26th May 2005 07:00
Rentokil Initial PLC26 May 2005 News Release 26th May 2005 TRADING UPDATE FOR THE FOUR MONTHS TO 30TH APRIL 2005 Financial Summary Trading for the four months was largely as expected. The year-on-year impact of the significant P&L investments, which have been previously announced, as well as the ongoing challenges of a difficult, price competitive market place, have led to a deterioration in trading results Turnover from continuing operations increased by 1.8% at constant 2004 average exchange rates Profit Before Tax and from continuing operations, on a comparable Amortisation of provisional IFRS basis, declined by 16.5% at Customer Lists constant 2004 average exchange rates Contract Portfolio increased by an annualised £38.3m at constant 2004 average exchange rates Operating Cash Flow was in line with the company's expectations Acquisition Spend year-to-date, has been c. £33m on fourteen acquisitions 2005 TRADING AND PROSPECTS Ahead of today's Annual General Meeting, Brian McGowan, non-executive Chairmansaid:- "In trading terms, the year has started off largely as expected, with adeterioration in profits compared with the first four months of 2004. This wasdue to the full effect of the significant increases in the investment in sales,marketing, service, I.T. and H.R. which were progressively fed in from May 2004as well as the ongoing challenges of a difficult, price competitive marketplace. These trends are likely to continue into the second half. Most of the segments with a contract portfolio dimension have a number ofbusiness units which are starting to show progress but, in overall terms, thesehave not yet produced the scale and consistency to make a noticeable differenceto the size and shape of the overall contract portfolio. The benefits of the investments made should start to come through progressivelyas the second half of 2005 unfolds, although the board remains of the view thatthe year as a whole is likely to give a weaker performance than in 2004. The board restates its intention, in the absence of unforeseen circumstances, torecommend an increase in the dividend for 2005 of a further 10% to 7.38 penceper share". SEGMENTAL COMMENTARY - CONTINUING OPERATIONS (All at constant 2004 average exchange rates. Segmental operating profit is on acomparable provisional IFRS basis and before central overheads and amortisationof customer lists) Hygiene Total Hygiene turnover grew by 2.4% with operating profit down by 11.3%. Hygiene Services turnover was up by 2.2% with operating profit down by 11.5%.Contract portfolio net gain was £17.2m, with £11.1m of this coming fromacquisitions. Within the total turnover, washroom was flat, garments increased by 3.2%, floorcare and linen each increased by 2.1%, whilst other hygiene grew by 10.4%. Turnover grew by 2.7% in continental Europe and by 4.9% in Asia, Pacific and Africa, whilst North America was flat. In the UK, turnover was flat, although operating profit was significantly lower as management continued to re-organise the business by separating the washroom and floorcare activities from those of linen and garments. Pest Control turnover was up by 3.2% with operating profit down by 10.9%.Contract portfolio net gain was £2.0m, including £0.2m from acquisitions. Including the limited benefit of acquisitions, turnover in North America and Asia, Pacific and Africa grew by 16.9% and 7.9% respectively. Continental Europe increased by 2.6%, whereas the UK regressed by 1.1%. Security Total Security turnover increased by 4.4% whilst operating profit fell by 11.3%. Electronic Security turnover grew by 6.7% with operating profit declining by6.7%. Contract portfolio net gain of £1.5m of which £1.3m came fromacquisitions. Assisted by acquisitions, turnover in continental Europe and the UK increased by 7.1% and 6.4% respectively, whilst the embryonic US business produced organic growth of 6.5%. Manned Guarding turnover increased by 2.7% whilst operating profit fell by 25.1%with the UK, in particular, where we have recently changed the managingdirector, experiencing tough market conditions, compounded by the lead up toguard licensing. The contract portfolio showed an organic increase of £6.6m, allof which was organic. Continental Europe and the UK produced similar levels of turnover growth at 4.8% and 5.2% respectively, whereas North America was flat. Facilities Management Total Facilities Management turnover fell by 1.3%, with operating profit fallingby 11.4%. Facilities Management Services turnover fell by 2.6%, the growth in continentalEurope, Asia, Pacific and Africa and North America failing to compensate for a3.8% decline in the core UK business. In very competitive market conditionsoperating profit fell by 11.5%. The contract portfolio grew by £8.2m without anybenefit from acquisitions. Tropical Plants turnover grew by 3.8%, whilst operating profit fell by 10.6%.Contract portfolio net gain of £3.8m was largely as a result of acquisitions. All four geographic regions showed turnover growth, specifically North America 6.3%, Asia, Pacific and Africa 3.5%, the UK 1.0% and continental Europe 0.8%. Conferencing had an operating profit decline of 11.5% on flat turnover, January,in particular, being very poor with a very slow build-up after the Christmas/NewYear break. More encouragingly, subsequent months have shown an improvement,with April much improved on the first quarter. The contract portfolio declinedby £1.0m, albeit this does not include a major contract signed with BMW which,however, will not generate billings until 2006. Parcels Delivery Following the disposal of the business in Zimbabwe (see below), turnover in theUK business increased by 1.7%, with operating profit falling by 14.5% due, likeConferencing above, to a very slow January compounded by pressure on rates,reduced demand in the I.T. and mobile phone sectors and the continuing trend ofan increasing proportion of non-premium, next-day consignments. OTHER ITEMS Contract Portfolio. The annualised value of the contract portfolio forcontinuing operations (based upon unaudited, pro-forma management information)increased by £38.3m in the four month period with £16.1m of this coming fromacquisitions. Acquisitions. In the four month period to 30th April eleven acquisitions weremade at a total cost of c. £23m. Since 1st May a further three acquisitions havebeen made for c. £5m. Aggregate annualised turnover from these fourteenacquisitions in Hygiene, Security and Tropical Plants in the UK, ContinentalEurope, North America and Asia, Pacific is estimated at c. £23m. The largestsingle acquisition was that of a leading textile services company in Austriawith annualised turnover of c. £11m, this being some four times the size ofRentokil Initial's existing business in that country. In addition to the above,£5.0m has been spent to buy out a minority shareholding in the French textileservices business. Disposals. Agreement has been reached on the sale of a portion of the lossmaking hospital textiles business in Germany with 2004 turnover of c. £7m(representing some 40% of the activity). We continue to review the future of theremaining 60% of the activities in this sub-segment. Within UK Hygiene,negotiations for the disposal of the linens and garments activities are ongoing.Since 1st May the company has sold its parcels delivery business in Zimbabwe,this business having generated turnover in 2004 of some £4.0m. Operating Cash Flow has been in-line with our expectations. New Holding Company. The company is currently on course to complete theformation of the new holding company by the original target date of 1st July2005. As previously indicated, this process is subject to shareholder approvalat meetings to be held immediately following the AGM on 26th May. International Financial Reporting Standards (IFRS). As previously indicated, wecontinue to make good progress on the transition to IFRS. There are no furthersignificant developments to report in this area at this stage, other than animproved understanding of the potential effects of the current interpretationsof IAS 39, particularly in the context of 'mark to market' adjustments,including those in respect of the option element of the Ashtead convertible loannote. We expect to present a full reconciliation between the 2004 first half and fullyear UK GAAP results and the IFRS adjusted results early in the second half of2005, prior to the scheduled 2005 interim results announcement, which will be ona full IFRS basis. END Note - the above statement is made based upon unaudited management accounts,produced on a provisional IFRS compliant basis (but excluding IAS 39 "FinancialInstruments: Recognition and Measurement" and other 'mark to market'adjustments) and using the average rates of exchange for foreign currencies forthe year 2004, as used in the 2004 Annual Report. For further information R C Payne, Finance Director 01342 833022 C D Grimaldi, Corporate Affairs Director 01342 833022 G Ackers, Brunswick Group LLP 020 7404 5959 Alex Mackey, Catullus Consulting 07773 787458 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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