ANNUAL REPORT 2004 CONTENTS 2 Company Overview HYGIENE Hygiene Services offers a total washroom solution service, 4 Chairman’s Statement floor mat, garments and flat linen rental services. The 6 Chief Executive’s Review washroom solutions range provides every consumable item, 13 Finance Director’s Review dispensers, drying and disposal systems required in today’s modern washroom. Protective floor mats are supplied to a 19 Directors and Secretary wide client base. Bespoke workwear is manufactured and 20 Report of the Directors supplied to commercial, industrial and hospitality customers, 27 Audit Committee Report with full inventory management available, and specialist high-performance workwear is designed and produced for 30 Remuneration Report sectors such as the medical, hi-tech and emergency 41 Statement of Directors’ services. Flat linen (primarily table and bedroom linen) Responsibilities is rented and laundered for corporate and hospitality customers and health service providers. 42 Report of the Auditors 44 Consolidated Profit and Pest Control provides a service for the prevention of pests, Loss Account primarily in the commercial and industrial sectors. Our research and development provides effective and innovative 45 Statement of Total Recognised solutions for pest control with specific emphasis placed on Gains and Losses health, safety and protection of the environment. 45 Reconciliation of Movements SECURITY in Equity Shareholders’ Funds Security delivers solutions that meet customers’ needs for 46 Balance Sheets personal safety and protection of property. We provide 47 Consolidated Cash Flow Statement security services for our customers tailored to meet their individual requirements, using advanced electronic security 48 Accounting Policies technology, well trained security officers or a combination 51 Notes to the Accounts of both services. 71 Principal Operating Subsidiary FACILITIES MANAGEMENT and Associated Undertakings Facilities Management Services provides cleaning, catering 73 Acquisitions and hospital services individually, which also create the 73 Disposals platform for multi-service contracts offering one point of customer contact. Any number of Rentokil Initial services 74 Ten Year Summary can be incorporated within a contract using our own specialist 75 Notice of Meeting management services. 77 Shareholder Information Tropical Plants are offered to customers on a rental and maintenance or purchase and maintenance basis ranging from a single plant or tree to displays for the largest atrium. Our specialist in-house design and development team also offers a range of services to facilities managers, interior designers and architects, to introduce plants as an integral part of building design and refurbishment. Conferencing provides a UK network of 29 specialised education and training centres to meet the needs of corporate and public sector customers. These centres provide specialist meeting facilities and residential accommodation, together with leisure and recreational amenities. PARCELS DELIVERY Parcels Delivery is a UK premium express service with options for next-day or specific delivery times. An internet tracking system and integrated despatch process provides all customers with continuous information on delivery progress. Financial Highlights 2004 2004 Increase/ 2003 (decrease) £m % £m Turnover1 2,450.8 (1.4) 2,486.2 Profit before tax and exceptional items 347.2 (15.0) 408.5 Profit before tax 297.8 (24.9) 396.8 Operating cash flow2 231.8 (13.9) 269.3 Basic earnings per share 11.87p (25.0) 15.83p Adjusted earnings per share3 14.30p (13.2) 16.47p Dividends per share 6.71p 10.0 6.10p 1 Including franchisees and share of associates. 2 Before management of liquid resources, financing, dividends, acquisitions, disposals and adjusted for capital expenditure financed by leases. 3 Basic earnings per share adjusted for net exceptional items. 1 Company Overview Rentokil Initial is one of the largest business services companies in the world, operating in the major economies of Europe, North America, Asia Pacific and Africa. The company has some 90,000 employees providing a range of support services in over 40 countries where the ‘Rentokil’ and ‘Initial’ brands have come to represent consistent quality of service. 1. Initial Washroom Solutions delivers 7.5 million roller 8. Initial Retail Cleaning has over 1,000 scrubber towels to its customers annually which, if joined end dryers, which daily can clean a floor area the size to end, would circle the equator over seven times. of 400 soccer pitches. 2. Our European Textiles operation washes 93,500 9. Tropical Plants’ www.plants-in-buildings.com tonnes of linen every year, equivalent to the website is designed to educate and inform weight of 316 Boeing 747 airliners. architects, interior designers and related professionals about the use and benefits of 3. Initial Electronic Security’s cameras scan and landscaping in general and forms part of a capture in the region of 1 million toll transactions Continuous Professional Development scheme each week at the UK’s Dartford River Crossing on for Royal Institute of British Architects members. the Thames. 10. Each night, Initial City Link collects on average 4. Rentokil Pest Control’s ‘Luminos 3’ is a non-toxic 170,000 parcels from its network of 70 branches method of attracting and trapping flying insects and delivers them next day at their allocated time. on an adhesive film – a thoroughly modern version of the fly paper. 11. Initial Catering Services’ education division serves some 38 million school meals per year. 5. Initial Foodguard won the Golden Service 2004 Manufacturing Award, the ‘Oscar’ of the cleaning 12. Just ten minutes walk from the bustle of Oxford industry, for their exceptional standard of twenty- Circus, is 17 Portland Place, the prestigious, Initial four hour cleaning at Walker’s Snack Foods Limited. Style Conferences venue in the centre of London. 6. Initial Style Conferences’ 29 venues can accommodate nearly 10,000 delegates a day who consume 2 million biscuits washed down with 2.6 million cups of coffee per year. 7. With 25 years of knowledge and experience, Initial Security is the first and only security company in the UK to achieve accreditation by the National Security Inspectorate for all three international standards for quality, health and safety and environmental management. 2 Chairman’s Statement BOARD CHANGES basic earnings per share down 25.0% at 11.87p. Operating 2004 was one of the most tumultuous years that Rentokil cash flow was excellent at £231.8 million, representing 89% Initial has experienced. In the period from mid May to the end of reported, pre-exceptional, post-tax profit. Net debt was of July, the board decided that a significant change of direction £72.3 million lower than 2003 at £1,135.6 million. was required to halt the decline in the company’s performance and reinvigorate it for the future. To that end, over those DIVIDEND ten weeks, the chairman, Sir Clive Thompson and the chief The board is recommending a final dividend of 4.78p per share executive, James Wilde stepped down from the board and giving a full year dividend of 6.71p, an increase of 10.0% over left the company. During that period the remaining directors 2003. This will be payable on Friday 3rd June 2005 to all asked me initially to become non-executive chairman and then shareholders on the register on Friday 6th May 2005. executive chairman until a new chief executive was appointed. OPERATIONAL REVIEW I am delighted that Doug Flynn joined the company as chief When I became chairman in May 2004 I undertook an extensive executive on the 4th April 2005. Doug was formerly chief operational review of the company. I found that the company executive of the global marketing services company Aegis had some very positive attributes with excellent businesses and Group PLC. Doug’s extensive international experience at driving able and talented people. There were strong cultural strengths through structural change, building strong management teams of loyalty, discipline and attention to detail. Moreover, the and growing businesses to meet challenging and competitive people I met were also enthusiastic, dedicated and keen to markets are exactly the qualities the board believes are required do well for both themselves and the company. at Rentokil Initial. He has considerable experience of running a diversified global services business made up of multiple However, I also realised that there had been serious under- operating units and has a proven track record of developing investment in many of the businesses for a number of years. businesses operating in diverse geographies. The main actions taken in the last year have been to: In March we reported that Roger Payne intended to take early • Build up to and then maintain optimum levels of sales retirement and step down as finance director of the company, personnel, service engineers and marketing managers although he will remain in his current role whilst a successor • Change the culture to one of devolved responsibility is sought. Roger has made a significant contribution to the so that the company becomes more nimble and quicker company over the past nineteen years and, in particular, has on its feet been very supportive to me since I assumed the role of • Step up the pace of bolt-on acquisitions within our chairman last year. core businesses • Find the best ways to effectively reward and motivate RESULTS our employees worldwide The underlying trading was broadly in line with market • Accelerate our investment in Information Technology expectations and with the guidance I first gave in May 2004. developments Turnover from continuing operations was £2,435.3 million; • Create better commercial exploitation of our innovations profit before tax and after exceptional items, which were identified in the November Trading Statement, was I will report on the advances we have made in those £347.2 million and after exceptional items was £297.8 million. areas in the chief executive’s review on pages 11 and 12.