Final Results

RNS Number : 0826Q

Rentokil Initial PLC

25 February 2016

RENTOKIL INITIAL PLC (RTO)

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

25 February 2016

Results	H2 2015	Growth		FY 2015	Growth
£m	AER	AER	CER	AER	AER	CER

Revenue	903.7	2.0%	6.6%	1,759.0	1.0%	5.5%
Revenue - ongoing operations¹	895.0	3.1%	7.7%	1,737.9	2.1%	6.5%
Adjusted operating profit²	133.2	0.9%	8.3%	232.9	0.3%	8.2%
Adjusted operating profit² - ongoing operations¹	134.2	1.1%	8.5%	234.3	0.6%	8.5%
Adjusted profit before tax²	115.5	1.9%	10.1%	198.0	3.8%	12.7%
Profit before tax	88.8	(7.9%)	1.1%	159.0	(2.6%)	7.0%
Free cash flow³				147.7
Adjusted EPS⁴				8.29p	3.0%	11.7%
Dividend per share				2.93p	13.1%

· Encouraging overall performance in 2015 - ongoing revenue growth of 6.5%, with profit (+8.5%) ahead of expectations and free cash flow of £148m, well in excess of the £100m+ target for the year

· Organic growth in Pest Control (+4.6%) and Hygiene (+2.3%); Workwear business (-3.2%) impacted by continued challenging conditions in France and Benelux

· Increase in North America and Asia margins driving growth in group operating margin to 13.9% (2014: 13.7%)

· Significant increase in M&A execution - 23 acquisitions (21 in pest) in year with combined annualised revenues of £158m

· Acquisition of Steritech building scale in key North American market - annualised exit profit run-rate of $20m represents good progress towards 2016 target - integration on track

· Capital allocation model working well - combined revenues in Emerging and Growth quadrants now account for 60% of group revenue

· Proposed 13.1% increase in dividend

Commenting on the results for 2015 Andy Ransom, CEO of Rentokil Initial plc, said:

"2015 has been a year of further improvement at Rentokil Initial. We have continued to execute our differentiated strategy to drive profitable growth with both focus and pace. This year we have delivered ongoing revenue growth of 6.5%, profit growth from ongoing operations of 8.5% and free cash flow of £148m.

"We have also achieved a step change in the scale of our presence in Growth markets through the acquisitions of Steritech, Anderson Pest Solutions and Oliver Exterminating, cementing our position as the number three player in North America, the world's largest pest control market. We will continue to pursue high-quality pest control businesses to infill locally and build further density and margins, particularly in Emerging and Growth markets.

"Prospects in the majority of our markets are good and, while conditions in France and Benelux remain difficult, we are confident of making further progress in the coming year."

Revenue (at CER)

Revenue from ongoing operations increased by 6.5% in 2015, comprising organic growth of 1.8% and growth from acquired businesses of 4.7%. Revenue in the Pest Control business grew strongly at 13.1% during the year, of which 4.6% was organic. Growth in 2015 in the Emerging (+14.0%) and Growth (+12.0%) quadrants was driven by good performances from North America, UK, Germany, Latin America, Asia and Pacific. Revenue in the Protect & Enhance quadrant declined by 1.2%, largely driven by France, with the Manage for Value quadrant down 0.3% on the prior year. During the year we closed our Austrian and Northern Ireland flat linen operations and four other non-core businesses, predominantly in the Manage for Value quadrant. These, together with other businesses divested in 2014, reduced revenue growth by 1.0%, resulting in total revenue growth of 5.5%.

Profit (at CER)

Adjusted operating profit from ongoing operations increased by 8.5% in 2015, reflecting growth in North America, the UK, Germany, Asia and Pacific, offset by lower profits in France. Adjusted profit before tax of £198.0m (at AER) was negatively impacted by foreign exchange of £17.1m due mainly to the strengthening of Sterling against the Euro in the year. Restructuring costs of £8.3m (2014: £8.8m) were maintained at under our £10m target for the year.

One-off costs netted to £6.4m (2014: £0.1m) with the costs associated with the business closures noted above (£14.6m) partially offset by income of £10.8m from the settlement of a legacy legal claim. The majority of the one-off costs were non-cash items, with the net cash impact of one-offs a cash inflow of £2.7m. Profit before tax grew by 7.0% to £174.7m.

Cash (at AER)

Free cash flow from continuing operations amounted to £148m in 2015, driven by continued strong operating cash flow, a reduction in interest and tax payments and the beneficial settlement of the legacy legal claim noted above. After taking into account the expenditure on current and prior-year acquisitions (£369.2m) and exchange rate movements, net debt increased by £251.6m to £1,026.6m (31 December 2014: £775.0m).

M&A (at CER)

In line with our strategy, we have pursued targeted acquisitions that meet our return criteria in higher growth markets and in areas which add local density to our existing operations. We acquired 23 companies during the year, 21 in Pest Control, with combined annualised revenues in the 12 months prior to acquisition of £158m. The total combined consideration for these acquisitions, including deferred consideration, is £386m. The integration of Steritech is progressing well with the business exiting the year making good progress towards our profit target of $25m-$30m for 2016.

Enquiries:

Investors / Analysts:	Katharine Rycroft	Rentokil Initial plc	01276 536585 / 07811 270734

Media:	Malcolm Padley	Rentokil Initial plc	07788 978 199
	John Sunnucks	Bell Pottinger	0203 772 2549
	Ben Woodford

A presentation for investors and analysts will be held on Thursday 25 February 2016 at 9.15am in the Sidney Suite Conference Room, 1st Floor, The Grange Tower Bridge Hotel, 45 Prescot Street, London E1 8GP.

This will be available via a live audio web cast at www.rentokil-initial.com.

AER - actual exchange rates; CER - constant 2014 exchange rates

¹ongoing revenue and profit exclude the financial performance of disposed and closed businesses but include results from acquisitions

²before amortisation and impairment of intangibles (excluding computer software), restructuring costs and one-off items, and net interest credit from pensions

³ cash flow before acquisitions, disposals, dividends and discontinued operations

⁴earnings per share before the after tax effects of amortisation and impairment of intangibles (excluding computer software), restructuring costs and one-off items and net interest credit from pensions

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.

FINANCIAL SUMMARY

£million	Second Half			Full Year
	2015	2014	Change	2015	2014	change
Continuing Operations¹ At 2014 constant exchange rates²
Revenue - ongoing operations³	941.3	874.4	7.7%	1,813.9	1,702.9	6.5%
Revenue - disposed and closed businesses	9.8	18.2	(46.2%)	23.3	37.9	(38.5%)
Revenue	951.1	892.6	6.6%	1,837.2	1,740.8	5.5%

Adjusted operating profit⁴- ongoing operations³	145.4	134.0	8.5%	252.8	233.0	8.5%
Adjusted operating profit⁴- disposed and closed businesses	(1.1)	(0.7)	(57.1%)	(1.6)	(0.8)	(100.0%)
Adjusted operating profit⁴	144.3	133.3	8.3%	251.2	232.2	8.2%
Restructuring costs and one-off items - operating⁵	(12.4)	(6.5)	(90.8%)	(14.7)	(8.9)	(65.2%)
Amortisation and impairment of intangible assets	(18.0)	(11.5)	(56.5%)	(31.8)	(21.2)	(50.0%)
Operating profit	113.9	115.3	(1.2%)	204.7	202.1	1.3%

Share of profit from associates (net of tax)	2.1	1.8	16.7%	4.9	3.9	25.6%
Net interest payable (excluding pensions)	(20.4)	(20.7)	1.4%	(41.0)	(45.3)	9.5%
Net interest credit from pensions	3.1	1.2	158.3%	6.1	2.5	144.0%
Profit before tax	98.7	97.6	1.1%	174.7	163.2	7.0%
Adjusted profit before tax⁴	126.0	114.4	10.1%	215.1	190.8	12.7%
Operating cash flow⁶				238.0	209.5	13.6%
Basic earnings per share				7.53p	6.96p	8.2%
Basic adjusted earnings per share⁷				8.99p	8.05p	11.7%

Continuing Operations¹ At actual exchange rates
Revenue - ongoing operations³	895.0	868.5	3.1%	1,737.9	1,702.9	2.1%
Revenue - disposed and closed businesses	8.7	17.9	(51.4%)	21.1	37.9	(44.3%)
Revenue	903.7	886.4	2.0%	1,759.0	1,740.8	1.0%

Adjusted operating profit⁴- ongoing operations³	134.2	132.7	1.1%	234.3	233.0	0.6%
Adjusted operating profit⁴- disposed and closed businesses	(1.0)	(0.7)	(42.9%)	(1.4)	(0.8)	(75.0%)
Adjusted operating profit⁴	133.2	132.0	0.9%	232.9	232.2	0.3%
Restructuring costs and one-off items - operating⁵	(11.9)	(6.6)	(80.3%)	(13.3)	(8.9)	(49.4%)
Amortisation and impairment of intangible assets	(17.9)	(11.5)	(55.7%)	(31.8)	(21.2)	(50.0%)
Operating profit	103.4	113.9	(9.2%)	187.8	202.1	(7.1%)

Share of profit from associates (net of tax)	2.0	1.7	17.6%	4.7	3.9	20.5%
Net interest payable (excluding pensions)	(19.7)	(20.4)	3.4%	(39.6)	(45.3)	12.6%
Net interest credit from pensions	3.1	1.2	158.3%	6.1	2.5	144.0%
Profit before tax	88.8	96.4	(7.9%)	159.0	163.2	(2.6%)
Adjusted profit before tax⁴	115.5	113.3	1.9%	198.0	190.8	3.8%
Operating cash flow⁶				220.7	209.5	5.3%
Basic earnings per share				6.83p	6.96p	(1.9%)
Basic adjusted earnings per share⁷				8.29p	8.05p	3.0%
Dividend per share (proposed/paid)				2.93p	2.59p	13.1%

¹ all figures are for continuing operations unless otherwise stated

² results at constant exchange rates have been translated at the full year average exchange rates for the year ended 31 December 2014. £/$ average rates: FY 2015 1.5288; FY 2014 1.6465, £/€ average rates: FY 2015 1.3770; FY 2014 1.2438

³ ongoing revenue and profit exclude the financial performance of disposed and closed businesses but include results from acquisitions

⁴before amortisation and impairment of intangibles (excluding computer software), restructuring costs and one-off items and net interest credit from pensions

⁵ see Note 2 for further details

⁶ cash flow before interest, tax, acquisitions, disposals, dividends and discontinued operations

⁷ earnings per share before the after tax effects of amortisation and impairment of intangibles (excluding computer software), restructuring costs and one-off items and net interest credit from pensions

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. Unless otherwise stated references to 'profit' and 'operating profit' are for continuing businesses before amortisation, impairment of intangible assets (excluding computer software) and restructuring costs and one-off items (totalling a net cost of £14.7m) 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. References to ongoing revenue and profit are from continuing operations excluding revenue and profit from businesses disposed and closed. All references to revenue and profit are at CER unless stated otherwise. All comparisons are at constant 2014 full year average exchange rates.

REGIONAL PERFORMANCE OVERVIEW

In the North America region revenue grew 16.8% for the full year, driven by organic revenue growth (+2.7%) and the continuing acquisition programme (+14.1%) including the acquisition of Steritech in Q4. Organic revenue growth from Pest Control was 3.0%. Strong profit growth of 28.6% was driven by acquisitions, the leverage impact from higher revenues, further margin improvement from back office and property rationalisation and lower fuel prices. This has improved net operating margins by 1.2% points. As noted above, the integration of the Steritech business is proceeding well, further details of which can be found in the strategy section of this statement. We expect further margin improvement in 2016 as the business builds scale and density.

In the Europe region ongoing revenue rose 0.1% in 2015 (organic revenue decline of 0.7%). Good revenue growth in Germany (+3.2%), Southern Europe (+5.3%) and Latin America (which is managed out of the European Region and which grew by 33.5%) was offset by declines in France (-3.4%) and Benelux (-1.1%). Profit declined by 4.6% primarily driven by the revenue reduction and margin pressure in France.

In Europe our German and Southern European businesses are experiencing relatively positive trading conditions and are expected to continue to make good progress. However, the outlook in France and Benelux is more difficult with these countries continuing to face challenging economic conditions and very competitive market conditions - France in particular. We see opportunities to support margins through the quality initiative in the Workwear business, service and distribution productivity and continued cost discipline. While we expect trading conditions in Europe to remain difficult, based on the actions that we are proactively taking to improve performance, we expect the level of profit decline for the region to be considerably lower in 2016 than in 2015.

In the UK & Rest of World region ongoing revenue rose by 11.5% in 2015, reflecting organic growth of 4.2% and acquisition growth of 7.3%, largely from the Peter Cox acquisition made at the end of 2014. The region delivered continued growth from the UK Pest Control and Hygiene businesses, with Pest Control benefitting from increased jobbing work in particular. The Rest of World operations delivered good revenue growth driven by the Caribbean and South Africa. Ongoing profit in the region grew by 12.5%, reflecting higher revenues and the Peter Cox acquisition.

The Asia region had another strong year with ongoing revenue increasing by 11.3% (+8.6% organic) with both the Pest Control and Hygiene businesses performing well. Our operations in the less established markets of India, China and Vietnam continue to deliver strong growth (26.0%). High single-digit revenue increases were delivered in the more developed markets of Indonesia and Malaysia. Profit in the region grew by 27.5% in 2015, reflecting leverage from higher revenues and service productivity, with margins higher by 1.2% points on the prior year.

In the Pacific region revenue grew by 4.3% in 2015 (+3.5% organic), reflecting increased contracts in the Pest Control and Hygiene businesses and more jobbing work in Pest Control. Profit in the region grew by 7.3%, reflecting higher revenues and also supported by continuing tight cost control.

STRATEGY UPDATE

Progress in the Next Phase

At our interim results in July 2015, we outlined our priorities for the Next Phase of execution in our Right Way plan. While our strategy remains consistent with what we presented in February 2014, it has been refreshed and refocused. Our top three priorities are shown below.

1. Accelerate Pest Control

2. Execute Now in Hygiene

3. Quality focus in Workwear

Underpinning these priorities will be a focus on:

· Increasing our exposure to Emerging and Growth markets;

· Greater exploitation of our digital expertise;

· Further differentiation of our products and services through innovation;

· Delivering enhanced margins through density and local share;

· Boosting sales and service productivity;

· Greater sharing of best practice; and

· Value creating M&A programme.

Medium-term Financial Targets

We remain committed to our medium-term targets of achieving mid-single digit revenue growth, high-single digit profit growth and a significant improvement in free cash flow.

Based on the improved free cash flow in 2014 and 2015, and reflecting our cash flow projections for 2016 and 2017, we have raised our free cash flow target to £110m+ for 2016 and £120m+ for 2017.

Pest Control - 'Acceleration'

Pest Control is our core business line and engine for growth. We plan to deliver continued acceleration through:

· Deployment of new pest products and services from our innovation pipeline;

· Roll-out of our performance-enhancing web presence across the group;

· Our leadership in the 'Internet-of-Things' for pest control, for example monitoring devices covering a range of pests and risk-based reporting through extranets/apps;

· Leverage of our North America position and growth in Emerging markets; and

· Continued M&A programme to build greater density.

We have an unrivalled global leadership position which is enhanced by our acquisition of Steritech. We have strong positions in growing markets across the world and a good M&A pipeline enabling us to infill locally and build density, focused on Emerging and Growth markets. In addition, we believe we have unparalleled brand strength, technical expertise and industry-leading innovation.

Pest Control is a resilient industry and offers sustainable, long-term growth prospects. We are well placed to take advantage of major growth drivers which include: the convergence of international standards (particularly in the Food industry); the drive for consistency from multi-nationals; rising expectations from consumers driving companies to invest in brand protection and growing demand in developing markets.

Innovation

We have a strong innovation pipeline in place for Pest Control designed to build our sales pipeline and drive customer retention. During the year we launched PestConnect (our remote monitoring system for rodents) and AutoGate (a new rodent control unit which uses sensors to contain poisoned bait behind a gate, safe from non-target species, until activated) into five countries with roll-out planned for a further 10 countries in 2016, including the UK. Our German pest control operations had a record 2015, aided in part by the roll-out of AutoGate which was created to address EU legislation on the use of poisonous products in pest control.

During the year we launched in Malaysia a new monitoring and control service to help protect people from dangerous diseases (such as Dengue Fever) transmitted by mosquitoes. The new service combines the expertise of our technicians to survey an area, combined with monitoring devices, online mapping and reporting tools, and finally a range of treatments from localised insecticide spraying to large scale thermal fogging. A similar service has also been launched in January 2016 in Brazil to help protect people from the Aedes Mosquito which is associated with the rapidly increasing threat posed by the Zika virus.

Digital leadership

We continue to invest in technology to drive short-term growth and long-term differentiation. During 2015 we continued the roll-out of our new pest control web platform into 23 markets (including all major markets). As a result we have seen a 13% increase in web enquiries and in the UK 65% of new business has been generated from digital channels. In addition, the myRentokil customer Extranet has been launched in 14 countries.

Acquisition of Steritech

North America is the world's largest pest control market worth approximately $7.5bn. It is a key focus for our acquisitive growth as we consolidate our national presence and build density. We are therefore very pleased to have acquired Steritech in October 2015, the last remaining independent business with national scale in the US and market leader in the provision of brand standards auditing services. The acquisition strengthens our position as the number three pest control business in the US and also makes us the third largest player in Canada. This is a transformational deal for our North American operations, giving us the opportunity to accelerate revenue growth and significantly enhance margins.

Three months into our ownership the integration of Steritech is proceeding well and we are on track to deliver our commitments for 2016. All integration work streams are now underway. Progress includes the development of detailed work plans for 'Add on' services into the Steritech portfolio (such as fumigation and termite control) and the identification of route density opportunities. In addition we have developed a combined Regional & National accounts programme and put in place a roadmap for the migration and application of a new IT infrastructure. A back office rationalisation programme is underway, focused on removing duplicate activities. Steritech exited 2015 with an annualised profit run-rate of $20m, representing good progress towards our $25m to $30m target for the coming year.

Hygiene - 'Execute Now'

In our Hygiene business we are pursuing an 'Execute Now' growth strategy to leverage our strengths across our 43 markets of operation by:

· Building on the strength of our leading hygiene brand and strong market positions;

· Selling with confidence - including new product ranges such as Reflection, Signature, Colour, No Touch and Premium Scenting;

· Leading on innovation through 'Internet-of-Things' for hygiene, for example sensing, hand hygiene compliance, particularly in the food and health market sectors; and

· Building city density and extend our footprint through organic growth and targeted M&A.

Product range update

In 2015 we continued to strengthen our extensive washroom range to maximise our range selling capabilities. Our Signature suite of products has now been fully launched across our markets with four new product additions plus the completion of a No-Touch range of washroom products. We have also launched the Signature Colour range into 13 countries. This has proven particularly popular in France which now accounts for 50% of total Colour sales. It has also doubled the number of service lines per customer. Signature's success is illustrated by the fact that 15% of total sales have come from new products launched in the last year, NoTouch in particular. We have also continued to develop our high-end Reflection product range with six new products introduced in 2015. Our Premium Scenting business continues to grow strongly, particularly in Asia.

Innovation

We continue the development of HygieneConnect, the world's first integrated wireless monitoring and display system designed to raise hand washing compliance. In 2015 all customers using the system reported increases in hand wash compliance, with 60% increasing their compliance levels by over 50%. Further deployment, starting with the UK, is planned for 2016.

Digital leadership

During the year we developed and launched our new Hygiene web platform in Australia with further roll-out planned across the group in 2016. The new design is focused on product searches, up-selling of products & services and the cross-sell of product ranges.

Operational best practice

During the year we implemented country action plans focused on delivering operational best practice in our Hygiene operations. Our Italian operations have developed a new defined service concept by customer sector involving targeted hygiene product options - this initiative has driven a 3.7% increase in revenue per technician. In Indonesia we proactively targeted premium hotels and offices on specific routes in Jakarta with structured hygiene surveys to build relationships. This significantly contributed to a 10% increase in portfolio and higher local density. Further, in Germany we introduced incentives to encourage our hygiene service drivers to identify opportunities to sell additional services while on customer sites.

Workwear - 'Quality of Service'

Our aim is to create a workwear business that has clear market differentiation through the highest level of product and service quality, thus driving greater customer satisfaction and in turn generating improved revenue and margins. Our Workwear Quality Plan involves:

· Rigorous application of KPIs to measure quality of service;

· Improved product visibility through the entire service process;

· Best-in-class processing - highest standards in washing and repair quality; new higher quality detergents;

· Greater responsiveness to customer needs - shorter lead time between contract and deployment (for example web-based size taking pilot);

· Smarter selling - "selling a service rather than a product";

· Creation of product and service innovation action group; and

· Leveraging European scale and best practice - to create a more effective organisation through best practice sharing in supply chain, R&D, processing, sales and marketing.

Since implementation of the plan in the second half of 2015 we have seen a number of operational improvements. Among them are the following:

· Rigorous application of KPIs to measure service quality - during 2015 we introduced 12 new customer-focused Quality KPIs. As a result, we have seen customer satisfaction rise between two and eight percentage points across all countries of operation in Q4 2015, with a resulting overall 2.4% increase in retention to 90.3%.

· Best- in-class processing - 37 of our laundries have converted to new processing detergents, resulting in a 50% reduction in the use of bleach, a 30% reduction in textile 'wear' through improved wash processes, a 9.6% reduction in water usage and a 14.8% reduction in rewash rates (well ahead of target).

· Greater responsiveness to customer needs - Progress in this area in 2015 includes implementation of a new 'sale to start up' process to measure systematic workflow and performance and improved delivery performance for additional and replacement garments.

· Improved product visibility through entire service process - Following successful testing on the reliability of reading "Radio Frequency Identification" tags attached to customer garments, we are expanding this pilot to cover a number of branches and key customers. Full track and trace of garments could bring significant customer benefits, improving our operational effectiveness and service quality.

Quadrant Update

We execute our strategy by grouping our business lines and geographies into a four-quadrant matrix based upon growth potential and profit contribution. Each quadrant has a different strategy, designed to maximise performance. Full details of the composition of these quadrants and their strategies can be found on the Company's website and in the Annual Report. Highlights from 2015 are shown below.

http://www.rns-pdf.londonstockexchange.com/rns/0826Q_-2016-2-24.pdf

In 2015 we made good progress in expanding our presence in higher GDP growth markets with revenues in the Growth quadrant rising by 12.0% and Emerging quadrant by 14.0%. This has been driven by acquisitions and good levels of organic growth in Asia (+8.6%), the UK (+4.8%), Germany (+3.2%) and North America (+2.7%). We have continued to actively reduce our exposure in the Manage for Value quadrant (which accounts for just 3% of group revenues and group profit) and we are pleased to have moved a number of businesses from Protect & Enhance into Growth, based on their business performance and market conditions. These include our Ireland and Italy pest control operations and our hygiene operations in the Pacific region.

Acquisitions & Disposals

In line with our strategy we have continued to pursue M&A targets in Growth and Emerging markets and building density in markets in which we are already active. During the year the group acquired 23 businesses (21 in Pest Control) with combined annualised revenues in the 12 months prior to acquisition of £158m. Our primary focus in 2015 was expanding the presence of our Pest Control business in the North American market. In October we completed our purchase of Steritech, one of the leading pest control businesses in North America, operating in both the US and Canada. The business generated revenues of approximately £97m in its last financial year. We also acquired Oliver Exterminating (which complements the Company's existing pest control activities in Arizona and Florida and also provides market entry into Puerto Rico and the Dominican Republic) and Chicago-based Anderson Pest Solutions. Combined annualised revenues for these two companies were approximately £34m in the year prior to acquisition. During the first half of the year we expanded our presence in Central America through the acquisition of Sagrip which gives us access to the main cities in Guatemala and El Salvador.

We acquired a further 17 bolt-ons in Pest Control (along with two small acquisitions in Plants), in the UK, US, Australia, South Korea, South Africa, Poland, Colombia and Brazil. The process of integration is underway and on track with all acquisitions and the pipeline remains strong with further opportunities to create value, particularly in Pest Control.

During the year we exited our loss-making Austrian and Northern Ireland flat linen businesses and four other non-core businesses, predominantly in the Manage for Value quadrant.

We monitor the integration and performance of acquired businesses closely to ensure they meet our financial hurdles and resourcing abilities. Of the 37 acquisitions completed between 1^st July 2013 and 31^st December 2014, two small acquisitions in the Protect and Enhance quadrant are delivering expected returns slightly lower than the quadrant's target hurdle rate. All other deals are delivering expected returns at or above their respective target hurdle level. The group will continue to seek further acquisitions in 2016 particularly within Growth and Emerging markets and the pipeline remains strong. Our targeted annual spend on bolt-on acquisitions is c. £50m.

FINANCIAL REVIEW

Central and regional overheads (at CER)

Central and regional overheads decreased again in 2015 by £3.3m to £62.6m, reflecting continued focus on cost discipline.

Restructuring costs and one-off items - operating (at CER)

Restructuring costs of £8.3m, consisting mainly of redundancy costs, were in line with the prior year (2014: £8.8m).

One-off costs netted to £6.4m (2014: £0.1m) with the costs and asset write-downs associated with the closure of businesses (£14.6m) partially offset by income of £10.8m from the settlement of a legacy legal claim. The majority of the one-off costs were non-cash items, with the net cash impact of one-offs an inflow of £2.7m.

From 2016, with the exception of integration costs for significant acquisitions, we will report restructuring costs within APBITA. We estimate that restructuring costs reported within APBITA in 2016 will be c. £7m. Integration costs associated with significant acquisitions will be reported as one-off costs and excluded from APBITA. In 2016 this will include costs in relation to Steritech which are estimated at c. £5m.

Details of restructuring costs and one-off items (operating) incurred in 2015 are set out in Note 2.

Interest (at AER)

Net interest payable was £39.6m at actual exchange rates compared to £45.3m in the prior year, a decrease of £5.7m. The decrease is primarily due to the prior year including one quarter of interest on a 4.625% €500m bond which was repaid at the end of Q1 2014. Debt from the Steritech acquisition added c. £1.5m to interest in the final quarter. The full year included a £1.5m benefit from the strengthening of Sterling against the Euro. The average cost of gross debt for the group is less than 4% and this will fall further to c.3.5% following the refinancing of the 5.75% £300m bond in March 2016.

Tax (at AER)

The income tax expense for the year at actual exchange rates was £34.7m on the reported profit before tax of £159.0m. After adjusting profit for the amortisation of intangible assets (excluding computer software), restructuring costs and one-off items and the net interest credit from pensions, the effective tax rate for the year was 23.8% (2014: 23.5%). This compares with a blended rate of tax for the countries in which the group operates of 26% (2014: 26%). The lower adjusted tax rate compared to the blended tax rate is principally due to the benefit of previously unrecognised brought forward tax losses being set off against UK profits and an increase in the deferred tax asset recognised on the UK tax losses.

Net debt and cash flow (at AER)

£m at actual exchange rates	Year to Date
	2015 FY £m	2014 FY £m	Change £m

Adjusted operating profit¹	232.9	232.2	0.7
Restructuring costs	(7.9)	(8.8)	0.9
One-off items - operating	(5.4)	(0.1)	(5.3)
Depreciation	172.7	187.6	(14.9)
Other non-cash	10.8	(1.9)	12.7
EBITDA	403.1	409.0	(5.9)
Working capital	(0.7)	(4.4)	3.7
Movement on provisions	(7.0)	(16.5)	9.5
Capex - additions	(181.4)	(191.6)	10.2
Capex - disposals	6.7	13.0	(6.3)
Operating cash flow - continuing operations	220.7	209.5	11.2
Interest	(44.2)	(49.5)	5.3
Tax	(27.9)	(30.1)	2.2
Special pension contributions	(0.9)	(1.0)	0.1
Free cash flow - continuing operations	147.7	128.9	18.8
Free cash flow - discontinued operations	(0.9)	(41.1)	40.2
Free cash flow	146.8	87.8	59.0
Acquisitions	(369.2)	(68.1)	(301.1)
Disposal of companies and businesses	0.8	256.0	(255.2)
Restricted cash disposed of with companies and businesses	-	(16.7)	16.7
Dividends	(48.9)	(43.2)	(5.7)
Foreign exchange translation and other items	18.9	44.0	(25.1)
(Increase) / decrease in net debt	(251.6)	259.8	(511.4)
Opening net debt	(775.0)	(1,034.8)	259.8
Closing net debt	(1,026.6)	(775.0)	(251.6)

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

The business delivered a strong operating cash inflow (£220.7m at AER for continuing operations). This was £11.2m favourable to 2014 reflecting income from the settlement of a legacy legal claim (£10.8m) and reduced working capital outflows, with adverse exchange impacts in EBITDA broadly offsetting favourable exchange impacts in capital expenditure.

Capital expenditure from continuing operations of £181.4m was £10.2m lower than 2014 in part due to exchange rate movements and phasing of certain projects from 2015 into 2016.

Interest payments (including finance lease interest) were £5.3m lower than last year at £44.2m, principally due to the phasing of interest payments and a lower P&L interest charge following the bond refinancing in 2014. This, combined with a £2.2m reduction in cash tax paid, resulted in free cash inflow from continuing operations of £147.7m, which was £18.8m favourable on the prior year.

Cash spent on acquisitions totalled £369.2m and the Company made dividend payments of £48.9m in 2015 (a 13.2% increase on the prior year). Foreign exchange translation and other items reduced net debt by £18.9m, leaving an overall increase in net debt of £251.6m compared to 31 December 2014 and closing net debt of £1,026.6m.

Pensions (at AER)

At 31 December 2015 the Company's UK defined benefit pension scheme, which is closed to new members, was valued at an accounting surplus of £237.0m on the Company's balance sheet. The trustees value the scheme on a different basis and the most recent triennial actuarial valuation at 31 March 2013 showed that the Scheme was 98.7% funded with a deficit of £17.8m. A recovery plan was agreed with contributions of £3.2m per annum over a six-year period being paid into a joint escrow account by the Company. The first payment was made in October 2014 and the escrow balance was £6.4m at 31 December 2015. In the event that the deficit is not cleared by the time of the 31 March 2019 valuation, it will be funded from the escrow account. Based on movements since 31 March 2013 the Scheme is now estimated to be effectively fully funded. An interim valuation of the Scheme is being carried out at 31 December 2015 and the current recovery plan will be discussed by the Company and the Trustee later in the year in light of the strong funding position.

Funding (at AER)

At 31 December 2015 the group had net debt of £1,026.6m. The group has over £150m of centrally held funds and £370m of available undrawn committed facilities which are available to fund the £300m bond maturing in March 2016. The ratio of net debt to EBITDA at the Year End was 2.5x. The Company's credit rating post the acquisition of Steritech has been reaffirmed at BBB. Based on our expectations for the coming year, our strong cash flow projections for 2016 and into 2017 and the progress we are making with the Steritech integration, we are confident of maintaining the credit rating at our committed BBB level.

The Directors continue to adopt the going concern basis in preparing the accounts on the basis that the group's strong liquidity position and ability to reduce capital expenditure or expenditure on bolt-on acquisitions are sufficient to meet the group's forecast funding needs, including those modelled in a downside case.

Dividend

Following an encouraging performance in 2015, and in anticipation of further progress in 2016, the Board is recommending a final dividend in respect of 2015 of 2.06p per share, payable to shareholders on the register at the close of business on 8 April 2016 to be paid on 18 May 2016. This equates to a full year dividend of 2.93p per share, an increase of 13.1% compared to 2014.

GUIDANCE FOR 2016 (at CER unless otherwise stated)

Central and divisional overheads are anticipated to be in line with 2015. As noted above, with the exception of integration costs for significant acquisitions, we will report restructuring costs within APBITA. We estimate that restructuring costs reported within APBITA in 2016 will be c. £7m. Integration costs associated with significant acquisitions will be reported as one-off costs and excluded from APBITA. In 2016 this will include costs in relation to Steritech which are estimated at c. £5m. Interest costs are estimated at £37m, reflecting the impact of the Company's recent refinancings (cash interest will be around £12m higher than the P&L impact, reflecting the timing of interest payments). During 2015 adjusted profit before tax at actual exchange rates was negatively impacted by £17m due to the continued strength of Sterling. Global exchange rate movements remain very volatile. Since the end of the 2015, Sterling has weakened significantly against both the Dollar and the Euro. If current exchange rates were to continue for the rest of the year we estimate that there would be a favourable impact on APBTA in the region of £15m. Our current estimate for adjusted effective tax rate is around 24% (2015: 23.8%) with cash tax payable in the region of £35m. Working capital outflow is anticipated to be around £10m, with net capex in the region of £200m. The group is targeting free cashflow in excess of £110m. Cash spend on acquisitions is expected to be c. £50m.

Outlook for 2016

2015 has been a year of further improvement at Rentokil Initial. We have continued to execute our differentiated strategy to drive profitable growth with both focus and pace. This year we have delivered ongoing revenue growth of 6.5%, profit growth from ongoing operations of 8.5% and free cash flow of £148m.

We have also achieved a step change in the scale of our presence in Growth markets through the acquisitions of Steritech, Anderson Pest Solutions and Oliver Exterminating, cementing our position as the number three player in North America, the world's largest pest control market. We will continue to pursue high-quality pest control businesses to infill locally and build further density and margins, particularly in Emerging and Growth markets.

Prospects in the majority of our markets are good and, while conditions in France and Benelux remain difficult, we are confident of making further progress in the coming year.

Appendix 1

Regional Analysis - ongoing operations

	Revenue				Adjusted operating profit
£m	12 months to 31 December 2015		Change from FY 2014		12 months to 31 December 2015		Change from FY 2014
	CER	AER	CER	AER	CER	AER	CER	AER

France	334.0	301.8	(3.4%)	(12.7%)	51.7	46.7	(19.7%)	(27.5%)
Benelux	211.2	190.7	(1.1%)	(10.7%)	38.7	34.9	1.6%	(8.4%)
Germany	184.4	168.6	3.2%	(5.6%)	47.8	43.8	7.4%	(1.6%)
Southern Europe	67.5	61.0	5.3%	(4.8%)	11.1	10.1	2.8%	(6.5%)
Latin America	22.3	19.1	33.5%	14.4%	3.1	2.8	63.2%	47.4%
Total Europe	819.4	741.2	0.1%	(9.5%)	152.4	138.3	(4.6%)	(13.4%)
UK & Ireland	225.2	223.6	15.5%	14.7%	45.2	42.5	19.6%	12.4%
Rest of World	117.1	106.9	4.4%	(4.7%)	26.9	24.7	2.3%	(6.1%)
UK & Rest of World	342.3	330.5	11.5%	7.6%	72.1	67.2	12.5%	4.8%
Asia	108.1	106.5	11.3%	9.7%	10.2	9.4	27.5%	17.5%
North America	407.9	436.5	16.8%	25.0%	52.6	56.4	28.6%	37.9%
Pacific	136.2	123.2	4.3%	(5.7%)	28.1	25.5	7.3%	(2.7%)
Central and regional overheads	-	-	-	-	(62.6)	(62.5)	5.0%	5.2%
Ongoing operations	1,813.9	1,737.9	6.5%	2.1%	252.8	234.3	8.5%	0.6%
Disposed businesses	23.3	21.1	(38.5%)	(44.3%)	(1.6)	(1.4)	(100.0%)	(75.0%)
Continuing operations	1,837.2	1,759.0	5.5%	1.0%	251.2	232.9	8.2%	0.3%

Appendix 2

Category Analysis - ongoing operations

	Revenue				Adjusted operating profit
£m	12 months to 31 December 2015		Change from FY 2014		12 months to 31 December 2015		Change from FY 2014
	CER	AER	CER	AER	CER	AER	CER	AER

Pest Control	791.3	787.1	13.1%	12.5%	151.5	147.6	14.2%	11.2%
Hygiene	457.9	425.5	2.6%	(4.7%)	89.6	82.8	1.2%	(6.4%)
Workwear	384.0	347.1	(3.2%)	(12.5%)	51.5	46.5	(16.9%)	(25.0%)
Other	180.7	178.2	12.4%	10.9%	22.8	19.9	45.2%	26.8%
Central and regional overheads	-	-	-	-	(62.6)	(62.5)	5.0%	5.2%
Ongoing operations	1,813.9	1,737.9	6.5%	2.1%	252.8	234.3	8.5%	0.6%
Disposed businesses	23.3	21.1	(38.5%)	(44.3%)	(1.6)	(1.4)	(100.0%)	(75.0%)
Continuing operations	1,837.2	1,759.0	5.5%	1.0%	251.2	232.9	8.2%	0.3%

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December

	Notes	2015 £m	2014 £m
Revenue	2	1,759.0	1,740.8
Operating profit		187.8	202.1
Finance income	4	16.3	13.4
Finance cost	3	(49.8)	(56.2)
Share of profit from associates, net of tax of £2.7m (2014: £2.8m)		4.7	3.9
Profit before income tax		159.0	163.2
Income tax expense¹	5	(34.7)	(37.1)
Profit for the year from continuing operations		124.3	126.1
Discontinued operations:
Profit for the year from discontinued operations		-	135.4
Profit for the year attributable to the Company's equity holders (including non-controlling interests of £nil (2014: £0.3m))		124.3	261.5
Other comprehensive income:
Items that are not reclassified subsequently to the income statement:
Re-measurement of net defined benefit asset		37.2	114.3
Tax related to items taken to other comprehensive income		(5.9)	(19.9)
Items that may be reclassified subsequently to the income statement:
Net exchange adjustments offset in reserves		3.0	17.7
Other items		0.2	0.5
Total comprehensive income for the year (including non-controlling interests of £nil (2014: £0.3m))		158.8	374.1
Earnings per share attributable to the Company's equity holders:
Basic	6	6.83p	6.96p*
Diluted	6	6.81p	6.95p*
* 2014 earnings per share including discontinued operations is 14.41p basic and 14.39p diluted.
Non-GAAP measures²
Operating profit		187.8	202.1
Adjusted for:
Amortisation and impairment of intangible assets³	2	31.8	21.2
Restructuring costs	2	7.9	8.8
One-off items - operating	2	5.4	0.1
Adjusted operating profit		232.9	232.2
Finance income	4	16.3	13.4
Add back: Net interest credit from pensions	13	(6.1)	(2.5)
Finance cost	3	(49.8)	(56.2)
Share of profit from associates, net of tax of £2.7m (2014: £2.8m)		4.7	3.9
Adjusted profit before income tax		198.0	190.8
Adjusted Basic Earnings per share attributable to the Company's equity holders	6	8.29p	8.05p

¹ taxation includes £30.4m (2014: £37.1m) in respect of overseas taxation

² the group reports a number of additional performance measures that are designed to assist with the understanding of the underlying performance of the group (not defined under IFRS). Such measures include adjusted operating profit, adjusted profit before income tax and adjusted earnings per share. Restructuring costs and one-off items 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.

³ excluding computer software

Consolidated Balance Sheet

At 31 December

	Notes	2015 £m	2014 £m
Assets
Non-current assets
Intangible assets	8	818.3	431.3
Property, plant and equipment	9	477.1	505.5
Investments in associated undertakings		17.7	14.4
Other investments		0.1	0.1
Deferred tax assets		2.0	3.5
Retirement benefit assets	13	237.0	192.2
Other receivables		8.5	11.5
Derivative financial instruments		1.4	1.4
		1,562.1	1,159.9
Current assets
Other investments		99.3	51.4
Inventories		55.7	58.9
Trade and other receivables		329.8	314.5
Current tax assets		10.5	6.0
Derivative financial instruments		0.8	0.6
Cash and cash equivalents	10,11	102.6	197.1
		598.7	628.5
Liabilities
Current liabilities
Trade and other payables		(404.4)	(382.0)
Current tax liabilities		(73.3)	(71.8)
Provisions for other liabilities and charges	14	(20.6)	(24.5)
Bank and other short-term borrowings	10	(332.6)	(31.1)
Derivative financial instruments	10	(21.7)	(6.7)
		(852.6)	(516.1)
Net current (liabilities)/assets		(253.9)	112.4
Non-current liabilities
Other payables		(15.4)	(12.9)
Bank and other long-term borrowings	10	(865.4)	(976.1)
Deferred tax liabilities		(112.8)	(78.3)
Retirement benefit obligations	13	(24.1)	(25.8)
Provisions for other liabilities and charges	14	(60.8)	(59.8)
Derivative financial instruments	10	(17.6)	(19.4)
		(1,096.1)	(1,172.3)
Net assets		212.1	100.0
Equity
Capital and reserves attributable to the Company's equity holders
Share capital	15	18.2	18.2
Share premium account		6.8	6.8
Other reserves		(1,768.8)	(1,772.0)
Retained profits		1,956.1	1,847.2
		212.3	100.2
Non-controlling interests		(0.2)	(0.2)
Total equity		212.1	100.0

Consolidated Statement of Changes in Equity

For the year ended 31 December

	Attributable to equity holders of the Company
	Called up share capital £m	Share premium account £m	Other reserves £m	Retained earnings £m	Non- controlling interests £m	Total equity £m
At 1 January 2014	18.2	6.8	(1,790.2)	1,533.1	0.1	(232.0)
Profit for the year	-	-	-	261.8	(0.3)	261.5
Other comprehensive income:
Net exchange adjustments offset in reserves	-	-	17.7	-	-	17.7
Re-measurement of net defined benefit asset/liability	-	-	-	114.3	-	114.3
Effective portion of changes in fair value of cash flow hedge	-	-	(0.1)	-	-	(0.1)
Cumulative foreign exchange recycled to income statement on disposal of foreign operations	-	-	0.6	-	-	0.6
Tax related to items taken directly to other comprehensive income	-	-	-	(19.9)	-	(19.9)
Total comprehensive income for the year	-	-	18.2	356.2	(0.3)	374.1
Transactions with owners:
Dividends paid to equity shareholders	-	-	-	(43.2)	-	(43.2)
Cost of share options and long-term incentive plan	-	-	-	1.1	-	1.1
At 31 December 2014	18.2	6.8	(1,772.0)	1,847.2	(0.2)	100.0
Profit for the year	-	-	-	124.3	-	124.3
Other comprehensive income:
Net exchange adjustments offset in reserves	-	-	3.0	-	-	3.0
Re-measurement of net defined benefit asset/liability	-	-	-	37.2	-	37.2
Effective portion of changes in fair value of cash flow hedge	-	-	0.2	-	-	0.2
Tax related to items taken directly to other comprehensive income	-	-	-	(5.9)	-	(5.9)
Total comprehensive income for the year	-	-	3.2	155.6	-	158.8
Transactions with owners:
Dividends paid to equity shareholders	-	-	-	(48.9)	-	(48.9)
Cost of share options and long-term incentive plan	-	-	-	2.2	-	2.2
At 31 December 2015	18.2	6.8	(1,768.8)	1,956.1	(0.2)	212.1

Treasury shares of £6.4m (2014: £10.9m) have been netted against retained earnings. Treasury shares represent 3.5m (2014: 5.9m) shares held by the Rentokil Initial Employee Share Trust. The market value of these shares at 31 December 2015 was £5.6m (2014: £7.1m). Dividend income from, and voting rights on, the shares held by the Trust have been waived.

Consolidated Statement of Changes in Equity (continued)

For the year ended 31 December

Analysis of other reserves

	Capital reduction reserve £m	Legal reserve £m	Cash flow hedge reserve £m	Translation reserve £m	Total £m
At 1 January 2014	(1,722.7)	10.4	0.1	(78.0)	(1,790.2)
Net exchange adjustments offset in reserves	-	-	-	17.7	17.7
Effective portion of changes in fair value of cash flow hedge	-	-	(0.1)	-	(0.1)
Cumulative exchange recycled to income statement on disposal of foreign operations	-	-	-	0.6	0.6
Total comprehensive (expense)/income for the year	-	-	(0.1)	18.3	18.2
At 31 December 2014	(1,722.7)	10.4	-	(59.7)	(1,772.0)
Net exchange adjustments offset in reserves	-	-	-	3.0	3.0
Effective portion of changes in fair value of cash flow hedge	-	-	0.2	-	0.2
Total comprehensive income for the year	-	-	0.2	3.0	3.2
At 31 December 2015	(1,722.7)	10.4	0.2	(56.7)	(1,768.8)

The capital reduction reserve arose in 2005 as a result of the scheme of arrangement of Rentokil Initial 1927 plc, under section 425 of the Companies Act 1985, to introduce a new holding company, Rentokil Initial plc, and the subsequent reduction in capital approved by the High Court whereby the nominal value of each ordinary share was reduced from 100p to 1p.

The legal reserve represents amounts set aside in compliance with local laws in certain countries in which the group operates.

Consolidated Cash Flow Statement

For the year ended 31 December

Notes		2015 £m	2014 £m
Cash flows from operating activities
Cash generated from operating activities		391.4	347.0
Interest received		10.2	10.9
Interest paid		(53.7)	(59.6)
Income tax paid		(27.9)	(30.1)
Net cash flows from operating activities		320.0	268.2
Cash flows from investing activities
Purchase of property, plant and equipment		(159.2)	(173.1)
Purchase of intangible fixed assets		(13.1)	(12.0)
Proceeds from sale of property, plant and equipment		6.7	6.3
Proceeds from sale of investment properties		-	6.8
Acquisition of companies and businesses, net of cash acquired	18	(369.2)	(68.1)
Disposal of companies and businesses		0.8	256.0
Cash disposed of with companies and businesses		-	(16.7)
Dividends received from associates		2.1	1.7
Net cash flows from investing activities		(531.9)	0.9
Cash flows from financing activities
Dividends paid to equity shareholders	7	(48.9)	(43.2)
Interest element of finance lease payments		(0.7)	(0.8)
Capital element of finance lease payments		(9.1)	(8.1)
Cash outflow on settlement of debt related foreign exchange forward contracts		(2.4)	(3.1)
Net investment in term deposits		(47.8)	240.7
Proceeds from new debt		232.8	1.1
Non-controlling interest in acquisition		0.3	-
Bond repayments		(0.3)	(390.6)
Net cash flows from financing activities		123.9	(204.0)
Net (decrease)/increase in cash and cash equivalents		(88.0)	65.1
Cash and cash equivalents at beginning of year		194.1	143.4
Exchange losses on cash and cash equivalents		(5.6)	(14.4)
Cash and cash equivalents at end of the financial year		100.5	194.1

Notes to the financial statements

1. Changes in accounting policies

The group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with effect from 1 January 2015:

· Defined Benefit Plans: Employee Contributions - amendments to IAS 19

· Annual Improvements to IFRSs 2010-2012 cycle and 2011-2013 cycle - amendments to IFRS 1, 2, 3, 8 and 13 and IAS 16,24,38 and 40

The application of these amendments has had no material impact on the disclosures of the amounts recognised in the group's consolidated financial statements. Consequently, no adjustment has been made to the comparative financial information at 31 December 2014.

The group has not early adopted any standard, interpretation or amendment that was issued but is not yet effective.

2. Segmental information

Segmental information has been presented in accordance with IFRS 8 Operating Segments. Reporting segments reflect the internal management organisation and reporting structures. Each segment is headed by a Regional Managing Director who reports directly to the Chief Executive and is a member of the Company Executive Board responsible for the review of group performance. The operating businesses within each segment report to the Regional Managing Directors.

Profit is shown before amortisation and impairment of intangible assets (excluding computer software) and restructuring costs and one-off items 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. Revenue and profit excludes revenue and profit from businesses disposed or closed but includes revenue and profit from acquisitions. Constant exchange rates (CER) are used to assist with the year on year comparisons.

	Revenue 2015 £m	Revenue 2014 £m	Operating profit 2015 £m	Operating profit 2014 £m
France	334.0	345.9	51.7	64.4
Benelux	211.2	213.6	38.7	38.1
Germany	184.4	178.6	47.8	44.5
Southern Europe	67.5	64.1	11.1	10.8
Latin America	22.3	16.7	3.1	1.9
Europe	819.4	818.9	152.4	159.7
UK & Ireland	225.2	194.9	45.2	37.8
Rest of World	117.1	112.2	26.9	26.3
UK & Rest of World	342.3	307.1	72.1	64.1
Asia	108.1	97.1	10.2	8.0
North America	407.9	349.2	52.6	40.9
Pacific	136.2	130.6	28.1	26.2
Central and divisional costs	-	-	(62.6)	(65.9)
Ongoing operations at constant exchange rates	1,813.9	1,702.9	252.8	233.0
Disposed businesses¹	23.3	37.9	(1.6)	(0.8)
Continuing operations at constant exchange rates	1,837.2	1,740.8	251.2	232.2
Foreign exchange	(78.2)	-	(18.3)	-
Continuing operations at actual exchange rates	1,759.0	1,740.8	232.9	232.2
Restructuring costs			(7.9)	(8.8)
One-off items - operating			(5.4)	(0.1)
Amortisation of intangible assets²			(29.6)	(21.2)
Impairment of goodwill			(2.2)	-
Operating profit			187.8	202.1

2. Segmental information (continued)

	Operating profit 2015 £m	Operating profit 2014 £m
Interest payable and similar charges	(49.8)	(56.2)
Interest receivable	10.2	10.9
Net interest credit from pensions	6.1	2.5
Share of profit from associates (net of tax) - Asia	4.7	3.9
Profit before income tax	159.0	163.2

¹disposed businesses are those businesses that have been disposed or closed and therefore are not included as an ongoing operation

²excluding computer software

	Amortisation and impairment of intangibles¹	Amortisation and impairment of intangibles¹	Restructuring costs	Restructuring costs	One-off items	One-off items
	2015 £m	2014 £m	2015 £m	2014 £m	2015 £m	2014 £m
Europe	6.9	5.7	6.0	4.0	13.1	(1.0)
UK & Rest of World	6.3	2.8	0.1	0.8	2.6	0.9
Asia	1.5	1.0	-	0.2	-	0.2
North America	14.8	10.0	1.1	1.5	1.4	(0.2)
Pacific	0.4	0.2	0.1	1.3	0.3	0.1
Central & Regional	1.9	1.5	1.0	1.0	(11.0)	0.1
Total at constant exchange rates	31.8	21.2	8.3	8.8	6.4	0.1
Foreign exchange	-	-	(0.4)	-	(1.0)	-
Total at actual exchange rates	31.8	21.2	7.9	8.8	5.4	0.1
Tax effect	(9.1)	(6.8)	(2.2)	(1.7)	(2.3)	0.3
Total after tax effect	22.7	14.4	5.7	7.1	3.1	0.4

¹excluding computer software

Restructuring costs includes £6.0m for restructuring initiatives in Europe (£4.1m of which relates to France), £1.1m for integration costs in North America, and £0.4m net cost of restructuring the UK pension scheme. One-off items includes £9.0m for the costs associated with the closure of the Austrian flat linen business (Europe), £5.6m for costs associated with the withdrawal from certain other non-core businesses, and £3.0m for acquisition costs (the majority of which were in North America); offset by £10.8m related to the net income from the settlement of a legal claim (Central & Regional).

3. Interest payable and similar charges

	2015 £m	2014 £m
Hedged interest payable on medium term notes issued¹	33.9	40.7
Interest payable on bank loans and overdrafts¹	0.9	1.2
Interest payable on revolving credit facility¹	2.8	1.4
Interest payable on foreign exchange swaps	10.2	9.9
Interest payable on finance leases	0.7	0.8
Amortisation of discount on provisions	0.5	1.1
Foreign exchange loss on translation of foreign denominated loan²	-	0.2
Fair value loss on other derivatives^3,4	0.8	0.9
Total interest payable and similar charges	49.8	56.2

¹ interest expense on financial liabilities held at amortised cost

² comprises translation gain on financing instruments of £250.3m, offset by losses of £250.2m (reported in Note 4) (2014: losses of £195.1m offset by gains of £194.9m)

³ loss on financial assets/liabilities at fair value through the income statement.

⁴ the fair value loss on other derivatives includes fair value losses relating to interest rate swaps.

4. Interest receivable

Interest income is recognised on a time-apportioned basis using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant.

	2015 £m	2014 £m
Bank interest	1.7	2.0
Interest receivable on foreign exchange swaps	8.0	8.3
Fair value gain on other derivatives^1,2	0.4	0.6
Foreign exchange gain on translation of foreign denominated assets and liabilities³	0.1	-
Interest on net defined benefit asset	6.1	2.5
Total interest receivable	16.3	13.4

¹ gain on financial assets/liabilities at fair value through the income statement

² the fair value gain on other derivatives includes fair value gains relating to interest rate swaps

³ comprises translation gain on financing instruments of £250.3m, offset by losses of £250.2m (2014: losses of £195.1m offset by gains of £194.9m (reported in Note 3))

5. Income tax expense

	2015 £m	2014 £m
Analysis of charge in the year
UK corporation tax at 20.25% (2014: 21.5%)	2.2	1.7
Overseas taxation	24.4	32.6
Adjustment in respect of previous periods	5.7	5.1
Total current tax	32.3	39.4
Deferred tax debit/(credit)	4.6	(4.6)
Deferred tax adjustment in respect of previous periods	(2.2)	2.3
Total deferred tax	2.4	(2.3)
Total income tax expense	34.7	37.1

A deferred tax asset of £26.1m (2014: £24.7m) has been recognised in respect of UK losses carried forward at 31 December 2015. This amount has been calculated by estimating the future UK taxable profits, against which the UK tax losses will be utilised, and applying the tax rates (substantively enacted as at the balance sheet date) applicable for each year. Remaining UK tax losses of £155.5m have not been recognised as at 31 December 2015.

In the 2015 Summer Budget the Chancellor announced a reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and 18% (effective from 1 April 2020) and these rates were substantively enacted on 26 October 2015. The UK deferred tax liability at 31 December 2015 has been calculated based on the corporation tax rate that is expected to apply when the liability is settled.

6. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the year, excluding those held in the Rentokil Initial Employee Share Trust for UK employees (see note at the bottom of the consolidated statement of changes in equity) which are treated as cancelled, and including share options for which all conditions have been met.

Adjusted earnings per share is the basic earnings per share adjusted for the after-tax effects of restructuring costs and one-off items, amortisation and impairment of intangibles¹ and net interest credit from pensions.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all potential dilutive ordinary shares. The group has two types of potential dilutive ordinary shares - those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period, and the contingent issuable shares under the group's long-term incentive share plans to the extent the performance conditions have been met at the end of the period.

Details of the adjusted earnings per share are set out below:

	2015 £m	2014 £m
Profit from continuing operations attributable to equity holders of the Company	124.3	126.4
Restructuring costs and one-off items, amortisation and impairment of intangibles¹, and net interest credit from pensions, before tax	39.0	27.6
Tax on restructuring costs and one-off items of £4.5m (2014: £1.4m) , amortisation and impairment of intangibles of £9.1m (2014: £6.8m), and net interest credit from pensions of £(1.1)m (2014: £(0.5)m)	(12.5)	(7.7)
Adjusted profit from continuing operations attributable to equity holders of the Company	150.8	146.3

Weighted average number of ordinary shares in issue	1,819.2	1,817.1
Adjustment for share options and LTIPs	7.5	2.5
Weighted average number of ordinary shares for diluted earnings per share	1,826.7	1,819.6

	2015	2014
Basic earnings per share	6.83p	6.96p
Diluted earnings per share	6.81p	6.95p
Basic adjusted earnings per share	8.29p	8.05p
Diluted adjusted earnings per share	8.26p	8.04p

¹ excluding computer software

7. Dividends

Dividend distribution to the Company's shareholders is recognised as a liability in the group's financial statements in the period in which the dividends are approved by the Company's shareholders. Interim dividends are recognised when paid.

	2015 £m	2014 £m
2013 final dividend paid - 1.61p per share	-	29.2
2014 interim dividend paid - 0.77p per share	-	14.0
2014 final dividend paid - 1.82p per share	33.1	-
2015 interim dividend paid 0.87p per share	15.8	-
	48.9	43.2

An interim dividend of 0.87p per share was paid on 16 September 2015 amounting to £15.8m. A dividend in respect of 2015 of 2.06p (2014: 1.82p) per 1p share amounting to £37.4m (2014: £33.1m) is to be proposed at the annual general meeting on 11 May 2016. These financial statements do not reflect this recommended dividend.

8. Intangible assets

	Goodwill £m	Customer lists and relationships £m	Brands £m	Product development £m	Computer software £m	2015 Total £m	2014 Total £m
Cost
At 1 January	317.0	456.6	34.4	9.5	84.7	902.2	898.5
Exchange differences	0.2	(9.7)	0.9	-	(1.9)	(10.5)	(11.1)
Additions	-	-	-	2.7	10.4	13.1	11.8
Disposals/retirements	-	-	-	-	(8.4)	(8.4)	(3.0)
Acquisition of companies and businesses	306.9	95.3	9.8	-	1.9	413.9	74.4
Disposal of companies and businesses	(0.7)	(2.8)	-	-	-	(3.5)	(68.4)
At 31 December	623.4	539.4	45.1	12.2	86.7	1,306.8	902.2
Accumulated amortisation and impairment
At 1 January	(26.0)	(370.4)	(20.3)	(1.7)	(52.5)	(470.9)	(473.5)
Exchange differences	1.4	11.0	(0.3)	-	1.4	13.5	9.2
Disposals/retirements	-	-	-	-	7.6	7.6	2.2
Acquisition of companies and businesses	-	-	-	-	-	-	(0.1)
Disposal of companies and businesses	0.7	2.8	-	-	-	3.5	26.0
Impairment charge	(2.2)	-	-	-	-	(2.2)	(2.3)
Amortisation charge	-	(24.8)	(3.3)	(1.5)	(10.4)	(40.0)	(32.4)
At 31 December	(26.1)	(381.4)	(23.9)	(3.2)	(53.9)	(488.5)	(470.9)
Net book value
At 1 January	291.0	86.2	14.1	7.8	32.2	431.3	425.0
At 31 December	597.3	158.0	21.2	9.0	32.8	818.3	431.3

9. Property, plant and equipment

	Land and buildings £m	Service contract equipment £m	Other plant and equipment £m	Vehicles and office equipment £m	2015 Total £m	2014 Total £m
Cost
At 1 January	144.6	639.7	233.7	202.8	1.220.8	1,365.9
Exchange differences	(7.7)	(38.5)	(13.5)	(7.6)	(67.3)	(66.5)
Additions	4.2	129.5	12.9	21.2	167.8	178.9
Disposals	(5.1)	(95.8)	(2.4)	(19.8)	(123.1)	(229.1)
Acquisition of companies and businesses	0.2	-	0.4	5.1	5.7	8.0
Disposal of companies and businesses	-	-	-	(0.1)	(0.1)	(36.4)
At 31 December	136.2	634.9	231.1	201.6	1,203.8	1,220.8
Accumulated depreciation and impairment
At 1 January	(41.0)	(394.3)	(158.9)	(121.1)	(715.3)	(828.8)
Exchange differences	2.5	24.7	9.4	4.9	41.5	41.8
Disposals	2.3	93.8	2.2	18.4	116.7	222.2
Acquisition of companies and businesses	-	-	-	-	-	(3.1)
Disposal of companies and businesses	-	-	-	0.1	0.1	28.3
Impairment	(3.5)	(1.9)	(1.7)	(0.3)	(7.4)	-
Depreciation charge	(4.4)	(115.9)	(14.4)	(27.6)	(162.3)	(175.7)
At 31 December	(44.1)	(393.6)	(163.4)	(125.6)	(726.7)	(715.3)
Net book value
At 1 January	103.6	245.4	74.8	81.7	505.5	537.1
At 31 December	92.1	241.3	67.7	76.0	477.1	505.5

10. Financing

Fair value estimation

All financial instruments held at fair value are classified by reference to the source of inputs used to derive the fair value. The following hierarchy is used:

Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices that are observable for the asset or liability either directly as prices or indirectly through modelling based on prices;

Level 3 - inputs for the asset or liability that are not based on observable market data.

The group uses the following methods to estimate fair value of its financial instruments:

Financial instrument	Hierarchy level	Valuation method
Financial assets traded in active markets	1	Current bid price
Financial liabilities traded in active markets	1	Current ask price
Borrowings not traded in active markets	2	Cash flows discounted at current market rates
Long-term debt	1	Quoted market prices or dealer quotes for similar instruments
Interest rate/currency swaps	1	Market swap rates at the balance sheet date
Forward foreign exchange contracts	1	Forward exchange market rates at the balance sheet date
Financial instruments not traded in active markets	2 or 3	Valuation assumptions based on market conditions at the balance sheet date
Trade payables and receivables	3	Nominal value less estimated credit adjustments
Other financial instruments	3	Variety of techniques including discounted cash flows

The tables below compare the fair value and carrying amounts for financial assets and liabilities. The table also reconciles the group's accounting categorisation of financial assets and liabilities (based on initial recognition) to the classes of assets and liabilities as shown on the face of the balance sheet.

10. Financing (continued)

			Contractual cash inflows/(outflows)
	Fair value	Carrying amount		Total contractual cash flows	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
	£m	£m		£m	£m	£m	£m	£m
At 31 December 2015 Financial assets
Fair value through income statement
Derivative financial instruments	2.2	2.2		2.5	0.9	0.1	1.5	-
Loans and receivables
Cash and cash equivalents	102.6	102.6		102.6	102.6	-	-	-
Other investments	99.3	99.3		99.3	99.3	-	-	-
Available-for-sale
Other investments	0.1	0.1		0.1	-	-	-	0.1
	204.2	204.2		204.5	202.8	0.1	1.5	0.1
Financial liabilities
Fair value through income statement
Derivative financial instruments	(39.3)	(39.3)		(44.1)	(25.0)	(6.3)	(12.8)	-
Financial liabilities at amortised cost
Bank overdraft	(2.1)	(2.1)		(2.1)	(2.1)	-	-	-
Bank loans	(199.4)	(199.4)		(199.4)	(0.6)	(0.2)	(198.6)	-
Bond debt	(1,016.4)	(972.3)		(1,072.8)	(338.0)	(20.7)	(450.6)	(263.5)
Finance lease liabilities	(24.2)	(24.2)		(24.7)	(9.3)	(7.5)	(7.9)	-
	(1,281.4)	(1,237.3)		(1,343.1)	(375.0)	(34.7)	(669.9)	(263.5)
At 31 December 2014 Financial assets
Fair value through income statement
Derivative financial instruments	2.0	2.0		2.0	0.7	1.3	-	-
Loans and receivables
Cash and cash equivalents	197.1	197.1		197.1	197.1	-	-	-
Other investments	51.4	51.4		51.4	51.4	-	-	-
Available- for- sale
Other investments	0.1	0.1		0.1	-	-	-	0.1
	250.6	250.6		250.6	249.2	1.3	-	0.1
Financial liabilities
Fair value through income statement
Derivative financial instruments	(26.1)	(26.1)		(33.4)	(9.8)	(11.8)	(11.8)	-
Financial liabilities at amortised cost
Bank overdraft	(3.0)	(3.0)		(3.0)	(3.0)	-	-	-
Bank loans	(1.5)	(1.5)		(1.5)	(0.2)	(1.3)	-	-
Bond debt	(1,076.1)	(979.3)		(1,123.1)	(39.2)	(339.2)	(454.2)	(290.5)
Finance lease liabilities	(23.4)	(23.4)		(23.4)	(8.1)	(7.0)	(8.3)	-
	(1,130.1)	(1,033.3)		(1,184.4)	(60.3)	(359.3)	(474.3)	(290.5)

11. Cash and cash equivalents

Included within cash at bank and in hand is £12.3m (2014: £9.1m) of restricted cash.

The Group operates pooling arrangements whereby cash balances and overdrafts held within the same bank are offset to give a net balance which is included within cash and cash equivalents on the balance sheet. These cash and bank overdraft figures before netting are shown in the table below:

11. Cash and cash equivalents (continued)

Offsetting financial assets and liabilities

	Gross amounts before offsetting £m	Gross amounts set off £m	Net amounts presented £m
At 31 December 2015
Cash at bank and in hand	560.9	(464.2)	96.7
Short-term bank deposits	5.9	-	5.9
Cash and cash equivalents	566.8	(464.2)	102.6
Bank overdraft	(466.3)	464.2	(2.1)
	100.5	-	100.5
At 31 December 2014
Cash at bank and in hand	1,107.8	(970.9)	136.9
Short-term bank deposits	60.2	-	60.2
Cash and cash equivalents	1,168.0	(970.9)	197.1
Bank overdraft	(973.9)	970.9	(3.0)
	194.1	-	194.1

12. Bank and other borrowings

The group's bank debt comprises:

	Drawn at year end	Interest rate at year end
Non-current
£315m RCF due January 2020 (£45m reserved for guarantees) £200m and $157m term loan due December 2018	- £198.6m	- 1.44%
Average cost of bank debt at year end rates		1.44%

On 27 January 2015 the group signed a £315m Revolving Credit Facility (RCF). This facility is available for cash drawings up to £270m and for guarantees and letters of credit up to £45m. The original maturity date was January 2020, but since the balance sheet date an option to extend the maturity date to January 2021 was granted. The facility incorporates a further option to extend the facility to January 2022. At the year end there were no drawings under the part of the facility available for cash drawings, and £29.7m of the part available for guarantees was utilised.

On 31 August 2015 the group signed a Term Loan, available for cash drawings up to £200m and $157m, with a maturity date of December 2018. At the year end £198.6m (£130m and $102m) was drawn. The cost of borrowing under the group's bank facilities at the year end was 1.44%. The committed borrowing facilities are subject to guarantees by Rentokil Initial 1927 plc.

Medium-term notes and bond debt comprises:

	Bond interest coupon	Effective hedged interest rate
Current
£300m bond due March 2016	Fixed 5.75%	Fixed 4.48%
Non-current
€50m bond due March 2018	Euribor +0.48%	Fixed 0.66%
€500m bond due September 2019	Fixed 3.375%	Fixed 3.50%
€350m bond due October 2021	Fixed 3.25%	Fixed 3.41%
£1.3m perpetual debentures	Fixed 5.00%	Fixed 5.00%
£0.3m perpetual debentures	Fixed 4.50%	Fixed 4.50%
Average cost of bond debt at year end rates		3.69%

On 13 March 2015 the group issued €50m of floating rate notes, maturing 13 March 2018, under its Medium-Term Note Programme with a coupon of 0.48% over Euribor. The notes were swapped into a fixed interest rate of 0.57% per annum on issue.

13. Retirement benefit obligations

Apart from the legally required social security state schemes, the group operates a number of pension schemes around the world covering many of its employees.

The principal pension scheme in the group is the Rentokil Initial 2015 Pension Scheme (RIPS) in the UK (formerly the Rentokil Initial Pension Scheme), which has a number of defined benefit sections, which are now closed to new entrants, and a defined contribution section. The defined benefit scheme is funded through payments to a trustee-administered fund, determined by periodic actuarial calculations.

Actuarial valuations of the UK scheme are usually carried out every three years. At 31 December 2015 RIPS was valued at an accounting surplus of £237.0m (2014: £192.2m) on the group's balance sheet. The trustees of the scheme value the scheme on a different basis and in the valuation at 31 March 2013 a deficit of £17.8m was agreed. It is expected that this deficit will be made good by excess returns above the discount rate over the period to 31 January 2019; however the group will make contributions of £3.2m each year into escrow over this period, subject to a review as part of the actuarial valuation as at 31 March 2016. In the event that the deficit is not cleared by the time of the 31 March 2019 valuation it will be funded from the escrow account. The valuations stated exclude the escrow balance which stands at £6.4m as at 31 December 2015 (31 December 2014: £3.2m). The group continues to recognise the escrow balance as restricted cash.

The group has recognised the pension surplus as an asset because the group has an unconditional right to a refund of the surplus at the end of the Scheme's life.

The defined benefit schemes are reappraised semi-annually by independent actuaries based upon actuarial assumptions in accordance with IAS 19R requirements. The assumptions used for the RIPS scheme are shown below.

	2015	2014
Weighted average %
Discount rate	3.8%	3.4%
Future salary increases	N/A	N/A
Future pension increases	3.3%	3.2%
RPI inflation	3.4%	3.3%
CPI inflation	2.3%	2.2%

The amounts recognised in the balance sheet are determined as follows:

	UK RIPS 2015 £m	Other¹ 2015 £m	Total 2015 £m	UK RIPS 2014 £m	Other¹ 2014 £m	Total 2014 £m
Present value of funded obligations	(1,186.2)	(32.7)	(1,218.9)	(1,318.9)	(33.3)	(1,352.2)
Fair value of plan assets	1,423.2	21.7	1,444.9	1,511.1	21.5	1,532.6
	237.0	(11.0)	226.0	192.2	(11.8)	180.4
Present value of unfunded obligations	-	(13.1)	(13.1)	-	(14.0)	(14.0)
Asset/(liability) in the balance sheet	237.0	(24.1)	212.9	192.2	(25.8)	166.4
Presented on the balance sheet as:
Retirement benefit assets	237.0	-	237.0	192.2	-	192.2
Retirement benefit obligations	-	(24.1)	(24.1)	-	(25.8)	(25.8)
	237.0	(24.1)	212.9	192.2	(25.8)	166.4

The fair value of plan assets at the balance sheet date is analysed as follows:

	UK RIPS 2015 £m	Other¹ 2015 £m	Total 2015 £m	UK RIPS 2014 £m	Other¹ 2014 £m	Total 2014 £m
Equity instruments	288.1	2.0	290.1	352.2	2.1	354.3
Debt instruments - quoted	982.9	-	982.9	930.3	-	930.3
Debt instruments - unquoted	-	10.4	10.4	-	11.0	11.0
Interest and inflation rate hedging instruments	22.8	-	22.8	122.5	-	122.5
Property	-	0.4	0.4	-	0.4	0.4
Other	129.4	8.9	138.3	106.1	8.0	114.1
Total plan assets	1,423.2	21.7	1,444.9	1,511.1	21.5	1,532.6

1 other retirement benefit plans are predominantly made up of defined benefit plans situated in Australia, Belgium, France, Germany, Ireland and Norway.

13. Retirement benefit obligations (continued)

The amounts recognised in the income statement are as follows:

	UK RIPS 2015 £m	Other¹ 2015 £m	Total 2015 £m	UK RIPS 2014 £m	Other¹ 2014 £m	Total 2014 £m
Current service cost	-	0.6	0.6	0.6	0.8	1.4
Past service cost	-	-	-	(0.6)	(0.3)	(0.9)
Settlement credit	(0.8)	-	(0.8)	(0.1)	-	(0.1)
Administration expenses	2.7	-	2.7	1.7	-	1.7
Total operating costs	1.9	0.6	2.5	1.6	0.5	2.1
Interest on net defined benefit (asset)²/liability	(6.5)	0.4	(6.1)	(3.1)	0.6	(2.5)
Total pension (income)/expense	(4.6)	1.0	(3.6)	(1.5)	1.1	(0.4)

¹ other retirement benefit plans are predominantly made up of defined benefit plans situated in Australia, Belgium, France, Germany, Ireland and Norway.

² Interest cost and return on plan assets are charged to net interest credit from pensions

14. Provisions for other liabilities and charges

	Vacant properties £m	Environmental £m	Self- insurance £m	Other £m	2015 Total £m	2014 Total £m
At 1 January	38.7	15.2	20.0	10.4	84.3	92.9
Exchange differences	-	(0.4)	0.7	(0.3)	-	(0.1)
Additional provisions	1.6	2.4	9.7	11.1	24.8	27.5
Used during the year	(8.5)	(2.1)	(9.6)	(7.6)	(27.8)	(28.8)
Unused amounts reversed	(4.6)	(0.4)	(0.5)	(0.1)	(5.6)	(8.9)
Acquisition of companies and businesses	-	-	2.2	3.0	5.2	0.6
Unwinding of discount on provisions	0.4	0.1	-	-	0.5	1.1
At 31 December	27.6	14.8	22.5	16.5	81.4	84.3

Analysed as follows:

Non-current	60.8	59.8
Current	20.6	24.5

Vacant properties

The group has a number of vacant and sub-let leasehold properties, with the majority of the head leases expiring before 2020. Provision has been made for the residual lease commitments together with other outgoings, after taking into account existing sub-tenant arrangements and assumptions relating to later periods of vacancy.

The total future minimum sub-lease payments expected to be received under non-cancellable sub-leases at 31 December 2015 is £1.5m (2014: £1.3m).

Environmental

The group owns a number of properties in Europe and the US where there is land contamination and provisions are held for the remediation of such contamination. These provisions are expected to be substantially utilised within the next ten years.

Self-insurance

Since 2008 the group purchases external insurance from a portfolio of international insurers for its key insurable risks, but prior to this the group self-insured its risks. Provision is still held for self-insured past cover, primarily in relation to workers compensation (US). For the continuing self-insured programmes, individual claims are met in full by the group up to agreed self-insured limits in order to limit volatility in claims. The calculated cost of self-insurance claims is based on an actuarial assessment of claims incurred at the balance sheet date and is accumulated as claims provisions.

Other

Other provisions principally comprise amounts required to cover obligations arising, warranties given and costs relating to disposed businesses and restructuring costs. These provisions are expected to be substantially utilised within the next five years. The above provisions have been discounted where appropriate using discount rates of between 0.9% and 1.4% (2014: between 0.7% and 1.3%) for the UK, 0.5% (2014: 0.6%) for Europe and 2.2% (2014: 2.2%) for the US.

15. Share capital

	2015 £m	2014 £m
Authorised
4,100,000,000 ordinary shares of 1p each	41.0	41.0
Issued and fully paid
At 31 December - 1,822,832,965 shares (2014: 1,822,832,965)	18.2	18.2

16. Reconciliation of net increase/(decrease) in cash and cash equivalents to net debt

	2015 £m	2014 £m
Net (decrease)/increase in cash and cash equivalents	(88.0)	65.1
Movement on finance leases	0.1	(1.2)
Movement on other investments	47.8	(240.7)
Movement on loans	(232.5)	389.5
(Increase)/decrease in debt resulting from cash flows	(272.6)	212.7
Foreign exchange translation and other items	21.0	47.1
Movement on net debt in the year	(251.6)	259.8
Opening net debt	(775.0)	(1,034.8)
Closing net debt	(1,026.6)	(775.0)

17. Operating cash and free cash flow

	2015 £m		2014 £m

Profit for the year	124.3		261.5
Adjustments for:
- Profit on sale of discontinued operations excluding costs of disposal net of tax £nil (2014: £0.4m)		-	(145.6)
- Tax		34.7	37.1
- Share of profit from associates		(4.7)	(3.9)
- Net interest credit from pensions		(6.1)	(2.5)
- Interest income		(10.2)	(10.9)
- Interest expense		49.8	56.2
- Depreciation and impairment of property, plant and equipment		162.3	175.7
- Amortisation and impairment of intangible assets (excluding computer software)		31.8	21.2
- Amortisation and impairment of computer software		10.4	13.0
- Other non-cash items		8.6	(1.5)
Changes in working capital (excluding the effects of acquisitions and exchange differences on consolidation):
- Inventories		2.0	1.6
- Trade and other receivables		(4.8)	(19.9)
- Trade and other payables and provisions		(5.8)	(34.0)
Cash generated from operating activities before special pension contributions		392.3	348.0
Special pension contributions		(0.9)	(1.0)
Cash generated from operating activities		391.4	347.0
Add back: special pension contributions		0.9	1.0
		392.3	348.0
Purchase of property, plant and equipment		(159.2)	(173.1)
Purchase of intangible fixed assets		(13.1)	(12.0)
Leased property, plant and equipment		(9.0)	(9.3)
Proceeds from sale of property, plant and equipment		6.7	6.3
Proceeds from sale of investment properties		-	6.8
Dividends received from associates		2.1	1.7
Operating cash flow¹		219.8	168.4
Interest received		10.2	10.9
Interest paid		(53.7)	(59.6)
Interest element of finance lease payments		(0.7)	(0.8)
Income tax paid		(27.9)	(30.1)
Special pension contributions		(0.9)	(1.0)
Free cash flow		146.8	87.8
Add back: Free cash flow - discontinued operations		0.9	41.1
Free cash flow from continuing operations		147.7	128.9

¹Operating cash flow includes discontinued operations of £(0.9)m (2014: £(41.1)m)

18. Business combinations

During October 2015 the group acquired 100% of the share capital of Steritech, an independent pest control business and market leader in the provision of brand standards auditing services. The acquisition strengthened the group's position as the third largest pest control business in both the US and Canada. The group also purchased during the year 100% of the share capital or trade and assets of 22 other smaller companies and businesses. The total consideration in respect of all acquisitions was £386.0m and the cash outflow from current and past period acquisitions, net of cash acquired, was £369.2m.

From the dates of acquisition to 31 December 2015, these acquisitions contributed £51.3m to revenue and £8.8m to operating profit.

If the acquisitions had occurred on 1 January 2015 the revenue and operating profit of the group would have amounted to £1,865.7m and £204.0m respectively (as reported: £1,759.0m and £187.8m)

Details of goodwill and the fair value of net assets acquired are as follows:

	Steritech 2015 £m	Other 2015 £m	Total 2015 £m	Total 2014 £m
Purchase consideration:
- Cash paid	272.1	87.9	360.0	63.9
- Deferred and contingent consideration	5.7	20.3	26.0	12.9
Total purchase consideration	277.8	108.2	386.0	76.8
Fair value of net assets acquired	(49.0)	(31.3)	(80.3)	(44.4)
Goodwill from current year acquisitions	228.8	76.9	305.7	32.4

Goodwill represents the synergies, workforce and other benefits expected as a result of combining the respective businesses.

Deferred consideration of £10.7m (Steritech £5.7m) is payable over the next 5 years in respect of the above acquisitions. Contingent consideration of £15.1m (Steritech £nil) is payable over the next 5 years based on a variety of conditions including revenue and profit. The group incurred acquisition related costs of £3.0m in respect of the above acquisitions. The group has included the contingent and deferred consideration based on the fair value of the consideration at the acquisition date.

The provisional fair value¹ of assets and liabilities arising from acquisitions in the year are as follows:

	Steritech 2015 £m	Other 2015 £m	Total 2015 £m	Total 2014 £m
Non-current assets
- Intangible assets²	79.0	28.8	107.8	39.9
- Property, plant and equipment	0.6	5.3	5.9	4.8
Current assets³	14.9	4.8	19.7	17.7
Current liabilities	(15.1)	(3.8)	(18.9)	(8.7)
Non-current liabilities⁴	(30.4)	(3.8)	(34.2)	(9.3)
Net assets acquired	49.0	31.3	80.3	44.4

¹ the provisional fair values will be finalised in the 2016 financial statements. The fair values are provisional since the acquisition accounting has not yet been finalised as a result of the proximity of many acquisitions to the year end

² includes £96.2m (2014: £38.4m) of customer lists and relationships and £11.6m (2014: £1.5m) of other intangibles

³ includes trade and other receivables of £18.6m (2014: £10.4m) which represents the gross and fair value of the assets acquired

⁴ includes (£31.0m) of deferred tax relating to acquired intangibles (2014: £7.6m)

18. Business combinations (continued)

The cash outflow from current and past acquisitions are as follows:

	Steritech 2015 £m	Other 2015 £m	Total 2015 £m	Total 2014 £m
Total purchase consideration	277.8	108.2	386.0	76.8
Consideration payable in future periods	(5.7)	(20.3)	(26.0)	(12.9)
Purchase consideration paid in cash	272.1	87.9	360.0	63.9
Cash and cash equivalents in acquired companies and businesses	(0.2)	0.1	(0.1)	(3.7)
Cash outflow on current period acquisitions	271.9	88.0	359.9	60.2
Deferred consideration paid	-	9.3	9.3	7.9
Cash outflow on current and past acquisitions	271.9	97.3	369.2	68.1

19. Related party transactions

Nippon Calmic Ltd (49%) was an associate during 2015 and 2014. There are no significant transactions between Nippon Calmic Ltd and other group companies.

The group bears the costs of administration and independent pension advice of the Rentokil Initial 2015 Pension Scheme. The total amount of costs in the year ended 31 December 2015 was £2.5m (2014: £2.1m) of which £0.2m (2014: £0.4m) was recharged to the scheme.

20. Events occurring after the balance sheet date

There were no significant post balance sheet events affecting the group since 31 December 2015.

21. Legal statements

The financial information for the year ended 31 December 2015 contained in this preliminary announcement was approved by the Board on 25 February 2016.

The financial information in this statement does not constitute the company's statutory accounts for the years ended 31 December 2015 or 2014. The financial information for 2014 and 2015 is derived from the statutory accounts for 2014 (which have been delivered to the registrar of companies) and 2015 (which will be delivered to the registrar of companies and issued to shareholders in March 2016). The auditors have reported on the 2014 and 2015 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.

The statutory accounts for 2015 are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union. The accounting policies (that comply with IFRS) used by Rentokil Initial plc ("the group") are consistent with those set out in the 2014 Annual Report. A full list of policies will be presented in the 2015 Annual Report. For details of new policies applicable to the group in 2015 and their impact please refer to Note 1.

22. 2015 Annual Report

Copies of the 2015 Annual Report will be sent to shareholders who have elected to receive hard copies on 8 April 2016 and will also be available from the company's registered office at Riverbank, Meadows Business Park, Blackwater, Camberley, Surrey, GU17 9AB and atwww.rentokil-initial.com in PDF format.

23. Financial calendar

The Annual General Meeting will be held at the Hilton Hotel (Ascot Suite), Gatwick Airport, South Terminal, Crawley, West Sussex, RH6 0LL on Wednesday 11 May 2016 at 12 noon.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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Final Results

2015

2015

2015 FY

2014 FY

Regional Analysis - ongoing operations

£m

France

Benelux

Germany

Southern Europe

Latin America

Total Europe

UK & Ireland

Rest of World

UK & Rest of World

Asia

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Central and regional overheads

Ongoing operations

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