Interim Results

23rd Aug 2007 07:00

Rentokil Initial PLC23 August 2007 23 August 2007 RENTOKIL INITIAL PLC (RTO) INTERIM RESULTS FOR SIX MONTHS TO 30 JUNE 2007 Highlights • Operating and financial performance in line with plan • Revenue up in all divisions; Q2 up 22.2%; H1 up 23.0% • Solid progress in organic revenue growth: Q2 up 5.1%; H1 up 4.8% • Adjusted operating profit up in half for first time since 2003 : Q2 up 11.1%; H1 up 4.0% • Improving trend in adjusted profit before tax and amortisation but impacted by higher interest costs ahead of receipt of Electronic Security sale proceeds: Q2 down 4.3%; H1 down 12.9% • H1 profit before income tax from continuing operations £65.3m (2006: £89.4m) • Turnarounds progressing: UK Pest, UK Washroom • Acquisition integration on or ahead of plan in Asia Pacific and City Link • Reshaping of the group continues • Investment in higher growth sectors: 50 acquisitions for total consideration of £96m in first half • Sale of UK, Netherlands and US electronic security businesses in July; sale of French business awaiting regulatory approval • Interim dividend maintained at 2.13p • Outlook for year unchanged; profits to move ahead strongly in second half Note: all comparisons are for continuing operations and at constant exchangerates except profit before income tax which is a statutory number at actualexchange rates. Doug Flynn, Chief Executive Officer of Rentokil Initial plc, said: "The group's performance was in line with plan during the first half and we arepleased with the progress many of our businesses made. We believe that thegroup passed an inflection point in terms of profits at the end of the firsthalf. "We are continuing to reshape and reinvigorate the group. Profit before tax andamortisation will move ahead strongly in the second half of 2007 and the outlookfor the year as a whole is unchanged. In 2008, excluding the interest benefitfrom the sale of Electronic Security, we expect the group's full year profitbefore tax and amortisation to show mid to high single digit year-on-year growthas the benefits of the extensive work undertaken over the past two years arerealised." Financial Summary £million Second Quarter Half Year Q2 07 Q2 06 change H1 07 H1 06 change Pro forma Continuing Operations1At 2006 constant exchange rates2 Revenue 553.1 452.5 22.2% 1,074.6 873.5 23.0% Operating profit before amortisation of 71.1 61.9 14.9% 122.7 115.3 6.4%intangibles3 Add back: one-off items 0.9 2.9 (69.0%) 3.2 5.8 (44.8%) Adjusted operating profit4 72.0 64.8 11.1% 125.9 121.1 4.0% Share of profit from associates (net of tax) 0.6 0.5 20.0% 1.2 1.1 9.1% Interest (19.5) (9.8) (99.0%) (38.5) (20.5) (87.8%) Adjusted profit before income tax4 53.1 55.5 (4.3%) 88.6 101.7 (12.9%) Continuing Operations1At actual exchange rates Revenue 547.8 455.6 20.3% 1,063.1 881.4 20.6% Operating profit before amortisation of 70.3 62.6 12.3% 121.1 116.8 3.7%intangibles5 Amortisation of intangible assets6 (9.7) (4.5) (115.6%) (18.3) (8.1) (125.9%) Operating profit 60.6 58.1 4.3% 102.8 108.7 (5.4%) Share of profit from associates (net of tax) 0.6 0.5 20.0% 1.1 1.1 - Net interest payable (19.5) (9.8) (99.0%) (38.6) (20.4) (89.2%) Profit before income tax 41.7 48.8 (14.5%) 65.3 89.4 (27.0%) Free cash flow7 48.8 44.0 10.9% Basic earnings per share (continuing operations) 2.88p 3.59p (19.8%) Dividend per share (proposed) 2.13p 2.13p - 1All figures are for continuing operations and are unaudited. The ElectronicSecurity division has been treated as discontinued. 2Results at constantexchange rates have been translated at the full year average exchange rates forthe year ended 31 December 2006. £/$ average rates: H1 2007 1.9767; H1 20061.7907; FY 2006 1.8469. £/• average rates: H1 2007 1.4809; H1 2006 1.4526, FY2006 1.4659 3Before amortisation of intangible assets (other than computer software anddevelopment costs) of £18.6m (2006: £8.0m). 4Before amortisation of intangible assets (other than computer software anddevelopment costs) of £18.6m (2006: £8.0m) and items of a one-off nature of£3.2m (2006: £5.8m). See appendix 4 for further details. 5Before amortisation of intangible assets (other than computer software anddevelopment costs) of £18.3m (2006: £8.1m). 6Other than amortisation of computer software and development costs. 7Cash flow before acquisitions, disposals, equity dividend payments and specialpension contribution (see note 19). For further information Shareholder/analyst enquiries:Andrew Macfarlane Rentokil Initial plc 020 7866 3000Lisa WilliamsKatharine Rycroft Media enquiries:Malcolm Padley Rentokil Initial plc 07788 978 199Jon Rhodes, Tom Williams Brunswick Group 020 7404 5959 A presentation for analysts and shareholders will be held on Thursday 23 Augustat 9:00am at UBS, 1-2 Finsbury Avenue, London EC2. This will be available via alive audio webcast at http://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 theyrelate to future events and circumstances and there are accordingly a number offactors which might cause actual results and performance to differ materiallyfrom those expressed or implied by such statements. Note: The commentary in the First Half Overview and Divisional Review reflectsthe management divisional structure and not the statutory segmental information(see note 3c). All comparisons are at constant 2006 full year average exchangerates. References to operating profit are for continuing businesses beforeamortisation of intangible assets (other than computer software and developmentcosts) unless otherwise stated. References to adjusted operating profit andadjusted profit before tax and amortisation (PBTA) also exclude items of aone-off nature, totalling a net cost of £3.2 million (2006: £5.8 million) thathave impacted the results for the half year. In 2007, they relate to the group'srestructuring programmes in the Pest Control and Textiles and Washroom Servicesdivisions and the City Link/Target Express integration project and consist ofthe profit on the sale of a former business unit head office, consultancy,reorganisation and redundancy costs. These have been separately identifiedbecause they are not considered to be "business as usual" items and they have avarying impact on different businesses and reporting periods. An analysis ofthese costs by division is provided in appendix 4. FIRST HALF OVERVIEW Performance across the group was in line with plan during the first half, withsecond quarter profitability improving over the first quarter as anticipated. Group revenue increased by 23.0% over the first half of last year with alldivisions reporting higher revenue. The strongest revenue growth came from CityLink, Facilities Services and Asia Pacific. Organic revenue, which excludesacquisitions, was 4.8% higher. During the half, the contract portfolio increased by £29.0 million. Thiscomprised £97.4 million from new business and £19.5 million from net additions/reductions offset by terminations of £82.9 million and net acquisitions/disposals of £5.0 million. The largest contributor to portfolio net gain wasAsia Pacific, largely due to the Hong Kong government pest control contractwhich commenced in April. Textiles & Washroom Services experienced a smalldecline in the value of its portfolio in the half due to the continued portfolioloss in UK Washroom and the exit from the German Hospitals business which offsetgains in the portfolio in Continental Europe. Excluding the German Hospitalsbusiness, Textiles and Washroom Services' portfolio grew at an annualised rateof 4.6% in Continental Europe. The group's annualised customer retention rate increased in the first half to88.3% from 87.9% in the first half of last year. Retention continued to improvein a number of key businesses, including UK Pest Control. Operating profit (before amortisation of customer lists) from continuingoperations was 6.4% higher than last year and adjusted operating profit(excluding the impact of one-off costs) increased by 4.0%. Strong profitgrowth was recorded by City Link, Facilities Services, Asia Pacific and Ambius.Comparisons for Pest Control were impacted by the inclusion of a full firstquarter of seasonal losses in the US business, JC Ehrlich, acquired on 1 March2006. Statutory operating profit of £102.8 million was 5.4% lower than lastyear. Profit before tax and amortisation was impacted by significantly higher interestcosts resulting from higher net debt ahead of the receipt of the ElectronicSecurity sale proceeds and higher interest rates. As a result, profit beforetax and amortisation for the first half was 10.9% lower than last year.Adjusted profit before tax and amortisation (excluding one-off costs) fell by12.9% in the first six months but was only 4.3% behind last year in the secondquarter. The group's adjusted net margin was 11.7% in the first half versus 13.9% lastyear. The decrease reflects changes in business mix - particularly relating tothe buy back of City Link franchises and a full period of ownership of the lowermargin JC Ehrlich - as well as continued profit pressure in UK Pest Control andWashroom, where business restructuring continues. Good progress was made during the half to integrate the businesses acquiredduring 2006, particularly Target Express, the City Link franchises and some ofthe larger Asia Pacific acquisitions such as Pink Healthcare. In line with the goal of improving service levels and productivity throughprocess change, a 400-seat shared service centre was established in the Midlandsduring the half which will meet many of the front office and back office needsof the UK Washroom, Pest Control, Ambius and Facilities Services businesses. Further investment was made in the group's higher growth sectors in the firsthalf with a total of 50 acquisitions for total consideration of £96 million.The majority of acquisitions were in City Link, Pest Control and Asia Pacific.In July, the acquisitions of Presto-X and Lancaster were announced for a totalconsideration of £38 million. Presto-X provides a follow-on regional businessto add to Ehrlich in US Pest Control whilst the acquisition of Lancasterstrengthens the Facilities Services division's position in the London cleaningmarket where it had limited presence. The sale of the Electronic Security businesses in the UK, Netherlands and USA toUnited Technologies Corporation was completed on 2 July. The proceeds of £533million represented 86% of the total sale value of £595 million plus completionadjustments. The sale of the Electronic Security division in France is awaitingregulatory approval by the French authorities. Outlook Note: The proceeds from the sale of the Electronic Security division will givean interest benefit of around £15 million in the second half of 2007 and around£30 million in 2008. These benefits have been excluded in order to make a faircomparison between the performance of the group in 2007 and 2008. The outlook for the remainder of 2007 is unchanged. Excluding the interestbenefit from the sale of Electronic Security (around £15 million), we continueto expect that profit before tax and amortisation for the year before one-offitems will be in line with 2006, with profits moving ahead strongly in thesecond half. In 2008, full year profit before tax and amortisation is expected to show mid tohigh single digit growth over 2007 after excluding the interest benefit from thesale of Electronic Security in each year (i.e. around £15 million in the secondhalf of 2007 and £30 million in 2008). The group's dividend policy remains unchanged. DIVISIONAL REVIEW Initial Textiles and Washroom Services £ million Second Quarter Half Year Q2 07 Q2 06 change HY 07 HY 06 change At 2006 constant exchange rates: Portfolio - net movement (appendix 1) (3.9) 0.4 (2.6) 1.1 Revenue 150.8 147.9 2.0% 300.6 295.1 1.9% Operating profit (before amortisation of intangible 29.3 25.9 13.1% 53.4 52.9 0.9%assets1) One-off items (1.1) 1.9 - (0.1) 2.2 - Adjusted operating profit (before one-off items andamortisation of intangible assets1) 28.2 27.8 1.4% 53.3 55.1 (3.3%) 1 Other than computer software and development costs The positive signs seen in the Continental European activities of InitialTextiles and Washroom Services in the first quarter continued into the secondquarter whilst the performance of the UK continues to be affected by the majorrestructuring programme which has been underway for the past year. For thedivision as a whole, revenue increased by 1.9%. Excluding German hospitalservices, which has been exited, organic revenue growth was 2.6%. Divisionaladjusted operating profit fell by 3.3% in the half but showed 1.4% growth in thesecond quarter. This is the first time the division has shown growth inadjusted operating profits since at least the end of 2004. First half revenue was 4.4% higher than last year in Continental Europe(excluding the German hospitals services business). The net portfolio gain,which represents a continuation of the encouraging trends seen since the fourthquarter of 2006, was £11.3 million (adjusted to exclude the impact of the exitfrom the German hospital services business). Adjusted operating profit inContinental Europe increased by 1.7%. In France, which is the group's largest single business, the positive portfoliotrends noted earlier in the year have continued, particularly in the Washroomand Hospital Services sectors. Although operating profit for the half was belowlast year, those in the second quarter were ahead by 3.7%. In Belgium, the Netherlands and Germany, adjusted operating profit for the halfwas ahead of last year. In Belgium, the new laundry at Lokeren is now enteringoperation. Production from the Schaerbeek and Zele plants will be transferredto Lokeren and the old plants will close by the end of the year. The cost ofclosure is estimated at £1.1 million, of which £1.0 million has been incurredand treated as a one-off cost in the first half. The new plant is expected toimprove divisional profits by £0.7 million per annum from 2008. A strong performance in the Netherlands was helped by lower sales costs,improved sales productivity and better processing cost control. The Germanbusiness also made good progress in the first half, also benefiting from lowersales costs. Contract portfolio development continues to be an issue for the UK Washroombusiness following the closure of the UK linen and workwear activities in April2006 and this impacted both revenue and profit performance in the first half.Customer terminations continue to be high but improving service levels startedto improve retention levels in the second quarter. Revenue fell by 6.4% due tothe portfolio decline and to lower non-contract work and consumable sales.Adjusted operating profit fell by £2.3 million. We still expect to complete thereorganisation of this business by the end of this year but full margin recoveryis unlikely before 2009. Rentokil Pest Control £ million Second Quarter Half Year Q2 07 Q2 06 change HY 07 HY 06 change At 2006 constant exchange rates: Portfolio - net movement (appendix 1) 2.7 2.5 7.0 49.5 Revenue 79.4 75.5 5.2% 146.6 132.4 10.7% Operating profit (before amortisation of intangible 17.8 18.1 (1.7%) 27.9 31.8 (12.3%)assets1) One-off items 0.2 1.0 (80.0%) 0.6 1.6 (62.5%) Adjusted operating profit (before one-off items andamortisation of intangible assets1) 18.0 19.1 (5.8%) 28.5 33.4 (14.7%) 1 Other than computer software and development costs Divisional revenue increased by 10.7% in the first half. Organic revenue growthwas 3.1%, held back by the UK where restructuring continues; excluding the UKorganic revenue growth was 7.0%. Adjusted operating profit was 14.7% lower thanthe first half of last year, with a marked improvement in the second quarter(down 5.8%) compared to the first quarter (down 26.6%). Performance in the first half of 2007 was impacted by the inclusion of a fullquarter of seasonal first quarter losses in the US business, which was acquiredon 1 March 2006, and by the restructuring in the UK. In addition, comparisonswith the first half of 2006 reflect the transfer to the division of corporatecosts including R&D costs previously borne centrally which took place at the endof 2006 which amounted to some £3 million per annum. Having restructured the business at the start of the year, the UK has made goodprogress with second quarter revenue down by 1.3% compared with a 9.6% drop inthe first quarter, resulting in a 5.4% decline in the half year. In the monthof June, revenue was 3.9% ahead of last year and at the highest level sinceOctober 2005. Inbound enquiries to the Dudley customer service centre grewstrongly as the half progressed. Lower revenue impacted the profitability ofthe UK business and adjusted operating profit fell by 17.4% versus the sameperiod last year. Again, profitability improved month-by-month during the halfand in June and July had returned to last year's levels. Continental Europe continued to deliver strong progress with a 7.1% increase inrevenue over the first half of last year. All markets saw higher revenue withone minor exception. Organic growth of 4.8%, driven by improved salesproductivity, was complemented by acquisitions in Spain, Italy, France andFinland. The region's adjusted operating profit was 4.8% higher than last yearbut lags behind revenue growth due to front-end investment in sales resource. In North America, first half comparisons are impacted by the acquisition of JCEhrlich. On a like-for-like basis, second quarter revenue was some 7% higherthan last year despite cold weather being responsible for a late start toEhrlich's "season". After the end of the half, the acquisition ofPresto-X-Company was completed on 30 July for an initial cash consideration ofUS$38 million (£19 million) plus further cash consideration of up to $7 million(£3.5 million) based on the actual results for the year to 31 December 2007.Presto-X is a significant regional pest control company based in Omaha,Nebraska, USA, focused predominantly on commercial customers. Its turnover forthe 12 months to 31 December 2006 was US$29 million. Ambius £ million Second Quarter Half Year Q2 07 Q2 06 change HY 07 HY 06 change At 2006 constant exchange rates: Portfolio - net movement (appendix 1) 0.1 (0.4) 0.6 - Revenue 26.2 25.0 4.8% 51.6 49.5 4.2% Operating profit (before amortisation of intangible 2.2 1.4 57.1% 2.6 2.1 23.8%assets1) One-off items - - - - - - Adjusted operating profit (before one-off items andamortisation of intangible assets1) 2.2 1.4 57.1% 2.6 2.1 23.8% 1 Other than computer software and development costs The division's performance improved as the half progressed. Revenue for thehalf was 4.2% higher than last year, with organic revenue growth at 1.4%excluding the UK. Adjusted operating profit - which had been down 42.9%year-on-year in the first quarter - was 23.8% higher than last year for the halffollowing a stronger second quarter performance, supported by a propertydisposal in the UK. This was attributable to the turnaround of businesses inCanada and Europe which were underperforming in 2006, together with a solidperformance in the USA. The rebrand of the former Tropical Plants division to Ambius commenced in the UKin March and is progressively being rolled out, with North America due tocomplete the process in early 2008. Revenue in North America, which accounts for more than half of the division'stotal, was 6.3% higher than last year and adjusted operating profit increased by47.0%, the latter assisted by the return to profit of the Canadian operationswhich were loss-making in the first half of 2006. In the UK, improvement in customer retention was more than offset by lowersales, resulting in revenue being 10% below last year. The detailed turnaroundprogramme in the UK is continuing under its new managing director who joined theUK business in the second quarter from the group's New Zealand operations. Revenue in Continental Europe increased by 6.9% in the first half, of which some2% was organic growth. The strong first half adjusted operating profitimprovement of 65.5% was delivered by an improved performance in a number ofmarkets and the benefit of two acquisitions made in Sweden and Germany. City Link £ million Second Quarter Half Year Q2 07 Q2 06 change HY 07 HY 06 Change At 2006 constant exchange rates: Revenue 108.5 47.6 127.9% 203.0 81.7 148.5% Operating profit (before amortisation of intangible 12.1 8.0 51.3% 21.4 13.7 56.2%assets1) One-off items 1.8 - - 2.7 - - Adjusted operating profit (before one-off items andamortisation of intangible assets1) 13.9 8.0 73.8% 24.1 13.7 75.9% 1 Other than computer software and development costs Comparisons with 2006 are impacted by the acquisition of Target Express inNovember 2006 and the franchise operations during 2006 and 2007. Adjustedoperating profits exclude the integration costs of Target Express which weretreated as one-off items. Revenue for the combined business increased by nearly150% during the first half and adjusted operating profit increased by over 75%.Excluding the acquisitions, organic revenue growth was some 9.7% compared withestimated market growth of 4%. During the first half, business-to-business revenues, which account for some 70%of network turnover, were strongly ahead of last year. However, there wasevidence of some downtrading and slower sales growth in the business-to-consumersegment in the early months of the year. The integration of Target Express is ahead of schedule. From 1 May, City Linkand Target Express operated under one brand - City Link - with a single salesforce and single sales proposition. In July, the businesses moved to a singleoperating platform, utilising the City Link trailer and cage configurations.During September the first two combined depot operations will be in place, withthe rest of the depots merging during the next 18 months. Integration costsamounted to £2.7 million in the half and have been treated as one-off. Ourcurrent estimate is that integration costs will be some £23 million, of whicharound £9 million is likely to be incurred this year. This compares with ourearlier estimate of total integration costs of £12 million, with £6 million in2007. The additional integration spend will allow an earlier realisation ofsynergy benefits with around £2 million expected in the second half of 2007(previous estimate: nil) and a run rate of at least £15 million by the end of2008 (previous estimate: £10 million). The additional costs and synergies arisebecause we expect to close a net 40 depots against an original estimate of 24. Eight franchise businesses were acquired during the first half for a totalconsideration of £14.2 million, bringing total spend on the programme to £66.1million. Two franchises with combined 2006 revenues of £2.9 million remainoutstanding and the buy back programme is expected to be completed by the end ofthe third quarter. Initial Facilities Services £ million Second Quarter Half Year Q2 07 Q2 06 change HY 07 HY 06 change At 2006 constant exchange rates: Portfolio - net movement (appendix 1) 4.6 3.6 4.9 10.0 Revenue 141.3 125.8 12.3% 284.3 254.0 11.9% Operating profit (before amortisation of intangible 8.8 7.5 17.3% 18.6 15.0 24.0%assets1) One-off items - 0.1 - - 0.1 - Adjusted operating profit (before one-off items andamortisation of intangible assets1) 8.8 7.6 15.8% 18.6 15.1 23.2% 1 Other than computer software and development costs The first half saw a good performance by Initial Facilities Services withrevenue up 11.9% and adjusted operating profit up 23.3%. Organic revenue growthwas 6.1%. The Cleaning businesses enjoyed a strong first half. In the UK, revenue was up22.9% due to good portfolio growth in the second half of last year including theacquisition of InSitu. The portfolio benefited from a number of sizeable newbusiness wins including WH Smith and TK Maxx although this was partially offsetby the loss of parts of two other large contracts. Operating profit was 19.0%higher, mostly due to higher volumes which partially offset margin pressure.Initiatives to encourage daytime cleaning and a more efficient approach toaccount management for smaller customers are underway to improve UK net margin.The operations in Spain and the Netherlands also recorded good revenue andoperating profit growth. Lancaster Office Cleaning Company Ltd was acquired inJuly for a total consideration of £19 million. Lancaster, which had revenue of£45 million in 2006, is a leading provider of cleaning and other services toclients in London, particularly in the financial districts of the City andCanary Wharf, where the business previously had only a limited presence. Revenue and adjusted operating profit were both lower in the Catering business,partly due to the exit from a number of low margin and unprofitable educationcontracts. There have been some sizeable portfolio gains in the business andindustry sector which will benefit the second half of the year, as will priceincreases and procurement benefits achieved in the first half. Hospital Services reported higher revenue and adjusted operating profit, due tothe non-recurrence of Agenda for Change costs incurred in 2006 and price andproductivity improvements. Rentokil Initial Asia Pacific £ million Second Quarter Half Year Q2 07 Q2 06 Change HY 07 HY 06 change At 2006 constant exchange rates: Portfolio - net movement (appendix 1) 13.4 10.7 17.3 12.8 Revenue 39.5 23.4 68.8% 73.8 46.2 59.7% Operating profit (before amortisation of intangible 8.3 4.7 76.6% 14.0 9.5 47.4%assets1) One-off items - 0.7 - - 0.8 - Adjusted operating profit (before one-off items andamortisation of intangible assets1) 8.3 5.4 53.7% 14.0 10.3 35.9% 1 Other than computer software and development costs Revenue in Asia Pacific increased by 59.7% in the first half of the year. Ofthis, organic growth was 14.4%, boosted by the Hong Kong government pest controlcontract which commenced on 1 April. Adjusted operating profit was 35.9% higherthan last year. Strategically, we are seeking to increase the group's exposureto East Asian and Pacific Rim markets and progress has been made in the past 18months; in the second quarter the division represented 7.1% of group revenue and11.5% of group adjusted operating profit compared with 5.4% and 8.7%respectively in the first quarter of 2006. The larger Asia Pacific markets all produced higher revenue and adjustedoperating profit, including Australia, New Zealand, Singapore, Hong Kong,Malaysia and South Korea, although comparisons are impacted by the high level ofacquisition activity in the division in the past two years. Work is continuing on the integration of Pink Healthcare and other businessesacquired in the past 18 months. Integration is on plan and benefits will startto be realised in the second half of 2007 and 2008. A total of 23 acquisitions were completed during the first half, predominantlyin pest control, plants, electronic security and facilities services. They willcontribute annualised revenue of some £30 million. Other (South Africa) £ million Second Quarter Half Year Q2 07 Q2 06 change HY 07 HY 06 change At 2006 constant exchange rates: Portfolio - net movement (appendix 1) 0.6 0.5 1.8 1.1 Revenue 7.4 7.3 1.4% 14.7 14.6 0.7% Operating profit (before amortisation of intangible 2.8 2.6 7.7% 5.4 5.3 1.9%assets1) One-off items - 0.2 - - 0.2 - Adjusted operating profit (before one-off items andamortisation of intangible assets1) 2.8 2.8 - 5.4 5.5 (1.8%) 1 Other than computer software and development costs In South Africa, comparative revenue is distorted by the disposal of a timberpreserving business which was included in the 2006 results. Portfolio has grownby 7.5% in the past 12 months. Pest control grew strongly in the first halfwith a 12.4% revenue increase. Progress in pest control and, to a lesserextent, Ambius was offset by lower sales in the washroom business and it remainsthe challenge to return this part of the business to growth. FINANCIAL ITEMS Central Costs £ million Second Quarter Half Year Q2 07 Q2 06 change HY 07 HY 06 Change At 2006 constant exchange rates: Central costs (10.2) (6.3) (61.9%) (20.6) (15.0) (37.3%) One-off items - (1.0) - - 0.9 - Central costs before one-off items (10.2) (7.3) (39.7%) (20.6) (14.1) (46.1%) Central costs were £6.5 million higher than the adjusted figure for the firsthalf of 2006. The principal reasons for the increase are start-up costs of thenew UK Shared Service Centre in Dudley and the continuing build-up of costsassociated with the long-term incentive plan. In the half, there were a numberof non-recurring charges and credits. The largest two items occurred in thesecond quarter and were an asset retirement, together with associated charges,of £10.6 million and the £10.2 million net release of surplus property andenvironmental provisions. This followed a successful exit from onerous leaseliabilities at a large site in Maldon, Essex. A cash payment of £13.2 millionwas made and the excess provisions have been released. These items have notbeen treated as one-off as they are not linked to restructuring and the netimpact is small. The run rate of central costs is expected to fall in thesecond half. One-off Items Details of the one-off items incurred in the period for which adjustments havebeen made are set out in Appendix 4. These have been separately identifiedbecause they are not considered to be "business as usual" items and they have avarying impact on different businesses and reporting periods. Across the group, the net cost of these one-off items in the half was £3.2million, compared with £5.8 million last year. In the first six months of 2007,one-off costs were incurred in completing the UK Pest Control rationalisation,continuing the restructuring of the UK Washroom business, closure costs ofplants in Belgium and the integration at City Link. As a result of our increasein the estimated integration costs of Target Express, we expect total one-offcosts for 2007 as a whole to be some £16 million. Interest Net interest payable for the first six months of 2007 was £38.6 million, an£18.2 million increase over the prior year. Of the increase, approximately £12million was attributable to higher levels of average debt and £6 million toeffective interest rates which were, on average, approximately 1% higher than in2006. Tax The blended headline rate for the first half of 2007 was 30.2% (2006: 31.0%).This represents the weighted headline tax rates appropriate to the countries inwhich the group operates. The income statement tax charge for 2007 forcontinuing businesses was 18.4% of profit before tax from continuing operations,compared with 25.8% for the first half of 2006. The principal factors thatcaused the effective tax rate to be lower than the blended rate, and lower thanthe effective rate last year, are the release of prior year provisions relatingto matters now agreed with tax authorities and the release of the surplusproperty provision referred to above, which is not subject to tax. Discontinued Operations An offer to purchase the Electronic Security division for £595 million wasreceived in March 2007 and as a result the activities of the division have beentreated as discontinued operations and excluded from the profit before incometax shown on page 2. Following regulatory and other approvals, the sales of theUK, Netherlands and US companies in that division were completed in July 2007and £533 million, representing 86% of the total sale proceeds plus completionadjustments, was received on 2 July. The sale of the French Electronic Securitybusiness awaits regulatory approval by the French authorities. Revenue from theElectronic Security division in the first half was £150.5 million (2006: £137.2million), generating operating profit of £20.9 million (2006: £15.5 million)before amortisation of customer lists. Expected profit on sale of the divisionwill be approximately £450 million. Any associated tax liability is expected tobe small. Dividends The board has declared an unchanged interim dividend of 2.13p per share, whichwill be payable on 19 October 2007 to shareholders on the Register on 14September 2007. Cash Flow and Debt Operating cash flow was £79.0 million compared with £85.2 million in the prioryear. Although EBITDA was £23.4 million better than last year (reflecting inparticular the non-recurrence of losses incurred in the UK linen and workwearbusiness in 2006), the working capital outflow was £33.0 million worse than thefirst half of 2006, to leave operating cash flow £6.2 million below last year.The working capital outflow has three main components: the payment made to exitthe onerous property in Essex; the cash payment in 2007 of certainreorganisation costs provided at the end of 2006; and an increase in tradereceivables while collection responsibilities were moved from various UK tradingbusinesses to the new UK shared service centre in the Midlands. July statisticsshow that this situation is beginning to normalise. Free cash flow was £48.8 million (2006: £44.0 million) reflecting lower net taxpayments following the receipt of certain refunds in the first half. In the six months to 30 June 2007, acquisition activity resulted in a net cashoutflow of £93.0 million. The equivalent figure for 2006 was a net payment ofonly £17.5 million following the receipt of the proceeds from the disposal ofthe Manned Guarding business. A scheduled payment of £30 million was made to the UK Pension Scheme at the endof January and in March a 7-year €500 million bond was issued to pre-finance abond of the same size which matured in May 2007. At 30 June 2007, net debt was£1,350.3 million although it is now substantially lower following the receipt ofthe Electronic Security sale proceeds. Appendix 1 ANNUAL CONTRACT PORTFOLIO - CONTINUING BUSINESSES 3 Months to 30 June 2007 Net£m at constant 2006 New Additions/ Acquisitions/exchange rates 1.4.07 Business Terminations Reductions Disposals 30.6.07 Textiles & Washroom Services 572.8 13.8 (14.1) 1.5 (5.1) 568.9Pest Control 218.7 8.8 (8.4) 2.1 0.2 221.4Ambius 88.8 1.9 (2.8) 1.0 - 88.9 Facilities Services 414.7 13.0 (11.8) 3.4 - 419.3Asia Pacific 107.0 15.3 (3.9) 1.0 1.0 120.4 Other 27.9 0.8 (0.7) 0.5 - 28.5TOTAL 1,429.9 53.6 (41.7) 9.5 (3.9) 1,447.4 6 Months to 30 June 2007 Net£m at constant 2006 New Additions/ Acquisitions/exchange rates 1.1.07 Business Terminations Reductions Disposals 30.6.07 Textiles & Washroom Services 571.5 28.9 (28.8) 7.5 (10.2) 568.9Pest Control 214.4 17.1 (16.0) 4.2 1.7 221.4Ambius 88.3 3.8 (5.2) 2.0 - 88.9 Facilities Services 414.4 26.2 (24.5) 3.2 - 419.3Asia Pacific 103.1 19.7 (6.7) 0.8 3.5 120.4 Other 26.7 1.7 (1.7) 1.8 - 28.5TOTAL 1,418.4 97.4 (82.9) 19.5 (5.0) 1,447.4 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 portfolioinclude ad hoc and/or repeat job work and extras. These values are excludedfrom the contract 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 6 months to 6 months to 30 June 30 June 30 June 30 June 2007 2006 2007 2006(at 2006 constant exchange rates) £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited)Business Analysis Revenue Textiles & Washroom Services 150.8 147.9 300.6 295.1Pest Control 79.4 75.5 146.6 132.4Ambius 26.2 25.0 51.6 49.5City Link 108.5 47.6 203.0 81.7Facilities Services 141.3 125.8 284.3 254.0Asia Pacific 39.5 23.4 73.8 46.2Other 7.4 7.3 14.7 14.6Continuing operations at 2006 constant exchangerates 553.1 452.5 1,074.6 873.5Exchange (5.3) 3.1 (11.5) 7.9Continuing operations at actual exchange rates 547.8 455.6 1,063.1 881.4 Operating profit* Textiles & Washroom Services 29.3 25.9 53.4 52.9Pest Control 17.8 18.1 27.9 31.8Ambius 2.2 1.4 2.6 2.1City Link 12.1 8.0 21.4 13.7Facilities Services 8.8 7.5 18.6 15.0Asia Pacific 8.3 4.7 14.0 9.5Other 2.8 2.6 5.4 5.3Central costs (10.2) (6.3) (20.6) (15.0)Continuing operations at 2006 constant exchangerates 71.1 61.9 122.7 115.3Exchange (0.8) 0.7 (1.6) 1.5Continuing operations at actual exchange rates 70.3 62.6 121.1 116.8 Adjusted operating profit** Textiles & Washroom Services 28.2 27.8 53.3 55.1Pest Control 18.0 19.1 28.5 33.4Ambius 2.2 1.4 2.6 2.1City Link 13.9 8.0 24.1 13.7Facilities Services 8.8 7.6 18.6 15.1Asia Pacific 8.3 5.4 14.0 10.3Other 2.8 2.8 5.4 5.5Central costs (10.2) (7.3) (20.6) (14.1)Continuing operations at 2006 constant exchangerates 72.0 64.8 125.9 121.1Exchange (0.8) 0.7 (1.6) 1.5Continuing operations at actual exchange rates 71.2 65.5 124.3 122.6 * 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 6 months to 6 months to 30 June 30 June 30 June 30 June 2007 2006 2007 2006(at actual exchange rates) £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited)Business Analysis Revenue Textiles & Washroom Services 150.0 149.2 298.0 297.6Pest Control 77.0 76.5 142.5 134.2Ambius 25.1 25.2 49.5 50.5City Link 108.5 47.7 203.0 81.8Facilities Services 141.2 125.9 283.9 254.3Asia Pacific 39.4 23.4 73.1 47.0Other 6.6 7.6 13.1 16.0Continuing operations at actual exchange rates 547.8 455.5 1,063.1 881.4 Operating profit* Textiles & Washroom Services 29.2 26.3 52.9 53.4Pest Control 17.5 18.2 27.5 32.0Ambius 2.1 1.5 2.5 2.2City Link 12.1 8.0 21.4 13.7Facilities Services 8.8 7.5 18.6 15.0Asia Pacific 8.3 4.7 14.0 9.7Other 2.5 2.7 4.8 5.8Central costs (10.2) (6.3) (20.6) (15.0)Continuing operations at actual exchange rates 70.3 62.6 121.1 116.8 Adjusted operating profit** Textiles & Washroom Services 28.1 28.2 52.8 55.6Pest Control 17.7 19.2 28.1 33.6Ambius 2.1 1.5 2.5 2.2City Link 13.9 8.0 24.1 13.7Facilities Services 8.8 7.6 18.6 15.1Asia Pacific 8.3 5.4 14.0 10.5Other 2.5 2.9 4.8 6.0Central costs (10.2) (7.3) (20.6) (14.1)Continuing operations at actual exchange rates 71.2 65.5 124.3 122.6 * 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 4 One-off Items 3 months to 3 months to 6 months to 6 months to 30 June 30 June 30 June 30 June 2007 2006 2007 2006 £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) Textiles & Washroom Services 1.1 (1.9) 0.1 (2.2)Pest Control (0.2) (1.0) (0.6) (1.6)Ambius - - - -City Link (1.8) - (2.7) -Facilities Services - (0.1) - (0.1)Asia Pacific - (0.7) - (0.8)Other - (0.2) - (0.2)Central costs - 1.0 - (0.9) (0.9) (2.9) (3.2) (5.8) Note: All numbers at both actual and constant exchange rates. Independent review report to Rentokil Initial plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated interimbalance sheet as at 30 June 2007 and the consolidated interim statements ofincome, cash flows and recognised income and expense for the six months thenended and the related notes. We have read the other information contained in theInterim Report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. Directors' responsibilities The Interim Report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The ListingRules of the Financial Services Authority require that the accounting policiesand presentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This Interim Report has been prepared in accordance with the basis set out innote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLPChartered AccountantsLondon23 August 2007 Consolidated Income Statement 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m Notes (unaudited) (unaudited) (audited)Continuing operations: Revenue 3 1,063.1 881.4 1,843.2 Operating expenses (960.3) (772.7) (1,628.7)Operating profit 102.8 108.7 214.5 Analysed as: Operating profit before amortisation of intangible assets1 121.1 116.8 235.6Amortisation of intangible assets1 (18.3) (8.1) (21.1) Operating profit 102.8 108.7 214.5 Interest payable and similar charges 4 (71.4) (55.9) (112.3)Interest receivable 5 32.8 35.5 61.2 Share of profit from associates (net 1.1 1.1 2.0of tax) Profit before income tax 65.3 89.4 165.4 Income tax expense2 6 (12.0) (23.1) (33.3) Profit for the period from continuing 53.3 66.3 132.1operations Discontinued operations: Profit for the period from discontinued 7 13.4 68.4 115.0operations Profit for the period (including discontinued operations) 66.7 134.7 247.1 Attributable to: Minority interest 1.2 1.4 2.0Equity holders of the company 65.5 133.3 245.1 66.7 134.7 247.1 Basic earnings per share - Continuing operations 8 2.88p 3.59p 7.20p - Discontinued operations 8 0.74p 3.79p 6.37p - Continuing and discontinued 8 3.62p 7.38p 13.57p operations Diluted earnings per share - Continuing operations 8 2.88p 3.59p 7.20p - Discontinued operations 8 0.74p 3.79p 6.37p - Continuing and discontinued 8 3.62p 7.38p 13.57p operations Dividends - Proposed per share (not accrued) 2.13p 2.13p 5.25p- Authorised per share (accrued) 5.25p 5.25p 7.38p- Paid per share 5.25p 5.25p 7.38p - Proposed £ million (not accrued) 38.5 38.5 94.8- Authorised £ million (accrued) 94.9 94.8 133.3- Paid £ million 94.9 94.8 133.3 1 Other than computer software and development costs. 2 Taxation includes £15.4m (2006 H1: £18.3 m, 2006 FY: £27.4m) in respect ofoverseas taxation. Consolidated Statement of Recognised Income and Expense 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited) Profit for the period (including discontinued 66.7 134.7 247.1operations) Net exchange adjustments offset in (2.3) (2.5) (10.1)reservesActuarial gain on defined benefit pension plans 2.9 89.6 44.6Revaluation of available-for-sale 0.1 (0.1) 0.1investmentsTax on items taken directly to reserves (0.9) (26.9) (13.1)Net (loss)/profit not recognised in income (0.2) 60.1 21.5statement Total recognised income for the period 66.5 194.8 268.6 Attributable to: Minority interest 1.2 1.4 2.0Equity holders of the company 65.3 193.4 266.6 66.5 194.8 268.6 Consolidated Balance Sheet At 31 At 30 June At 30 June December 2007 2006 2006 £m £m £m Notes (unaudited) (unaudited) (audited)Assets Non-current assets Intangible assets 10 570.7 273.4 559.1Property, plant and equipment 11 495.7 493.6 513.1Investments in associated 9.0 9.9 8.6undertakingsOther investments 6.4 6.8 6.8Deferred tax assets 14.5 47.7 7.1Trade and other receivables 26.0 25.0 24.7Derivative financial instruments - 3.0 - 1,122.3 859.4 1,119.4 Current assets Inventory 38.2 47.3 46.9Trade and other receivables 444.7 398.8 482.6Derivative financial instruments 4.1 2.2 8.0Cash and cash equivalents 12 142.1 120.5 135.1Held-for-sale assets 7 165.4 36.3 - 794.5 605.1 672.6 LiabilitiesCurrent liabilitiesTrade and other payables (463.1) (482.5) (553.2)Current tax liabilities (107.7) (118.3) (103.6)Provisions for other liabilities and 15 (25.7) (28.5) (22.3)chargesBank and other short-term borrowings 13 (67.7) (432.5) (446.0)Derivative financial instruments (1.3) (4.5) (4.6)Held-for-sale liabilities 7 (96.6) (20.6) - (762.1) (1,086.9) (1,129.7) Net current assets/(liabilities) 32.4 (481.8) (457.1) Non-current liabilities Trade and other payables (15.7) (15.2) (15.8)Bank and other long-term borrowings 13 (1,424.7) (672.7) (877.3)Deferred tax liabilities (59.4) (46.9) (45.0)Retirement benefits 14 (85.6) (87.2) (118.8)Provisions for other liabilities and 15 (98.0) (108.1) (128.6)chargesDerivative financial instruments (31.0) (10.3) (10.4) (1,714.4) (940.4) (1,195.9) Net liabilities (559.7) (562.8) (533.6) Equity Capital and reserves attributable to the company's equity holders Called up share capital 16 18.1 18.1 18.1Share premium account 16 6.6 5.3 6.2Other reserves 16 (1,730.9) (1,717.7) (1,728.6)Retained profits 16 1,139.1 1,124.5 1,164.3 (567.1) (569.8) (540.0)Minority interest 16 7.4 7.0 6.4Total equity (559.7) (562.8) (533.6) Consolidated Cash Flow Statement 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m Notes (unaudited) (unaudited) (audited)Cash flows from operating activities Cash generated from operating activities before special 17 157.0 166.5 369.5pension contributionSpecial pension contribution (30.0) - -Cash generated from operating activities 127.0 166.5 369.5Interest received 8.2 9.9 13.1Interest paid (29.9) (29.8) (54.7)Income tax paid (7.3) (20.1) (38.5)Net cash generated from operating activities 98.0 126.5 289.4 Cash flows from investing activities Purchase of property, plant and equipment (PPE) (103.1) (84.2) (176.3)Purchase of intangible fixed assets (8.3) (2.5) (6.3)Proceeds from sale of PPE 41.0 13.7 42.5Acquisition of companies and businesses, net of cash 20 (91.5) (114.7) (406.5)acquiredProceeds from disposal of companies and 7 0.6 98.1 134.9businessesDividends received from associates - - 1.0Net cash flows from investing (161.3) (89.6) (410.7)activities Cash flows from financingactivities Issue of ordinary share capital 0.4 - 0.9Treasury shares purchased - - (1.9)Dividends paid to equity 9 (94.9) (94.8) (133.3)shareholdersDividends paid to minority (0.8) (0.7) (1.8)interestsInterest element on finance lease (1.2) (1.2) (2.3)paymentsCapital element of finance lease (13.3) (9.5) (19.5)paymentsNew loans/(repayments) 167.0 (30.2) 221.0Net cash flows from financing 57.2 (136.4) 63.1activities Net decrease in cash and bank 18 (6.1) (99.5) (58.2)overdraftsCash and bank overdrafts at beginning of year 118.8 170.7 170.7Exchange gains on cash and bank overdrafts 3.8 6.0 6.3Cash and bank overdrafts at end of the financial period 12 116.5 77.2 118.8 Notes to the accounts 1. Basis of preparation of financial statements These financial statements are the interim consolidated financial statements ofRentokil Initial plc, a company registered in England, and its subsidiaries (the"group") for the six month period ended 30 June 2007 (the "Interim Report").They should be read in conjunction with the Annual Report for the year ended 31December 2006 (the "Annual Report"). The accounting policies used areconsistent with those used in the Annual Report. The presentation of the InterimReport is consistent with the Annual Report. Where necessary, the comparativeshave been reclassified or extended from the previously reported interim resultsto take into account any presentational changes made in the Annual Report or inthis Interim Report. The group has chosen not to early adopt IAS 34, "Interim Financial Statements"in preparing its 2007 Interim Report. The preparation of the Interim Reportrequires management to make estimates and assumptions that affect the reportedamounts of revenues, expenses, assets, liabilities and disclosure of contingentliabilities at the date of the Interim Report. If in the future such estimatesand assumptions, which are based on management's best judgement at the date ofthe Interim Report, deviate from the actual circumstances, the originalestimates and assumptions will be modified as appropriate in the year in whichthe circumstances change. 2. Significant events impacting the consolidated interim financial statements There were no significant changes in the nature and amount of estimates andcontingent assets reported since the published Annual Report. 3. Segmental information (a) Primary reporting format - business segments Operating Operating Operating Revenue Revenue Revenue profit profit profit 6 months to 6 months to Year to 31 6 months to 6 months to Year to 31 30 June 30 June December 30 June 2007 30 June 2006 December 2007 2006 2006 2006 £m £m £m £m £m £m (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)Continuing operations Textiles & Washroom Services 340.2 328.6 671.4 60.7 58.7 106.8Pest Control 175.3 154.9 319.3 27.8 33.3 61.9Ambius 55.7 55.9 116.5 2.2 1.7 6.6City Link 203.0 81.8 213.3 17.1 13.7 32.6Facilities Services 288.9 260.2 522.7 16.8 17.5 28.7Central items - - - (21.8) (16.2) (22.1) 1,063.1 881.4 1,843.2 102.8 108.7 214.5 Interest payable and similar charges - - - (71.4) (55.9) (112.3)Interest receivable - - - 32.8 35.5 61.2Share of profit from associates (netof tax) - - - 1.1 1.1 2.0- Textiles & Washroom ServicesProfit before income tax - - - 65.3 89.4 165.4Income tax expense - - - (12.0) (23.1) (33.3)Total for the period from continuing 1,063.1 881.4 1,843.2 53.3 66.3 132.1operations Discontinued operations (after income tax) Textiles & Washroom Services - 14.8 13.6 - (11.1) 3.0Facilities Services1 - 115.5 121.9 - 68.1 88.3Electronic Security 150.5 137.2 281.5 13.4 8.9 22.2Discontinued business segments2 - - - - 2.5 1.5Total for the period from discontinuedoperations 150.5 267.5 417.0 13.4 68.4 115.0 Total for the period (includingdiscontinued operations) 1,213.6 1,148.9 2,260.2 66.7 134.7 247.1 1Profit from the Facilities Services segment for the 6 months to 30 June 2006and year to 31 December 2006 includes profit on disposal (after tax) of £72.6mand £95.9m respectively. 2Discontinued business segments consists of the release of provisions in respectof prior period disposals. Notes to the accounts (continued) 3. Segmental information (continued) (b) Secondary reporting format - geographical segments Revenue Revenue Revenue 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 December 2006 £m £m £m (unaudited) (unaudited) (audited)Continuing operations United Kingdom 526.1 387.6 834.1 Continental Europe 374.8 361.1 725.4North America 74.9 68.3 149.8Asia Pacific 73.1 47.0 102.1Africa 14.2 17.4 31.8Total from continuing operations 1,063.1 881.4 1,843.2 Discontinued operations United Kingdom 84.7 115.3 196.4Continental Europe 56.3 68.9 122.1North America 9.5 83.3 98.5Total from discontinued operations 150.5 267.5 417.0 Total (including discontinued operations) 1,213.6 1,148.9 2,260.2 (c) Reconciliation of statutory segmental analysis to management divisional analysis The commentary in the Overview and Divisional Review reflects the managementdivisional structure and not the segmental information presented above. Forstatutory purposes, the businesses within the geographic divisions of AsiaPacific and South Africa (Other) have been reallocated back to the relevantbusiness segment in line with the requirements of IAS 14, "Segmental Reporting".In addition, the commentary in the Overview and Divisional Review is presentedat constant exchange rates and before the amortisation of intangible assets(other than computer software and development costs). The tables that followreconcile the segmental information presented above to the divisionalperformance referred to in the Overview and Divisional Review. Statutory Asia Pacific Foreign Management Management Management basis and Other exchange basis basis basis 6 months to 6 months to 6 months to 6 months to 6 months Year to 31 30 June 30 June 2007 30 June 30 June to 30 June December 2007 2007 2007 2006 2006 £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited)Revenue from continuing operations Textiles & Washroom Services 340.2 (42.2) 2.6 300.6 295.1 595.4Pest Control 175.3 (32.8) 4.1 146.6 132.4 278.3Ambius 55.7 (6.2) 2.1 51.6 49.5 105.8City Link 203.0 - - 203.0 81.7 213.3Facilities Services 288.9 (5.0) 0.4 284.3 254.0 519.2Asia Pacific - 73.1 0.7 73.8 46.2 102.1Other - 13.1 1.6 14.7 14.6 29.1 1,063.1 - 11.5 1,074.6 873.5 1,843.2 Amortis-ation of intangible Statutory Asia assets* Foreign Management Management Management basis Pacific and exchange basis basis basis Other 6 months 6 months 6 months 6 months 6 months 6 months Year to 31 to 30 June to 30 June to 30 June to 30 June to 30 June to 30 June December 2007 2007 2007 2007 2007 2006 2006 £m £m £m £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited)Operating profit from continuingoperations Textiles & Washroom Services 60.7 (13.0) 5.2 0.5 53.4 52.9 92.1Pest Control 27.8 (6.0) 5.7 0.4 27.9 31.8 61.4Ambius 2.2 (0.9) 1.2 0.1 2.6 2.1 7.4City Link 17.1 - 4.3 - 21.4 13.7 34.8Facilities Services 16.8 0.1 1.7 - 18.6 15.0 27.4Asia Pacific - 14.0 - - 14.0 9.5 20.2Other - 4.8 - 0.6 5.4 5.3 11.8Central items (21.8) 1.0 0.2 - (20.6) (15.0) (19.5) 102.8 - 18.3 1.6 122.7 115.3 235.6 *Other than computer software and development costs. Notes to the accounts (continued) 4. Interest payable and similar charges 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited) Interest payable on bank loans and overdrafts 15.8 12.5 18.4Interest payable on medium term notes issued 29.3 22.1 49.6Net interest payable/(receivable) on fair value hedges 0.5 (4.3) (6.7)Interest on defined benefit plan liabilities 25.7 24.5 48.4Interest payable on finance leases 1.0 1.0 1.8Foreign exchange gain on translation of foreign denominated loans (0.1) (0.1) (0.3)Amortisation of discount on provisions 1.1 1.1 2.0Net ineffectiveness of fair value hedges (0.5) (0.1) (0.1)Fair value gain on derivatives not designated in a hedge relationship1 (1.4) (0.8) (0.8)Total interest payable and similar charges (continuing operations) 71.4 55.9 112.3 1The fair value gain on derivatives not designated in a hedge relationship includes fair value gainsrelating to forward rate agreements of £0.9m (HY 2006: £0.8m, FY 2006: £2.0m loss). 5. Interest receivable 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited)Bank interest 7.4 9.7 13.8Return on defined benefit plan assets 25.4 25.8 47.4Total interest receivable (continuing operations) 32.8 35.5 61.2 6. Income tax expense 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited)Analysis of charge in the period UK Corporation Tax at 30% (HY 2006: 30%, FY 2006: 30%) 7.7 7.8 15.3Double tax relief (12.8) (5.8) (17.6) (5.1) 2.0 (2.3)Overseas taxation 17.6 19.1 35.3Adjustment in respect of previous periods (5.4) (4.3) (17.1)Total current tax 7.1 16.8 15.9 Deferred tax 4.9 6.3 17.4Total income tax expense (continuing operations) 12.0 23.1 33.3 Notes to the accounts (continued) 7. Discontinued operations and disposals (a) Disposals The group exited its small German hospital services business in the period for a net payment of £1.1m after deducting disposal costs of £4.4m. No profit or loss arose on the transaction. Details of net assets disposed and disposal proceeds are asfollows: 2007 £m (unaudited)Non-current assets - Property, plant and equipment 3.6Current liabilities (4.7)Net liabilities disposed (1.1)Profit on disposal -Consideration (1.1)Consideration deferred to future periods (0.9)Costs deferred to future periods 2.6Cash inflow from disposal of companies and 0.6businesses (b) Businesses held-for sale The group announced on 30 November 2006 that it was undertaking a strategicreview of the Electronic Security division in Europe and the USA. A formal saleprocess commenced in January 2007. Subsequently, on 2 July 2007, the UK, theNetherlands and the US businesses were disposed for gross proceeds of £533.4m. The sale of the remaining French business remains conditional upon Frenchregulatory approval. The process for obtaining this approval is ongoing. The balance sheets for these businesses have been disclosed on two lines withincurrent assets and current liabilities, described as "held-for-sale assets" and"held-for-sale liabilities" respectively, and are held at the lower of cost andfair value less costs to sell. Details of net assets disposed and disposal proceeds are asfollows: 2007 £m (unaudited)Non-current assets 84.0Current assets 81.4Held-for-sale assets 165.4 Current liabilities (94.5)Non-current liabilities (2.1)Held-for-sale liabilities (96.6) Net held-for-sale assets 68.8 (c) Financial performance of discontinued operations 6 months to 6 months to Year to 31 30 June 30 June December 20072 2006 2006 £m £m £m (unaudited) (unaudited) (audited)Revenue 150.5 267.5 417.0Operating expenses (131.1) (270.2) (391.9) Operating profit/(loss) 19.4 (2.7) 25.1Finance costs - net (0.3) (0.6) (1.0)Profit/(loss) before income tax 19.1 (3.3) 24.1Taxation (5.7) (0.9) (5.0)Profit/(loss) after income tax from discontinued operations 13.4 (4.2) 19.1Profit on disposal of subsidiary net assets - 71.6 98.5Taxation - - (8.5)Cumulative translation exchange gain1 - 1.0 5.9Total profit after income tax on disposal of subsidiary net - 72.6 95.9assets Profit on disposal of discontinued operations 13.4 68.4 115.0 1The cumulative translation exchange gain in prior periods relating todiscontinued operations has been recycled out of exchange reserves to theconsolidated income statement. 2The financial performance of discontinued operations in the 6 months to 30 June2007 relates solely to the Electronic Security segment. Notes to the accounts (continued) 8. Earnings per shareBasic Basic earnings per share is calculated by dividing the profit attributable to equity holders of thecompany by the weighted average number of shares in issue during the year, excluding those held in theRentokil Initial Employee Share Trust for UK employees, which are treated as cancelled. 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited) Profit from continuing operations attributable to equity holders of 52.1 64.9 130.1the companyProfit from discontinued operations attributable to equity holders of 13.4 68.4 115.0the company Weighted average number of ordinary shares in issue 1,807.2 1,806.5 1,806.5 Basic earnings per share from continuing 2.88p 3.59p 7.20poperationsBasic earnings per share from discontinued operations 0.74p 3.79p 6.37pBasic earnings per share from continuing and discontinued operations 3.62p 7.38p 13.57p Diluted Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue to assume conversion of all dilutivepotential ordinary shares. The company has two categories of dilutive potentialordinary shares, being those share options granted to employees where theexercise price is less than the average market price of the company's sharesduring the year and deferred shares granted to senior executives that will vestin the future. 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited) Profit from continuing operations attributable to equity holders of 52.1 64.9 130.1the companyProfit from discontinued operations attributable to equity holders of 13.4 68.4 115.0the company Weighted average number of ordinary shares in issue 1,807.2 1,806.5 1,806.5 Adjustment for share options and deferred - - -sharesWeighted average number of ordinary shares for diluted earnings per 1,807.2 1,806.5 1,806.5share Diluted earnings per share from continuing operations 2.88p 3.59p 7.20p Diluted earnings per share from discontinued operations 0.74p 3.79p 6.37pDiluted earnings per share from continuing and discontinued operations 3.62p 7.38p 13.57p 9. Dividends 6 months to 6 months to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited) 2005 final dividend paid - 5.25p per share - 94.8 94.82006 interim dividend paid - 2.13p per share - - 38.52006 final dividend paid - 5.25p per share 94.9 - - 94.9 94.8 133.3 The directors have declared an interim dividend of 2.13p per share amounting to £38.5m payable on 19October 2007 to shareholders on the register at 14 September 2007. These interim financial statements donot reflect this dividend payable. Notes to the accounts (continued) 10. Intangible assets Brands, patents and reacquired Customer franchise Computer Development Goodwill lists rights software costs Total £m £m £m £m £m £mCostAt 1 January 2006 (audited) 80.8 221.6 0.3 35.1 3.2 341.0Exchange differences (0.2) (4.5) (0.3) (0.1) - (5.1)Additions - - - 2.3 0.2 2.5Disposals - - - (0.1) - (0.1)Acquisition of companies and businesses 68.9 42.1 10.7 - - 121.7Disposal of companies and businesses (2.9) (7.2) - (3.1) - (13.2)Held-for-sale assets (1.0) (17.4) - (0.7) - (19.1)At 30 June 2006 (unaudited) 145.6 234.6 10.7 33.4 3.4 427.7At 1 January 2006 (audited) 80.8 221.6 0.3 35.1 3.2 341.0Exchange differences (10.1) (10.4) (0.8) (0.5) - (21.8)Additions - - - 6.0 0.4 6.4Disposals - - - (2.0) - (2.0)Acquisition of companies and businesses 269.6 135.6 29.9 0.1 - 435.2Disposal of companies and businesses (3.9) (24.2) - (3.8) (2.7) (34.6)Reclassification - - - 0.1 (0.1) -At 31 December 2006 (audited) 336.4 322.6 29.4 35.0 0.8 724.2At 1 January 2007 (audited) 336.4 322.6 29.4 35.0 0.8 724.2Exchange differences 0.1 0.7 (0.1) 0.1 - 0.8Additions - - - 8.2 - 8.2Disposals/retirements - - - (12.3) - (12.3)Acquisition of companies and businesses 54.1 42.2 7.1 0.1 - 103.5Held-for-sale assets (22.3) (58.6) - (7.9) (0.8) (89.6)At 30 June 2007 (unaudited) 368.3 306.9 36.4 23.2 - 734.8 Accumulated amortisation and impairmentAt 1 January 2006 (audited) - (137.9) - (20.9) (1.9) (160.7)Exchange differences - 1.8 - 0.1 - 1.9Disposals - - - 0.1 - 0.1Disposal of companies and businesses - 4.6 - 2.2 - 6.8Amortisation charge - (11.5) (0.3) (1.8) (0.2) (13.8)Held-for-sale assets - 11.0 - 0.4 - 11.4At 30 June 2006 (unaudited) - (132.0) (0.3) (19.9) (2.1) (154.3)At 1 January 2006 (audited) - (137.9) - (20.9) (1.9) (160.7)Exchange differences - 5.7 (0.1) 0.4 - 6.0Disposals - - - 0.8 - 0.8Disposal of companies and businesses - 15.7 - 2.6 2.7 21.0Amortisation charge - (25.2) (2.3) (3.7) (1.0) (32.2)At 31 December 2006 (audited) - (141.7) (2.4) (20.8) (0.2) (165.1)At 1 January 2007 (audited) - (141.7) (2.4) (20.8) (0.2) (165.1)Exchange differences - (0.2) - - - (0.2)Disposals - - - 3.2 - 3.2Amortisation charge - (17.2) (2.6) (1.4) (0.1) (21.3)Held-for-sale assets - 14.5 - 4.5 0.3 19.3At 30 June 2007 (unaudited) - (144.6) (5.0) (14.5) - (164.1) Net book value 1 January 2006 (audited) 80.8 83.7 0.3 14.2 1.3 180.330 June 2006 (unaudited) 145.6 102.6 10.4 13.5 1.3 273.431 December 2006 (audited) 336.4 180.9 27.0 14.2 0.6 559.130 June 2007 (unaudited) 368.3 162.3 31.4 8.7 - 570.7 Notes to the accounts (continued) 11. Property, plant and equipment Plant, equipment & tropical Vehicles & Land & plants office buildings equipment Total £m £m £m £m Cost At 1 January 2006 (audited) 166.3 739.2 263.9 1,169.4Exchange differences 0.5 (2.7) (4.0) (6.2)Additions 4.8 57.0 25.1 86.9Disposals (4.6) (59.0) (23.0) (86.6)Acquisition of companies and businesses 2.9 1.4 7.3 11.6Disposal of companies and businesses (2.0) (5.2) (8.6) (15.8)Held-for-sale assets (6.9) (0.7) (4.0) (11.6)At 30 June 2006 (unaudited) 161.0 730.0 256.7 1,147.7 At 1 January 2006 (audited) 166.3 739.2 263.9 1,169.4Exchange differences (3.4) (17.6) (8.2) (29.2)Additions 12.8 123.2 56.1 192.1Disposals (12.2) (201.8) (47.6) (261.6)Acquisition of companies and businesses 7.7 5.1 13.0 25.8Disposal of companies and businesses (3.2) (9.0) (12.9) (25.1)At 31 December 2006 (audited) 168.0 639.1 264.3 1,071.4 At 1 January 2007 (audited) 168.0 639.1 264.3 1,071.4 Exchange differences (0.1) 0.8 0.3 1.0Additions 12.3 67.9 23.7 103.9Disposals (13.3) (26.8) (56.3) (96.4)Acquisition of companies and businesses 0.9 1.8 4.1 6.8Disposal of companies and businesses (2.3) (7.7) (1.0) (11.0)Held-for-sale assets (4.4) (7.3) (38.3) (50.0)At 30 June 2007 (unaudited) 161.1 667.8 196.8 1,025.7 Accumulated depreciation and impairment At 1 January 2006 (audited) (44.2) (478.9) (148.8) (671.9)Exchange differences (0.5) 1.4 1.9 2.8Disposals 1.0 57.5 19.3 77.8Disposal of companies and businesses 1.0 4.0 5.1 10.1Depreciation charge (1.6) (53.3) (21.7) (76.6)Held-for-sale assets 0.6 0.5 2.6 3.7At 30 June 2006 (unaudited) (43.7) (468.8) (141.6) (654.1) At 1 January 2006 (audited) (44.2) (478.9) (148.8) (671.9)Exchange differences 1.1 10.2 4.2 15.5Disposals 1.9 199.5 38.7 240.1Disposal of companies and businesses 1.5 7.0 7.9 16.4Impairment charge - (1.0) - (1.0)Depreciation charge (3.6) (109.8) (44.0) (157.4)At 31 December 2006 (audited) (43.3) (373.0) (142.0) (558.3) At 1 January 2007 (audited) (43.3) (373.0) (142.0) (558.3)Exchange differences - (0.4) (0.1) (0.5)Disposals 8.8 25.3 36.7 70.8Disposal of companies and businesses 1.2 5.2 0.7 7.1Depreciation charge (1.8) (55.4) (19.7) (76.9)Held-for-sale assets 2.0 4.6 21.2 27.8At 30 June 2007 (unaudited) (33.1) (393.7) (103.2) (530.0) Net book value At 1 January 2006 (audited) 122.1 260.3 115.1 497.5 At 30 June 2006 (unaudited) 117.3 261.2 115.1 493.6 At 31 December 2006 (audited) 124.7 266.1 122.3 513.1 At 30 June 2007 (unaudited) 128.0 274.1 93.6 495.7 Notes to the accounts (continued) 12. Cash and cash equivalents 31 December 30 June 2007 30 June 2006 2006 £m £m £m (unaudited) (unaudited) (unaudited) Cash at bank and in hand 120.7 109.5 90.2Short-term bank deposits 21.4 11.0 44.9 142.1 120.5 135.1 Cash and bank overdrafts include the following for the purposes of the cash flow statement: Cash and cash equivalents 142.1 120.5 135.1Bank overdrafts (note 13) (25.6) (43.3) (16.3) 116.5 77.2 118.8 13. Bank and other borrowings 30 June 30 June 31 December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited)Non-current Bank borrowings 489.9 98.7 254.1Other loans 915.1 553.1 603.1Finance lease liabilities 19.7 20.9 20.1 1,424.7 672.7 877.3Current Bank overdrafts 25.6 43.3 16.3Bank borrowings 12.3 2.8 30.5Other loans 18.8 371.1 383.3Finance lease liabilities 11.0 15.3 15.9 67.7 432.5 446.0 Total bank and other borrowings 1,492.4 1,105.2 1,323.3 The group operated the following medium term notes under its €2.5bn Euro MediumTerm Note programme during the period as follows: Currency/Amount IAS 39 Interest Coupon Maturity date hedging €500m FV, NIH Fixed rate - 5.75% pa Matured£250m FV Fixed rate - 6.125% pa 19.11.08£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 Notes to the accounts (continued) 14. 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 heldin separate 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 the Initial No2 Section,accounting for 0.5% of the total scheme liabilities, which remains open).Actuarial valuations of the UK scheme are usually carried out every three years.The most recent valuation was at 31 March 2005. A valuation will be performedat 31 March 2007. 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. 31 December 30 June 2007 30 June 2006 2006 £m £m £m (unaudited) (unaudited) (audited)Weighted average %Discount rate 5.8% 5.2% 5.1%Expected return on plan assets 5.5% 5.1% 5.5%Future salary increases 4.1% 3.7% 3.8%Future pension increases 3.3% 3.0% 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 (962.9) (971.1) (1,033.8) Fair value of plan assets 883.0 889.4 921.1 (79.9) (81.7) (112.7)Present value of unfunded obligations (5.7) (5.5) (6.1)Liability in the balance sheet (85.6) (87.2) (118.8) The fair value of plan assets at the balance sheet date for the total of the UKRIPS and other1 schemes is analysed as follows: Equity instruments 195.2 178.3 186.2 Debt instruments 698.5 696.5 707.3Property 0.8 0.5 0.8Cash 1.5 8.2 0.9Swaps (13.0) 5.9 25.9 883.0 889.4 921.1 The amounts recognised in the income statement for the total of the UK RIPS andother1 schemes are as follows: Current service cost2 0.8 7.2 8.9 Prior service cost3 - - (3.0)Curtailment - - (16.2)Interest cost2 25.7 24.5 48.4Amount charged to pension liability 26.5 31.7 38.1Expected return on plan assets2 (25.4) (25.8) (47.4)Total pension cost 1.1 5.9 (9.3) 1 Other retirement benefit plans are predominantly made up of defined benefitplans situated in Ireland, Germany, Australia, Belgium, Norway and New Zealand. 2 Service costs are charged to operating expenses and interest cost and returnon plan assets to interest payable and receivable respectively. 3 Change in assumptions arising from 'A day'. Notes to the accounts (continued) 15. Provisions for other liabilities and charges Vacant Self properties Environmental insurance Other Total £m £m £m £m £m At 1 January 2006 (audited) 46.3 35.8 51.1 14.8 148.0Exchange differences - (0.8) (1.3) (0.1) (2.2)Additional provisions - 1.7 7.5 5.8 15.0Acquisition of companies and - - - 0.9 0.9businessesUnused amounts reversed (1.5) - - (2.5) (4.0)Unwinding of discount on provisions 0.6 0.5 - - 1.1Transferred to held for sale (11.7) - - - (11.7)liabilitiesUsed during the year (1.5) (1.6) (7.1) (0.3) (10.5)At 30 June 2006 (unaudited) 32.2 35.6 50.2 18.6 136.6 At 1 January 2006 (audited) 46.3 35.8 51.1 14.8 148.0Exchange differences - (1.4) (2.3) (0.2) (3.9)Additional provisions 5.1 3.6 13.4 19.3 41.4Acquisition of companies and 2.8 - - 2.2 5.0businessesUnused amounts reversed (2.5) (0.6) (2.8) (2.5) (8.4)Unwinding of discount on provisions 1.1 0.9 - - 2.0Used during the year (16.5) (2.4) (13.4) (0.9) (33.2)At 31 December 2006 (audited) 36.3 35.9 46.0 32.7 150.9 At 1 January 2007 (audited) 36.3 35.9 46.0 32.7 150.9Exchange differences - (0.2) (0.4) (0.1) (0.7)Additional provisions - 4.0 5.7 1.7 11.4Reclassification 1.6 - - (1.6) -Acquisition of companies and - 1.0 - - 1.0businessesUnused amounts reversed (3.0) (10.2) - - (13.2)Unwinding of discount on provisions 0.5 0.6 - - 1.1Used during the year (15.4) (0.8) (6.7) (3.9) (26.8)At 30 June 2007 (unaudited) 20.0 30.3 44.6 28.8 123.7 Provisions analysed as follows: At 30 June At 30 June At 31 December 2007 2006 2006 £m £m £m (unaudited) (unaudited) (audited) Non-current 98.0 108.1 128.6Current 25.7 28.5 22.3 123.7 136.6 150.9 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 actuarial assessmentof claims incurred at the balance sheet date, is accumulated as claimsprovisions. 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. Notes to the accounts (continued) 16. Statement of changes in equity Called up Share share premium Other Retained Minority capital account reserves earnings interest Total equity £m £m £m £m £m £m At 1 January 2006 (audited) 18.1 5.3 (1,714.1) 1,024.1 7.0 (659.6) Total recognised income for the - - (2.6) 197.4 - 194.8period Dividends paid to ordinary - - - (94.8) - (94.8)shareholders Cost of share options - - - (0.8) - (0.8) Minority interest share of profit - - - (1.4) 1.4 - Cumulative exchange recycled toincome statement on disposal offoreign subsidiary - - (1.0) - - (1.0) Currency translation difference on - - - - (0.7) (0.7)minority interest Dividends paid to minority interests - - - - (0.7) (0.7) At 30 June 2006 (unaudited) 18.1 5.3 (1,717.7) 1,124.5 7.0 (562.8) At 1 January 2006 (audited) 18.1 5.3 (1,714.1) 1,024.1 7.0 (659.6) Total recognised income for the - - (10.0) 278.6 - 268.6period Dividends paid to ordinary - - - (133.3) - (133.3)shareholders New share capital issued - 0.9 - - - 0.9 Cost of share options and long term - - - (1.9) - (1.9)incentive plan Transfer to other reserves - - 1.2 (1.2) - - Minority interest share of profit - - - (2.0) 2.0 - Cumulative exchange recycled toincome statement on disposal offoreign subsidiary - - (5.7) - - (5.7) Currency translation difference on - - - - (0.8) (0.8)minority interest Dividends paid to minority interests - - - - (1.8) (1.8) At 31 December 2006 (audited) 18.1 6.2 (1,728.6) 1,164.3 6.4 (533.6) At 1 January 2007 (audited) 18.1 6.2 (1,728.6) 1,164.3 6.4 (533.6) Total recognised income for the - - (2.2) 68.7 - 66.5period Dividends paid to ordinary - - - (94.9) - (94.9)shareholders New share capital issued - 0.4 - - - 0.4 Cost of share options and long term - - - 2.1 - 2.1incentive plan Transfer to other reserves - - (0.1) 0.1 - - Minority interest share of profit - - - (1.2) 1.2 - Currency translation difference on - - - - 0.6 0.6minority interest Dividends paid to minority interests - - - - (0.8) (0.8) At 30 June 2007 (unaudited) 18.1 6.6 (1,730.9) 1,139.1 7.4 (559.7) Notes to the accounts (continued) 16. Statement of changes in equity (continued) Other reserves Capital reduction Translation Available-for reserve Legal reserve -sale Total £m £m £m £m £m At 1 January 2006 (audited) (1,722.7) 9.2 0.2 (0.8) (1,714.1) Net exchange adjustments offset in reserves - - (2.5) - (2.5) Available-for-sale investments marked to market - - - (0.1) (0.1) Total recognised expense for the year - - (2.5) (0.1) (2.6) Cumulative exchange recycled on disposal of foreign - - (1.0) - (1.0)subsidiary At 30 June 2006 (unaudited) (1,722.7) 9.2 (3.3) (0.9) (1,717.7) At 1 January 2006 (audited) (1,722.7) 9.2 0.2 (0.8) (1,714.1) Net exchange adjustments offset in reserves - - (10.1) - (10.1)Available-for-sale investments marked to market - - - 0.1 0.1Total recognised (expense)/ income for the period - - (10.1) 0.1 (10.0) Cumulative exchange recycled on disposal of foreign - - (5.7) - (5.7)subsidiaryTransfer from retained reserves - 1.2 - - 1.2At 31 December 2006 (audited) (1,722.7) 10.4 (15.6) (0.7) (1,728.6) At 1 January 2007 (audited) (1,722.7) 10.4 (15.6) (0.7) (1,728.6) Net exchange adjustments offset in reserves - - (2.3) - (2.3)Available-for-sale investments marked to market - - - 0.1 0.1Total recognised (expense)/income for the period - - (2.3) 0.1 (2.2) Transfer from retained reserves - (0.1) - - (0.1)At 30 June 2007 (unaudited) (1,722.7) 10.3 (17.9) (0.6) (1,730.9) 17. Cash generated from operating activities 6 months to 6 months to Year to 30 June 30 June 31 2007 2006 December 2006 £m £m £m (unaudited) (unaudited) (audited)Profit for the year 66.7 134.7 247.1 Adjustments for:- Profit on sale of discontinued operations - (71.6) (98.5)- Taxation on profit on sale of discontinued operations - - 8.5- Cumulative translation exchange gain recycled on discontinued - (1.0) (5.9)operations- Loss on sale of continuing operations - - 0.5- Cumulative translation exchange loss recycled on continuing - - 0.2operations- Discontinued operations tax and interest 6.0 1.5 6.0- Tax 12.0 23.1 33.3- Share of profit from associates (1.1) (1.1) (2.0)- Interest income (32.8) (35.5) (61.2)- Interest expense 71.4 55.9 112.3- Depreciation 76.9 76.6 157.4- Amortisation of intangible assets* 19.8 11.8 27.5- Amortisation of computer software and 1.5 2.0 4.7development costs- Pension curtailment and past pension - - (19.2)credits- Other major non-cash items - (0.8) 1.0- Profit on sale of property, plant and (15.3) (4.9) (21.3)equipment- Loss on disposal/retirement of intangible assets 9.1 - 1.2Changes in working capital (excluding the effects of acquisitions andexchange differences on consolidation):- Inventories (1.1) (3.3) (2.8)- Trade and other receivables (19.1) 3.2 (47.6)- Trade and other payables and provisions (37.0) (24.1) 28.3Cash generated from operating activities before special pension 157.0 166.5 369.5contributionSpecial pension contribution (30.0) - -Cash generated from operating activities 127.0 166.5 369.5*Other than computer software and development costs Notes to the accounts (continued) 18. Reconciliation of net decrease in cash and bank overdrafts to net debt 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 December 2006 £m £m £m (unaudited) (unaudited) (audited) Net decrease in cash and bank overdrafts (6.1) (99.5) (58.2)Movement on finance leases 6.5 1.9 1.9Movement on loans (167.0) 30.2 (221.0)Increase in debt resulting from cash flows (166.6) (67.4) (277.3)Acquisition of companies and (2.1) (9.6) (11.3)businessesDisposal of companies and - 8.7 9.3businessesRevaluation of net debt 7.4 17.4 11.3Net debt translation differences (0.8) 6.5 20.1Movement on net debt in the period (162.1) (44.4) (247.9) Opening net debt (1,188.2) (940.3) (940.3)Closing net debt (1,350.3) (984.7) (1,188.2) Closing net debt comprises:Cash and cash equivalents 142.1 120.5 135.1Bank and other short-term borrowings (67.7) (432.5) (446.0)Bank and other long-term borrowings (1,424.7) (672.7) (877.3)Total net debt (1,350.3) (984.7) (1,188.2) 19. Free cash flow 6 months to 6 months to Year to 31 30 June 2007 30 June December 2006 2006 £m £m £m (unaudited) (unaudited) (audited)Net cash generated from operating activities 98.0 126.5 289.4Add back: special pension 30.0 - -contribution 128.0 126.5 289.4 Purchase of property, plant and equipment (PPE) (103.1) (84.2) (176.3)Purchase of intangible fixed assets (8.3) (2.5) (6.3)Leased property, plant and equipment (6.8) (7.6) (17.6) Proceeds from sale of PPE and intangible assets 41.0 13.7 42.5Dividends received from associates - - 1.0Dividends paid to minority interests (0.8) (0.7) (1.8) Interest element on finance lease payments (1.2) (1.2) (2.3)Free cash flow 48.8 44.0 128.6 20. Business combinations The group purchased 100% of the share capital or the trade and assets of 50companies and businesses as detailed below, the largest being Technivap andCampbell Bros. The total purchase consideration for all acquisitions during theperiod was £95.9m and the cash outflow from current period acquisitions, net ofcash acquired, was £81.6m. Details of goodwill and the fair value of net assetsacquired are as follows: Campbell Technivap Bros Other 2007 £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited)Purchase consideration:- Cash paid 18.0 18.6 42.8 79.4- Direct costs relating to the acquisition 0.4 0.6 2.3 3.3- Consideration deferred to future periods - 1.1 11.7 12.8- Direct costs deferred to future periods - - 0.4 0.4Total purchase consideration 18.4 20.3 57.2 95.9Fair value of net assets acquired 7.4 10.1 24.3 41.8Goodwill 11.0 10.2 32.9 54.1 Goodwill represents the synergies, workforce and other benefits expected as a result of combining the respectivebusinesses. Notes to the accounts (continued) 20. Business combinations (continued) Name of business acquired Country Date Textiles &Washroom ServicesHealthcare Waste Management Services Ireland 28.02.07Stocking Up UK 01.04.07Femcare UK 01.05.07Mediclean UK 01.05.07Herr Garman Sweden 15.05.07Matador Poland 24.05.07Textiles & Washroom Services total purchase consideration = £ 7.2m Pest ControlGregor Spain 01.01.07Boot A Pest USA 02.01.07AS Schadlingsbekampfung Germany 06.03.07DDS Italy 08.03.07Application 3D France 15.03.07Aquitaine France 01.06.07Finpest Finland 01.06.07Pest Control total purchase consideration = £ 1.5m AmbiusBleser Germany 26.02.07Ambius total purchase consideration = £ 0.7m Electronic SecurityACELEC France 04.01.07Porter UK 25.05.07Electronic Security total purchase consideration = £2.8m City LinkTiger Distribution UK 19.02.07Sprintlink UK 16.04.07M Way Link UK 18.04.07MNRS UK 19.04.07Swordpace UK 20.04.07McMichael Enterprises UK 25.04.07Parcel Master UK 16.05.07Linkmaster Holdings UK 25.05.07City Link total purchase consideration = £14.2m Facilities ServicesTechnivap France 31.01.07KB Umwelttechnik Germany 01.05.07Wesco Access UK 31.05.07Facilities Services total purchase consideration = £19.1m Asia PacificChang Wei China 01.01.07Ademco Singapore 01.01.07Campbell Bros Australia 02.01.07Elite Commercial Care Vietnam 08.01.07Ding Sharm Taiwan 31.01.07Peststopper Malaysia 31.01.07One-Stop Habitat Care Singapore 31.01.07Botanis Indoor Australia 31.01.07Rainbow Hire Plants New 13.02.07 ZealandKil-Quick Australia 19.02.07Pestcare Malaysia 28.02.07Allwest Australia 31.03.07Savco Australia 31.03.07Right Method Malaysia 31.03.07Comfort Brunei 31.03.07Perfect Pest Thailand 11.04.07Bugsaway New 16.04.07 ZealandTai Ming China 19.04.07Hollywood Indoor Plants Australia 01.05.07A Castle Plant Hire Australia 01.05.07Dunedin New 01.06.07 ZealandDirect Pest Australia 18.06.07Termi-proof Australia 21.06.07Asia Pacific total purchase consideration = £50.4m Notes to the accounts (continued) 20. Business combinations (continued) The book value of assets and liabilities arising from acquisitions are asfollows: Campbell Bros Technivap Other 2007 £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited)Non-current assets - Intangible assets1 - - - - - Computer software - 0.1 - 0.1 - Property, plant and equipment 0.2 1.6 5.0 6.8Current assets 6.3 2.0 9.8 18.1Current liabilities (2.8) (1.7) (14.0) (18.5)Non-current liabilities - - (1.1) (1.1)Net assets acquired 3.7 2.0 (0.3) 5.4 The provisional fair value adjustments to the book value of assets and liabilities arising from acquisitionsare as follows: Campbell Bros Technivap Other 2007 £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited)Non-current assets - Intangible assets1 5.6 11.9 31.8 49.3 - Computer software - - - - - Property, plant and equipment - - - -Current assets - - - -Current liabilities - - - -Non-current liabilities (1.9) (3.8) (7.2) (12.9)Net assets acquired 3.7 8.1 24.6 36.4 The provisional fair value2 of assets and liabilities arising from acquisitions are as follows: Campbell Technivap Bros Other 2007 £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited)Non-current assets - Intangible assets1 5.6 11.9 31.8 49.3 - Computer software - 0.1 - 0.1 - Property, plant and equipment 0.2 1.6 5.0 6.8Current assets 6.3 2.0 9.8 18.1Current liabilities (2.8) (1.7) (14.0) (18.5)Non-current liabilities (1.9) (3.8) (8.3) (14.0)Net assets acquired 7.4 10.1 24.3 41.8 1Other than computer software and development costs. 2The provisional fair values will be finalised in the 2007 financial statements. Campbell Bros Technivap Other 2007 £m £m £m £m (unaudited) (unaudited) (unaudited) (unaudited)Total purchase consideration 18.4 20.3 57.2 95.9Consideration payable in future periods - (1.1) (11.7) (12.8)Direct costs deferred to future periods - - (0.4) (0.4)Purchase consideration (paid in cash) 18.4 19.2 45.1 82.7Cash and cash equivalents in acquired companies (3.1) 0.1 1.9 (1.1)and businessesCash outflow on current year acquisitions 15.3 19.3 47.0 81.6Deferred consideration from prior periods paid - - 9.9 9.9Cash outflow on current and past 15.3 19.3 56.9 91.5acquisitions From the dates of acquisition to 30 June 2007, these acquisitions contributed£22.2m to revenue and £0.6m to operating profit (after amortisation ofintangibles1 of £2.3m). If these acquisitions had occurred on 1 January 2007, they would havecontributed £103.0m to revenue and £5.9m to operating profit (after amortisationof intangibles1 of £4.8m). 1Other than computer software and development costs. 2The provisional fair values will be finalised in the 2007 financial statements. Notes to the accounts (continued) 21. Post balance sheet events On 2 July 2007, the UK, the Netherlands and the US Electronic Securitybusinesses were disposed for gross proceeds of £533.4m. The sale of theremaining French business remains conditional upon French regulatory approval.The process for obtaining this approval is ongoing. On 10 July 2007, the group made a further contribution of £50m to the UK PensionScheme. This amount is held in escrow pending the outcome of the March 2007pension valuation. The group has acquired a further 25 companies and businesses for a grossconsideration of £75m, including Lancaster Office Cleaning Company Ltd in theUnited Kingdom for a total cash consideration of £19m and Presto-X-Company inthe USA for an initial cash consideration of £19m. 22. Contingent liabilities The 2007 Annual Report referred to a contingent liability in respect oflitigation against the former Manned Guarding business in the USA by formeremployees in respect of certain employment practices. As expected, the actionfailed and no provision is deemed necessary. There are contingent liabilities relating to third party guarantees,environmental issues, tax and litigation, none of which are expected to giverise to any significant loss. 23. 2006 Annual Report The 2006 Annual Report has been filed with the Registrar andPricewaterhouseCoopers, the group's auditors, have provided an unqualified auditopinion thereon and did not contain statements under section 237 (2) or (3) ofthe Companies Act 1985. Copies of the 2006 Annual Report are available from thecompany's registered office at Belgrave House, 76 Buckingham Palace Road,London, SW1W 9RF. 24. Section 240 of the Companies Act 1985 (as amended) The financial information in this interim statement does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985(as amended). This information is provided by RNS The company news service from the London Stock Exchange

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