Final Results

28th Feb 2008 07:02

Rentokil Initial PLC28 February 2008 RENTOKIL INITIAL PLC (RTO) PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 2007 Group • Revenue up 20.3% to £2,216.7 million • Full year adjusted operating profit and adjusted profit before income tax up 8.8% to £280.8 million and 1.1% to £211.4 million • Profit before income tax from continuing operations of £142.0 million (2006: £165.4 million) • Full year dividend maintained at 7.38 pence per share • Performance from Textiles & Washroom, Pest Control, Asia Pacific, Facilities Services and Ambius divisions in line with expectation • As indicated in December 2007, group held back by poor performance from City Link in Q4 City Link • Detailed analysis undertaken since December 13 trading update has revealed trading downturn not just driven by market-related B to C volumes shortfall • Foundation for integration not solid enough to cope with degree and scale of changes being implemented; resulting negative impact on account management, service and new business generation • Actions to improve the situation include: o Appointment of new management team o Pause in and review of depot integration programme o Programme to improve customer service and strengthen account management where required o Restructured sales team generating strong new business pipeline • City Link 2008 profitability currently unclear - may not trade better than break even Doug Flynn, Chief Executive Officer of Rentokil Initial plc, said: "In 2007 our Pest Control, Textiles & Washroom, Facilities Services, AsiaPacific and Ambius businesses made good progress against their plans and weexpect this to continue into 2008. Absent City Link, we expect modest growth inadjusted profit before income tax from the rest of the group. "However, despite the progress delivered by most of the group, the performancefrom City Link was unacceptable. Actions are in hand to improve the situationbut this is a trend business and improvements will take time to come through.This means that 2008 adjusted profit before income tax for the group is expectedto be significantly lower than 2007 and will be heavily dependent on theperformance from City Link. "Our focus this year will be on rebuilding the profitability of City Link andprogressing the operational improvements made across the rest of the group." Financial Summary £million Fourth Quarter Full Year 2007 2006 change 2007 2006 change Pro forma Continuing Operations(1)----------------------------------At 2006 constant exchange rates(2) Revenue 576.0 517.8 11.2% 2,216.7 1,843.2 20.3% Operating profitbefore 63.0 57.9 8.8% 252.4 235.6 7.1%amortisationof intangibles(3) Add back:one-off items 18.1 16.7 8.4% 28.4 22.6 25.7% Adjustedoperating 81.1 74.6 8.7% 280.8 258.2 8.8%profit(4) Share of profitfrom associates 0.4 0.4 - 2.2 2.0 10.0%(net of tax) Interest (17.8) (16.4) (8.5%) (71.6) (51.1) (40.1%) Adjusted profitbefore income 63.7 58.6 8.7% 211.4 209.1 1.1%tax(4) Continuing Operations(1)------------------------At actual exchange rates Revenue 579.7 512.4 13.1% 2,203.4 1,843.2 19.5% Operating profitbefore 64.0 56.8 12.7% 251.1 235.6 6.6%amortisationof intangibles(5) Amortisation ofintangible (10.8) (7.5) (44.0%) (39.2) (21.1) (85.8%)assets(6) Operating profit 53.2 49.3 7.9% 211.9 214.5 (1.2%) Share of profit fromassociates (net 0.4 0.4 - 2.0 2.0 -of tax) Net interest (17.9) (16.5) (8.5%) (71.9) (51.1) (40.7%)payable Profit beforeincome tax 35.7 33.2 7.5% 142.0 165.4 (14.1%) Free cash flow(7) 102.1 128.6 (20.6%) Basic earningsper share 6.06p 7.20p (15.8%)(continuing operations) Dividend per share (proposed) 5.25p 5.25p - (1)All figures are for continuing operations and are unaudited. (2)Results at constant exchange rates have been translated at the full yearaverage exchange rates for the year ended 31 December 2006. £/$ average rates:FY 2007 2.0038; FY 2006 1.8469. £/• average rates: FY 2007 1.4586; FY 2006 1.4659. (3)Before amortisation of intangible assets (excluding computer software anddevelopment costs) of £39.6m (2006: £21.2m) for the full year. (4)Before amortisation of intangible assets (excluding computer software anddevelopment costs) of £39.6m (2006: £21.2m) and items of a one-off nature of£28.4m (2006: £22.6m) for the full year. See appendix 4 for further details. (5)Before amortisation of intangible assets (excluding computer software anddevelopment costs) of £39.2m (2006: £21.1m) for the full year. (6)Excluding computer software and development costs. (7)Cash flow before acquisitions, disposals, equity dividend payments and specialpension contributions. For further information Shareholder/analyst enquiries:Andrew Macfarlane, Chief Financial Officer Rentokil Initial plc 020 7592 2700Katharine Rycroft, Head of Investor Relations 07811 270734 Media enquiries:Malcolm Padley, Head of Corporate Communications Rentokil Initial plc 07788 978 199Kate Holgate / Tom Williams Brunswick Group 020 7404 5959 A presentation for analysts and shareholders will be held on Thursday 28 February 2008 at 9:15 am.This will be available via a live audio webcast at www.rentokil-initial.com. This announcement contains statements that are, or may be, forward-lookingregarding the group's financial position and results, business strategy, plansand objectives. Such statements involve risk and uncertainty because they relateto future events and circumstances and there are accordingly a number of factorswhich might cause actual results and performance to differ materially from thoseexpressed or implied by such statements. REVIEW OF THE YEAR We are pleased to report that our Textiles & Washroom, Pest Control, AsiaPacific, Facilities Services and Ambius divisions made considerable progressagainst plan in 2007. Our priorities were to generate growth in revenue andcustomer retention, improve sales and marketing effectiveness and leverage thepower of our brands. Efficiency and productivity improvements were a key focusduring the year and all divisions were tasked with driving sales and serviceimprovements, eliminating cost out of the business where appropriate andimproving processes. At the half year we announced that we believed we had reached an inflectionpoint in terms of profit. Having delivered a first half operating and financialperformance in line with expectation and with profit expected to move stronglyahead in the second half, we were confident in our ability to deliver ongoingimprovements in profit performance. Indeed, profit did move strongly ahead inthe second half as a result of continuing good performances from all ourbusinesses except City Link, which delivered a poor financial performance in thefourth quarter, marring the progress made by the rest of the group. In December we issued a trading statement stating that fourth quarter profitsfrom City Link were likely to be up to £10 million below our expectations as aresult of volume decline in the B to C segment in the ten weeks before Christmasand this would have a similar effect on the group as a whole. Since then we have conducted a detailed analysis into the trends in City Link'srevenue base. We have concluded that weaker consumer spending in the business toconsumer segment played only a part in a downturn that can essentially beattributed to the fact that the integration programme tried to do too much tooquickly without establishing a sound base. This had the effect of impactingservice. In addition, some of the actions we undertook, most notably with theformer City Link franchises, were in the wrong direction. The move away fromlocal to centralised customer account management, for example, had a detrimentalimpact on customer relationships resulting in lower volumes going through thebusiness and a modest increase in customer attrition. A series of complex issues have collectively contributed to the trading downturnand we have taken immediate action to improve the situation going forward. Fulldetails are provided in the City Link review on pages 9 through 10. A newmanagement team has been put in place and, in order to ensure ongoing continuityof service for customers and no further disruption, we have taken the decisionto pause and review the depot rationalisation programme. We will howevercontinue with Phase One of the integration: the roll out of new mechanicalhandling equipment and handheld consignment scanners. The business tracked budget until the end of the third quarter and regularbusiness reviews and forecasts gave no cause for concern. The underlying issueswere masked by increased volumes of business from our continuing customers. Whenthat trend reversed in the fourth quarter this, combined with poor new businessgeneration, caused a sudden and marked effect on revenue and profit. The poorfourth quarter trading was due more to poor management of the business than toCity Link's markets. Textiles and Washroom Services delivered a pleasing performance overall.Following a year of flat revenue in 2006, sales growth was a substantial focusand steady portfolio gains were achieved in continental Europe. Although theyremain challenging, there was some easing of the market and economic conditionsexperienced in 2006. Strong growth was achieved in the higher-margin textilessegments including medical, clean room, mats, high-visibility and safety workwear. New processing facilities in Amstetten (Austria), Lokeren (Belgium) andBrie Comte Robert (France) were opened on time and to budget. During the firsthalf, the French operation, which is the group's largest single business, wasremoved from the turnaround list and has returned to revenue and profit growth. The UK washroom business remained the most challenged part of the division,undergoing a major re-engineering programme which included the closure ofantiquated processing facilities and subsequent transfer of operations toideally located, modern plants. Following the closure of its loss makinggarments activities in 2006 and wipers business in the second half of 2007, theinfrastructure of the washroom business has been completely changed. Thisbusiness enters 2008 positioned for future growth. Overall, 2007 was a year of strong performance in Pest Control with resultsaccelerating in the last quarter. New sales have driven organic growth acrosscontinental Europe. The investment in sales and marketing, especially inbuilding our on-line presence, has delivered good results. New residentialpropositions were launched in the UK, Belgium, Ireland and Portugal and althoughcurrent contributions are still small we believe they will make a usefulcontribution over the next two to three years. A new operational structure isnow in place in the UK and as a result, the business has increased revenue andgrown its contract portfolio. Returning this business to profit growth in 2008is a priority for the Pest Control division. In the UK, Initial Facilities Services has been an important contributor to thecross-selling of other company services and has provided the infrastructure formuch of the new Shared Service Centre in Dudley serving the majority of thegroup's UK businesses. UK Cleaning continues to perform well and the roll-out ofservice initiatives is helping differentiate the business within its marketswhilst protecting margin. The acquisition of Lancaster has expanded our serviceoffering in the important London office cleaning market. In Catering andHospital Services, lost revenue resulting from the exit of unprofitablecontracts has been offset by new contract wins and profits have improved. The Asia Pacific division achieved strong double-digit growth in 2007, makingconsiderable progress against its plans. Its pest control operations performedparticularly well and the prestigious Hong Kong government contract win (thebiggest in the group's portfolio) in the first half has redefined the industrystandard in the region. During the year we entered the Chinese residential pestcontrol market with the acquisition of Rentokil Taiming in Beijing and launcheda number of service extensions including IT Hygiene, Security and fumigation. Wecontinued to expand our footprint in the world's fastest growing region,entering new markets in Korea, Vietnam, India and Brunei. During the year the group made acquisitions for a gross consideration of £201million. Of this, £74.5 million was spent in the Asia Pacific division deepeningour market positions predominantly in pest control and extending our geographicfootprint into high growth economies including China, Korea, Vietnam and India.Outside Asia Pacific, £42.3 million was spent in strengthening our position inthe international pest control market with the purchase of Presto-X in the USand six operations in Spain, including Ambigest, making Rentokil the country'sleading pest control operation. The level of acquisition activity was scaled back during the year with the focusof attention shifting to the integration of acquisitions made previously andensuring the successful delivery of targeted synergy benefits. Disposalactivity, mainly comprised the successful sale of the group's former ElectronicSecurity Division, produced net proceeds of £596.8 million. Looking forward into 2008, and in view of the unacceptable performance from ourCity Link business, the level of acquisition activity will be significantlylower than over the past two years, allowing the group to rebuild theprofitability and cash contribution of City Link and to progress the operationalimprovements being made across the rest of the business. Efficiency and process improvement has remained an important operational themefor 2007. During the year, Asia Pacific and Textiles & Washroom Services bothlaunched new regional structures to provide greater management focus and crossborder efficiencies. Asia Pacific launched a new three-region structure whileTextiles & Washroom Services launched a seven-region structure (replacing 17head offices in 19 countries). Shared service centres were introduced to provideacross function and divisional customer support benefits. In Pest Control a newtechnical services centre will open in the first quarter of 2008 to support andco-ordinate technical activities across the global pest control operation. One of the more visible demonstrations of the company's turnaround has beenbrand clarity. Today we have a clear use of brand across the entire group. In2007 the launch of Ambius was a major part of the brand development programmeand the response from customers and employees has been exceptional. The Ambiusbrand was launched in 11 countries and will complete the programme on schedulein North America in the first half of 2008. The Rentokil brand is particularlywell known and as part of a brand refresh which was developed in 2007, a new,modern visual identity for vehicles, uniforms, marketing and other brandedelements will begin to roll out in 2008. The online development programme for all group brands continued to make goodprogress in 2007. 75 web sites in local languages and by brand have beenlaunched. Web enquires and traffic both increased significantly during the year.In the UK a greater number of business enquiries for Rentokil services aredelivered through the web than via traditional advertising routes such asbusiness directories. Outlook for 2008 While no business is immune to the impact of a possible global economicdownturn, we expect our Pest Control, Textiles & Washroom, Facilities Services,Asia Pacific and Ambius divisions to deliver modest growth in 2008. City Link's trading in the first weeks of the year remains poor and the trendsseen in the fourth quarter appear to be continuing. As this is a trend business,improvements will take time to come though and profit for 2008 will thereforedepend on the speed with which we can reverse these trends. In January City Linkwas loss making and its adjusted operating profit was £4 million lower than inJanuary 2007. As a result, it is possible that the business may not trade betterthan breakeven levels in 2008. This means that 2008 adjusted profit before income tax for the group is expectedto be significantly lower than 2007 and will be heavily dependent on theperformance from City Link. Our focus this year will be on rebuilding the profitability of City Link andprogressing the operational improvements made across the rest of the group. Weexpect the level of acquisition activity will be significantly less than overthe last two years. OPERATING REVIEW In all cases, references to operating profit are for continuing businessesbefore amortisation of intangible assets (other than computer software anddevelopment costs). References to adjusted operating profit and adjusted profitbefore income tax also exclude items of a one-off nature, totalling a net costof £28.4 million (2006: £22.6 million) that have impacted the results for theperiod. They relate to the group's restructuring programme and consist ofconsultancy, redundancy and reorganisation costs net of the profit on sale ofcertain properties in the UK washroom business. They have been separatelyidentified as they are not considered to be "business as usual" expenses andhave a varying impact on different businesses and reporting periods. An analysisof these costs by division is provided in appendix 4. This commentary reflectsthe management divisional structure and not the statutory segmental information(see note 1c). All comparisons are at constant 2006 full year average exchangerates. Fourth Quarter Revenue for continuing businesses was 11.2% higher than last year at £576.0million. Organic revenue growth declined by 0.6%, held back by City Link.Excluding City Link, organic growth in the quarter was 2.0%. All businessesreported higher revenue than in 2006 except for the Textiles and Washroomdivision which posted a 0.5% decline attributable to our exit from GermanHospital Services and wipers activity in the UK. The quarterly portfolio gain of 1.4% or £21.3 million was made up of newbusiness wins of £38.7 million, acquisitions/disposals of £11.5 million and netadditions/reductions of £16.0 million, offset by terminations of £44.9 million,implying a customer retention rate of 88.2% (2006: 89.3%). Adjusted operating profit grew by 8.7% against the same quarter a year ago to£81.1 million with solid growth in Pest Control, Asia Pacific, FacilitiesServices and Ambius offset by a fall in City Link. Adjusted profit before incometax rose by 8.7% to £63.7 million. Net margin decreased to 11.1% (2006: 11.3%).Statutory profit before income tax was £35.7 million, an increase of 7.5% (2006:£33.2 million). Full Year Full year revenue of £2,216.7 million was 20.3% higher than 2006 with allsegments increasing their revenue. Group organic growth was 3.0% with allbusinesses except City Link reporting positive outcomes for the year. ExcludingCity Link, group organic growth was 3.8% compared with 2.7% in 2006. Thecontract portfolio expanded by £119.2 million or 8.4%. New business winscontributed £173.9 million, acquisitions/disposals £72.7 million and netadditions/reductions £49.6 million whilst terminations were £177.0 million. Thegroup's overall customer retention rate was 87.5% compared to 88.4% for 2006. Adjusted operating profit rose by 8.8% over the year to £280.8 million withgains delivered by City Link as a result of acquisitions, Asia Pacific,Facilities Services and Ambius. Full year profits in Pest Control and Textilesand Washroom were flat, held back in each case by the performance of their UKbusinesses, which remain the subject of turnaround initiatives. In both cases,however, these businesses improved quarter on quarter. Adjusted profit before income tax of £211.4 million represented a 1.1% increaseon last year as second half profit growth offset the decline in first halfprofit at this level. Net margin was 9.5% for the year as a whole, compared with11.3% last year. Although full year margins were lower than 2006, the trend hasbeen improving quarter-by-quarter. Statutory profit before income tax fromcontinuing operations was £142 million (2006: £165.4 million). DIVISIONAL PERFORMANCE Textiles and Washroom Services £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 changeAt 2006 constantexchange rates: Portfolio - net movement(appendix 1) 1.9 6.6 4.7 9.5 Revenue 152.3 153.0 (0.5%) 603.0 595.4 1.3% Operating profit (beforeamortisation ofintangible 28.6 23.7 20.7% 105.9 92.1 15.0%assets (1)) One-off items (1.8) 2.9 - 2.1 16.3 (87.1%) Adjusted operatingprofit(before one-off items and 26.8 26.6 0.8% 108.0 108.4 (0.4%)amortisation ofintangible assets(1))(1)Other than computer software and development costs Although adjusted operating profit was broadly flat compared with 2006, theTextiles and Washroom Services division performed significantly better in 2007.The business was stabilised and returned to year on year profit growth after thefirst quarter. This represents a considerable improvement on 2006 when thedivision posted an 18.7% decline in adjusted operating profit on flat revenue.Revenue growth was 1.3% of which, organic growth was 2.3%. Following a year of flat revenue in 2006 efforts were focused on restoring thedivision to sales growth in 2007 and the business has achieved some steadyportfolio gains throughout the period in continental Europe. 2007 operatingprofit was down on 2006 in the first half of the year but showed modest growthin the second. The UK business, which accounts for 12% of divisional revenue, has remained themost challenged part of the division, undergoing a major re-engineeringprogramme during the year. Following the closure of its loss making linen andgarment activities in 2006, and wipers business in the second half of 2007, theinfrastructure of the washroom business has been completely changed. This was anecessary step in the plan to return this important part of the business togrowth. Although they remain challenging, the market and economic conditions experiencedin continental Europe during 2006 eased slightly with customer garment volumesimproving modestly. Pricing is competitive and we expect it to remain so in2008. During the year we completed a management restructuring of the continentalEuropean business, creating a new role of Operations Director and merging theformer 19-country national structure into seven regions. This move is improvingefficiency and will also help us to develop and manage a number of internationalaccounts. The biggest turnaround programme during 2007 centred on the UK washroom businesswhich underwent major infrastructure changes. In the fourth quarter we announcedthe closure of our plants at Bradford and Chorley allowing us to complete thetransfer of roller-towel and mats processing to three new modern sites inReading, Birmingham and Glasgow by the end of January 2008, and exit the wipersbusiness. The development of these three new laundry plants and a significantnumber of new service centres were major achievements as we exited the year. Thephysical infrastructure changes to this business are now complete. Despite thereorganisation, the UK business was able to reduce the rate of washroomportfolio attrition during the year. The overall effect has been a decelerationin the rate of decline of performance ending with Q4 profit level with prioryear. For the full year, profits were £3.3 million lower than last year, but weenter 2008 with a restructured business positioned for future development. In France, the industrial sector of the textiles business has seen a steadytrend of customer development during the year and as a result the businessexited the year with a number of important contract wins. The revisedorganisational structure put in place during 2006 has restored greater profitand loss accountability within the business, which is the largest contributor toprofit in the division. The washroom business has seen consistent portfoliogrowth throughout the year. This can be attributed to a combination of somecreative client solutions and also the impact of the sale of the CWS business toElis. On the strength of its return to profit and revenue growth (up by £8.0million and 3.8% respectively over 2006) the business was taken off theturnaround list during the year. During the period, the Netherlands business returned to profit and revenuegrowth, posting full year increases of £2.0 million and 2.1% respectively. Thisis a result of a new management team introduced earlier in the year, a smallerbut more effective sales team and an improving contract portfolio position. In last year's report we announced plans to exit our loss-making hospitalservices business in Germany. We secured a successful exit from the business inthe fourth quarter of the year. This led to a 6.9% decline in revenue comparedto the prior year, but has assisted profit which is up £0.8 million in the year. Revenue increased in the division's business in Belgium by 3.2% over last yearbut higher costs associated with the settling down of the new plant at Lokerenresulted in a decline in adjusted operating profit in the second half, whichheld full year profits growth to £0.2 million. All of the division's smaller continental European businesses recorded higherrevenue in 2007 and, in general, higher profits. The change from a country to aregional management structure will help reduce overheads in these businesses in2008. Some small acquisitions have been undertaken during the year in Poland andSweden to build scale. A number of capital investment programmes continued in continental Europe in2007. The developments in Amstetten in Austria, Lokeren in Belgium andBrie-Comte Robert in France were all completed to budget and on time. A newplant for Prague in the Czech Republic continues in development and is due toopen on schedule in the autumn of 2008. The total investment associated withthese projects is estimated to be £21.0 million, of which £17.5 million wasspent in 2006 and 2007 with the balance to follow in 2008. Restructuring and other one-off costs in the division were a net £2.1 million(2006: £16.3 million), because costs were offset by the profit on sale ofsurplus UK washroom property of £10.7 million. Costs were incurred in plantclosure in Belgium, the closure of the wipers business in the UK, UK branchclosures and management reorganisation and redundancy. The division continues toexplore opportunities to improve procurement and supply chain efficiency, but itis not yet clear whether this will result in restructuring or other one-offcosts being incurred in 2008. Pest Control £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 change At 2006 constant exchangerates: Portfolio - net movement(appendix 1) 3.3 1.0 33.4 53.3 Revenue 80.9 69.9 15.7% 310.4 278.3 11.5% Operating profit (beforeamortisation of intangibleassets (1)) 17.8 10.8 64.8% 65.4 61.4 6.5% One-off items - 4.6 - 0.7 6.8 (89.7%) Adjusted operating profit(before one-off items andamortisation of intangibleassets (1)) 17.8 15.4 15.6% 66.1 68.2 (3.1%)(1)Other than computer software and development costs Overall, 2007 was a year of strong performance in Pest Control with resultsaccelerating as anticipated in the last three months of the year. Fourth quarteradjusted operating profit increased by 15.6% on revenue up 15.7% year on year.The major drivers of improvement in Q4 were the tighter management of off-seasonproductivity in North America, contributions from Presto-X in-line with theacquisition business case and strong growth, both organic and acquired, inEurope. Full year revenue increased by 11.5% and adjusted operating profit wasdown 3.1% on 2006. However, had it not been for the impact of the inclusion of afull first quarter of seasonal losses in the US business acquired on 1 March2006, profit would have shown an improvement year on year. In addition,comparisons with 2006 reflect the transfer of R&D costs previously bornecentrally to the division which took place at the end of 2006 and which amountedto some £3.0 million per annum. Divisional margin performance improved as theyear progressed, beginning the year 9.5 percentage points down on Q1 2006 andclosing at the same levels as Q4 2006. The new Rentokil.com website was successfully rolled out to Rentokil brandedbusinesses representing 91% of divisional revenue. By December we wereexperiencing a fourfold increase in the number of visitors to the site over theprevious year and web-based enquiries are now higher than enquiries sourced fromthe Yellow Pages in both the UK and Spain. During 2007 we launched new residential propositions in the UK, Belgium, Irelandand Portugal and, whilst outside North America the overall contribution fromthese customers is still small, we believe we now have the makings of aresidential service offering which will make a useful contribution in the mediumterm. Divisional spend on acquisitions in the year was £42.3 million. The majoracquisitions were Presto-X in North America and a further six in Spain includingAmbigest, which together made Rentokil Spain's leading pest control operation. Continental Europe continued to build on the progress delivered in 2005 and 2006and demonstrated a strong performance throughout the year. Revenue grew by 10%driving profit growth of £2.9 million. Overall organic growth was 5.7% and wasparticularly good in the important markets of Spain (10.6%), Italy (7.6%),Ireland (9.3%) and the Netherlands (7.3%). In addition, good progress was madein gaining market share through acquisitions in Spain, Italy, Germany and France. During the year we also took our first step into the Baltic States, entering Estonia through the acquisition of two small businesses. During the year we completed the extensive reorganisation of our UK pest controlbusiness. Its new management team has focused on growing the business by drivingsales and improving customer retention through higher quality service delivery.Against 2006, Q4 revenue grew by 5.8% (against a decline of 9.6% in Q1).Retention levels strengthened further during the quarter to an annualised rateof 81.8% and the contract portfolio has now grown by 2.5% since the beginning of2007. Q4 profit, however, still lagged 2006 by £0.6 million as the businessadjusted to its new operating model, but represents a significant improvement onthe £1.2 million decline posted in Q1. Returning this business to profit growthin 2008 is a priority for the Pest Control division. North America recovered from a weak start to finish strongly. The cool weatherand a late start to the season adversely impacted profit in the first half, butactions to improve J C Ehrlich's off-season productivity in Q4 have been partlyresponsible for improving profit by 12.0% on like for like revenue up by 6.2% on2006. Although still early days since acquisition, Presto-X is delivering toexpectations and we are confident that we have acquired a high-quality businessthat expands our national footprint in the United States into an additional 16states. This is a continuation of our strategy to build market share throughregional anchors delivering both residential and commercial pest control. Copesan, a US organisation of independent pest control companies has recentlytaken steps to exclude JC Ehrlich and Presto-X from membership. This matter isunder negotiation but represents a small risk to the division's US revenue basein the short-term. The recent indications of economic slowdown have not yet impacted demand forpest control services and at this stage we anticipate largely unchanged marketconditions for 2008. We will continue to focus on growing organically throughimproved sales and marketing capability, better and more integrated systems andhigh levels of customer service. City Link £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 changeAt 2006 constantexchange rates: Revenue 106.5 86.9 22.6% 417.1 213.3 95.5% Operating profit (beforeamortisation ofintangible (13.4) 14.3 - 19.4 34.8 (44.3%)assets(1)) One-off items 19.7 1.3 - 25.4 1.3 - Adjusted operatingprofit(before one-off itemsand 6.3 15.6 (59.6%) 44.8 36.1 24.1%amortisation ofintangibleassets (1))(1)Other than computer software and development costs Revenue from City Link increased by 95.5% during 2007 delivering a 24.1%increase in adjusted operating profit before tax, reflecting the impact of theacquisitions of the former City Link franchises and Target Express business.Network turnover grew only by a modest 1.9% during the year, depressed as aresult of poor volumes in the fourth quarter when the expected surge of volumesin the approach to Christmas did not occur. Until October, City Link's performance tracked budget month-by-month and thebusiness exited the third quarter with network growth up 4.7%. However inDecember we issued a trading statement stating that fourth quarter profits werelikely to be up to £10 million below our expectations as a result of a furthervolume decline in the B to C segment in the ten weeks before Christmas. Weattributed this slowdown to weaker consumer spending in a challenging retailenvironment. Since then we have conducted a detailed analysis into the trends in City Link'srevenue base. We have concluded that although there was an impact fromdowntrading in the business to consumer segment of the business, this playedonly a part in a downturn that can essentially be attributed to the fact thatthe integration programme tried to do too much too quickly without establishinga sound base. This had the effect of impacting service. In addition, some of theactions we undertook, most notably with the former City Link franchises, were inthe wrong direction. The fourth quarter profit shortfall anticipated at the time of the Decembertrading statement can be explained as follows. Revenues during the period fellwell short of expectation as a result of down trading by existing customers, amodest increase in customer attrition and the fact that this lost revenue wasnot replaced by sales generated from new business. In addition, the UK parcelsindustry has over the years experienced a gradual decline in revenue perconsignment (RPC) - our measure of average price. Historically this has not hada detrimental effect on City Link profits because strong volume growth and thebenefits from operational leverage on our fixed cost base have offset priceerosion. However in 2007, City Link's network RPC fell somewhat further thanexpected and this combination of lower volumes at cheaper RPC is the principalreason for the Q4 profit shortfall. This was further compounded by the fact thatCity Link carried excess cost in the fourth quarter in anticipation of thepre-Christmas surge in volumes which failed to materialise. The business's foundation for integration was not solid enough to cope with thedegree of changes being put through the combined networks and the depotintegration programme had a temporary negative impact on service levels, mostnotably around the time of the introduction of cage handling into the TargetExpress network and the integration pilot in the late summer. As a result wehave lost some customers, unsettled others causing them to down trade with usand issued an increased number of service credits as compensation for poorservice. These service credits exacerbated the fall in RPC. A hiatus in salesmanagement during the first half of the year also led to an inadequate newbusiness pipeline. In addition to the mid-year service issues described above, poor accountmanagement of the small to mid-size ex-franchise customers may be the principalreason for the lost business highlighted above. The move from a local to morecentralised account management system unsettled customers who had formed strongrelationships with former franchisees, most of whom left the business postacquisition. In addition, as we moved to integrate depots, relevant managementpositions were not appointed quickly enough to take effective ownership of theiradditional new customer base. The issues outlined above became apparent very suddenly and with no obviouswarning and have seriously impacted the financial performance of City Link. Thebusiness tracked budget until the beginning of October and was actuallyforecasting an above-budget full year out-turn until August. Despite regularreviews and updates, nothing untoward came to light or was expected. Theunderlying issues were masked by increased volumes of business from ourcontinuing customers. When that trend reversed in the fourth quarter this,combined with poor new business generation, caused a sudden and marked effect onrevenue and profit. We have taken immediate action to address these issues. Peter Cvetkovic, theformer CEO of Target Express, replaced Michael Cooke as Managing Director on 18February 2008 with a clear focus on restoring the profitability of the business.In order to ensure continuity of customer service we have taken the decision topause on the depot rationalisation programme until such time as our systems,processes and account management have been improved. We will however continuewith Phase One of the integration, the roll out of mechanical handling equipmentand handheld consignment scanners, as they are delivering service andoperational benefits within the depots. Other actions undertaken since December include the roll-out of a new accountmanagement structure which aims to build direct relationships between customersand their local depots. The account management team is being furtherstrengthened by new appointments and CRM training programmes for both new andexisting managers, are currently underway. A new senior leadership team is in place within City Link's sales & marketingoperation and has created a stronger pipeline of new business prospects than in2007, converting several into new customers within the last eight weeks.Recruitment for field sales is ongoing. The mid-year service issues experienced at the time of the depot closure pilotand the change to cage handling in the Target Express network have beenresolved. The operation of the hubs, their sort times and last trunk arrivals ison plan. The roll-out of hand-held, real-time proof of delivery equipment isresulting in faster, better and more transparent service information, andimproved depot scanners are ensuring end-to-end visibility and control. Aproject is nearing completion to allow online updating of autogazetteers oncustomer sites which will help ensure that timed deliveries are not delayed byincorrect labelling and routing. Although we have made tangible progress in addressing the problems that havebeen discovered since the trading downturn at the end of last year, it is clearthat there is much to do to restore the enlarged City Link business back to itsformer profitability. The challenging conditions experienced in the fourth quarter have continued intothis year in terms of revenue, RPC and, to an extent, cost. As this is a trendbusiness, improvements will take time to come though and profit for 2008 willtherefore depend on the speed with which we can reverse these trends. In January2008 City Link was loss making and its adjusted operating profit was £4.0million lower than January 2007. It is possible that the business may not tradebetter than breakeven levels in 2008. For the five years up to 2006, City Link and Target Express businesses were theUK's leading and fastest growing overnight parcels delivery businesses,consistently outpacing market growth. Their positioning, service profiles andgeographies represented a tight fit and the economies of putting the twobusinesses together looked compelling. Our problem has been in execution of theplan. Despite the business's unacceptable short-term financial performance, thenew management team is highly motivated to achieve its original financial goalsand potential. Our priorities for 2008 will be on delivering strong accountmanagement for customers, improving customer facing systems and processes andensuring that our information systems provide greater visibility and control. City Link has incurred one-off integration costs of £25.4 million in 2007 (2006:£1.3 million). The largest component of this, £16.2 million, is a provision forthe costs of exiting the surplus leasehold depots. The remaining non-propertyintegration costs are estimated at around £5.0 million. Our estimate of theeventual synergies from the integration remains unchanged at not less than £15million per annum. However, the timing of these benefits and integration costsis dependent on the branch integration timetable. This is under review. Ambius £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 change At 2006 constant exchangerates: Portfolio - net movement(appendix 1) - 1.9 1.8 3.9 Revenue 34.1 32.1 6.2% 112.4 105.8 6.2% Operating profit (beforeamortisation of intangibleassets (1)) 5.1 4.2 21.4% 9.1 7.4 23.0% One-off items - 0.3 - - 0.6 - Adjusted operating profit(before one-off items andamortisation of intangibleassets (1)) 5.1 4.5 13.3% 9.1 8.0 13.8%(1) Other than computer software and development costs 2007 was a significant year for the business. All 11 European countries in whichwe operate were re-branded to Ambius and North America will follow in the firstquarter of 2008. Ambius' total revenue of £112.4 million for the full year represented anincrease of 6.2% over 2006, generating adjusted operating profit of £9.1million, an increase of 13.8% over prior year. Operating margin increased from7.6% in 2006 to 8.1%, despite the £1.0 million of re-branding costs chargedagainst operating costs. The North American business, the division's largest operation and representing57% of 2007 revenues, continued to build on the solid progress achieved in 2006.This business is the only player in the market able to offer a national serviceto large, multi-site organisations. Revenue grew by 6.4% during the period, aresult of a 2.0% increase in contract portfolio and a 10% increase in job sales.A combination of strict control on costs and record sales of higher-marginChristmas items generated a growth in profit of 17.3%. With the exception of the UK, Europe delivered excellent performance growingrevenue by 9.9% leading to profit improvement of 68.8%. Revenue and profit inthe UK declined 5.6% and 29.2% respectively year on year but the new managementteam recruited in 2007 is making progress in addressing performance issues inthis market. Quarterly revenue trends are now improving, although this has yetto show through to profits. During the course of 2007, Ambius made a number of acquisitions for aconsideration of £3.1 million. In addition, it has expanded its product andservice offerings to include ambient scenting, art sales and rentals, freshfruit baskets delivery and online order and delivery of fresh cut flowers inselected markets. The business has some exposure to economic downturn in the US which could affectplant sales and customer retention in affected segments (e.g. financialinstitutions). However, despite weakened consumer confidence towards the end of2007, Ambius produced record sales in the approach to Christmas. We are seeingless evidence of economic pressure in Europe. Brand extension services acrossthe business will aim to offset any downturn in trading. Facilities Services £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 changeAt 2006 constantexchange rates: Portfolio - netmovement 11.1 32.4 47.0 62.9(appendix 1) Revenue 151.3 138.6 9.2% 585.7 519.2 12.8% Operating profit(beforeamortisation of 11.3 5.7 98.2% 38.7 27.4 41.2%intangibleassets(1)) One-off items 0.2 2.4 (91.7%) 0.2 3.8 (94.7%) Adjusted operatingprofit(before one-off itemsand 11.5 8.1 42.0% 38.9 31.2 24.7%amortisation ofintangible assets(1))(1)Other than computer software and development costs Initial Facilities Services delivered a good performance in 2007, increasingrevenue by 12.8% and adjusted operating profit by 24.7%. The Netherlandscleaning business was sold in the third quarter. Excluding acquisitions anddisposals, revenue grew organically by 3.9%. The focus on expanding groupservices into existing customers, an activity in which this division takes thelead, is also beginning to show rewards. In the UK, Cleaning revenue increased by 22.1% to £318.8 million (2006: £261million), largely as a result of increased contract turnover and portfoliogrowth coming from the acquisitions of InSitu and Lancaster. Adjusted operatingprofit from Cleaning was £2.3 million higher than in 2006 due principally tohigher volumes and acquisitions. Margins remain under pressure and managementremains focused on cost and productivity. We are implementing a number ofservice initiatives including the "SmartClean" daytime cleaning concept; RAPIDcustomer account management - an industry first in remote management of cleaningcontracts; and streamlining our operating structure to offset price pressure.Annualised customer retention rates fell in the second half largely as a resultof one major loss and a 25% reduction in contract scope by our largest customer. During the year, revenues in the catering service business declined to £59.7mfollowing our decision to exit a number of unprofitable schools contracts.Contract wins effective from Q4 will offset much of this revenue loss and atbetter margins. The catering business is now profitable (it made a loss of £0.8min 2006) due to both the above factors and the success of procurementinitiatives on food purchasing and distribution. Hospital Services, which provides cleaning, catering and porterage services toNHS hospitals in the UK and independent healthcare sector, recorded revenue up10.5% at £62.8 million and profit up 33.8%. Focus has been on improvingefficiency generally and addressing a number of unprofitable contracts. Our specialist hygiene businesses increased revenues by 26% to £52.0 million andprofit by £1.1 million, largely as a result of the acquisition of Technivap inFrance in January 2007. Improved profitability in Catering and Hygiene Services offset the continuedmargin pressure in UK Cleaning to give a divisional margin of 6.6% for 2007,compared with 6.0% for the prior year. In UK Cleaning, market conditions during 2008 are expected to remain unchangedon 2007 with pressure on margins continuing, particularly in the retail sector.We continue to roll out service initiatives across the business to add value anddifferentiate ourselves from competitors. Retention and new business will be akey focus for 2008. In Catering the focus for growth is on the business andindustry segment but returns on education contracts are improving. In HospitalServices we will continue to focus on growth opportunities outside the NHS. Asia Pacific £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 change At 2006 constant exchangerates: Portfolio - net movement(appendix 1) 4.7 7.7 30.2 22.0 Revenue 43.1 30.0 43.7% 158.3 102.1 55.0% Operating profit (beforeamortisation of intangibleassets (1)) 10.2 5.8 75.9% 31.0 20.2 53.5% One-off items - 2.2 - - 3.4 - Adjusted operating profit(before one-off items andamortisation of intangibleassets(1)) 10.2 8.0 27.5% 31.0 23.6 31.4%(1)Other than computer software and development costs Asia Pacific achieved strong double-digit growth in 2007 with revenue up 55% at£158.3 million and adjusted profits up 31.4% at £31 million. Organic revenuegrowth was 12.0% compared with 5.7% for 2006. The division's contract portfoliogrew by 29.3%, 18.2% excluding acquisitions. The strongest revenue and profitgrowth came from Rentokil Pest Control. Rentokil Pest Control continued to demonstrate strong performance and achievedtriple-digit growth in revenue and profit, boosted by the Hong Kong Governmentpest control contract and strong organic growth and acquisitions in Australia,New Zealand, Malaysia, Singapore, Thailand and China. The financial andcommercial performance of Rentokil Taiming (China) and Rentokil Ding Sharn (Taiwan) have been particularly encouraging. Pest Control revenue was £64.8million (2006: £31.5 million). Initial Washroom Services ended the year well ahead of 2006, achievingdouble-digit growth in revenue and profit in its key markets of Australia,Singapore, Malaysia, Indonesia and Hong Kong. Washroom revenue (excluding ourassociate in Japan) was £74 million (2006: £61.7 million). Ambius tropical plants in Australia demonstrated solid progress with bothrevenue and profit more than double last year as a result of strong organicgrowth and acquisition activity during the year. During the year we continued our strategy of building stronger market positionsto expand our footprint, investing £74.5 million on acquisitions. The largesttransaction was Campbell Brothers, an Australian pest control business. Othernotable acquisitions included Taiming Pest Control in China, One-Stop Fumigationand Pesterminator in Singapore. In 2008 we continue to expect growth ahead of the western economies.Approximately two-thirds of the division's profits are currently sourced inAustralia, where we continue to see opportunities to improve the performance ofour business. However, growth in North Asia and South East Asia is running wellahead of Australia and over time the balance of the division's businesses willshift towards Asia. Other (South Africa) £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 change At 2006 constant exchangerates: Portfolio - net movement(appendix 1) 0.3 0.1 2.1 1.3 Revenue 7.8 7.3 6.8% 29.8 29.1 2.4% Operating profit (beforeamortisation of intangibleassets(1)) 3.3 3.0 10.0% 11.4 11.8 (3.4%) One-off items - 0.4 - - (0.4) - Adjusted operating profit(before one-off items andamortisation of intangibleassets(1)) 3.3 3.4 (2.9%) 11.4 11.4 -(1)Other than computer software and development costs Adjusted operating profit in the South African business was unchanged from 2006although revenue increased by 2.4%. The Pest Control division was the maindriver of growth, increasing revenue by 11.2% and adjusted profit by 14.6%. Theturnaround of the larger Initial Washroom division has been the main focus ofthe year where turnover and adjusted profit were flat. However, profitperformance against the prior year has been improving during 2007 and we expectfurther gains in 2008. FINANCIAL ITEMS Central Costs £ million Fourth Quarter Full Year 2007 2006 change 2007 2006 change At 2006 constant exchangerates: Central costs 0.1 (9.6) - (28.5) (19.5) (46.2%) One-off items - 2.6 - - (9.2) - Central costs before one-offitems 0.1 (7.0) - (28.5) (28.7) (0.7%) Central costs for the quarter were £7.1 million below the same quarter lastyear, mainly as a result of the partial reversal of 2006 and 2007 LTIP charges,the reassessment of bonus and similar provisions (reflecting lower-than-expectedprofits for the year) and the release of certain property provisions due tofavourable changes in sub-let income. In the full year, there were a number ofnon-recurring charges and credits which have not been treated as one-off itemsas they are not linked to the group's restructuring programme. The largest twoitems which occurred in the second quarter were an asset retirement, togetherwith associated charges, of £10 million and the £10 million net release ofsurplus property and environmental provisions. This followed a successful exitfrom onerous lease liabilities at a large site in Maldon, Essex. A cash paymentof £13.2 million was made and the associated provisions were released. Inaddition, start-up costs of some £3.0 million were incurred in the first half onsetting up the UK Shared Service Centre in Dudley. The run-rate of central costsis expected to be around £9.0 million per quarter in 2008. One-off Items Details of the one-off items incurred in the period for which adjustments havebeen made are set out in Appendix 4. They relate to the group's restructuringprogramme and consist of consultancy, redundancy and reorganisation costs net ofthe profit on sale of certain properties in the UK washroom business. They havebeen separately identified as they are not considered to be "business as usual"expenses and have a varying impact on different businesses and reportingperiods. Across the group, the net cost of these one-off items for the year was £28.4million, compared with £22.6 million last year. This represents costs of £39.1million offset by profit of £10.7 million on the disposal of surplus UK washroomproperties. Of the costs, £25.4 million related to the integration of City Linkand Target Express. Another £12.8 million was incurred in the rationalisation ofTextiles and Washroom with a further £0.9 million to complete the UK PestControl and Facilities Services rationalisation programmes. £18.3 million of theCity Link integration costs are provisions for the estimated cost of exitingsurplus leasehold depots. Interest Net interest payable for the year was £71.9 million, a £20.8 million increaseover the prior year. Of the increase, approximately £6.1 million wasattributable to higher levels of average debt and £14.7 million to effectiveinterest rates which were, on average, approximately 1.3% higher than in 2006. The interest charge was reduced by approximately £7.7 million in the thirdquarter and approximately £8.7 million in the fourth quarter as a result of thereceipt of £533 million in early July and £92 million in late December followingthe sale of the group's Electronic Security division. Approximately £800 millionof the group's forecast debt is at fixed rates of interest averaging 5.8%. Thebalance is exposed to LIBOR. Tax The blended headline rate for 2007 was 30.0% (2006: 30.7%). This represents theweighted headline tax rates appropriate to the countries in which the groupoperates. The income statement tax charge for 2007 for continuing businesses was21.3% of profit before tax from continuing operations, compared with 20.1% for2006. The principal factor that caused the effective tax rate to be lower thanthe blended rate is the release of provisions for prior year items as thepositions are now agreed with the relevant tax authorities. The blended headlinerate for 2008 is expected to be approximately 29.3%. Discontinued Operations Our Electronic Security division was sold during the year at a headline price of£595 million. The sales of the UK, Netherlands and US businesses were completedin early July 2007 and the French business completed in December, followingregulatory approval by the French authorities. As a result the activities of thedivision have been treated as discontinued operations and excluded from theprofit before income tax shown on page 2. Revenue from the Electronic Securitydivision for the periods to completion was £181.2 million, generating adjustedoperating profit of £25.7 million before amortisation of intangible assets(excluding computer software and development costs). Profit on sale of thedivision was £524.8 million on which no tax is expected to be paid. Dividends The board has recommended an unchanged final dividend of 5.25p per share which,if approved, will be payable on 23 May 2008 to shareholders on the Register on18 April 2008. The total dividend for the year will be 7.38p, the same as lastyear. The board's dividend policy remains unchanged and the dividend will not beincreased until the group returns to sustainable profitable growth. Cash Flow and Debt Operating cash flow was £188.1 million compared with £211 million in the prioryear. Although EBITDA was £36.2 million better than last year (reflecting thenon-recurrence of losses incurred in the UK linen and workwear business in 2006and partially offset by the disposal of Electronic Security in July 2007), theworking capital and net capex outflows were £46 million and £13.1 million worsethan 2006, leaving operating cash flow £22.9 million below last year. Theworking capital outflow has three main components: the payment made to exit theonerous property in Essex; the cash payment in 2007 of certain reorganisationcosts provided at the end of 2006; and an increase in trade receivablesconsistent with the increase in fourth quarter revenues. Free cash flow was £102.1 million (2006: £128.6 million) reflecting lower nettax payments following the receipt of certain refunds in the first half. Acquisition activity resulted in a cash outflow of £197.4 million for the yearwith receipts from disposals (mainly Electronic Security) producing an inflow of£596.8 million. Payments of £80 million were made to, or for the benefit of, theUK Pension Scheme during the year. At 31 December, net debt was £947.1 million. The group currently has £852million of committed bank finance with available headroom of £775 million at theend of February 2008. This is adequate to deal with the group's foreseeablerequirements and also to provide cover for 2008's capital market maturities(€100 million in July 2008 and £250 million in November 2008) in the event thatthe debt capital markets remain difficult for the remainder of the year. Appendix 1 ANNUAL CONTRACT PORTFOLIO - CONTINUING BUSINESSES 3 months to 31 December 2007 (unaudited)£m at constant 2006exchange rates 1.10.07 New Terminations Net Acquisitions/ 31.12.07 Business Additions/ Disposals Reductions Textiles &WashroomServices 574.3 13.7 (17.2) 3.3 2.1 576.2Pest Control 244.5 8.8 (9.2) 2.2 1.5 247.8Ambius 90.1 1.9 (3.2) 0.8 0.5 90.1 FacilitiesServices* 450.3 8.4 (10.5) 7.7 5.5 461.4Asia Pacific** 128.6 5.0 (3.7) 1.5 1.9 133.3 Other 28.5 0.9 (1.1) 0.5 - 28.8 TOTAL 1,516.3 38.7 (44.9) 16.0 11.5 1,537.6 12 months to 31 December 2007 (unaudited)£m at constant 2006exchange rates 1.10.07 New Terminations Net Acquisitions/ 31.12.07 Business Additions/ Disposals ReductionsTextiles &WashroomServices 571.5 54.6 (57.2) 14.8 (7.5) 576.2Pest Control 214.4 35.1 (33.2) 9.3 22.2 247.8Ambius 88.3 7.6 (11.0) 3.5 1.7 90.1 FacilitiesServices* 414.4 43.7 (57.3) 15.7 44.9 461.4Asia Pacific 103.1 29.6 (14.4) 3.6 11.4 133.3 Other** 26.7 3.3 (3.9) 2.7 - 28.8 TOTAL 1,418.4 173.9 (177.0) 49.6 72.7 1,537.6 Notes Contract portfolio definition: Customer contracts are usually either "fixedprice", "as-used" (based on volume) or mixed contracts. Contract portfolio isthe measure of the annualised value of these customer contracts. Contract portfolio valuation: The contract portfolio value is typically recordedas the annual value from the customer contract. However, in some cases -especially "as-used" (based on volume) and mixed contracts - estimates arerequired in order to derive the contract portfolio value. The key points inrespect of valuation are: "As-used" contracts: These are more typical in Textiles and Washroom Services,where elements of the contract are often variable and based on usage. Valuationis based on historic data (where available) or forecast values. Income annualisation: In some instances, where for example the underlyingcontract systems cannot value portfolio or there is a significant "as-used"element, the portfolio valuation is calculated using an invoice annualisationmethod. Inter-company: The contract portfolio figures include an element ofinter-company revenue. Job work and extras: Many of the contracts within the contract portfolio includead hoc and/or repeat job work and extras. These values are excluded from thecontract portfolio. Rebates: The contract portfolio value is gross of customer rebates. These areconsidered as a normal part of trading and are therefore not removed from theportfolio valuation. New business: Represents new contractual arrangements in the period, which caneither be new contracts with an existing customer or with a new customer. Terminations: Represent the cessation of either a specific existing customercontract or the complete cessation of business with a customer in the period. Net additions/reductions: Represents net change to the value of existingcustomer contracts in the period as a result of changes (either up or down) involume and/or pricing. Acquisitions: Represents the valuation of customer contracts obtained fromacquisitions made in the period. Appendix 2 Divisional Analysis (at constant exchange rates)(based upon the way businesses are managed) 3 months to 3 months to Year ended Year ended 31 December 31 December 31 December 31 December 2007 2006 2007 2006(at 2006 constant £m £m £m £mexchange rates) (unaudited) (unaudited) (unaudited) (audited) Business Analysis Revenue Textiles & WashroomServices 152.3 153.0 603.0 595.4 Pest Control 80.9 69.9 310.4 278.3 Ambius 34.1 32.1 112.4 105.8 City Link 106.5 86.9 417.1 213.3 Facilities Services 151.3 138.6 585.7 519.2 Asia Pacific 43.1 30.0 158.3 102.1 Other 7.8 7.3 29.8 29.1 Continuing operations at2006 constant exchange 576.0 517.8 2,216.7 1,843.2rates Exchange 3.7 (5.4) (13.3) -Continuing operations atactual exchange rates 579.7 512.4 2,203.4 1,843.2 Operating profit* Textiles & WashroomServices 28.6 23.7 105.9 92.1 Pest Control 17.8 10.8 65.4 61.4 Ambius 5.1 4.2 9.1 7.4 City Link (13.4) 14.3 19.4 34.8 Facilities Services 11.3 5.7 38.7 27.4 Asia Pacific 10.2 5.8 31.0 20.2 Other 3.3 3.0 11.4 11.8 Central costs 0.1 (9.6) (28.5) (19.5) Continuing operations at2006 constant exchange 63.0 57.9 252.4 235.6rates Exchange 1.0 (1.1) (1.3) - Continuing operations at 64.0 56.8 251.1 235.6actual exchange rates Adjusted operating profit** Textiles & WashroomServices 26.8 26.6 108.0 108.4 Pest Control 17.8 15.4 66.1 68.2 Ambius 5.1 4.5 9.1 8.0 City Link 6.3 15.6 44.8 36.1 Facilities Services 11.5 8.1 38.9 31.2 Asia Pacific 10.2 8.0 31.0 23.6 Other 3.3 3.4 11.4 11.4 Central costs 0.1 (7.0) (28.5) (28.7) Continuing operations at2006 constant exchange 81.1 74.6 280.8 258.2rates Exchange 1.0 (1.1) (1.3) - Continuing operations at 82.1 73.5 279.5 258.2actual exchange rates * Before amortisation of intangible assets other than computer software anddevelopment costs. ** Before amortisation of intangible assets other than computer software anddevelopment costs and items of a one-off nature (see appendix 4 for furtherdetails). Appendix 3 Divisional Analysis (at actual exchange rates)(based upon the way businesses are managed) 3 months to 3 months to Year ended Year ended 31 December 31 December 31 December 31 December 2007 2006 2007 2006(at actual exchange £m £m £m £mrates) (unaudited) (unaudited) (unaudited) (audited) Business Analysis Revenue Textiles & WashroomServices 157.6 151.2 605.5 595.4 Pest Control 79.8 68.5 302.7 278.3 Ambius 32.6 31.3 107.4 105.8 City Link 106.5 86.9 417.1 213.3 Facilities Services 152.3 138.4 586.2 519.2 Asia Pacific 43.9 29.6 158.0 102.1 Other 7.0 6.5 26.5 29.1 Continuing operations at 579.7 512.4 2,203.4 1,843.2actual exchange rates Operating profit* Textiles & WashroomServices 29.7 23.4 106.4 92.1 Pest Control 18.0 10.5 64.8 61.4 Ambius 4.9 4.1 8.7 7.4 City Link (13.4) 14.3 19.4 34.8 Facilities Services 11.3 5.7 38.7 27.4 Asia Pacific 10.5 5.7 31.4 20.2 Other 3.0 2.7 10.2 11.8 Central costs - (9.6) (28.5) (19.5) Continuing operations at 64.0 56.8 251.1 235.6actual exchange rates Adjusted operating profit** Textiles & WashroomServices 27.9 26.3 108.5 108.4 Pest Control 18.0 15.1 65.5 68.2 Ambius 4.9 4.4 8.7 8.0 City Link 6.3 15.6 44.8 36.1 Facilities Services 11.5 8.1 38.9 31.2 Asia Pacific 10.5 7.9 31.4 23.6 Other 3.0 3.1 10.2 11.4 Central costs - (7.0) (28.5) (28.7) Continuing operations at 82.1 73.5 279.5 258.2actual exchange rates * Before amortisation of intangible assets other than computer software and development costs. ** Before amortisation of intangible assets other than computer software anddevelopment costs and items of a one-off nature (see appendix 4 for further details). Appendix 4 One-off Items 3 months to 3 months to Year ended Year ended 31 December 31 December 31 December 31 December 2007 2006 2007 2006 £m £m £m £m (unaudited) (unaudited) (unaudited) (audited) Textiles & WashroomServices 1.8 (2.9) (2.1) (16.3) Pest Control - (4.6) (0.7) (6.8) Ambius - (0.3) - (0.6) City Link (19.7) (1.3) (25.4) (1.3) Facilities Services (0.2) (2.4) (0.2) (3.8) Asia Pacific - (2.2) - (3.4) Other - (0.4) - 0.4 Central costs - (2.6) - 9.2 (18.1) (16.7) (28.4) (22.6) Note: All numbers are at both actual and constant exchange rates. Consolidated Income StatementFor the year ended 31 December 2007 2006 Notes £m £m (unaudited) (audited) Continuing operations: Revenue 1 2,203.4 1,843.2 Operating expenses (1,991.5) (1,628.7)Operating profit 211.9 214.5 Analysed as: Operating profit before amortisation ofintangible assets* 251.1 235.6 Amortisation of intangible (39.2) (21.1)assets* Operating profit 211.9 214.5 Interest payable and 2 (140.4) (112.3)similar charges Interest receivable 3 68.5 61.2 Share of profit fromassociates (net of tax) 2.0 2.0 Profit before income tax 142.0 165.4 Income tax expense 4 (30.3) (33.3) Profit for the year fromcontinuing operations 111.7 132.1 Discontinued operations: Profit for the year fromdiscontinued 5 546.8 115.0operations Profit for the year (includingdiscontinued operations) 658.5 247.1 Attributable to: Minority interest 2.2 2.0 Equity holders of the company 656.3 245.1 658.5 247.1 Basic earnings per share - Continuing operations 6 6.06p 7.20p - Discontinued operations 6 30.26p 6.37p - Continuing and 6 36.32p 13.57p discontinued operations Diluted earnings per share - Continuing operations 6 6.06p 7.20p - Discontinued operations 6 30.26p 6.37p - Continuing and 6 36.32p 13.57p discontinued operations * Excluding computer software and development costs. An interim dividend of 2.13p per share was paid on 19 October 2007 (total £38.5m) and the board is recommending the declaration of a final dividend of 5.25pper share, bringing the full year dividend to 7.38p per share (total £133.4m).See note 7. Consolidated Statement of Recognised Income and ExpenseFor the year ended 31 December 2007 2006 £m £m (unaudited) (audited)Profit for the year (includingdiscontinued operations) 658.5 247.1 Net exchange adjustments offset 3.2 (10.1)in reserves Actuarial gain on defined benefitpension plans 88.8 44.6 Revaluation ofavailable-for-sale 1.3 0.1investments Tax on items taken directly to (24.1) (13.1)reserves Net profit not recognised in incomestatement 69.2 21.5 Total recognised income for the year 727.7 268.6 Attributable to:Minority interest 2.2 2.0Equity holders of the company 725.5 266.6 727.7 268.6 Consolidated Balance SheetAt 31 December 2007 2006 Notes £m £m (unaudited) (audited)Assets Non-current assets Intangible assets 8 683.0 559.1Property, plant and equipment 9 561.2 513.1Investments in associated undertakings 5.7 8.6Other investments 3.1 6.8Deferred tax assets 7.9 7.1Retirement benefits 12 63.9 -Trade and other receivables 24.2 24.7 1,349.0 1,119.4 Current assets Inventory 38.4 46.9Trade and other receivables 476.4 482.6Derivative financial instruments 0.8 8.0Cash and cash equivalents 10 95.7 135.1 611.3 672.6 Liabilities Current liabilities Trade and other payables (485.3) (553.2)Current tax liabilities (103.1) (103.6)Provisions for other liabilities andcharges 13 (50.7) (22.3)Bank and other short-term borrowings 11 (380.4) (446.0) Derivative financial instruments (14.4) (4.6) (1,033.9) (1,129.7) Net current liabilities (422.6) (457.1) Non-current liabilities Trade and other payables (17.7) (15.8)Bank and other long-term borrowings 11 (662.4) (877.3)Deferred tax liabilities (98.5) (45.0)Retirement benefits 12 (13.9) (118.8)Provisions for other liabilities andcharges 13 (73.8) (128.6)Derivative financial instruments (1.8) (10.4) (868.1) (1,195.9) Net assets / (liabilities) 58.3 (533.6) EquityCapital and reserves attributable to the company's equity holders Called up share capital 14 18.1 18.1Share premium account 14 6.8 6.2Other reserves 14 (1,727.9) (1,728.6)Retained profits 14 1,753.9 1,164.3 50.9 (540.0) Minority interest 14 7.4 6.4Total equity 58.3 (533.6) Consolidated Cash Flow StatementFor the year ended 31 December 2007 2006 Notes £m £m (unaudited) (audited) Cash flows from operating activities Cash generated from operating activitiesbefore 15 351.9 369.5special pension contributionSpecial pension contribution (80.0) -Cash generated from operating 271.9 369.5activitiesInterest received 17.0 13.1Interest paid (73.9) (54.7)Income tax paid (27.1) (38.5)Net cash generated from operating 187.9 289.4activities Cash flows from investing activities Purchase of property, plant and equipment (206.6) (176.3)(PPE)Purchase of intangible fixed assets (12.7) (6.3)Proceeds from sale of PPE and 57.9 42.5intangible assetsAcquisition of companies and businesses,net of 18 (193.0) (406.5)cash acquiredProceeds from disposal ofcompanies and 5 587.7 134.9businessesDisposal of 3.4 -available-for-saleinvestmentsDividends received from 5.6 1.0associatesNet cash flows from 242.3 (410.7)investing activities Cash flows from financingactivities Issue of ordinary share 0.6 0.9capitalTreasury shares purchased - (1.9)Dividends paid to equity 7 (133.4) (133.3)shareholdersDividends paid to minority (2.0) (1.8)interestsInterest element on finance (2.0) (2.3)lease paymentsCapital element of finance (21.3) (19.5)lease paymentsNew (repayments)/loans (304.7) 221.0Net cash flows from (462.8) 63.1financing activities Net decrease in cash and bank 16 (32.6) (58.2)overdraftsCash and bank overdrafts at beginning of 118.8 170.7yearExchange gains on cash and bank 0.3 6.3overdraftsCash and bank overdrafts at end of thefinancial year 10 86.5 118.8 Notes to the accounts1. Segmental information (a) Primary reporting format - business segments Revenue Revenue Operating Operating profit profit 2007 2006 2007 2006 £m £m £m £m (unaudited) (audited) (unaudited) (audited)Continuing operations Textiles & Washroom Services 693.2 671.4 124.0 106.8Pest Control 377.2 319.3 66.9 61.9Ambius 120.6 116.5 7.1 6.6City Link 417.1 213.3 8.4 32.6FacilitiesServices 595.3 522.7 38.0 28.7 Central items - - (32.5) (22.1) 2,203.4 1,843.2 211.9 214.5Interest payable and similar charges - - (140.4) (112.3)Interest receivable - - 68.5 61.2Share of profit fromassociates (net of tax) - - 2.0 2.0 - Textiles and Washroom ServicesProfit before income tax - - 142.0 165.4Income tax expense - - (30.3) (33.3)Total for the year from continuingoperations 2,203.4 1,843.2 111.7 132.1 Discontinued operations (after income tax) Textiles & Washroom Services - 13.6 - 3.0Facilities Services (1) - 121.9 - 88.3Electronic Security (2) 180.8 281.5 546.8 22.2 Discontinued business segments - - - 1.5 Total for the year fromdiscontinued operations 180.8 417.0 546.8 115.0 Total for the year(including discontinuedoperations) 2,384.2 2,260.2 658.5 247.1 (1)Profit from the Facilities Services segment for the year to 31 December 2006 includes profit on disposal (after tax) of £95.9m.(2)Profit from Electronic Security for the year to 31 December 2007 includes profit on disposal (after tax) of £528.6m. Notes to the accounts (continued)1. Segmental information (continued) (b) Secondary reporting format - geographical segments Revenue Revenue 2007 2006 £m £m (unaudited) (audited)Continuing operations United Kingdom 1,085.0 834.1 Continental Europe 769.3 725.4North America 162.3 149.8Asia Pacific 158.0 102.1Africa 28.8 31.8Total from continuing operations 2,203.4 1,843.2 Discontinued operations United Kingdom 84.7 196.4Continental Europe 86.8 122.1North America 9.3 98.5Total from discontinued operations 180.8 417.0 Total (including discontinued operations) 2,384.2 2,260.2 (c) Reconciliation of statutory segmental analysis to management divisional analysis The commentary in the Operating Review reflects the management divisionalstructure and not the segmental information presented above. For statutorypurposes, the businesses within the geographic divisions of Asia Pacific andSouth Africa (Other) have been reallocated back to the relevant business segmentin line with the requirements of IAS 14, "Segmental Reporting". In addition, thecommentary in the Operating Review is presented at constant exchange rates andbefore the amortisation of intangible assets* The tables that follow reconcilethe segmental information presented above to the divisional performance referredto in the Operating Review. Statutory basis Asia Pacific Foreign Management Management and Other exchange basis basis 2007 2007 2007 2007 2006 £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (audited)Revenue from continuing operations Textiles & Washroom Services 693.2 (87.7) (2.5) 603.0 595.4Pest Control 377.2 (74.5) 7.7 310.4 278.3Ambius 120.6 (13.2) 5.0 112.4 105.8City Link 417.1 - - 417.1 213.3Facilities Services 595.3 (9.1) (0.5) 585.7 519.2Asia Pacific - 158.0 0.3 158.3 102.1Other - 26.5 3.3 29.8 29.1 2,203.4 - 13.3 2,216.7 1,843.2 Statutory basis Asia Pacific Amortis-ation Foreign Management Management and Other of intangible exchange basis basis assets* 2007 2007 2007 2007 2007 2006 £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited)Operating profit fromcontinuing operations Textiles & Washroom Services 124.0 (26.9) 9.3 (0.5) 105.9 92.1Pest Control 66.9 (14.9) 12.8 0.6 65.4 61.4Ambius 7.1 (1.4) 3.0 0.4 9.1 7.4City Link 8.4 - 11.0 - 19.4 34.8Facilities Services 38.0 (2.1) 2.8 - 38.7 27.4Asia Pacific - 31.4 - (0.4) 31.0 20.2Other - 10.2 - 1.2 11.4 11.8Central items (32.5) 3.7 0.3 - (28.5) (19.5) 211.9 - 39.2 1.3 252.4 235.6*Excluding computer software and development costs. Notes to the accounts (continued) 2. Interest payable and similar charges 2007 2006 £m £m (unaudited) (audited)Interest payable on bank loans and overdrafts 26.2 18.4Interest payable on medium term notes issued 55.3 49.6Net interest payable/(receivable) on fair valuehedges 3.8 (6.7)Interest on defined benefit plan liabilities 51.5 48.4Interest payable on finance leases 1.7 1.8Foreign exchange gain on translation of foreigndenominated loans (0.7) (0.3)Amortisation of discount on provisions 1.5 2.0Net ineffectiveness of fair value hedges 1.1 (0.1)Fair value gain on derivatives not designated ina hedge relationship1 - (0.8)Total interest payable and similar charges(continuing operations) 140.4 112.31The fair value gain on derivatives not designated in a hedge relationshipincludes fair value gains relating to forward rate agreements of £nil (2006:£2.0m). 3. Interest receivable 2007 2006 £m £m (unaudited) (audited)Bank interest 16.2 13.8Return on defined benefit plan assets 52.3 47.4Total interest receivable (continuing operations) 68.5 61.2 4. Income tax expense 2007 2006 £m £m (unaudited) (audited)Analysis of charge in the period UK corporation tax at 30% (2006: 30%) 8.5 15.3Double tax relief (13.0) (17.6) (4.5) (2.3)Overseas taxation 31.6 35.3Adjustment in respect of previous periods (6.2) (17.1)Total current tax 20.9 15.9 Deferred tax 9.4 17.4Total income tax expense (continuing operations) 30.3 33.3 5. Discontinued operations and disposalsIncluded within discontinued operations is the Electronic Security segment. Thegroup disposed of the UK, the Netherlands and the US businesses on 2 July 2007for gross proceeds of £533.4m and the remaining French business was disposed on26 December 2007 for gross proceeds of £91.6m. Net consideration was £614.3mafter costs paid of £10.7m.The group also disposed of two smaller businesses for gross proceeds of £6.2m,the results of which are included within continuing operations. Details of net assets disposed anddisposal proceeds are as follows: Discontinued Other disposals 2007 operations 2007 2007 £m £m £m (unaudited) (unaudited) (unaudited)Non-current assets - Intangible assets 70.9 0.4 71.3 - Other investments 0.1 - 0.1 - Property, plant and equipment 23.8 4.2 28.0Current assets 109.3 3.5 112.8Current liabilities (103.4) (8.3) (111.7)Non-current liabilities (11.2) - (11.2)Net assets disposed 89.5 (0.2) 89.3 Profit on disposal 524.8 0.3 525.1Consideration 614.3 0.1 614.4Consideration deferred tofuture periods - (1.0) (1.0)Consideration deferred fromprior periods - 1.7 1.7Costs deferred to futureperiods 2.5 - 2.5Costs deferred from priorperiods - (0.5) (0.5)Cash disposed (27.3) (2.1) (29.4)Cash inflow from disposalof companies and businesses 589.5 (1.8) 587.7 The profit on disposal above of £524.8m excludes translation exchange gains of £3.8m,which are recycled to the income statement and taxation of £nil, giving a total post-taxprofit on disposal of subsidiary net assets of £528.6m. Financial performance of discontinued operations 2007 2006 £m £m (unaudited) (audited)Revenue 180.8 417.0Operating expenses (156.7) (391.9) Operating profit 24.1 25.1Finance costs - net (0.2) (1.0)Profit before income tax 23.9 24.1Taxation (5.7) (5.0)Profit after income tax fromdiscontinued operations 18.2 19.1 Profit on disposal of subsidiary net assets 524.8 98.5Taxation - (8.5)Cumulative translation exchange gain1 3.8 5.9Total profit after income tax ondisposal of subsidiary net assets 528.6 95.9 Profit on disposal of discontinued operations 546.8 115.0 1The cumulative translation exchange gain of £3.8m (2006: £5.9m) relating todiscontinued operations has been recycled out of exchange reserves to theconsolidated income statement. 6. Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable to equityholders of the company by the weighted average number of shares in issue during theyear, excluding those held in the Rentokil Initial Employee Share Trust for UKemployees which are treated as cancelled. 2007 2006 £m £m (unaudited) (audited) Profit from continuing operations attributableto equity holders of the company 109.5 130.1Profit from discontinued operationsattributable to equity holders of the company 546.8 115.0 Weighted average number of ordinaryshares in issue 1,807.2 1,806.5 Basic earnings per share from continuing 6.06p 7.20poperationsBasic earnings per share from discontinuedoperations 30.26p 6.37pBasic earnings per share from continuing anddiscontinued operations 36.32p 13.57p Diluted Diluted earnings per share is calculated by adjusting the weighted average number ofordinary shares in issue to assume conversion of all potential dilutive ordinaryshares. The company has two categories of potential dilutive ordinary shares, beingthose share options granted to employees where the exercise price is less than theaverage market price of the company's shares during the year and deferred sharesgranted to senior executives that will vest in the future. 2007 2006 £m £m (unaudited) (audited)Profit from continuing operationsattributable to equity holders of the company 109.5 130.1Profit from discontinued operationsattributable to equity holders of the company 546.8 115.0 Weighted average number of ordinaryshares in issue 1,807.2 1,806.5 Adjustment for share options and - -deferred sharesWeighted average number of ordinary shares fordiluted earnings per share 1,807.2 1,806.5 Diluted earnings per share from continuing operations 6.06p 7.20p Diluted earnings per share from discontinued operations 30.26p 6.37pDiluted earnings per share from continuing anddiscontinued operations 36.32p 13.57p 7. Dividends 2007 2006 £m £m (unaudited) (audited)2005 final dividend paid - 5.25p per share - 94.82006 final dividend paid - 5.25p per share 94.9 -2006 interim dividend paid - 2.13p pershare - 38.52007 interim dividend paid - 2.13p pershare 38.5 - 133.4 133.3 A dividend in respect of 2007 of 5.25p (2006: 5.25p) per 1p share amounting to£94.9m (2006: £94.9m) is to be proposed at the Annual General Meeting on 14 May2008. The final dividend will be paid on 23 May 2008 to shareholders on the register on 18 April 2008. These financial statements do not reflect this dividend payable. Notes to the accounts (continued) 8. Intangible assets Goodwill Customer lists Brands, patents Computer Development Total and reacquired software costs franchise rights £m £m £m £m £m £mCost At 1 January2006 (audited) 80.8 221.6 0.3 35.1 3.2 341.0 Exchangedifferences (10.1) (10.4) (0.8) (0.5) - (21.8)Additions - - - 6.0 0.4 6.4Disposals - - - (2.0) - (2.0) Acquisition of companies andbusinesses 269.6 135.6 29.9 0.1 - 435.2 Disposal ofcompanies andbusinesses (3.9) (24.2) - (3.8) (2.7) (34.6) Reclassification - - - 0.1 (0.1) -At 31 December2006 (audited) 336.4 322.6 29.4 35.0 0.8 724.2 At 1 January2007 (audited) 336.4 322.6 29.4 35.0 0.8 724.2 Exchangedifferences 9.9 16.6 0.2 1.5 - 28.2 Additions - - - 12.6 0.1 12.7 Disposals/retirements - - - (15.2) - (15.2) Acquisition ofcompanies andbusinesses 105.8 96.3 16.0 0.1 - 218.2 Disposal ofcompanies andbusinesses (22.4) (59.3) - (8.3) (0.8) (90.8) Reclassification 1.1 - (1.0) - (0.1) - At 31 December2007unaudited) 430.8 376.2 44.6 25.7 - 877.3 Accumulatedamortisationand impairment At 1 January2006 (audited) - (137.9) - (20.9) (1.9) (160.7)Exchangedifferences - 5.7 (0.1) 0.4 - 6.0Disposals - - - 0.8 - 0.8Disposal ofcompanies andbusinesses - 15.7 - 2.6 2.7 21.0Amortisationcharge - (25.2) (2.3) (3.7) (1.0) (32.2)At 31 December2006 (audited) - (141.7) (2.4) (20.8) (0.2) (165.1) At 1 January2007 (audited) - (141.7) (2.4) (20.8) (0.2) (165.1)Exchangedifferences - (9.8) - (1.0) - (10.8)Disposals - - 5.6 - 5.6Disposal ofcompanies andbusinesses - 14.6 - 4.7 0.2 19.5Amortisationcharge - (32.2) (8.4) (2.9) - (43.5)At 31 December2007(unaudited) - (169.1) (10.8) (14.4) - (194.3) Net book value 1 January 2006(audited) 80.8 83.7 0.3 14.2 1.3 180.3 31 December2006 (audited) 336.4 180.9 27.0 14.2 0.6 559.1 31 December2007(unaudited) 430.8 207.1 33.8 11.3 - 683.0 9. Property, plant and equipment Land & Equipment for Other plant & Vehicles & Total buildings rental equipment office equipment £m £m £m £m £m Cost At 1 January2006 (audited) 166.3 473.7 265.5 263.9 1,169.4Exchangedifferences (3.4) (13.5) (4.1) (8.2) (29.2)Additions 12.8 98.6 24.6 56.1 192.1Disposals (12.2) (172.9) (28.9) (47.6) (261.6)Acquisition ofcompanies andbusinesses 7.7 2.8 2.3 13.0 25.8Disposal ofcompanies andbusinesses (3.2) (2.5) (6.5) (12.9) (25.1)At 31 December2006 (audited) 168.0 386.2 252.9 264.3 1,071.4 At 1 January2007 (audited) 168.0 386.2 252.9 264.3 1,071.4 Exchangedifferences 10.6 33.4 16.2 11.3 71.5Additions 28.0 112.5 30.5 44.5 215.5Disposals (19.8) (67.1) (21.6) (73.7) (182.2)Acquisition ofcompanies andbusinesses 2.7 1.4 2.5 6.9 13.5Disposal ofcompanies andbusinesses (7.0) (3.4) (14.3) (41.1) (65.8)At 31 December2007(unaudited) 182.5 463.0 266.2 212.2 1,123.9 Accumulateddepreciation andimpairment At 1 January2006 (audited) (44.2) (296.8) (182.1) (148.8) (671.9)Exchangedifferences 1.1 7.4 2.8 4.2 15.5Disposals 1.9 171.2 28.3 38.7 240.1Disposal ofcompanies andbusinesses 1.5 1.5 5.5 7.9 16.4Impairmentcharge - (1.0) - - (1.0)Depreciationcharge (3.6) (89.8) (20.0) (44.0) (157.4)At 31 December2006 (audited) (43.3) (207.5) (165.5) (142.0) (558.3) At 1 January2007 (audited) (43.3) (207.5) (165.5) (142.0) (558.3)Exchangedifferences (3.0) (18.5) (9.9) (6.1) (37.5)Disposals 11.7 65.4 18.7 54.5 150.3Disposal ofcompanies andbusinesses 3.4 3.2 9.2 22.0 37.8Depreciationcharge (4.3) (94.0) (19.3) (37.4) (155.0)At 31 December2007(unaudited) (35.5) (251.4) (166.8) (109.0) (562.7) Net book valueAt 1 January2006 (audited) 122.1 176.9 83.4 115.1 497.5 At 31 December2006 (audited) 124.7 178.7 87.4 122.3 513.1 At 31 December2007(unaudited) 147.0 211.6 99.4 103.2 561.2 10. Cash and cash equivalents 2007 2006 £m £m (unaudited) (audited)Cash at bank and in hand 95.7 90.2Short-term bank deposits - 44.9 95.7 135.1 Cash and bank overdrafts include the following for the purposes of the cash flow statement:Cash and cash equivalents 95.7 135.1Bank overdrafts (note 11) (9.2) (16.3) 86.5 118.8 11. Bank and other borrowings 2007 2006 £m £m (unaudited) (audited)Non-current Bank borrowings 1.6 254.1Other loans 651.3 603.1Finance lease liabilities 9.5 20.1 662.4 877.3Current Bank overdrafts 9.2 16.3Bank borrowings 11.7 30.5Other loans 351.4 383.3Finance lease liabilities 8.1 15.9 380.4 446.0 Total bank and other borrowings 1,042.8 1,323.3 The group operated the following medium term notes under its €2.5bn Euro MediumTerm Note programme for the years ended 31 December 2007 and 31 December 2006: Currency/Amount IAS 39 Interest Coupon Maturity date hedgingY3,000m FV Fixed rate - 0.60% pa Matured$10m NH Floating rate - 3 month USD LIBOR +0.35% Matured€500m FV, NIH Fixed rate - 5.75% pa Matured£250m FV Fixed rate - 6.125% pa 19.11.0£300m FV Fixed rate - 5.75% pa 31.03.16€100m NH Floating rate - 3 month EURIBOR +0.28% 03.07.08€500m NIH Fixed rate - 4.625% pa 27.03.14 Key: FV - Fair value hedge accounting applied NH - Hedge accounting not applied NIH Designated for Net Investment Hedging - 12. Retirement benefit obligations Apart from the legally required social security state schemes, the groupoperates a number of pension schemes around the world covering many of itsemployees. The major schemes are of the defined benefit type with assets held inseparate trustee administered funds. The principal scheme in the group is the Rentokil Initial Pension Scheme('RIPS') in the United Kingdom, which has a number of defined benefit sections,which are now closed to new entrants (other than Initial No2 Section accountingfor less than 0.5% of the total scheme liabilities, which remains open). On 19December 2005, a detailed consultation began between the company and the membersof the RIPS on the freezing of the future accrual of benefits for activemembers. Following this consultation, future accrual ceased as from 31 August2006 and defined benefit members moved into new defined contributionarrangements. Actuarial valuations of the UK scheme are carried out typicallyevery three years. The most recent finalised valuation was at 31 March 2005. Thevaluation otherwise due as at 31 March 2008 has been brought forward to 31 March2007, but has not yet been finalised. These defined benefit schemes are re-appraised annually by independent actuariesbased upon actuarial assumptions in accordance with IAS 19 requirements. The principal assumptions used for the UK RIPS scheme are shown below. 2007 2006 £m £m (unaudited) (audited)Weighted average % Discount rate 6.0% 5.1%Expected return on plan assets 6.1% 5.5%Future salary increases 4.1% 3.8%Future pension increases 3.4% 3.1% The amounts recognised in the balance sheet for the total of the UK RIPS andother1 schemes are determined as follows: Present value of funded obligations (931.9) (1,033.8)Fair value of plan assets 992.9 921.1 61.0 (112.7)Present value of unfunded obligations (11.0) (6.1) 50.0 (118.8)Represented on the balance sheet as follows:Retirement benefits asset 63.9 -Retirement benefits liability (13.9) (118.8)Net retirement benefits asset/(liability) 50.0 (118.8) 12. Retirement benefit obligations (continued) The fair value of plan assets at the balance sheet date for the total of the UKRIPS and other1 schemes is analysed as follows: 2007 2006 £m £m (unaudited) (audited) Equity instruments 181.7 186.2Debt instruments 714.2 707.3Property 0.8 0.8Other 56.2 0.9Swaps 40.0 25.9 992.9 921.1 The amounts recognised in the income statement for the total of the UK RIPS andother1 schemes are as follows: Current service cost(2) 2.0 8.9 Prior service cost - (3.0)Curtailment - (16.2)Interest cost(2) 51.5 48.4-------------------- ------ ------Amount charged to pension liability 53.5 38.1Expected return on plan assets2 (52.3) (47.4)-------------------- ------ ------Total pension cost 1.2 (9.3)-------------------- ------ ------ (1)Other retirement benefit plans are predominantly made up of defined benefitplans situated in Ireland, Germany, Australia, Belgium, Norway and France. (2)Service costs are charged to operating expenses and interest cost and returnon plan assets to interest payable and receivable respectively. 13. Provisions for other liabilities and charges Vacant Environmental Self Other Total properties insurance £m £m £m £m £m At 1 January 46.3 35.8 51.1 14.8 148.02006 (audited)Exchange - (1.4) (2.3) (0.2) (3.9)differencesAdditional 5.1 3.6 13.4 19.3 41.4provisionsAcquisition ofcompanies and 2.8 - - 2.2 5.0businessesUnused amounts (2.5) (0.6) (2.8) (2.5) (8.4)reversedUnwinding ofdiscount on 1.1 0.9 - - 2.0provisionsUsed during the (16.5) (2.4) (13.4) (0.9) (33.2)yearAt 31 December 36.3 35.9 46.0 32.7 150.92006 (audited) At 1 January 36.3 35.9 46.0 32.7 150.92007 (audited)Exchange - (0.1) (0.2) 0.3 -differencesAdditional 21.4 4.0 13.2 5.5 44.1provisionsReclassification 0.5 - 1.8 (2.3) -Acquisition ofcompanies and 0.7 1.0 - 0.9 2.6businessesUnused amounts (6.5) (13.0) (4.9) - (24.4)reversedUnwinding ofdiscount on 0.6 0.9 - - 1.5provisionsUsed during the (17.9) (2.6) (12.9) (16.8) (50.2)yearAt 31 December2007 35.1 26.1 43.0 20.3 124.5(unaudited) Provisions analysed asfollows: At 31 December At 31 December 2007 2006 £m £m (unaudited) (audited) Non-current 73.8 128.6Current 50.7 22.3 124.5 150.9 Vacant properties The group has a number of vacant and partly sub-let leasehold properties, withthe majority of the head leases expiring before 2020. Provision has been madefor the residual lease commitments together with other outgoings, after takinginto account existing sub-tenant arrangements and assumptions relating to laterperiods of vacancy. Environmental The group owns a number of properties in the UK, Europe and the USA where thereis land contamination and provisions are held for the remediation of suchcontamination. Self insurance The group purchases external insurance from a portfolio of internationalinsurers for its key insurable risks in order to limit the maximum potentialloss that could be suffered in any one year. Individual claims are met in fullby the group up to agreed self insured limits in order to limit volatility inclaims. The calculated cost of self insurance claims, based on an actuarialassessment of claims incurred at the balance sheet date, is accumulated asclaims provisions. 13. Provisions for other liabilities and charges (continued) Other Other provisions principally comprise amounts required to cover obligationsarising, warranties given and costs relating to disposed businesses togetherwith amounts set aside to cover certain legal and regulatory claims. 14. Statement of changes in equity Called up share Share premium Other reserves Retained Minority Total equity capital account earnings interest £m £m £m £m £m £m At 1 January2006 (audited) 18.1 5.3 (1,714.1) 1,024.1 7.0 (659.6) Total recognised income for theyear - - (10.0) 278.6 - 268.6 Dividends paid to ordinaryshareholders - - - (133.3) - (133.3) New share capital issued - 0.9 - - - 0.9 Cost of share options andlong termincentive plan - - - (1.9) - (1.9) Transfer toother reserves - - 1.2 (1.2) - - Minorityinterest shareof profit - - - (2.0) 2.0 - Cumulative exchangerecycled to incomestatement on disposal of foreignsubsidiary - - (5.7) - - (5.7) Currency translationdifference on minorityinterest - - - - (0.8) (0.8) Dividends paid to minorityinterests - - - - (1.8) (1.8) At 31 December2006 (audited) 18.1 6.2 (1,728.6) 1,164.3 6.4 (533.6) At 1 January2007 (audited) 18.1 6.2 (1,728.6) 1,164.3 6.4 (533.6) Total recognisedincome for theperiod - - 4.5 723.2 - 727.7 Dividends paid to ordinaryshareholders - - - (133.4) - (133.4) New sharecapital issued - 0.6 - - - 0.6 Cost of share options and long termincentive plan - - - 2.0 - 2.0 Minority interest shareof profit - - - (2.2) 2.2 - Minority interestacquired - - - - 0.7 0.7 Cumulative exchangerecycled to incomestatement on disposal of foreignsubsidiary - - (3.8) - - (3.8) Currency translationdifference on minorityinterest - - - - 0.1 0.1 Dividends paid to minorityinterests - - - - (2.0) (2.0) At 31 December 2007(unaudited) 18.1 6.8 (1,727.9) 1,753.9 7.4 58.3 Treasury shares of £11.1m (2006: £11.1m) have been netted against retainedearnings Other reserves Capital Legal Translation Available-for- Total reduction reserve sale reserve £m £m £m £m £m At 1 January2006 (audited) (1,722.7) 9.2 0.2 (0.8) (1,714.1) Net exchange adjustmentsoffset inreserves - - (10.1) - (10.1) Available-for-saleinvestments marked tomarket - - - 0.1 0.1 Total recognisedexpense forthe year - - (10.1) 0.1 (10.0) Cumulativeexchangerecycled on disposal offoreignsubsidiary - - (5.7) - (5.7) Transfer fromretainedearnings - 1.2 - - 1.2 At 31 December 2006 (audited) (1,722.7) 10.4 (15.6) (0.7) (1,728.6) At 1 January2007 (audited) (1,722.7) 10.4 (15.6) (0.7) (1,728.6) Net exchange adjustmentsoffset inreserves - - 3.2 - 3.2 Available-for-saleinvestments marked tomarket - - - 1.3 1.3 Total recognisedincome for theyear - - 3.2 1.3 4.5 Cumulativeexchangerecycled ondisposal offoreignsubsidiary - - (3.8) - (3.8) At 31 December 2007(unaudited) (1,722.7) 10.4 (16.2) 0.6 (1,727.9) 15. Cash generated from operating activities 2007 2006 £m £m (unaudited) (audited)Profit for the year 658.5 247.1 Adjustments for:- Profit on sale of discontinued operations (524.8) (98.5)- Taxation on profit on sale of discontinued operations - 8.5- Cumulative translation exchange gain recycled on discontinued operations (3.8) (5.9)- (Profit)/loss on sale of continuing operations (0.3) 0.5- Cumulative translation exchange loss recycled on continuing operations - 0.2- Discontinued operations tax and interest 5.9 6.0- Tax 30.3 33.3- Share of profit from associates (2.0) (2.0)- Interest income (68.5) (61.2)- Interest expense 140.4 112.3- Depreciation 155.0 157.4- Amortisation of intangible assets* 40.6 27.5- Amortisation of computer software and development costs 2.9 4.7- Pension curtailment and past pension credit - (19.2)- Other major non-cash items 2.2 1.0- Profit on sale of property, plant and equipment (26.0) (21.3)- Loss on disposal of intangible assets 9.6 1.2Changes in working capital (excluding the effects ofacquisitions and exchange differences on consolidation):- Inventories 0.8 (2.8)- Trade and other receivables (27.5) (47.6)- Trade and other payables and provisions (41.4) 28.3Cash generated from operating activitiesbefore special pension contribution 351.9 369.5Special pension contribution (80.0) -Cash generated from operating activities 271.9 369.5* Excluding computer software and developmentcosts. Non-cash transactionsMajor non-cash items relate to share option and long term incentive plan charges of £2.2m(2006: £1.0m). 16. Reconciliation of net decrease in cash and bank overdrafts to net debt 2007 2006 £m £m (unaudited) (audited)Net decrease in cash and bank overdrafts (32.6) (58.2)Movement on finance leases 11.9 1.9Movement on loans 304.7 (221.0)Increase/(decrease) in debt resulting fromcash flows 284.0 (277.3)Acquisition of companies and businesses (4.4) (11.3)Disposal of companies and businesses 9.1 9.3Revaluation of net debt (5.5) 11.3Net debt translation differences (42.1) 20.1Movement on net debt in the year 241.1 (247.9) Opening net debt (1,188.2) (940.3)Closing net debt (947.1) (1,188.2) Closing net debt comprises:Cash and cash equivalents 95.7 135.1Bank and other short-term borrowings (380.4) (446.0)Bank and other long-term borrowings (662.4) (877.3)Total net debt (947.1) (1,188.2) 17. Free cash flow 2007 2006 £m £m (unaudited) (audited)Net cash generated from operating activities 187.9 289.4 Add back: special pension contribution 80.0 - 267.9 289.4 Purchase of property, plant and equipment (206.6) (176.3)(PPE)Purchase of intangible fixed assets (12.7) (6.3)Leased property, plant and equipment (9.4) (17.6) Proceeds from sale of PPE and intangible 57.9 42.5assetsProceeds from sale of available-for-saleinvestments 3.4 -Dividends received from associates 5.6 1.0 Dividends paid to minority interests (2.0) (1.8) Interest element on finance lease payments (2.0) (2.3)Free cash flow 102.1 128.6 18. Business combinations The group purchased 100% of the share capital of Technivap, a French hygiene company, on 31 January 2007 andLancaster, a facilities services company in the UK, on 9 July 2007. The group made asset purchases ofCampbell Bros, a pest control company in Australia, on 2 January 2007 and Presto-X, a pest control companyin the USA, on 1 September 2007. The group also purchased 100% of the share capital or the trade and assetsof a number of smaller companies and businesses. The total consideration for all acquisitions during theyear was £201.0m and the cash outflow from current year acquisitions, net of cash acquired, was £175.9m.Details of goodwill and the fair value of net assetsacquired are as follows: Technivap Campbell Bros Lancaster Presto-x Other 2007 £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Purchase consideration:- Cash paid 17.4 19.0 19.0 18.3 98.3 172.0- Direct costs relating to theacquisition 1.2 0.7 0.5 0.6 4.5 7.5- Consideration deferred tofuture periods - 1.1 - - 19.8 20.9- Direct costs deferred tofuture periods - - - - 0.6 0.6Total purchaseconsideration 18.6 20.8 19.5 18.9 123.2 201.0Fair value of net assetsacquired 8.4 9.2 7.6 9.8 60.9 95.9Minority interest - - - - (0.7) (0.7)Goodwill 10.2 11.6 11.9 9.1 63.0 105.8 Goodwill represents the synergies, workforce and other benefits expected as a result of combining therespective businesses. Acquisition consideration by management division 2007 £m (unaudited) Textiles and Washroom Services 21.9Pest Control 42.3Ambius 3.1City Link 17.4Facilities Services 38.9Asia 74.5Other -Discontinued 2.9 201.0 18. Business combinations (continued) The book value of assets and liabilities arising from acquisitions are as follows: Technivap Campbell Bros Lancaster Presto-x Other 2007 £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Non-current assets- Intangible assets(1) - - - - - -- Computer software - 0.1 - - - 0.1- Property,plant and equipment 0.2 1.6 0.8 1.5 9.4 13.5- Other investments - - - - 0.1 0.1Current assets 6.4 2.0 9.6 2.4 14.4 34.8Current liabilities (2.7) (1.9) (8.4) (1.7) (19.8) (34.5)Non-currentliabilities (0.2) - (0.5) - (3.8) (4.5)Book value ofnet assetsacquired 3.7 1.8 1.5 2.2 0.3 9.5 The provisional fair value adjustments to the book value of assets and liabilities arising from acquisitions are as follows: Technivap Campbell Bros Lancaster Presto-x Other 2007 £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)Non-current assets- Intangible assets(1) 6.7 10.2 8.9 7.6 78.9 112.3- Computer software - - - - - - - Property, plant and equipment - - - - - -- Other investments - - - - - -Current assets - - - - - -Current liabilities - - - - - -Non-current liabilities (2.0) (2.8) (2.8) - (18.3) (25.9)Fair value adjustments tonet assets acquired 4.7 7.4 6.1 7.6 60.6 86.4 The provisional fair value2 of assets and liabilities arising from acquisitions are as follows: Technivap Campbell Bros Lancaster Presto-x Other 2007 £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unauditedNon-currentassets- Intangible assets(1) 6.7 10.2 8.9 7.6 78.9 112.3 - Computer software - 0.1 - - - 0.1 - Property,plant and equipment 0.2 1.6 0.8 1.5 9.4 13.5- Other investments - - - - 0.1 0.1Current 6.4 2.0 9.6 2.4 14.4 34.8assets Current liabilities (2.7) (1.9) (8.4) (1.7) (19.8) (34.5)Non-current liabilities (2.2) (2.8) (3.3) - (22.1) (30.4)Provisional fair valueof net assets 8.4 9.2 7.6 9.8 60.9 95.9acquired(1)Excluding computer software and development costs.(2)The provisional fair values will be finalised in the 2008 financial statements. Technivap Campbell Bros Lancaster Presto-x Other 2007 £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unauditedTotal purchase 18.6 20.8 19.5 18.9 123.2 201.0considerationConsideration payable infuture - (1.1) - - (19.8) (20.9)periodsDirect costsdeferred tofuture periods - - - - (0.6) (0.6)Purchase consideration(paid in cash) 18.6 19.7 19.5 18.9 102.8 179.5Cash and cashequivalents in acquiredcompanies (3.1) 0.1 (1.1) - 0.5 (3.6)and businessesCash outflow on currentyearacquisitions 15.5 19.8 18.4 18.9 103.3 175.9Deferred consideration from priorperiods paid - - - - 17.1 17.1Cash outflowon currentand past 15.5 19.8 18.4 18.9 120.4 193.0acquisitions 19. Post balance sheet events Since the end of the year the group has made further acquisitions for a grossconsideration of £11.7m . 20. Legal statements The financial information in this statement is not audited and does notconstitute statutory accounts within the meaning of s.240 of the Companies Act1985 (as amended). Full accounts for Rentokil Initial plc for the year ended 31December 2006 have been delivered to the Registrar of Companies. The auditors'report on these accounts was unqualified and did not contain a statement underSection 237(2) or Section 237(3) of the UK Companies Act 1985. The financial information in this statement contains extracts from the 2007Annual Report, which will be issued in April 2008 and prepared in accordancewith International Financial Reporting Standards ("IFRS") as adopted for use inthe European Union. The accounting policies (that comply with IFRS) used byRentokil Initial plc (the "group") are consistent with those set out in the 2006Annual Report except that IFRS 7, "Financial Instruments: Disclosures" and IFRIC14, "IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirementsand their Interaction" have been implemented in 2007. The group has not earlyadopted IFRS 8, "Operating Segments" in 2007. A full list of policies will bepresented in the 2007 Annual Report. In accordance with IFRS 5, the restated consolidated income statementspreviously disclosed have been updated to reflect the impact of current perioddiscontinued operations on the comparatives. 21. 2007 Annual Report Copies of the 2007 Annual Report will be despatched to shareholders who haveelected to receive hard copies and will also be available from the company'sregistered office at Portland House, Bressenden Place, London, SW1E 5BH and atthe company's website, www.rentokil-initial.com in HTML and PDF formats. 22. Financial calendar Final dividend to be paid on 23 May 2008 to shareholders on the register on 18 April 2008. For those shareholders who have elected to receive a printed copy, the Annual Report for 2007 will be mailed on 12 April 2008. The Annual General Meeting will be held at 4 Hamilton Place, London W1J 7BQ on14 May 2008 at 11.00am. This information is provided by RNS The company news service from the London Stock Exchange

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