Rentokil Initial Regulatory News (RTO)

RENTOKIL INITIAL PLC (RTO)

PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 2012

2012 Highlights (at CER)

·; Revenue and profit improvement in all divisions despite market challenges:

- Group revenue +2.8%, +0.8%* organic

- Asia revenue +6.2%, City Link +4.8%, Pest Control +2.8%**, Textiles & Hygiene +2.5%, Initial Facilities +3.8%*

- Acquisitions performing well, contributing 2.4%, net £61m, of revenue growth

- A strong finish to 2012, Q4 adjusted profit before tax up 15.9%, FY +10.1%

·; Expansion of Rentokil Pest Control footprint through acquisition of Western Exterminator and bolt-ons in North, Central, South America and Middle East

·; Solid performance from Textiles & Hygiene in tough conditions

·; Strong performance from Asia (notably Malaysia, China and India)

·; Good progress from City Link: volumes +17% year on year; losses reduced by £5m of which £4m in Q4

·; Initial Facilities transition from cleaning to Total Facilities Management moving rapidly

·; Cost savings of £59m (vs. target £50m); target for 2013 £50m

·; Final dividend up 7.5% to 1.43p (2011: 1.33p) for full year total of 2.10p

Alan Brown, Chief Executive Officer of Rentokil Initial plc, said:

"Rentokil Initial finished the year strongly, with adjusted profit before tax up 15.9% in Q4 and 10.1% for 2012 as a whole at constant exchange rates. These results were broad based, with every division improving both revenue and profit. Furthermore, we increased organic revenue growth by 1.3% from negative 0.5% to positive 0.8% (excluding Initial Facilities Spain) despite difficult market conditions for our largest businesses.

"Our organisation has matured considerably in the past 24 months with global leadership established for major business functions including Marketing & Innovation. This has enabled us to evolve to an integrated country-based operating model with central and regional support.

"While we remain mindful of continuing tough conditions across many of our markets, the operational changes we made during the year, together with the acquisition of Western Exterminator in December, give us confidence that 2013 will see us sustain the momentum we achieved in the final quarter of 2012."

AER - actual exchange rates; CER - constant 2011 exchange rates

1 before amortisation and impairment of intangibles (excluding computer software), reorganisation costs and one-off items

2 cash flow before interest, tax, acquisitions, disposals and foreign exchange adjustments

3 earnings per share before the after tax effects of amortisation and impairment of intangibles (excluding computer software), reorganisation costs and one-off items

FINANCIAL SUMMARY

1 all figures are for continuing operations

2 results at constant exchange rates have been translated at the full year average exchange rates for the year ended 31 December 2011. £/$ average rates: FY 2012 1.5898; FY 2011 1.6057, £/€ average rates: FY 2012 1.2320; FY 2011 1.1532

3 before amortisation and impairment of intangibles (excluding computer software), reorganisation costs and one-off items

4 see Appendix 5 for further details

5 including impairment of intangibles of £1.3m (2011: £149.2m) at constant and actual rates of exchange (excluding computer software)

6 cash flow before interest, tax, acquisitions, disposals and foreign exchange adjustments

7 earnings per share before the after tax effects of amortisation and impairment of intangibles (excluding computer software), reorganisation costs and one-off items

This announcement contains statements that are, or may be, forward-looking regarding the group's financial position and results, business strategy, plans and objectives. Such statements involve risk and uncertainty because they relate to future events and circumstances and there are accordingly a number of factors which might cause actual results and performance to differ materially from those expressed or implied by such statements. Forward-looking statements speak only as of the date they are made and no representation or warranty, whether expressed or implied, is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Other than in accordance with the Company's legal or regulatory obligations (including under the Listing Rules and the Disclosure and Transparency Rules), the Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Information contained in this announcement relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance. Nothing in this announcement should be construed as a profit forecast.

Investors / Analysts enquiries:

Katharine Rycroft, Head of Investor Relations Rentokil Initial plc 01293 858 166

Media enquiries:

Malcolm Padley Rentokil Initial plc 07788 978 199 / 01293 858 165

Kate Holgate, Catriona McDermott Brunswick Group 020 7404 5959

Basis of preparation

Segmental information has been presented in accordance with IFRS 8 "Operating Segments" which the group has implemented with effect from 1 January 2009. This statement reflects internal organisation changes made in 2012 with Pacific business units transferring from the Asia division to the Textiles & Hygiene division, the integration of Ambius into the Pest Control division, the UK Specialist Hygiene business unit transferring from the Pest Control division to the Initial Facilities division and the Medical Services business units transferring from the Textiles & Hygiene division to the Pest Control division. The segmental information also reflects changes made in 2011 with our Scandinavian and Iberian Textiles & Hygiene business units and some small pest control business units transferring from the Textiles & Hygiene division to the Pest Control division. Prior year comparisons have been restated. In all cases references to operating profit are for continuing businesses before amortisation and impairment of intangible assets (excluding computer software). References to adjusted operating profit and adjusted profit before tax also exclude operating reorganisation costs and one-off items, totalling a net cost of £51.8m (2011: £38.2m) that have had a significant impact on the results of the group. These costs have been separately identified as they are not considered to be "business as usual" expenses and have a varying impact on different businesses and reporting periods. Details of one-off items incurred in the period, for which adjustments have been made, are set out in Appendix 5. All comparisons are at constant 2011 full year average exchange rates.

The financial information in this statement does not constitute the company's statutory accounts for the years ended 31 December 2012 or 2011. The financial information for 2011 and 2012 is derived from the statutory accounts for 2011, which have been delivered to the registrar of companies, and 2012, which will be delivered to the registrar of companies and issued to shareholders in March 2013. The auditors have reported on the 2011 and 2012 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

PERFORMANCE OVERVIEW

Over the last four years, the Company has invested in the capability of its people and systems. During 2012 we focused on delivering the benefits of this investment. Our four key objectives for the year were:

1. To turnaround the financial performance of City Link;

2. To drive greater customer satisfaction and retention through customer care and Customer Voice Counts ("CVC") initiatives;

3. To deliver £50 million cost savings from productivity, procurement and back office rationalisation initiatives; and

4. To achieve growth through marketing and innovation, Programme Olympic and acquisitions.

1. City Link

In 2012 City Link's management began implementation of a comprehensive recovery plan anticipated to show material improvements by Q3. The plan has delivered productivity savings through driver efficiency (supported by "route and round" optimisation and a move to variable pay for owner drivers) and reductions in trunking, warehouse operations and back office costs. Other initiatives have involved further strengthening of management capability, systems and processes and a review of sales effectiveness. Over the year City Link has achieved a 13% reduction in cost per delivery, volume growth of 17% and a 16% reduction in operating losses. However, offsetting this operational progress revenue per consignment (RPC) has declined by 10% as our sales mix has moved toward large Tier 1 Business to Consumer customers. Efforts to maximise retention of more profitable smaller customers is a key priority for 2013.

2. Customer care

Following the successful introduction of customer care technology in City Link we have begun to roll out best practice across the group. A major pilot is underway in Textiles & Hygiene France, with both Germany and the Benelux commencing pilots from Q2 2013. The group is also rolling out proactive customer account management processes following successful Programme Olympic pilots conducted in UK Pest and Hygiene in 2011. Customer Voice Counts (the group's survey of customer satisfaction), is now included in the bonus targets of many managers in order to drive outstanding customer service.

3. Cost savings

The group achieved £59m of cost savings (versus a target of £50m) in 2012 through a combination of restructuring, procurement, service productivity and back office rationalisation. Textiles & Hygiene delivered £18m savings from restructuring in France and Benelux, overheads and direct/indirect procurement. Pest Control generated cost savings of £15m from restructuring in North America, the UK and Nordics Ambius, Property Care, Medical and UK Washrooms operations. City Link delivered £17m from depot driver, warehouse and hub and trunking cost initiatives. £9m cost savings were generated in Initial Facilities from business restructuring, procurement, property rationalisation, workforce management and through the application of LEAN initiatives to improve gross margins. LEAN is a collection of tools, techniques and methods used to eliminate waste, improve customer experience and reduce costs.

Cost savings are calculated on a gross basis and do not take into account the impact of cost inflation in the business. In the current economic environment cost inflation in fuel, products and colleague remuneration has been running at levels in excess of our ability to recover our cost increases through price increases with our customers. In addition, we continue to invest in the capability of the business, particularly in the areas of sales & marketing and information technology. These two factors have absorbed the cost savings generated in 2012, with profit growth effectively driven by increased revenues.

4. Growth

The Company's Marketing & Innovation (M&I) function made good progress in 2012. Its goal is to position Rentokil Initial as the industry leader in pest control and hygiene globally for a broad range of customer types. A 'Where to Play' & 'How to Win' framework has been established. Step 1 focuses on how to prioritise resource allocation ('Where to Play'). Step 2 relates to capturing growth opportunities and considers pricing, density, and service & product differentiation ('How to Win').

The M&I function has identified nine priority projects for implementation in a number of partner countries. Examples of some of these projects are:

- The roll out of 'Advantage', giving pest control sales colleagues a professional tool to conduct thorough surveys and produce comprehensive reports for customers in the field. 'Advantage' is now in use with over 100 UK surveyors and business benefits include improved surveyor productivity and retention and introduction of new services to customers. Launch in a number of European countries is the first stage of a wider implementation plan. Development of a similar tool for hygiene is underway post pilot studies in 2012 with phased roll out across hygiene's sales force planned for 2013.

- The further development of 'PestNetOnline' with the launch of 'PestConnect' remote monitoring.

- The launch of a premium hygiene product range, 'Reflection', roll-out of which commenced in June 2012. This fully serviced solution targets high-end customers such as luxury hotels, spas, corporate head offices and premium retail stores where image and customer perceptions are paramount. This is a key element of our strategy to regain a leading position in the premium washrooms sector.

- The launch of a new 'Signature' range of hygiene products following extensive research and development in 2012. This fully serviced solution will ultimately include 32 units, covering hand hygiene, cubicle hygiene, waste management and air hygiene. The range features modern rounded designs realised to exacting standards and antibacterial surfaces to help reduce the spread of germs. In parallel with this new product offer hygiene will introduce a new customer focused sales approach, incorporating new sales tools and training methods, as well as clear sector targets. Training will focus on providing customers with a fully structured hygiene survey using diagnostic service tools. Launch is planned for April 2013.

- A successful pilot of new hygiene working practices called 'On Site Service' ("OSS") for feminine hygiene units in Australia, Netherlands and South Africa was completed in 2012. Roll out will commence in a number of markets from Q1 2013 starting with Australia, in parallel with further pilot studies in South Africa.

Acquisitions & Disposals

The group continues to pursue a strategy of growth through carefully targeted acquisitions and purchased a number of bolt-ons in the Pest Control, Initial Facilities and Textiles & Hygiene divisions during 2012 and a significant pest control acquisition in the US. In Pest Control we acquired businesses in Italy, Turkey, Brazil, Abu Dhabi, Dubai, Canada and the United States. We were particularly pleased to have acquired California-based pest control and distribution company, Western Exterminator ('Western'), for an initial consideration of $92.6m (£57.1m) in December. The company's pest control business offers both residential (52%) and commercial (48%) services from 36 locations. The company's specialty products division, Target, is the West Coast's leading wholesale distributor of specialty agricultural chemicals, application equipment, products, supplies and services and operates from 13 branch locations. The acquisition of Western significantly expands Rentokil's service footprint in the US and positions it as the third largest player in the US pest control market. In 2012 the pest control and products distribution businesses of Western generated annualised revenues of £58.6m and £37.4m respectively (please see Note 18 for financial details of acquisition activity in 2012). The integration of Western is going well with current trading in line with expectations.

ORGANISATION CHANGE

During the year the Company began the process of fully integrating Ambius into the Pest Control division under a single management structure by country or region. Ambius is now included in the Pest Control segmental reporting (see Appendices 1-5). This follows the implementation of integrated management in the Nordics, South Africa and elsewhere in the Rentokil Initial group. Further structural changes were implemented early in 2013 with the transfer of the pest control business units in France and Germany to the Textiles & Hygiene division.

From 1 January 2013 almost all our core businesses will be run on a day-to-day basis by one country manager per country. The country manager is responsible for all our core categories in his / her country - pest control, hygiene, workwear and plants. Countries have been grouped into three geographic regions - East, West and Asia - with each region being run by a senior managing director reporting to the CEO.

The countries are supported by functional and category teams organised on a global or regional basis. We believe this integrated operating model offers the best balance between driving country cost and growth synergies and also leveraging our international scale through knowledge transfer via global and regional functional and category teams.

As a result of these changes we will report group results on a major country, as well as category basis. The Americas, UK, Ireland, Nordics, Southern Europe, Middle East & Africa will form the West region. This region consists predominantly of pest control businesses but includes hygiene and the majority of our plants business. France, Benelux, the German speaking countries and Pacific will form the East region. This region contains all of our workwear category plus hygiene, pest control and plants. The Asia region will continue as before. City Link and Initial Facilities will continue to be reported separately as divisions.

FUNDING

At 31 December 2012 the group had net debt of £989.5m and a strong liquidity position, comprising over £200m of funds and £510m of available undrawn committed facilities, with £50m of bond maturities in 2013. This follows the issuance in September of a €500m seven-year bond paying a coupon of 3.375%.

The bond has provided funding for:

- The acquisition of the Western business at a cost of $92.6m (£57.1m)

- The repurchase of the group's £75m puttable/callable resettable bond at its fair value of £103.7m

- The repurchase of €14.5m of the €500m 2014 bond at a premium of £0.6m

It will also provide funding for:

- The repayment at maturity of the group's £50m bond maturing September 2013

- An element of the group's €500m 2014 maturity

The group signed a two-year £240m revolving credit facility (RCF) in December 2012 to provide further liquidity for the €500m 2014 maturity.

The group's policy is to fund maturities at least 12 months in advance, in accordance with Standard and Poor's liquidity requirements for investment grade companies.

In assessing the appropriateness of the going concern assumption, the directors considered a base case using the above forecasts and sensitivity analysis including a downside scenario to ensure that headroom and covenants would not be breached.

It was considered that in the event cash flows from trading, acquisitions or disposals were significantly below expectations, operating capital expenditure, or bolt-on acquisitions could be reduced to protect headroom on borrowing facilities.

On the basis of over £700m of available liquidity at 31 December 2012, positive projected operating cash flows and the levels of discretion available to management to manage cash flows, the directors continue to adopt the going concern basis in preparing the accounts.

PENSIONS

At 31 December 2012 the Company's UK defined benefit pension scheme, which is closed to new members, was valued at an accounting surplus of £96.9m on the Company's balance sheet. The trustees value the scheme on a different basis and a deficit at 31 March 2010 of £80m was agreed. Annual contributions of £12.5m for eight years were agreed to fund the deficit and the Company made its first annual contribution of £12.5m in January 2012 and second contribution in January 2013. A triennial valuation will take place this year, effective from 31 March 2013.

DIVIDEND

The Company resumed the payment of dividends in 2011, paying a final dividend for the year. Despite challenging market conditions, the Company has made good progress in 2012 and we anticipate further progress in 2013. Taking this into consideration, the board is recommending a final dividend in respect of 2012 of 1.43p per share, payable to shareholders on the register at the close of business on 19 April 2013 to be paid on 21 May 2013. This equates to a full year dividend of 2.1p per share, on an approximately one third/two thirds interim/final basis.

Key objectives for 2013

We continue to pursue a strategy of operational excellence focused on five key strategic thrusts. Our objectives for 2013 are as follows:

1. Customer Service & Care

Customer Voice Counts (CVC), the group's survey of customer satisfaction, is now industrialised across most of our organisation and is now included in the bonus targets of many managers in order to drive outstanding customer service. A focus for the coming year will be on driving material improvements in colleague behaviour and in the handling of customer enquiries. Further investment in processes and systems will be made in 2013.

There are specific initiatives in two of our largest businesses - City Link and France. In City Link the key aims for 2013 will be to use customer feedback consistently to drive improvements across the business. In France a customer care pilot will be initiated from Q2. This project will draw on best practice across both the division and the group and will seek to roll out a comprehensive solution for customer care across all French operations, on a regional basis, before the end of 2013. The group is also rolling out proactive customer account management processes following successful pilots conducted in the UK pest control and hygiene businesses.

2. Developing capability

In 2012 Rentokil Initial launched its U+ 'university' to bring together all learning & development activities and maintain high levels of colleague engagement and enablement. It also launched People Services to enhance its people management processes. The Company continues to use its Your Voice Counts (YVC) survey to ensure it listens to colleagues and takes action to enhance motivation.

Capital expenditure on IT increased from £27.5m to £31.8m in 2012 with further increases planned for 2013 as we roll out the Programme Olympic initiatives and replace 35 year old systems in our Benelux workwear and hygiene business.

3. Operational excellence

Key priorities this year will include a continuation of the City Link turnaround, establishment of an Asian Shared Services Centre (SSC) based in Malaysia, and the roll out of a consistent Target Operating Model (TOM) across the group. The TOM will bring greater consistency and efficiency to our Shared Service Centre operations and will allow us to regionalise support functions such as Customer Care.

4. Cost & Cash

Cost savings are targeted at £50 million for 2013. We aim to achieve this through branch administration / back office rationalisation and efficiencies, service and IT productivity and direct materials procurement. Particular focus will be on the Netherlands, France, Germany, Australia and North America, as we realise the benefits of the structural and operational integration that we are implementing across the group.

5. Growth

The group anticipates both organic revenue growth in 2013 and further growth through bolt-on acquisitions. Initiatives this year will realise the benefits of the product and service innovation that we developed during 2012 and will include include launch of the new 'Signature' hygiene range and implementation of the 'On Site Service' proposition in a number of hygiene markets. Further roll out of the 'Advantage' sales tablet is planned in pest control, supplemented by a range of initiatives to improve sales productivity In addition, we will launch an internally developed, unique range of workwear garments following the acquisition of workwear design company CAWE in 2011. The group will continue to target bolt-on businesses, primarily in the pest control category, with an emphasis on North America, MENAT, Latin America and other high growth markets. We will also look to build our position in the attractive workwear and hygiene categories.

OUTLOOK FOR 2013

Rentokil Initial finished the year strongly, with adjusted profit before tax up 15.9% in Q4 and 10.1% for 2012 as a whole at constant exchange rates. These results were broad based, with every division improving both revenue and profit. Furthermore, we increased organic revenue growth by 1.3% from negative 0.5% to positive 0.8% (excluding Initial Facilities Spain) despite difficult market conditions for our largest businesses.

Our organisation has matured considerably in the past 24 months with global leadership established for major business functions including Marketing & Innovation. This has enabled us to evolve to an integrated country-based operating model with central and regional support.

While we remain mindful of continuing tough conditions across many of our markets, the operational changes we made during the year, together with the acquisition of Western Exterminator in December, give us confidence that 2013 will see us sustain the momentum we achieved in the final quarter of 2012.

DIVISIONAL PERFORMANCE

Textiles & Hygiene

1 excluding computer software

Performance from the Textiles & Hygiene division was impacted by an increasingly difficult macro-economic environment in Northern Europe. Revenue grew by 2.5% (0.8% organic) after adjusting for the acquisition of a textiles supply chain business in Q4 2011 and the disposals of Austrian flat linen and Australian towel rolls cleaning businesses in H1 2012. Despite a general slow down in the economy Germany delivered another robust performance with growth of 4.2%. France grew by 2.4% and the Benelux by 0.5%. Australia grew by 1.2% reflecting a strong increase in contract sales, offset by adverse weather conditions affecting the pest control product and job business. While new business was only 1.7% higher than the prior year, terminations improved by 17.6% leading to divisional customer retention of 89.1%, up 2.7% on 2011.

Profit rose by 3.5% (3.5% organic) driven by strong performance in Benelux as well as growth in Germany and France.

The economic outlook in the Eurozone for 2013 continues to look challenging. However initiatives in sales and marketing will help mitigate these adverse conditions. The new 'Signature' and 'Reflection' ranges will be launched during the year along with seven new garment collections in workwear. Ongoing development of our internal supply chain will result in a significant increase in the internalisation of our garments development and supply, supported by a reorganisation of warehousing operations in continental Europe. Significant investments are also being made in processing capacity in our growing cleanroom and German businesses. Cost efficiencies will continue to be pursued in processing and back office administration.

Pest Control

1 excluding computer software

The Pest Control division delivered a solid set of results in mixed market conditions. Revenue grew 2.8% (0.4% organic) aided by a number of bolt-on acquisitions during the year. The strongest performance came from North America, up 10.3% (5.5% organic). The acquisition of Western was completed at the beginning of December 2012 and we expect a strong contribution in 2013. Despite a weak summer season UK Pest grew by 2.4%. The performance of the UK washrooms business continues to improve with revenue decline slowing to 3.7% in H2 (H1 2012: 7.1%). In Continental Europe good performances from Germany, Austria, Switzerland, Belgium and the Nordics were partially offset by more difficult conditions in Southern Europe, with overall revenue growth of 1.0%. East Africa and the Caribbean grew by 2.6% and our presence in Central and South America (through the acquisitions in Mexico and Brazil) continues to develop. Our new operations in the Middle East (Abu Dhabi and Dubai) and Turkey are growing in line with expectations.

Profit grew by 3.6%, with slower growth in the UK and Continental Europe more than offset by North America, Germany, East Africa and the Caribbean. Profit declined in Southern Europe and Ireland, impacted by the ongoing Eurozone crisis.

The outlook for 2013 remains challenging, with difficult trading conditions expected to continue in a number of markets. Our presence in more robust and higher growth emerging economies will continue to offset more challenging conditions in Southern Europe. Focus for 2013 will be on growth through sales, marketing & innovation, integration of recent acquisitions and further bolt-ons in targeted regions, and cost savings through service productivity and back office administration.

Asia

1 excluding computer software

Revenue in Asia grew by 6.2% (7.4% organic). Pest control grew by 11.2% and hygiene by 3.9%, with both categories benefiting from a combination of market development and gains in share from competitors. Double digit growth from our operations in the emerging markets of India (+38.2%), China (+31.3%), Vietnam (+21.4%) and Taiwan (+11.6%) reflects our investment in sales and marketing over recent years while our operations in the more mature markets of Malaysia, Singapore and Brunei continue to deliver very high single digit growth. Elsewhere Indonesia grew by 4.0%, Korea by 5.2%, the Philippines by 4.4% and Hong Kong by 2.4%, with Indonesia in a period of consolidation following rapid consistent double digit growth over the last five years.

Profit in Asia rose by 39.1% driven by revenue growth and improved gross margins with traction in pricing, density and gains in productivity offsetting increasing inflationary pressures.

The business exited 2012 with strong portfolio growth and anticipates conditions in 2013 to remain favourable, albeit with significant inflationary challenges in India, Indonesia, China and Vietnam. Focus for 2013 will be on growth through ongoing market development, gains in share and product innovation, refinement of pricing policy to offset cost inflation, greater sales effectiveness and productivity supported by new technology, and standardisation of operations and back office for service consistency and cost reductions.

City Link

1 excluding computer software

City Link's revenue increase of 4.8% has been driven primarily from growth in online shopping in 2012. This has skewed the business's customer mix towards the larger, but lower margin, Tier 1 customers leading to an overall decline in revenue per consignment (RPC) of 10%. While new business was in line with expectations, declines in the smaller, higher margin Tier 2 B2B business was disappointing. A focus on further improvements in account management and customer service is underway to better meet customer requirements and drive retention.

Productivity savings were a key focus in 2012 and in this regard City Link was successful, with direct cost per consignment falling by 13%. While we have been pleased with the cost savings and the growth in Tier 1 business, the disappointing performance of higher-margin smaller customers has meant that financial performance in the year was behind our initial expectations. City Link's full year operating loss of £26.4m represents a 15.7% improvement on 2011, aided by a second half profit improvement of £5.6m (41.5%), and Q4 improvement of £4.3m (64.2%).

The B2C market is expected to continue to grow while the B2B market remains more susceptible to economic conditions. Focus for 2013 will be on improving service and account management for all customers with a particular emphasis on Tier 2 and Tier 3 customer retention. Price increases will be implemented across our customer base reflecting our value in the market. Further improvements in service through the introduction of new added value products including International and Post will be made.

Initial Facilities

1 excluding computer software

While there was no improvement in market conditions in 2012 Initial Facilities performed well overall, growing revenue by 3.8% (excluding Spain where the business is being scaled down to reduce financial exposure). Growth was aided by the MSS, Modus and Phoenix Fire acquisitions, all of which performed strongly. Underlying revenue (excluding Spain and acquisitions) declined by 1.7%, driven largely by a number of contract reductions and terminations from retail customers.

Further progress in improving operational efficiency and ongoing cost reductions have helped contribute to improvements in profitability, with growth of 9.6% for the full year. Excluding acquisitions, profit grew by 5.2% year on year.

Continued uncertainty remains around the economic outlook in 2013. The division will continue to de-risk its Spanish business, further withdrawing from lower-margin, slow paying contracts and will implement further managed contraction within the UK single service cleaning sector. Focus for growth will be on increasing the proportion of multi-service contracts through targeted sector offering, service innovations and operational initiatives, leveraging recent acquisitions to drive top line growth and new contract wins, and driving margin improvements through cost savings and back office administration.

Central Costs

Central costs increased by £7.4m reflecting investment in the new Marketing & Innovation function and improvements in IT capabilities through Programme Olympic.

Reorganisation costs and one-off items - operating

References to adjusted operating profit and adjusted profit before tax exclude operating reorganisation costs and one-off items, totalling a net cost of £51.8m (2011: £38.2m) that have had a significant impact on the results of the group. £37.6m (2011: £34.6m) of these relate directly to the group's major reorganisation program and consist mainly of redundancy costs, consultancy and plant and office closure costs net of the profit on sale of certain properties. One-off items of £14.2m (2011: £3.6m) include £2.0m of acquisition costs, £3.8m of employment costs relating to an enforceable undertaking agreed with the Australian Fair Work Ombudsman and £10.2m of impairments, property costs and redundancies relating to the Belgian flat linen business subsequently classified as held for sale. These costs have been separately identified as they are not considered to be "business as usual" expenses and have a varying impact on different businesses and reporting periods. Details of reorganisation costs and one-off items incurred in the period are set out in Appendix 5.

Interest and one-off items - financing

Net interest payable of £36.3m was £8.3m lower than in 2011. Underlying interest (excluding pension interest)) was £48.6m, compared to £47.8m in the prior year, an increase of £0.8m, due to higher net debt. Financing one-off items, totalling £31.4m (2011: nil) relate to the premium on the repurchase of the group's £75m bond. Net interest payable will from 2013 exclude pension scheme interest which reduced the net charge by £12.3m in 2012.

Tax

The income tax expense for the year was £29.0m on the reported profit before tax of £82.7m. After adjusting profit for the amortisation and impairment of intangible assets (excluding computer software), reorganisation costs and one-off items, the effective tax rate for the year is 25.5% (2011: 24.9%). This compares with a blended rate of tax for the countries in which the group operates of 28% (2011: 29%). The principal factor that caused the effective tax rate to be lower than the blended rate is the release of prior year provisions for tax no longer considered necessary as various issues were either settled or became statute barred in the year.

Net debt and cash flow

1 before amortisation and impairment of intangibles (excluding computer software), reorganisation costs and one-off items

Operating cash flow was £2.3m higher than 2011 due to reduced working capital outflows offset by lower EBITDA.

Total tax payments were £35.6m compared with £44.5m in 2011, with the decrease attributable to the phasing of payments relating to prior year liabilities. Interest payments at £44.2m were in line with 2011. The acquisition/disposal outflow of £82.8m largely reflects the acquisition of Western. Foreign exchange translation and other items increased cash flow by £13.1m, leaving an overall outflow of £70.5m and net debt of £989.5m.

Appendix 1

Divisional Analysis

3 months to 31 December 2012

1 excluding computer software

Year ended 31 December 2012

1 excluding computer software

Appendix 2

Category Analysis

3 months to 31 December 2012

Year ended 31 December 2012

Appendix 3

Reporting Framework in 2013

The tables below represent revenue and adjusted operating profit* (APBITA) by segment, as disclosed in note 1, split across the main groups of business category and activity: pest control, hygiene, workwear, plants, facilities services and parcel delivery. "Other" represents a number of small businesses outside of the other categories. The segment information disclosed in note 1 is presented in accordance with IFRS 8 "Operating Segments".

This additional information is designed to provide further details split by category and activity given that a number of our segments include businesses from different categories.

From 2013 onwards we propose to reflect the regional basis of our operating structure in the way we report internally and externally. The term 'division' will no longer be used and the divisional teams will be called regional teams: West, East and Asia. Initial Facilities, City Link and Asia will report under their current names.

* before amortisation and impairment of intangibles (excluding computer software), reorganisation costs and one-off items

Year ended 31 December 2012

Year ended 31 December 2011

1In 2012, the Textiles & Hygiene division constituted France, Benelux, Germany (including Austria, Switzerland and Czech Republic) and Pacific apart from the pest control and plants businesses in these countries. The division also included £33m of other revenue in the UK and Ireland

2In 2012, the Pest Control division constituted North America, UK and Ireland and Rest of World, as well as the pest control and plants businesses in France, Benelux and Germany but excluding the £33m of other revenue in the UK and Ireland included in Textiles & Hygiene

3centre and regionalAppendix 4

ANNUAL CONTRACT PORTFOLIO - CONTINUING BUSINESSES

3 Months to 31 December 2012

Year ended 31 December 2012

Notes

Contract portfolio definition: Customer contracts are usually either "fixed price", "as-used" (based on volume) or mixed contracts. Contract portfolio is the measure of the annualised value of these customer contracts.

Contract portfolio valuation: The contract portfolio value is typically recorded as the annual value from the customer contract. However, in some cases - especially "as-used" (based on volume) and mixed contracts - estimates are required in order to derive the contract portfolio value. The key points in respect of valuation are:

"As-used" contracts: These are more typical in the Textiles & Hygiene division, where elements of the contract are often variable and based on usage. Valuation is based on historic data (where available) or forecast values.

Income annualisation: In some instances, where for example the underlying contract systems cannot value portfolio or there is a significant "as-used" element, the portfolio valuation is calculated using an invoice annualisation method.

Inter-company: The contract portfolio figures include an element of inter-company revenue.

Job work and extras: Many of the contracts within the contract portfolio include ad hoc and/or repeat job work and extras. These values are excluded from the contract portfolio.

Rebates: The contract portfolio value is gross of customer rebates. These are considered as a normal part of trading and are therefore not removed from the portfolio valuation.

New business/Additions: Represents new contractual arrangements in the period with a new or existing customers and additional business added to existing contracts.

Terminations/Reductions: Represent the cessation or reduction in value of an existing customer contract or the complete cessation of business with a customer.

Net Price Increases: Represents the net change in portfolio value as a result of price increase and decreases.

Acquisitions/Disposals: Represents the net value of customer contracts added or lost as a result of businesses acquired or disposed in the period. Also includes the net volume related changes for the textiles businesses, where it is common practice for customers to increase or decrease service volumes according to their daily operational requirements.

Retention rates: Retention rates are calculated on total terminations (terminations and reductions).

Appendix 5

Reorganisation costs and one-off items - operating

References to adjusted operating profit and adjusted profit before tax also exclude operating reorganisation costs and one-off items, totalling a net cost of £51.8m (2011: £38.2m) that have had a significant impact on the results of the group. £37.6m (2011: £34.6m) of these relate directly to the group's major reorganisation program and consist mainly of redundancy costs, consultancy and plant and office closure costs net of the profit on sale of certain properties. These costs have been separately identified as they are not considered to be "business as usual" expenses and have a varying impact on different businesses and reporting periods.