. 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 21.

 

2. Revenue recognition and operating segments (continued)

 

 


Revenue
2019
£m

Revenue
 2018
£m

Operating
profit
 2019
£m

Operating
profit
 2018
£m

France

314.0

300.2

46.5

46.1

Benelux

96.4

90.8

28.2

26.3

Germany

108.4

96.2

33.6

29.1

Southern Europe

136.1

130.2

22.5

19.1

Latin America

60.1

49.9

7.3

6.9

Europe

715.0

667.3

138.1

127.5

UK & Ireland

305.9

288.7

66.4

59.6

Rest of World

158.9

148.5

35.9

34.0

UK & Rest of World

464.8

437.2

102.3

93.6

Asia

234.4

211.1

24.2

21.8

North America

1,040.3

934.2

147.4

127.9

Pacific

190.0

185.1

39.4

38.5

Central and regional overheads

-

-

(78.4)

(71.4)

Restructuring costs

-

-

(7.5)

(7.2)

Ongoing operations  at constant exchange rates

2,644.5

2,434.9

365.5

330.7

Disposed businesses1, 2

38.3

37.4

(2.7)

(1.4)

Continuing operations  at constant exchange rates

2,682.8

2,472.3

362.8

329.3

Foreign exchange

31.6

-

2.6

-

Continuing operations at actual exchange rates

2,714.4

2,472.3

365.4

329.3

One-off items - operating

 

 

(14.6)

(22.2)

Amortisation of intangible assets3

 

 

(85.2)

(61.6)

Operating profit

 

 

265.6

245.5

1. Disposed businesses for 2018 is restated to include businesses that were disposed in 2019 to aid year on year comparability.

2. Includes revenue of £10.7m (2018: £13.9m) from product sales by the Group to CWS-boco International GmbH. Prior to 30th June 2017, this revenue was classified as intergroup revenue and eliminated on consolidation.

3. Excluding computer software.

 

One-off items of £14.6m include £25.2m of acquisition and integration costs, a gain of £17.4m in respect of the UK Defined Benefit pension scheme buy-out process and a non cash adjustment of £7.0m to the holding value of the Cannon and Mitie (MPCL) acquisitions.

 

The net gain on disposals of £103.8m disclosed on the statement of profit or loss is the net effect of the disposal of our investment in the CWS-boco International GmbH associate, the disposal of the MPCL business (retaining certain contracts) and the disposal of certain contracts from Cannon UK.

 

Other segment items included in the consolidated income statement are as follows:

 

 

Amortisation and impairment of intangibles1

Amortisation and impairment of intangibles1

2019

£m

2018

£m

Europe

10.3

7.5

UK & Rest of World

19.6

9.9

Asia

8.4

3.5

North America

33.5

32.0

Pacific

4.0

3.9

Central and regional

6.0

4.8

Disposed businesses

2.0

-

Total at constant exchange rates

83.8

61.6

Foreign exchange

1.4

-

Total at actual exchange rates

85.2

61.6

Tax effect

(19.6)

(15.4)

Total after tax effect

65.6

46.2

1. Excluding computer software.

 

3. Interest payable and similar charges

 

 

2019
£m

2018
£m

Hedged interest payable on medium term notes issued1

23.8

28.6

Interest payable on bank loans and overdrafts1

2.7

3.2

Interest payable on revolving credit facility1

3.6

2.3

Interest payable on foreign exchange swaps

16.1

19.3

Interest payable on leases

8.1

1.5

Amortisation of discount on provisions

0.2

0.3

Fair value loss on other derivatives2

2.3

-

Total interest payable and similar charges

56.8

55.2

1. Interest expense on financial liabilities held at amortised cost.

2. The fair value loss on other derivatives relates to $335m SBU entered into since February 2019 ($170m in February 2019 and $165m in July 2019) which do not qualify for hedge accounting. The instrument provides an annual interest benefit of 1.9% of the outstanding principal and had a fair value loss of £2.3m excluding interest accrual at the end of the year.

 

4. Interest receivable

 

 

 

2019
£m

2018
£m

Bank interest

 

4.1

2.0

Interest receivable on foreign exchange swaps

 

5.1

7.5

Fair value gain on hedge ineffectiveness1

 

0.8

0.4

Interest on net defined benefit asset

 

0.7

7.7

Total interest receivable

 

10.7

17.6

1. Fair value gain on hedge ineffectiveness includes £4.1m interest of the net investment hedge accounting of the €400m bond hedge reported in the interest payable of foreign exchange swaps offset by £0.2m hedge ineffectiveness (2018: £17.9m loss).  Fair value gain on hedge ineffectiveness also includes £3.1m loss on retranslation of US dollar deposits which were held to hedge the Florida Pest Control acquisition (2018: £18.3m gain). 

 

5. Income tax expense

Analysis of charge in the year:

 

2019
£m

2018
£m

UK corporation tax at 19.0% (2018: 19.0%)

8.3

7.0

Overseas taxation

41.6

34.5

Adjustment in respect of previous periods

8.8

4.0

Total current tax

58.7

45.5

Deferred tax expense/(credit)

0.7

(57.2)

Deferred tax adjustment in respect of previous periods

(4.7)

(4.1)

Total deferred tax

(4.0)

(61.3)

Total income tax expense/(credit)

54.7

(15.8)

 

Income tax expense for the period comprises both current and deferred tax. Current tax expense represents the amount payable on this year's taxable profits and any adjustment relating to prior years. Deferred tax is an accounting adjustment to provide for tax that is expected to arise in the future due to differences between accounting and tax bases. Deferred tax is determined using tax rates that are expected to apply when the timing difference reverses based on tax rates which are enacted or substantively enacted at the balance sheet date. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or equity as appropriate

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company's subsidiaries and associates operate and generate taxable income.

Deferred income tax is provided on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities in transactions other than a business combination that at the time of the transactions affect neither the accounting nor taxable profit or loss; and, differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred income tax is determined using tax rates (and laws) that have been enacted (or substantively enacted) at the balance sheet date, and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax balances are not discounted.

5. Income tax expense (continued)

Deferred tax assets and liabilities are offset against each other when the timing difference relates to income taxes levied by the same tax authority on an entity or different entities which are part of a tax consolidation and there would be the intention to settle on a net basis.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. The amount of deferred tax assets recognised at each balance sheet date is adjusted to reflect changes in management's assessment of future taxable profits that will enable the tax losses to be recovered. In recognising the deferred tax asset in respect of UK losses, management have estimated the quantum of future UK taxable profits over the next five years as this is the period over which it is considered that profits can be reasonably estimated.

A deferred tax asset of £14.4m (2018: £6.7m) has been recognised in respect of UK losses carried forward at 31 December 2019. This amount has been calculated by estimating the future UK taxable profits, against which the UK tax losses will be utilised, and applying the tax rates (substantively enacted at the balance sheet date) applicable for each year.  Remaining UK tax losses of £62.0m have not been recognised as at 31 December 2019 as it is not considered probable that future taxable profits will be available against which the tax losses can be offset. The increase in the deferred tax asset recognised on the UK tax losses is due to an increase in the UK taxable profits forecast for the next five years.

At the balance sheet date the Group has tax losses of £120.4m (2018: £216.3m) on which no deferred tax asset is recognised because it is not considered probable that future taxable profits will be available in certain jurisdictions to be able to benefit from those tax losses. Of the losses £15.5m (2018: £19.2m) will expire at various dates between 2020 and 2031.

In addition, the Group has UK capital losses carried forward of £276.9m (2018: £276.9m) on which no deferred tax asset is recognised. These losses have no expiry date but management considers the future utilisation of these losses to be unlikely.

6. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the year, excluding those held in the Rentokil Initial Employee Share Trust for UK employees (see note at the bottom of the Consolidated Statement of Changes in Equity) which are treated as cancelled, and including share options for which all conditions have been met.

Adjusted earnings per share is earnings per share adjusted for the after-tax effects of one-off items, amortisation and impairment of intangibles and net interest adjustments. 

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all potential dilutive ordinary shares. The Group's potentially dilutive ordinary shares relate to the contingent issuable shares under the Group's long term incentive share plans (LTIPs) to the extent the performance conditions have been met at the end of the period. These share options are issued for nil consideration to employees if performance conditions are met.

6. Earnings per share (continued)

Details of the adjusted earnings per share are set out below:

 

2019
£m

2018
£m

Profit/(loss) from continuing operations attributable to equity holders of the Company

283.5

(98.5)

One-off items - operating

14.6

22.2

One-off items - associates

2.4

4.8

Pension settlement

-

341.6

Net gain on disposals

(103.8)

-

Amortisation and impairment of intangibles1

85.2

61.6

Net interest adjustments

4.0

(8.1)

Tax on above items2

(19.1)

(82.9)

Adjusted profit from continuing operations attributable to equity holders of the Company

266.8

240.7

 

Weighted average number of ordinary shares in issue

1,849.0

1,841.2

Adjustment for potentially dilutive shares

11.5

14.5

Weighted average number of ordinary shares for diluted earnings per share

1,860.5

1,855.7

 

Basic earnings per share

15.33p

(5.35)p

Diluted earnings per share

15.24p

(5.35)p

Basic adjusted earnings per share

14.43p

13.07p

Diluted adjusted earnings per share

14.34p

12.97p

1. Excluding computer software.

2. One-off items operating £(1.1)m (2018: £4.3m), pension settlement £nil (2018: £64.8m), amortisation and impairment of intangibles £19.6m (2018: £15.4m), net interest adjustments £0.6m (2018:£(1.6)m).

 

7. Dividends

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Interim dividends are recognised when paid.

 

2019
£m

2018
£m

2017 final dividend paid - 2.74p per share

-

50.2

2018 interim dividend paid - 1.311p per share

-

24.0

2018 final dividend paid - 3.16p per share

58.1

-

2019 interim dividend paid - 1.51p per share

27.7

-

 

85.8

74.2

An interim dividend of 1.51p per share was paid on 11 September 2019 amounting to £27.7m. A final dividend in respect of 2019 of 3.64p (2018: 3.16p) per share amounting to £67.3m (2018: £58.2m) is to be proposed at the Annual General Meeting on 13 May 2020. These financial statements do not reflect this recommended dividend.

 

8. Intangible assets

 

 

 



Goodwill
£m

Customer
lists and
relationships
£m



Brands
£m

Product development

£m

Computer
software
£m

2019
Total
£m

2018
Total
£m

Cost

 

 

 

 

 

 

 

At 1 January

1,190.0

771.4

66.5

28.1

114.3

2,170.3

1,791.5

Exchange differences

(55.7)

(32.0)

(2.6)

-

(2.9)

(93.2)

60.1

Additions

-

-

0.4

5.6

24.8

30.8

22.9

Disposals/retirements

(1.9)

-

-

-

(1.3)

(3.2)

(1.1)

Acquisition of companies and businesses

290.3

38.4

2.7

-

0.2

331.6

297.1

Disposal of companies and businesses

(31.0)

(13.5)

(0.3)

-

-

(44.8)

(0.2)

Transfers1

(15.0)

18.5

-

-

-

3.5

-

At 31 December

1,376.7

782.8

66.7

33.7

135.1

2,395.0

2,170.3

Accumulated amortisation and impairment

At 1 January

(33.2)

(493.7)

(39.8)

(14.4)

(80.1)

(661.2)

(571.3)

Exchange differences

1.5

21.8

1.6

-

2.1

27.0

(13.0)

Disposals/retirements

1.9

-

-

-

1.2

3.1

0.7

Disposal of companies and businesses

-

8.3

-

-

-

8.3

0.1

Impairment charge

(4.4)

-

-

(0.6)

-

(5.0)

(0.4)

Amortisation charge

-

(70.5)

(4.7)

(5.0)

(13.6)

(93.8)

(77.3)

At 31 December

(34.2)

(534.1)

(42.9)

(20.0)

(90.4)

(721.6)

(661.2)

Net book value

 

 

 

 

 

 

 

At 1 January

1,156.8

277.7

26.7

13.7

34.2

1,509.1

1,220.2

At 31 December

1,342.5

248.7

23.8

13.7

44.7

1,673.4

1,509.1

1. Due to Competition & Markets Authority restrictions imposed after the acquisition of Cannon UK the Group was unable to fully review the acquisition accounting within the adjustment period. Due to its materiality an adjustment has been made in 2019 to correct the value of customer lists by £18.5m. Additionally there is a deferred tax adjustment to the Cannon UK goodwill balance of £3.5m which has been reflected in the deferred tax balance. Therefore the net transfer out of goodwill was £15.0m

 

 

9. Property, plant and equipment

 

 


Land and
buildings
£m

Service contract equipment
£m

Other plant and
equipment
£m

Vehicles
and office
equipment
£m

2019
Total
£m


2018
Total
£m

Cost

 

 

 

 

 

 

At 1 January

83.4

475.2

171.9

254.1

984.6

880.6

IAS 17 finance leases transferred

-

-

-

(60.1)

(60.1)

-

Exchange differences

(5.0)

(26.4)

(9.6)

(8.3)

(49.3)

13.2

Additions

2.1

104.3

14.7

20.8

141.9

161.0

Disposals

(3.3)

(68.1)

(8.3)

(29.4)

(109.1)

(88.6)

Acquisition of companies and businesses

6.9

0.3

1.0

8.3

16.5

19.0

Disposal of companies and businesses

-

-

(0.1)

(0.1)

(0.2)

(0.6)

At 31 December

84.1

485.3

169.6

185.3

924.3

984.6

Accumulated depreciation and impairment

 

 

 

 

 

 

At 1 January

(27.0)

(255.9)

(119.3)

(145.5)

(547.7)

(490.4)

IAS 17 finance leases transferred

-

-

-

18.4

18.4

-

Exchange differences

1.7

15.5

6.8

5.6

29.6

(7.0)

Disposals

1.2

61.6

7.1

24.5

94.4

80.7

Impairment charge

-

-

-

-

-

(0.1)

Depreciation charge

(3.0)

(94.4)

(11.3)

(18.6)

(127.3)

(130.9)

At 31 December

(27.1)

(273.2)

(116.7)

(115.6)

(532.6)

(547.7)

Net book value

 

 

 

 

 

 

At 1 January

56.4

219.3

52.6

108.6

436.9

390.2

At 31 December

57.0

212.1

52.9

69.7

391.7

436.9

 

 

10. Financing

 

Fair value estimation

All financial instruments held at fair value are 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;

Level 3 - inputs for the asset or liability that are not based on observable market data. Fair value is equal to carrying value for all instruments at level 3.

The Group uses the following methods to estimate fair value of its financial instruments:

Financial instrument

Hierarchy level

Valuation method

Financial assets traded in active markets

1

Current bid price

Financial liabilities traded in active markets

1

Current ask price

Long-term debt

1

Quoted market prices

Liquidity fund

1

Quoted market prices or dealer quotes for similar instruments

Interest rate/currency swaps

2

Market swap rates at the balance sheet date

Forward foreign exchange contracts

2

Forward exchange market rates at the balance sheet date

Borrowings not traded in active markets

2

Cash flows discounted at current market rates

Financial instruments not traded in active markets

2 or 3

Valuation assumptions based 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

 

11. Cash and cash equivalents

 

Cash and cash equivalents include cash in hand, short-term bank deposits, and other short-term highly liquid investments with original maturities of three months or less (and subject to insignificant changes in value). In the cash flow statement cash and cash equivalents are shown net of bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Cash at bank and in hand includes £9.0m (2018: £11.7m) of restricted cash. This cash is held in respect of specific contracts and can only be utilised in line with terms under the contractual arrangements. Cash at bank and in hand also includes £45.6m (2018: £33.2m) of cash held in countries with foreign exchange regulations. This cash is repatriated to UK where possible, if not required for operational purposes in country.

Fair value is equal to carrying value for all cash and cash equivalents.

The Group operates pooling arrangements whereby cash balances and overdrafts held within the same bank are offset to give a net balance which is included within cash and cash equivalents on the balance sheet. These cash and bank overdraft figures before netting are shown in the table below:

Offsetting financial assets and liabilities

 

Gross amounts before offsetting
£m

Gross amounts

 set off
£m

Net amounts presented
£m

At 31 December 2019

 

 

 

Cash at bank and in hand

1,099.1

(859.6)

239.5

Short-term bank deposits

70.1

-

70.1

Cash and cash equivalents in the consolidated balance sheet

1,169.2

(859.6)

309.6

Bank overdraft

(895.3)

859.6

(35.7)

Cash and cash equivalents in the consolidated cash flow statement

273.9

-

273.9

At 31 December 2018

 

 

 

Cash at bank and in hand

679.5

(553.9)

125.6

Short-term bank deposits

4.2

-

4.2

Cash and cash equivalents in the consolidated balance sheet

683.7

(553.9)

129.8

Bank overdraft

(582.8)

553.9

(28.9)

Cash and cash equivalents in the consolidated cash flow statement

-

100.9

 

 

12. Analysis of bank and bond debt

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:

 

Facility amount

£m

Drawn at

year end

£m

 

Headroom

£m

Interest rate

at year end

%

Non-current

 

 

 

 

£550m RCF due August 2024

550.0

-

550.0

0.14

Current

 

 

 

 

$50m term loan due June 2020

37.7

37.7

-

2.17

Average cost of bank debt at year end rates

587.7

37.7

550.0

0.27

 

In August 2019 the Group extended its main revolving credit facility (RCF) until August 2024 with a one-year extension option. In November 2019 the amount of the RCF was reduced from £600.0m to £550.0m At the year end the RCF was undrawn.

In addition, the Group has a term loan of $50.0m. As at 31 December 2019 this was fully drawn. The effective cost of borrowing on this facility is 2.17%.

 

Medium-term notes and bond debt comprises:

 

Bond interest coupon

Effective hedged interest rate

Non-current

 

 

€350m bond due October 2021

Fixed 3.25%

Fixed 3.54%

€400m bond due November 2024

Fixed 0.95%

Fixed 2.25%

€500m bond due May 2026

Fixed 0.875%

Fixed 1.54%

£1.3m perpetual debentures

Fixed 5.00%

Fixed 5.00%

£0.3m perpetual debentures

Fixed 4.50%

Fixed 4.50%

Average cost of bond debt at year end rates

 

2.33%

The effective hedged interest rate reflects the interest rate after the impact of interest due from currency swaps. The Group's hedging strategy is to hold foreign currency debt in proportion to the foreign currency profit and cash flows which are mainly euro and US dollar. As a result the Group has swapped a proportion of the bonds it has issued into US dollars, thus increasing the effective hedged interest rate.

On 30 May 2019 the Group issued a new €500m bond at a coupon of 0.875% under its EMTN Programme. Some of the proceeds were swapped into US dollars from the date of issue until maturity. The rate on this US dollar swap is fixed at 3.16%.

The Group considers the fair value of other current liabilities to be equal to the carrying value.

 

13. 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 pension scheme in the Group is the Rentokil Initial 2015 Pension Scheme (RIPS) in the UK which has a defined contribution section, and a number of defined benefit sections which are now closed to new entrants and future accrual of benefits.  On 4 December 2018 the Group signed an agreement with Pension Insurance Corporation plc (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. 

A number of much smaller defined benefit and defined contribution schemes operate elsewhere which are also funded through payments to trustee-administered funds or insurance companies.

Defined benefit schemes are reappraised annually by independent actuaries based upon actuarial assumptions. Significant judgement is required in determining these actuarial assumptions.

 

13. Retirement benefit obligations (continued)

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.  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.

The defined benefit schemes are reappraised semi-annually by independent actuaries based upon actuarial assumptions in accordance with IAS 19R requirements (including schemes which are insured under a buy-in contract). The assumptions used for the RIPS scheme are shown below:

 

2019

2018

Weighted average %

 

 

Discount rate

2.0%

2.8%

Future salary increases

N/A

N/A

Future pension increases

3.1%

3.4%

RPI inflation

3.2%

3.5%

CPI inflation

2.2%

2.4%

 

The movement in the net defined benefit obligation for all pension schemes over the accounting period is as follows:

 

Present value of obligation
2019
£m

Fair value of plan assets 2019
£m

Total
2019
£m

Present value of obligation
2018
£m

Fair value of plan assets
2018

£m

Total
2018

£m

At 1 January

(1,342.0)

1,337.3

(4.7)

(1,415.3)

1,715.4

300.1

Current service costs1

(1.2)

-

(1.2)

(1.2)

-

(1.2)

Past service costs1

0.6

-

0.6

(36.2)

-

(36.2)

Settlement of defined benefit obligation1

 

-

 

17.4

 

17.4

 

44.6

 

(350.0)

 

(305.4)

Administration expenses1

(0.4)

-

(0.4)

(1.1)

-

(1.1)

Interest on net defined benefit asset1

 

(35.6)

 

36.3

 

0.7

 

(34.0)

 

41.7

 

7.7

Exchange difference

3.6

(2.3)

1.3

(0.7)

0.5

(0.2)

Total pension income

(33.0)

51.4

18.4

(28.6)

(307.8)

(336.4)

Remeasurements:

 

 

 

 

 

 

Remeasurement gain/(loss) on scheme assets

 

-

 

90.8

 

90.8

 

-

 

(20.2)

 

(20.2)

Remeasurement (loss)/gain on obligation2

 

(96.7)

 

-

 

(96.7)

 

50.3

 

-

 

50.3

Transfers

 

 

 

 

 

 

Transferred on acquisition of business

 

(46.0)

 

35.2

 

(10.8)

 

(4.3)

 

4.0

 

(0.3)

Other transfers

-

-

-

(11.2)

8.5

(2.7)

Contributions:

 

 

 

 

 

 

Employers

-

1.2

1.2

0.7

1.3

2.0

Participants

(0.2)

0.1

(0.1)

(0.1)

0.1

-

Benefit payments

73.6

(72.2)

1.4

65.4

(64.0)

1.4

Administration costs

0.4

-

0.4

1.1

-

1.1

At 31 December

(1,443.9)

1,443.8

(0.1)

(1,342.0)

1,337.3

(4.7)

 

 

 

 

 

 

 

Retirement benefit obligation schemes3

(106.6)

69.1

(37.5)

(59.5)

33.3

(26.2)

Retirement benefit asset schemes4

(1,337.3)

1,374.7

37.4

(1,282.5)

1,304.0

21.5

 

1. Service costs, settlement and administration expenses are charged to operating expenses, and interest cost and return on plan assets to net interest credit from pensions.

2. The actuarial movement on the UK RIPS scheme comprises remeasurement gain arising from changes in demographic assumptions of £16.5m (2018: gain £10.0m), remeasurement loss arising from changes in financial assumptions of £129.3m (2018: £60.1m) and remeasurement gains arising from experience of £20.9m (2018: loss of £22.0m).

3. Benefit plans in an obligation position include plans situated in Ireland, UK, Martinique, Trinidad, Norway, South Africa, Germany, Austria, France, Italy, Korea, Philippines, India, Hong Kong and USA.

4. Benefit plans in an asset position include plans situated in UK, Australia, India and Barbados.

 

13. Retirement benefit obligations (continued)

Included in the table above is a net defined benefit surplus in relation to the UK RIPS scheme of £36.6m (2018: £20.5m) recognised as defined benefit obligation of £1,333.3m (2018: £1,277.6m) and plan assets of £1,369.9m (2018: £1,298.1m).  Of the £1,443.9m (2018: £1,342.0m) of obligations, £16.7m (2018: £15.5m) is unfunded.

 

Total contributions payable to defined benefit pension schemes in 2019 are expected to be between £4m and £5m.

The fair value of plan assets at the balance sheet date is analysed as follows:

 

 

 

 

 

2019

£m

2018

£m

Equity instruments

 

 

 

 

38.6

3.7

Debt instruments - unquoted

 

 

 

 

14.8

14.0

Property

 

 

 

 

0.6

0.6

Insurance policies

 

 

 

 

1,335.6

1,261.6

Other

 

 

 

 

54.2

57.4

Total plan assets

 

 

 

 

1,443.8

1,337.3

 

14. Provisions for other liabilities and charges

The Group has vacant property, environmental, self-insurance and other provisions. Provisions are recognised when the Group has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount is capable of being reliably estimated. If such an obligation is not capable of being reliably estimated it is classified as a contingent liability.

Future cash flows relating to these obligations are discounted when the effect is material. The discount rates used are based on government bond rates in the country of the cash flows, and were 0.9% (2018: between 0.3% and 0.7%) for the UK, and 0.9% (2018: between 0.8% and 2.8%) for the US.

Judgement is required in determining the worldwide provision for environmental restoration. These provisions tend to be long-term in nature and the use of an appropriate market discount rate and forecast future utilisation based upon management's best estimate determines the level of provision required at the balance sheet date. The phasing and actual cash spend may be different from the forecast on which the provision is based.

 

Vacant
properties
£m


Environmental
£m

Self-
insurance
£m


Other
£m

2019
Total
£m

2018
Total
£m

At 1 January

8.6

17.1

26.8

18.7

71.2

80.3

Adjustment on initial application of IFRS 16

(6.4)

-

-

-

(6.4)

-

Exchange differences

-

(0.9)

(0.7)

(0.5)

(2.1)

1.2

Additional provisions

0.9

-

14.0

3.9

18.8

20.4

Used during the year

(0.7)

(2.0)

(10.1)

(8.4)

(21.2)

(32.1)

Unused amounts reversed

(0.1)

-

(0.9)

(0.6)

(1.6)

(2.2)

Acquisition of companies and businesses

-

-

-

0.2

0.2

3.3

Unwinding of discount on provisions

-

-

0.2

-

0.2

0.3

At 31 December

2.3

14.2

29.3

13.3

59.1

71.2

Analysed as follows:

 

 

 

 

 

 

Non-current

 

 

 

 

34.0

42.5

Current

 

 

 

 

25.1

28.7

Total

 

 

 

 

59.1

71.2

 

Vacant properties

The Group holds provision for costs relating to onerous lease contracts on properties it no longer occupies such as security, utilities and insurance.  The majority of these contracts end within the next 12 months. On adoption of IFRS 16 Leases, all rental costs were transferred to lease liabilities.

Environmental

The Group owns a number of properties in Europe and the US where there is land contamination. Provisions are held for the remediation of such contamination. These provisions are expected to be substantially utilised within the next six years.

Self-insurance

The Group purchases external insurance from a portfolio of international insurers for its key insurable risks, mainly employee risks. Self-insured retentions have changed over time due to external market conditions and scale of operations. These provisions represent obligations for open claims and are estimated based on actuarial/management's assessment at the balance sheet date. The Group expects to continue self-insuring the same level of risks and estimates that 50% to 75% of claims should settle within the next five years.

14. Provisions for other liabilities and charges (continued)

Other

Other provisions principally comprise amounts required to cover obligations arising and costs relating to disposed businesses and restructuring costs. Existing provisions are expected to be substantially utilised within the next five years.

15. Share capital

 

 

2019
£m

2018
£m

Issued and fully paid

 

 

At 31 December - 1,849,332,965 shares (2018: 1,843,332,965)

18.5

18.4

 

16. Reconciliation of net change in cash and cash equivalents to net debt

 

 

Opening 20191

£m

Cash flows

£m

Non-cash (fair value changes)

£m

Non-cash (foreign exchange and other)

£m

Closing 2019

£m

Cash and cash equivalents in the consolidated balance sheet

129.8

187.3

-

(7.5)

309.6

Other investments - loans and receivables

2.5

(0.7)

-

-

1.8

Fair value of debt-related derivatives

(20.1)

(2.0)

2.2

(3.9)

(23.8)

Bank and other short-term borrowings

(507.1)

488.8

(26.9)

(39.4)

(84.6)

Bank and other long-term borrowings     

(716.8)

(429.4)

(1.2)

88.1

(1,059.3)

Leases

(41.7)

94.4

-

(269.4)

(216.7)

 

(1,153.4)

338.4

(25.9)

(232.1)

(1,073.0)

1. Bank and other long/short-term borrowings have been restated at December 2018 to reflect the short-term nature of the September 2019 €500m bond at year end which was classified as long-term.

 

17.  Operating cash and Free Cash Flow

 

 

2019

£m

20181
£m

 

 

Operating profit/(loss)

369.4

(96.1)

Adjustments for:

 

 

- Depreciation and impairment of property, plant and equipment

127.3

131.0

- Depreciation of leased assets

78.9

-

- Amortisation and impairment of intangible assets (excluding computer software)

85.2

61.6

- Amortisation and impairment of computer software

13.6

16.1

- Other non-cash items

(4.3)

5.1

- Net profit on sale of businesses

(103.8)

-

- Pension settlement

-

341.6

Changes in working capital (excluding the effects of acquisitions and exchange differences on consolidation):

 

 

- Inventories

(3.6)

(10.9)

- Contract costs

(6.3)

(6.9)

- Trade and other receivables

(32.4)

1.9

- Contract assets

(5.8)

(16.3)

- Trade and other payables and provisions

20.2

18.1

- Contract liabilities

16.9

9.9

Cash generated from operating activities before special pension contributions

555.3

455.1

Special pension contributions

(1.1)

(1.1)

Cash generated from operating activities

554.2

454.0

 

 

 

Add back: special pension contributions

1.1

1.1

Purchase of property, plant and equipment

(140.1)

(147.2)

Purchase of intangible fixed assets

(30.8)

(22.9)

Leased property, plant and equipment

(74.9)

(16.3)

Proceeds from sale of property, plant and equipment

3.2

2.9

Dividends received from associates

30.4

11.9

Operating cash flow

343.1

283.5

Interest received

10.8

7.7

Interest paid

(58.9)

(53.0)

Income tax paid

(43.2)

(45.1)

Special pension contributions

(1.1)

(1.1)

Free Cash Flow from continuing operations

250.7

192.0

       

 

18. Business combinations

 

During the year the Group purchased 100% of the share capital or trade and assets of 41 companies and businesses. The total consideration in respect of these acquisitions was £328.6m and the cash outflow from current and past period acquisitions, net of cash acquired, was £315.7m.

 

Details of goodwill and the fair value of net assets acquired are as follows:

 

 

 2019
£m

2018
£m

Purchase consideration:

 

 

 

-              Cash paid

 

290.3

258.4

-              Deferred and contingent consideration

 

38.3

31.2

Total purchase consideration

 

328.6

289.6

Fair value of net assets acquired

 

(62.8)

(123.9)

Goodwill from current year acquisitions

 

265.8

165.7

Goodwill represents the synergies, workforce and other benefits expected as a result of combining the respective businesses.

Deferred consideration of £23.4m and contingent consideration of £14.9m 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. Both deferred and contingent consideration are payable over the next five years. The Group has recognised the contingent and deferred consideration based on the fair value of the consideration at the acquisition date.

18. Business combinations (continued)

The provisional fair value1 of assets and liabilities arising from acquisitions in the year are as follows:

 

 

 2019
£m

2018
£m

Non-current assets

 

 

 

-              Intangible assets2

 

70.5

124.7

-              Property, plant and equipment

 

17.0

16.5

Current assets3

 

14.3

29.6

Current liabilities

 

(20.8)

(22.4)

Non-current liabilities4

 

(18.2)

(24.5)

Net assets acquired

 

62.8

123.9

1. The provisional fair values will be finalised in the 2020 financial statements. The fair values are provisional since the acquisition accounting has not yet been finalised as a result of the proximity of many acquisitions to the year end.

2. Includes £67.9m (2018: £124.3m) of customer lists and relationships and £2.6m (2018: £0.4m) of other intangibles.

3. Includes trade and other receivables of £5.9m (2018: £18.8m) which represents the gross and fair value of the assets acquired.

4. Includes £(4.2)m of deferred tax relating to acquired intangibles (2018: £(19.4)m).

The cash outflow from current and past acquisitions are as follows:

 

2019
£m

2018
£m

Total purchase consideration

328.6

289.6

Consideration payable in future periods

(38.3)

(31.2)

Purchase consideration paid in cash

290.3

258.4

Cash and cash equivalents in acquired companies and businesses

(6.0)

(4.4)

Cash outflow on current period acquisitions

284.3

254.0

Deferred consideration paid

31.4

40.4

Cash outflow on current and past acquisitions

315.7

294.4

 

From the dates of acquisition to 31 December 2019, these acquisitions contributed £64.1m to revenue and £11.6m to operating profit.

If the acquisitions had occurred on 1 January 2019 the estimated revenue and operating profit of the Group would have amounted to £2,793.7m and £273.0m respectively.

19. Related party transactions

The Group operates in a number of joint ventures and associate entities.  All transactions between these entities and the Group were transacted at arm's length during the ordinary course of business and have been eliminated on consolidation. 

The value of transactions and outstanding balances with joint ventures and associate entities are shown below.

 

Transaction values for the year ended 31 December

Balance outstanding as at 31 December

 

2019

£m

2018
£m

2019

£m

2018
£m

Sales of goods and services

6.8

14.5

-

1.4

Purchase of goods and services

-

7.5

-

0.5

 

The Group bears the costs of administration and independent pension advice of the Rentokil Initial 2015 Pension Scheme. The total amount of costs in the year ended 31 December 2019 was £0.3m (2018: £1.5m) of which £0.3m (2018: £0.5m) was recharged to the scheme.

20. Events occurring after the balance sheet date

There were no significant post balance sheet events affecting the Group since 31 December 2019.

 

21. 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 which 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, unless otherwise stated, percentage movements for revenue and profit measures are presented at constant exchange rates (CER).  CER is calculated by retranslating 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 £/$ FY 2019 1.2790 (FY 2018 1.3321) and £/€ FY 2019 1.1419 (FY 2018 1.1288). Comparisons are to the year ended 31 December 2018 (2018) 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 amortisation and impairment of intangible assets (excluding computer software), one-off items and net profit on disposal of businesses (see below).

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 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 2.

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) - including net gain on disposals

-

Net interest adjustments

Intangible assets (excluding computer software) are recognised on 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 understanding the underlying trading performance of the business and to allow comparability across regions and categories.

One-off items are significant expenses or income which 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. Similar adjustments where appropriate are also made to the share of profits from associates.

Other non-cash gains and losses that can cause material fluctuations and distort understanding of the performance of the business are 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 from continuing operations attributable to equity holders of the Company by the weighted average number of ordinary shares in issue.  Note 6 shows the adjustments made in arriving at adjusted profit from continuing operations attributable to equity holders of the Company.

 

21. Alternative performance measures (continued)

 

A reconciliation of non-GAAP measures to the comparable GAAP equivalents is provided below at both AER and CER:

 

2019

AER

£m

2019

CER

£m

2018

 

£m

% change

AER

CER

Ongoing Revenue

2,676.2

2,644.5

2,434.9

9.9%

8.6%

Revenue - disposed and closed businesses1

38.2

38.3

37.4

2.2%

2.3%

Revenue

2,714.4

2,682.8

2,472.3

9.8%

8.5%

Ongoing Operating Profit

368.1

365.5

330.7

11.3%

10.5%

Operating Profit - disposed and closed businesses

(2.7)

(2.7)

(1.4)

(86.3%)

(86.3%)

Adjusted Operating Profit

365.4

362.8

329.3

11.0%

10.2%

One-off items - Operating

(14.6)

(14.4)

(22.2)

34.2%

35.5%

Amortisation and impairment of intangible assets

(85.2)

(83.8)

(61.6)

(38.2%)

(36.0%)

Operating profit

265.6

264.6

245.5

8.2%

7.8%

Pension settlement (non-cash)

-

-

(341.6)

-

-

Net gain on disposals

103.8

105.3

-

-

-

Share of profit from associates (net of tax)

15.2

14.9

19.6

(22.4%)

(24.1%)

Net interest payable (excluding pensions/IFRS 16)

(42.1)

(41.8)

(45.7)

7.9%

8.4%

Net interest adjustments

(4.0)

(3.9)

8.1

-

-

Profit before tax

338.5

339.1

(114.1)

-

-

Net interest adjustments

4.0

3.9

(8.1)

-

-

Net gain on disposals

(103.8)

(105.3)

-

-

-

One-off items - operating

14.6

14.4

22.2

34.2%

35.5%

One-off items - associates2

2.4

2.4

4.8

(50.0%)

(50.0%)

Pension settlement (non-cash)

-

-

341.6

-

-

Amortisation and impairment of intangible assets

85.2

83.8

61.6

(38.2%)

(36.0%)

Adjusted profit before tax

340.9

338.3

308.0

10.7%

9.8%

Basic earnings per share

15.33p

15.37p

(5.35p)

-

-

Basic adjusted earnings per share

14.43p

14.27p

13.07p

10.4%

9.2%

1. Includes revenue of £10.7m (2018: £13.9m) from product sales by the Group to CWS-boco International GmbH. Prior to 30th June 2017, this revenue was classified as intergroup revenue and eliminated on consolidation.

2. Rentokil Initial Group's post tax share of one-off items and amortisation of intangibles of the CWS-boco International GmbH associated undertaking.

 

21. Alternative performance measures (continued)

Organic Revenue Measures

Acquisitions are a core part of the Group's growth strategy.  Organic Revenue growth measures are used to help understand the underlying performance of the Group.  Organic Revenue growth represents the growth in Ongoing Revenue excluding the effect of businesses acquired during the year.  Acquired businesses are included in organic measures in the year following acquisition, and the comparative period is adjusted to include an estimated full year performance for growth calculations (pro forma revenue). 

 

Europe

UK and ROW

Asia

North America

Pacific

Total

 

£m

%

£m

%

£m

%

£m

%

£m

%

£m

2018 Ongoing Revenue (as reported)

667.3

-

437.2

-

211.1

-

934.2

-

185.1

-

2,434.9

-

Pro forma revenue from 2018 and 2019 acquisitions

15.6

2.3

6.5

1.5

13.5

6.4

64.4

6.9

0.7

0.3

100.7

4.1

Organic Revenue growth

32.1

4.8

21.1

4.8

9.8

4.7

41.7

4.5

4.2

2.3

108.9

4.5

2019 Ongoing Revenue (as reported)

715.0

7.1

464.8

6.3

234.4

11.1

1,040.3

11.4

190.0

2.6

2,644.5

8.6

 

 

Pest Control

Hygiene

Protect & Enhance

Total

 

£m

%

£m

%

£m

%

£m

%

2018 Ongoing Revenue (as reported)

1,534.1

-

516.7

-

384.1

-

2,434.9

-

Pro forma revenue from 2018 and 2019 acquisitions

91.6

5.9

7.9

1.5

1.2

0.3

100.7

4.1

Organic growth

74.4

4.9

22.2

4.3

12.3

3.2

108.9

4.5

2019 Ongoing Revenue (as reported)

1,700.1

10.8

546.8

5.8

397.6

3.5

2,644.5

8.6

 

21. Alternative performance measures (continued) 

 

Regional Analysis

 

Ongoing Revenue

Ongoing Operating Profit

 

         2019

Change from

FY 2018

      2019

Change from

FY 2018

 

AER

£m

CER

£m

AER

%

CER

%

AER

£m

CER

£m

AER

%

CER

%

France

310.4

314.0

3.4

4.6

46.0

46.5

(0.4)

0.7

Benelux

95.3

96.4

5.0

6.2

27.9

28.2

6.1

7.3

Germany

107.5

108.4

11.7

12.6

33.4

33.6

14.8

15.6

Southern Europe

134.6

136.1

3.4

4.6

22.2

22.5

16.3

17.7

Latin America

57.7

60.1

15.7

20.5

6.6

7.3

(4.9)

5.7

Total Europe

705.5

715.0

5.7

7.1

136.1

138.1

6.6

8.3

UK & Ireland

305.6

305.9

5.8

6.0

65.6

66.4

10.1

11.4

Rest of World

156.6

158.9

5.5

7.0

35.7

35.9

4.8

5.5

UK & Rest of World

462.2

464.8

5.7

6.3

101.3

102.3

8.2

9.3

Asia

240.2

234.4

13.8

11.1

24.9

24.2

14.3

11.1

North America

1,082.5

1,040.3

15.9

11.4

153.4

147.4

20.0

15.3

Pacific

185.8

190.0

0.4

2.6

38.6

39.4

0.4

2.5

Central and regional overheads

-

-

-

-

(78.5)

(78.4)

(10.0)

(9.9)

Restructuring costs

-

-

-

-

(7.7)

(7.5)

(6.0)

(4.3)

Ongoing operations

2,676.2

2,644.5

9.9

8.6

368.1

365.5

11.3

10.5

Disposed businesses

38.2

38.3

2.2

2.3

(2.7)

(2.7)

(86.3)

(86.3)

Continuing operations

2,714.4

2,682.8

9.8

8.5

365.4

362.8

11.0

10.2

 

Category Analysis

 

Ongoing Revenue

Ongoing Operating Profit

 

         2019

Change from

FY 2018

      2019

Change from

FY 2018

 

AER

£m

CER

£m

AER

%

CER

%

AER

£m

CER

£m

AER

%

CER

%

Pest Control

1,734.8

1,700.1

13.1

10.8

310.1

305.4

13.4

11.6

- Growth

1,483.7

1,451.0

13.0

10.5

275.8

271.5

13.7

12.0

- Emerging

251.1

249.1

13.6

12.7

34.3

33.9

10.4

8.8

Hygiene

543.7

546.8

5.2

5.8

96.8

97.3

7.5

8.1

Protect & Enhance

397.7

397.6

3.5

3.5

47.4

48.7

3.7

6.6

Central and regional overheads

-

-

-

-

(78.5)

(78.4)

(10.0)

(9.9)

Restructuring costs

-

-

-

-

(7.7)

(7.5)

(6.0)

(4.3)

Ongoing operations

2,676.2

2,644.5

9.9

8.6

368.1

365.5

11.3

10.5

Disposed businesses

38.2

38.3

2.2

2.3

(2.7)

(2.7)

(86.3)

(86.3)

Continuing operations

2,714.4

2,682.8

9.8

8.5

365.4

362.8

11.0

10.2

 

 

21. 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 (on a trailing 12 month basis):

 

2019

%

2018

%

Variance

% points

France

14.8

15.4

(0.6)

Benelux

29.3

29.0

0.3

Germany

31.0

30.2

0.8

Southern Europe

16.5

14.7

1.8

Latin America

12.1

13.8

(1.7)

Total Europe

19.3

19.1

0.2

UK & Ireland

21.7

20.6

1.1

Rest of World

22.6

22.9

(0.3)

UK & Rest of World

22.0

21.4

0.6

Asia

10.3

10.3

-

North America

14.2

13.7

0.5

Pacific

20.7

20.8

(0.1)

Ongoing operations1

13.8

13.6

0.2

Disposed businesses

(6.9)

(3.8)

(3.1)

Continuing operations1

13.5

13.3

0.2

 

 

2019

%

2018

%

Variance

% points

Pest Control

18.0

17.8

0.2

- Growth

18.7

18.5

0.2

- Emerging

13.6

14.1

(0.5)

Hygiene

17.8

17.4

0.4

Protect & Enhance

12.3

11.9

0.4

Ongoing operations1

13.8

13.6

0.2

Disposed businesses

(6.9)

(3.8)

(3.1)

Continuing operations1

13.5

13.3

0.2

1. Operating Margin for ongoing operations and continuing operations is calculated after central and regional overheads and restructuring costs.

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:

 

2019

AER

£m

2018

AER

£m

Net cash from operating activities

462.9

363.6

Purchase of property, plant, equipment and intangible fixed assets

(170.9)

(170.1)

Leased property, plant and equipment

(74.9)

(16.3)

Proceeds from sale of property, plant, equipment and software

3.2

2.9

Dividends received from associates

30.4

11.9

Free Cash Flow

250.7

192.0

 

21. Alternative performance measures (continued)

Free Cash Flow Conversion

Free Cash Flow Conversion is calculated by dividing Adjusted Profit from continuing operations attributable to equity holders of the Company (further adjusted for any post tax profits and one-offs from the CWS-boco International GmbH associate) by Adjusted Free Cash Flow, expressed as a percentage.  Adjusted Free Cash Flow is measured as Free Cash Flow adjusted for one-off items - operating and product development additions.

 

2019

AER

£m

2018

AER

£m

Adjusted profit after tax from continuing operations attributable to equity holders of the Company

266.8

240.7

Share of profit of CWS-boco International GmbH associate (net of tax)

(7.0)

(12.1)

One-off items - associates

(2.4)

(4.8)

 

257.4

223.8

 

 

 

Free Cash Flow from continuing operations

250.7

192.0

Dividend received from CWS-boco International GmbH

(26.4)

(8.5)

One-off items - operating

23.9

22.2

Product development additions

5.6

5.2

 

253.8

210.9

Free Cash Flow Conversion

98.6%

94.2%

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.

 

 

2019

AER

£m

2019

CER

£m

2018

 

£m

Unadjusted income tax expense

54.7

54.3

(15.8)

Tax adjustments on:

 

 

 

Amortisation and impairment of intangible assets (excluding computer software)

19.6

19.3

15.4

One-off items - operating

(1.1)

(1.1)

4.3

Pension settlement

-

-

64.8

Net interest adjustments

0.6

0.6

(1.6)

Adjusted income tax expense (a)

73.8

73.1

67.1

Adjusted profit before income tax (b)

340.9

338.3

308.0

Adjusted Effective Tax Rate (a/b)

21.6%

21.6%

21.8%

 

22. Legal statements

 

The financial information for the year ended 31 December 2019 contained in this preliminary announcement was approved by the Board on 26 February 2020.

 

The financial information in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 2018. The financial information for 2018 and 2019 is derived from the statutory accounts for 2018 (which have been delivered to the registrar of companies) and 2019 (which will be delivered to the registrar of companies following the AGM in May 2020). The auditors have reported on the 2018 and 2019 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The statutory accounts for 2019 are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union. The accounting policies (that comply with IFRS) used by Rentokil Initial plc ("the Group") are consistent with those set out in the 2018 Annual Report. A full list of policies will be presented in the 2019 Annual Report. For details of new policies applicable to the Group in 2019 and their impact please refer to Note 1.

 

23. 2019 Annual Report

 

Copies of the 2019 Annual Report will be sent to shareholders who have elected to receive hard copies on 26 March 2020 and will also be available from the Company's registered office at Riverbank, Meadows Business Park, Blackwater, Camberley, Surrey, GU17 9AB and at www.rentokil-initial.com in PDF format.

 

24. Financial calendar

 

The Annual General Meeting will be held at the Hilton Hotel (Ascot Suite), Gatwick Airport, South Terminal, Crawley, West Sussex, RH6 0LL on Wednesday 13 May 2020 at 2pm.

 

[1] Market Data Forecast: July 2018, Rentokil Market Data & Allied Market Research Report, Allied Market Research

[2] Top 50 most valuable Commercial Services brands (Brand Finance Report 2017)


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