Rentokil Initial Regulatory News (RTO)

RENTOKIL INITIAL PLC (RTO)

INTERIM RESULTS FOR SIX MONTHS TO 30 JUNE 2011

29 July 2011

H1 Highlights (at CER)

§ Revenue:

Ø Revenue growth of 0.7%:

o +1.0% organic growth excluding City Link & Libya, of which Textiles & Hygiene +1.3%, Pest Control +0.9%, Asia Pacific +3.6%, Initial Facilities +0.6%

o 1.8% growth from the net of acquisitions/disposals - all acquisitions performing ahead of expectations

o City Link stabilised at -13.5%, impacting group revenue by -1.8%

Ø Further improvement in customer retention to 84.6% (FY 2010: 83.6%) on contract business

Ø Positive results from growth pilots - planned roll-out across group during 2012/13

§ Turnarounds:

Ø Textiles & Hygiene Benelux stable and performing consistently in line with plan both in revenue & profit

Ø City Link financial performance remains unsatisfactory. On track to deliver substantial improvement in capability by October. New business pipeline continues to be promising.

§ Other financials:

Ø Adjusted profit before tax1 down 6.8% (or £5.2m) to £70.9m, of which City Link £13.1m - excluding City Link, group performing robustly

Ø Cash flow impacted by very strong performance in Q4 2010 and inflationary pressures on capex; stronger cash flow performance anticipated in H2

Ø Cost savings of £24m; on track to deliver £60m by year end

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

"In a difficult trading environment we have made good progress against our key objectives in H1, continuing to build capability and achieving organic revenue growth (excluding City Link) earlier than expected.

"Textiles & Hygiene Benelux has performed consistently in line with plan over the past four months and will return to profit growth in H2. City Link has made considerable progress in operational and customer care systems and although its financial performance remains unsatisfactory, trading has been stable since February.

"Our 2011 cost savings programme is on track but inflationary pressures are particularly evident in Textiles & Hygiene and Ambius. The pricing environment has eased slightly in continental European markets.

"In City Link, I am encouraged by our strong operational progress and the new business pipeline, the combination of which should lead to improved year-on-year performance in Q4 though the full impact of our initiatives is unlikely to be felt this year. Elsewhere, we expect further progress across the group in H2 despite ongoing challenging conditions in some of our markets."

AER - actual exchange rates; CER - constant 2010 exchange rates

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

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

Financial Summary

1 all figures are for continuing operations and are unaudited

2 results at constant exchange rates have been translated at the full year average exchange rates for the year ended

31 December 2010. £/$ average rates: H1 2011 1.6162; FY 2010 1.5486, £/€ average rates: H1 2011 1.1463; FY 2010 1.1659

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

4 see Appendix 4 for further details

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

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, Corporate Communications Rentokil Initial plc 01293 858 165

Kate Holgate, Oliver Hughes 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 on 1 January 2011 with our Scandinavian and Iberian Textiles & Hygiene units and some small Pest units transferring from the Textiles & Hygiene division to the Pest Control division. The segmental information also reflects changes made on 1 January 2010 resulting in the UK Washrooms and Ireland Healthcare businesses moving from Initial Facilities to Textiles & Hygiene and also the changes made on 1 July 2010 resulting in these same businesses moving from Textiles & Hygiene to Pest Control and the transfer of the UK Shared Service Centre from Initial Facilities to Central Costs on 1 November 2010. 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 items of a one-off nature, totalling a net cost of £20.0m (2010: £17.9m) that have had a significant impact on the results of the group. £15.2m (2010: £13.3m) of these relate directly to the group's major reorganisation program and consisted mainly of redundancy costs, consultancy and plant and office closure costs net of the profit on sale of certain properties. £4.8m specifically related to a provision against our full financial exposure arising from the suspension of our Libyan pest control business. Details of one-off items incurred in the period, for which adjustments have been made, are set out in Appendix 4. All comparisons in commentaries are at constant 2010 full year average exchange rates unless otherwise stated.

PROGRESS ON STRATEGIC OBJECTIVES IN H1 2011

Earlier this year we outlined our four key objectives for 2011:

1. The turnarounds of City Link and Textiles & Hygiene Benelux;

2. The delivery of immediate, effective, and surprising customer care;

3. The delivery of consistent & profitable growth through excellent customer retention and greatly improved marketing, sales & innovation capability; and

4. Cost savings

1a. City Link

City Link has stabilised its customer base and operations after a very difficult Christmas for the industry and has continued to invest heavily in new capability. It now has a strong infrastructure with a stable hub and depot network and an exciting stream of initiatives going live in the Autumn. Delivery of these initiatives will be key to winning new business and carrying more volume through the network.

City Link's Operational Plan is centred on:

·; Sales & marketing;

·; Operations;

·; Customer care; and

·; Contingency planning for periods of peak trading

Sales & marketing

City Link has targeted profitable growth in the four key areas of healthcare, technology, media and retail/online. We remain encouraged by the strength of our new business pipeline and our ability to create differentiation in a challenging market through our caged delivery network - which drives high levels of parcel protection and flexibility - and through our numerous customer care initiatives - some of which have already come on stream such as My City Link - and some of which will come to market in the autumn such as our investment in customer care technology and our investment in developing Estimated Time of Arrival (ETAs) for our parcel delivery. We also continue to invest in account management.

Operations

Development of a Blueprint for City Link's depot network has progressed well in H1 and is on course for roll-out in Q3. It will introduce a consistent approach for all major processes, particularly in warehouse operations, and will deliver significant cost benefits. Progress has been made in reducing sub-contractors with employed drivers now accounting for 67% of routes. Our target of 75% will be reached before the end of Q3. Eclipse, City Link's new pricing and billing system, will be implemented by the end of September. This will increase transparency for customers and substantially reduce billing errors. City Link's head office in Camberley was closed in Q1 and its business support centre in Newton is scheduled for closure in October with combined annualised savings of £1.2m. This is a significant milestone for the business in that all sites will thereafter be primarily operational with administration functions being co-located.

Customer care

As customer care is both a group objective and one of City Link's four areas of focus, this is covered below under group objective 2.

Contingency planning for periods of peak trading

Development of early warning systems and pre-determined guidelines for dealing with severe disruption (such as those experienced at the end of 2010), have progressed well in H1. In addition, we have assessed our ability to activate other group resources across the UK at short notice, notably drivers, vehicles and warehouse resource. Full contingency plans will be in place by the peak Christmas trading period.

1b. Textiles & Hygiene Benelux

The business has performed consistently in line with plan, both in revenue and profit in H1. We expect further improvement in H2 with year-on-year profit growth anticipated in H2.

In the Netherlands an extensive review of pricing was completed. The business has since won a number of Government accounts. Having taken some significant price reductions in 2009/10 in order to get our pricing back in line with the market, during 2011 we have been able to pass on a number of price increases to customers, reflecting significant cost inflation and a more benign pricing environment.

In Belgium the primary focus has been on improving the performance of the Hospital unit and a dedicated team has been appointed to drive improvements in this unit. Management has been streamlined, plant productivity has increased and cost control measures have been implemented.

2. Customer care - immediate, effective, surprising

The group's focus on customer service has been extended to customer care. Our aim is to be pro-active in contacting, listening to and responding to all our customers, not just the very large.

In City Link a Customer Care Director was appointed to lead this programme which will be largely operational by October. In May the 'My City Link' initiative was launched, affording customers real time and detailed access on their parcel delivery. 'My City Link' offers a competitive advantage over other market participants and is being reviewed very positively by customers who have trialled it.

3. Growth - consistent & profitable

The group aims to deliver consistent and profitable organic growth through excellent customer retention, greatly improved marketing, sales & innovation capability and through acquisition.

Continued focus on customer service and care has resulted in further improvement in retention during the first half, up from 83.6% at FY 2010 to 84.6%.

Significant progress has been made in shaping the foundations and frameworks on which we will build our future growth agenda. The global sales agenda has focused on key elements of sales force capabilities, including training and development modules, operating frameworks and system tools. In addition, work is underway to introduce improved recruitment criteria to ensure the right people are looking after our customers. New supply chain and innovation capability has been brought into the textiles and hygiene businesses to ensure that segmented offers are supported by modernised product ranges.

Growth pilots

Programme Olympic is a programme of process-led change for our business support activities. Our objectives are to dramatically improve both customer service - driving retention and revenue growth - and financial performance. Within Programme Olympic are seven mainly UK-based growth pilots. These are at an advanced stage of development and are showing positive results in our UK Pest business. Plans are underway for global roll-out during 2012 and 2013.

Acquisitions

In May 2011 Initial Facilities acquired the 25% minority shareholding of Initial Catering Ltd from Rezayat Group (High Seas Investments (Bermuda) Ltd).

In July 2011 the group entered the Turkish pest control market through the acquisition of commercial pest business National Britannia Turkey ('NB Turkey'). The company operates nationally with branches in Turkey's seven largest cities. In the same month we acquired Sydney-based pest control company Ant-Eater, which will provide further density to our Sydney operations.

The acquisitions of Knightsbridge Guarding (acquired June 2010) and the Services Division of Santia Group (acquired February 2011) have been integrated successfully into the group and both are performing ahead of expectations. Further bolt-on acquisitions are probable in H2.

4. Cost savings

The group achieved £24m of cost savings in H1 and anticipates achieving its full year target of £60m. The majority of savings were delivered in Textiles & Hygiene and City Link with the remainder generated by further business and central savings programmes.

In Textiles & Hygiene cost savings were generated through restructuring programmes in France, Belgium and the Netherlands, through procurement programmes begun in 2010 to harmonise product ranges, and from other divisional savings programmes. The alignment between group and country procurement has been strengthened to improve delivery of indirect savings targets.

Cost savings in City Link were generated through the recruitment of more full-time employee drivers (reducing reliance on subcontractors), closures of the Wednesbury hub and Camberley Head Office and move to curtain-sided trailers in 2010. Further savings were gained through headcount and procurement savings and other operational productivity improvements.

While good progress continues to be made on cost savings these have been offset in H1 by cost inflation on fuel, labour and products for sale. We are seeking to mitigate this where possible through price increases.

FUNDING

The Company generated £24.5m of cash in H1. Cash flow was negatively impacted by a very strong performance in Q4 2010 (attributable to the phasing of cash collections in Initial Facilities), lower profitability and higher capex levels.

Capex in H1 was 100% of depreciation reflecting inflationary pressures, sales growth in Textiles & Hygiene and upweighted investment in systems to support Programme Olympic and improvements in customer care. We anticipate capex levels for the year to be at, or slightly above, 100% of depreciation with continuing inflationary pressures, as well as increased investment in IT systems. Given this increased investment we now expect cash conversion for the year to be in the range of 90% to 95%, against our previous target of 100%.

At 30 June 2011 the group had net debt of £1,024.6m. Of this £889.7m is represented by capital market notes issued by the group and the earliest maturity of these instruments is 2013. The group has good headroom in its bank facilities in terms of funds available to withdraw and in relation to its covenant.

The Company has come to a provisional agreement with the UK pension scheme trustees in relation to the 31 March 2010 triennial valuation of the Company's UK pension scheme and the funding thereof. The agreement assumes a funding deficit of around £80m at the valuation date and a funding arrangement by the Company of £12.5m per annum over an 8 year period commencing on 1 January 2012. The agreement is expected to be formally ratified in due course.

DIVIDEND

At the year end the Company stated its criteria for the resumption of dividend payments: i.e. when i) cash flow is robust and ii) when the foundations of sustainable and profitable growth have been established in all of the Company's principal businesses. While considerable progress has been made in the turnarounds of Textiles & Hygiene Benelux and City Link during H1, full operational efficiency at City Link will not be achieved until October this year. The board has decided therefore not to declare an interim dividend in respect of H1 2011.

OUTLOOK

In City Link, we are encouraged by our strong operational progress and the new business pipeline, the combination of which should lead to improved year on year performance in Q4 though the full impact of our initiatives is unlikely to be felt this year. Elsewhere, we expect further progress across the group in H2 despite ongoing challenging conditions in some of our markets.

DIVISIONAL PERFORMANCE

Textiles & Hygiene

1 excluding computer software

Revenue grew by 2.6%, an organic increase of 1.3% after adjusting for the acquisition of the Swedish dental reclamation business in 2010 and two specialist hygiene businesses in H1 2011. Strong performance continues to be achieved in Germany and growth was also aided by acquisitions in the Medical and Specialist Hygiene businesses. Customer retention remains strong in France where the business achieved 1.2% revenue growth despite ongoing difficult market conditions. Divisional performance is still restrained however by Benelux where revenue was down by 0.9% due to prior year contract losses. The operation is now stable with the business performing in line with expectations over the last three months. Divisional customer retention rose 1.0% on FY 2010 to 87.3%.

Profit fell 5.5%, an organic decline of 7.0% after adjusting for acquisitions, again held back by Benelux. Excluding Benelux and acquisitions, underlying profit was 1.3% above prior year.

Pest Control

1 excluding computer software

Revenue fell by 1.7% in H1, attributable to the disposals of the Spanish textiles and Finnish mats businesses and the suspension of operations in Libya in Q1. Organic revenue grew by 0.9% reflecting good performances across most regions. UK Pest Control continues to improve, growing by 7.2%, of which 6.7% is attributed to Santia, and although revenue in the UK & Ireland hygiene business fell, its rate of decline has slowed to 6.4% from 10.9% in H1 2010. In Europe strong performances from Germany, Austria, Belgium and the Nordics were largely offset by difficult trading conditions in Spain, Portugal and Greece, with overall revenue growth for the region of 1.2%. Growth was recorded in North America (+5.5%) South Africa, East Africa and the Caribbean.

Profit grew by 3.7%, reflecting tight cost control across most businesses. While the UK, Germany, North America and South Africa pest businesses delivered strong performances, there were declines in the UK and Spanish Washrooms operations and in the more difficult markets of Ireland, Portugal and Greece. As outlined previously we have suspended our operations in Libya and taken a £4.8m provision against our full financial exposure. This was taken as a one-off item in Q1.

In July 2011 Rentokil entered the Turkish market through the acquisition of commercial pest business NB Turkey. Based in Izmir, the company operates nationally with branches in Turkey's seven largest cities.

Asia Pacific

1 excluding computer software

Asia Pacific revenue increased by 3.6% reflecting portfolio growth in the Pacific region in Q2 2011. Asia grew by 5.2% (versus an increase of 1.4% this time last year), driven by improved sales capability. The Pacific region reversed prior year declines, growing by 2.5%. In Asia growth momentum in Indonesia, Thailand, the Philippines, China and Malaysia reflect traction in sales & marketing and other growth initiatives. The emerging businesses of Vietnam and India also delivered strong growth with ongoing investment in capability. In the Pacific, Australia Pest Control performed well aided by strong growth in contract portfolio and a rodent infestation. New Zealand and Fiji also grew well overcoming the impact of Christchurch earthquake in February.

Good cost control and growth in most markets were offset by increased management costs in China and the impact of the floods in Queensland on Pink Healthcare, resulting in an overall profit decline of 1.3%. The increased management costs in China arose out of the need to change the previous China management team at short notice.

Ambius

1 excluding computer software

Ambius portfolio movement continues to show an improving trend with a small positive growth in H1 of 0.8%, attributable to a 0.9% improvement in gross sales and an 8.6% improvement in terminations over the prior year. This has not yet been sufficient however to compensate for the portfolio erosion during 2010 and H1 revenue was therefore marginally down by 0.4% year on year. Job revenue however rose by an encouraging 4.5% during the period driven by growth in Europe. Gross sales in Europe grew by 2.8% while North America sales declined by 1.1%.

Profit declined by 30.4% reflecting cost inflation on plants and fuel and changes in business mix.

City Link

1 excluding computer software

City Link's operating loss for H1 of £17.8m is £13.1m worse than the corresponding loss in 2010 on a £22.6m (13.5%) reduction in revenue.

The operation was impacted by lower volumes as a result of customer losses in 2010 and additional costs incurred in January in order to recover from heavy snow in late December. Parcel volumes were down 9.9% in H1. The UK parcels industry continues to be extremely competitive in 2011 and trading conditions remain challenging. Price cutting is a continuing market dynamic and our revenue per consignment declined by 4.0%.

The pipeline of new business opportunities remains promising and while it has grown in size since Q1, the timing of conversion into sales is unpredictable.

Service levels in H1 were generally above 99%, apart from in January, when service was impacted following the period of heavy snow in the run up to Christmas.

Good progress has been made in recruiting employed drivers which represented 67% of all routes run at the end of H1. This has reduced our reliance on subcontractors. The implementation of a depot blueprint will provide a consistent approach to our operations across the network and further cost savings. The business is on track to deliver an Estimated Time of Arrival ("ETA") offering to customers in Q3 and successfully delivered the 'My City Link' initiative to customers in Q2.

In June 2011 we announced the appointments of David Smith as Managing Director and Robert Peto as Finance Director of City Link. Both join the business later this year from Royal Mail Group and bring significant parcel market and service industry experience to the operation.

Initial Facilities

1 excluding computer software

While the market remained challenging in H1 Initial Facilities performed well, with strong revenue and profit delivery. Revenue grew by 11.1%, assisted by the contributions from the acquisitions of Knightsbridge Guarding in 2010 and the fire and water businesses of Santia Services in early 2011. Underlying revenue growth, excluding acquisitions, was 0.6%.

Ongoing margin improvement, operational efficiency and cost reductions have helped contribute to a strong increase in profitability, delivering growth of 20.0%, 10.4% excluding acquisitions.

Central Costs

H1 central costs of £20.8m benefited from lower incentive costs in H1 compared to the prior year.

One-off items including reorganisation costs

Net one-off costs in the first half of the year amounted to £20.0m (2010: £17.9m). £15.2m (2010: £13.3m) of these related directly to the group's major reorganisation programme, including Olympic, and consisted mainly of redundancy costs, consultancy and plant and office closure costs net of the profit on sale of certain properties. £4.8m specifically related to a provision against our full financial exposure arising from the suspension of our Libyan pest control business. 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 4.

 Interest

Net interest payable was £22.0m at actual rates compared to £28.5m in the prior year. Underlying interest payable (excluding pensions, mark to market and foreign exchange differences) was £24.0m at actual rates compared to £24.5m in the prior year, a reduction of £0.5m, due to lower net debt and lower interest rates. Net interest payable included improvements of £4.1m resulting from mark to market changes, £1.6m from pension interest income and £0.3m from foreign exchange differences.

Tax

The income statement tax charge for H1 2011 was 18.5% of profit before tax from continuing operations, compared with 23.3% in H1 2010. The effective tax rate after adjusting for the amortisation and impairment of intangibles (excluding computer software) and one-off items was 24.2% for H1 2011 compared with 24.4% in H1 2010. The principal factor that caused this low effective tax rate was the release of prior year provisions for tax no longer considered necessary as various issues were either settled or became statute barred in the period.

Net debt and cash flow

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

Operating cash inflow in H1 at £24.5m was £45.5m lower than the prior year due to lower adjusted operating profit, higher one-off cash flows (included within the one-off items in the income statement in H1 2010 was a fixed asset impairment charge of £12.5m) and higher capital expenditure.

Total tax payments were £29.6m compared with £19.1m last year. The increase in total tax payments is attributable to the phasing of payments relating to prior year liabilities. Interest payments (including finance lease interest) were £4.0m lower than last year at £36.1m and the acquisition/disposal outflow of £13.5m largely reflects the acquisitions of Santia (Connaught) and the remaining non controlling interest in our catering business. Foreign exchange translation losses and other items worsened cash flow by £16.3m, leaving an overall outflow of £71.0m and net debt of £1,024.6m.

Appendix 1

ANNUAL CONTRACT PORTFOLIO - CONTINUING BUSINESSES

3 Months to 30 June 2011

6 Months to 30 June 2011

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 Textiles and Hygiene and Catering, 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: The Textiles & Hygiene and group portfolio movements of additions and reductions have been restated in 2010 to net off Textile customer temporary service volume related changes which were previously reported gross as either additions or reductions to the portfolio. The calculated retention and gross sales rates have been restated accordingly.

Appendix 2

Divisional Analysis (at constant exchange rates)

1 excluding computer software

Revenue growth (at CER)

1 organic revenue growth excludes the effect of acquisitions, disposals and inter group trading

Appendix 3

Divisional Analysis (at actual exchange rates)

1 excluding computer software

Appendix 4

One-off Items including reorganisation costs

Net one-off costs in the first half of the year amounted to £20.0m (2010: £17.9m). £15.2m (2010: £13.3m) of these related directly to the group's major reorganisation programme, including Olympic, and consisted mainly of redundancy costs, consultancy and plant and office closure costs net of the profit on sale of certain properties. £4.8m specifically related to a provision against our full financial exposure arising from the suspension of our Libyan pest control business. 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.

1 excluding computer software

2 taxation includes £6.8m (HY 2010: £8.3m, FY 2010: £22.6m) in respect of overseas taxation

The board is not recommending the payment of an interim dividend, See note 9.

Condensed consolidated statement of changes in equity