Impact of adoption of IFRS

Rentokil Initial PLC
20 July 2005


N E W S R E L E A S E

RENTOKIL INITIAL PLC

IMPACT OF ADOPTION OF IFRS

Rentokil Initial plc ('the Group') today announced the preliminary impact of its
adoption of International Financial Reporting Standards ('IFRS') on its 2004
results.

To date, the Group has prepared its accounts in compliance with UK Generally
Accepted Accounting Practice ('UK GAAP'). European Union ('EU') regulations
require the Group to adopt IFRS in its financial statements from 2005. The Group
began a detailed study during 2003 to review the changes required in order to
move from UK GAAP to IFRS. This news release provides a brief summary of the
anticipated impact of transition to IFRS. A Transition Document, published on
the Group's website (rentokil-initial.com), provides more detail and shows the
changes required to restate the primary financial statements from a UK GAAP
basis on to a pro-forma IFRS basis. These statements are intended to show the
impact of transition to IFRS rather than give the exact presentation to be made
under IFRS.

The IFRS policies being adopted by the Group are based on the IFRS's expected to
be formally adopted by the EU as of 31st December 2005. However, these standards
still remain subject to further amendment by and interpretative guidance from
the International Accounting Standards Board ('IASB') as well as the ongoing
review and endorsement by the EU, which may lead to the need for further
refinement of the policies implemented by the Group. Consequently, the impact on
the financial statements as outlined below and included in the Transition
Document are provisional and remain unaudited. Finalisation of the impact of
transition to IFRS will be performed during the audit of 2005 results.

Commenting on the Group's adoption of the new accounting rules, Roger Payne,
Finance Director, said

        ' In common with many other companies, the adoption of IFRS will have
        some impact on the presentation of our financial statements but will not
        fundamentally change our strategy, risk management processes or our cash
        flows.'

        'The main areas of impact on the 2004 results and the 2004 balance sheet
        remain as first indicated in our trading statement issued on 30th
        November 2004 (and subsequently reaffirmed with the Preliminary
        Announcement of 2004 results in February 2005) as being in the areas of
        IAS 19 (employee benefits) and IAS 38 (intangible assets).'

        'Clearly, and in conjunction with our auditors, we will continue to
        review the impact of additional IFRS implementation guidance which is
        being periodically issued by the IASB to ensure that our implementation
        of IFRS remains best practice.'

        '2005 will be an important transitional year for all stakeholders. We
        aim to ensure that any presentational changes arising from the adoption
        of IFRS do not deflect from the current understanding of the key
        fundamentals in our business, particularly given the potential
        volatility arising from the 'mark to market' requirements of IAS39
        (financial instruments).'

Summary Impact

A full overview of the impact of adoption of IFRS on the financial statements of
the Group in respect of 2004 is provided in the Transition Document referred to
above. For 2004 the financial impact of transition to IFRS remains in both the
two key areas of employee benefits under IAS 19 and the recognition and
amortisation of intangible assets under IAS 38 as indicated in both the November
2004 Trading Statement and the 2004 Preliminary Results Announcement made in
February of this year. Other areas of lesser impact on 2004 results are IAS 17
(leases), IFRS 2 (share based payments), IAS 21 (foreign currencies), IAS 10
(events after the balance sheet date), and IAS 12 (income taxes). The total
impact on profit before tax and net liabilities is shown in the two tables below
followed by brief descriptions of the more significant items that have or will
be likely to impact the Group's results. Tables giving an overview of the impact
on the 2004 interim results are provided towards the end of this release.

Overview of Financial Impact - Full Year 2004
                                                                                                 IFRS            UK GAAP
For the year ended 31st December 2004                                                       Unaudited            Audited
                                                                                                   £m                 £m

Revenue                                                                                       2,306.6            2,450.8

Operating profit

- before exceptional items and amortisation of customer lists                                   382.7              391.4

- after exceptional items and amortisation of customer lists                                    325.5              342.0

Profit before tax                                                                               273.9              297.8

Earnings per share (including discontinued activities)

- basic                                                                                        10.53p             11.87p

- basic before exceptional items and amortisation of customer lists                            13.26p             14.30p

Net liabilities                                                                                 759.2              559.4


Changes in Revenue, Profit before tax and Net liabilities                   Revenue  Profit before tax   Net liabilities
                                                                                 £m                 £m                £m

As reported under UK GAAP                                                   2,450.8              297.8           (559.4)

IAS 19 - Defined benefit pensions                                                 -              (8.5)           (287.7)
IAS 19 - Other employee benefits                                                  -              (0.4)            (20.1)
IAS 38 - Amortisation of customer lists                                           -             (22.2)            (69.6)
IAS 38 - Reversal of goodwill impairment                                          -               14.4              14.4
IAS 21 - Foreign currencies                                                       -              (4.1)                 -
IFRS 2 - Share based payments                                                     -              (1.0)                 -
IAS 10 - Dividends payable                                                        -                  -              86.1
IAS 12 - Taxation                                                                 -                  -              86.0
Others                                                                            -                  -             (8.9)
Presentation changes

- discontinued activities                                                    (15.5)              (0.4)                 -

- franchisees                                                               (110.2)                  -                 -

- associates                                                                 (18.5)              (1.7)                 -

As reported under IFRS                                                     2,306.6*             273.9*           (759.2)

*Excludes trading from discontinued activities and profit and loss on disposal
of businesses.

IAS 19 - Employee Benefits

Under UK GAAP, pension costs were charged to the profit and loss account as
operating costs in accordance with SSAP 24. In addition, under the transitional
disclosure requirements of FRS 17, the financial statements included detailed
notes which disclosed any deficits in the pension schemes' assets compared with
their liabilities.

Under IAS 19 the value of the deficit approximating the pre-tax FRS 17 amount
previously disclosed under UK GAAP, will be recorded as a liability on the
balance sheet. The Group has made the election, under the requirement of the
amendments to IAS 19 which is yet to be endorsed by the EU, to take the
actuarial gains and losses through the Statement of Recognised Income and
Expenses. A separate annual charge will be made to the income statement, which
will comprise a service cost and a finance cost, with the service cost charged
to operating profit and the finance charge forming part of finance costs.
Expected return on pension plan assets is recognised as finance income.

As a result an additional liability of £287.7 million (before tax) will be
recorded on the balance sheet at 31st December 2004. The profit before tax
charge for 2004 will decrease by £8.5 million.

The change in the accounting treatment of the Group's pension arrangements will
have no impact on the periodic calculations of the company's cash contribution
to the pension schemes. These are determined during the triennial actuarial
valuation process. The company is currently in the process of agreeing the April
2005 valuation prior to the agreement of the future contributions' schedule with
the Trustees.

Whilst not material in the context of the annual charge to the profit and loss
account, the treatment of the phasing of other employee benefits (mainly holiday
pay) between the first half and the second half will result in a higher charge
to the first half of circa £8 million with a corresponding lower charge in the
second half.

IAS 38 / IFRS 3 - Intangible Assets and Business Combinations

Under UK GAAP, individual intangible assets in businesses acquired were not
separately recorded but were subsumed within the overall value of goodwill
recognised and consolidated on acquisition. The Group ascribed an indefinite
life to this goodwill and, in accordance with FRS 10, was retained on the
balance sheet and tested for impairment annually.

IFRS 3 requires the recognition of intangible assets on business combinations if
certain criteria are met. For business combinations made by the Group, the value
attributable to customer lists or portfolios acquired is treated as an
intangible asset and valued separately from goodwill which remains on the
balance sheet and is tested for impairment annually. The value attributable to
the customer lists or portfolios acquired (intangible asset) is then amortised
over the expected life of that asset.

The Group has not taken the exemption available under IFRS 1 in respect of
acquisitions made since 1st January 1998. Instead, in order to aid the
comparability with the treatment of future acquisitions, all acquisitions made
since 1st January 1998, when FRS 10 was adopted, have been restated and the
value attributed to intangible assets has been recognised and amortised over the
expected life of the asset.

As a result a gross intangible asset totalling £155.2 million has been
recognised at the date of transition and the Group has incurred an amortisation
charge of £22.2 million in 2004 under IFRS, which was not present under UK GAAP.
Partly offsetting this amortisation charge is the reversal of the goodwill
impairment charge of £14.4 million made under UK GAAP. This charge is reversed
as the total of the restated intangible assets, including goodwill, for the
respective business combinations in the IFRS balance sheet at 31st December 2004
are already below the level of impaired goodwill balances in the UK GAAP
accounts as a result of cumulative amortisation. The net effect of these
adjustments will be to increase net liabilities by £55.2 million.

IAS 21 - Functional Currency / Foreign Currencies

Under UK GAAP (SSAP 20), foreign currency borrowings that are regarded as part
of the financing of an investment in a foreign subsidiary are considered 'quasi
equity.' Exchange differences on re-translation of 'quasi equity' have
previously been reported as movements in reserves.

Under IAS 21, (foreign currencies), foreign exchange differences on direct
parent/subsidiary loan relationships which are considered 'quasi equity' will
continue to be reported under reserves but the foreign exchange differences on
loan relationships between fellow subsidiary companies (even if considered as
financing of investments) will be included in the income statement.

The foreign exchange effect arising from the adoption of IAS 21 (relating to the
change in functional currency) on the corporate entities has been reflected in
the restatement of the 2004 results.

IAS 10 - Events After The Balance Sheet Date

Under UK GAAP, dividends are provided at the balance sheet date on the basis of
the dividend proposed by the Board. Under IFRS, a provision for dividends is
only made once the proposed dividend has been approved by shareholders. As a
result the dividends provided under UK GAAP have been removed giving rise to a
reduction in liabilities of £86.1 million.

IAS 12 - Income Taxes

The adjustment of £86.0 million represents, in the main, the tax effects of the
IFRS adjustments reflected in the Transition Document. In addition, adjustments
have been made for other temporary differences in respect of unremitted
earnings, which were not recognised under UK GAAP. IAS 12 also requires the
recognition of deferred tax liabilities arising on temporary differences in
respect of intangible assets in business combinations. This has been adjusted,
for all the relevant business combinations since 1st January 1998.

IAS 39 - Financial Instruments

The Group is not required to and will not adopt IAS 39 (financial instruments)
until 1st January 2005. There is, therefore, no impact on the 2004 results
summarised above from IAS 39. The adoption of IAS 39 with effect from 1st
January 2005 will require certain financial assets and liabilities to be valued
on a 'mark to market' basis at 30th June and 31st December. This will inevitably
introduce a degree of volatility into future reported results with the carrying
value of the Ashtead convertible loan note being one specific example. The Group
is applying 'hedge accounting', with effect from 1st January 2005, for certain
qualifying hedge relationships to reduce some of this volatility.

Others

Others includes adjustments in respect of IAS 17 (leases) and to equipment for
rental assets, manufactured by group companies, to bring them back to group
historic cost. These adjustments had no year on year impact on net income for
2004.

Presentation Changes

Under UK GAAP, the Group included turnover from associates and franchisees when
presenting headline turnover to reflect the involvement by management in these
businesses. Under IFRS, this practice will be discontinued to align headline
turnover with that shown in the primary IFRS statements.

Under IFRS, turnover relating to discontinued activities is not included in the
primary statements and profits and losses from these businesses are shown below
profit after tax as separate disclosures. The presentation adjustments made
reflect this practice.

Under UK GAAP, the Group's share of profits of associates is shown gross of
taxation. Under IFRS, the Group's share of after tax profits of associates is
shown as a single line item within profit before tax.

Overview of Financial Impact - Interim 2004
                                                                                                 IFRS            UK GAAP
For the six months' ended 30th June 2004                                                    Unaudited            Audited
                                                                                                   £m                 £m

Revenue                                                                                       1,138.7            1,213.6

Operating profit

- before amortisation of customer lists                                                         187.9              199.7

- after amortisation of customer lists                                                          176.8              199.7

Profit before tax                                                                               155.4              180.4

Earnings per share (including discontinued activities)

- basic                                                                                         6.08p              7.26p

- basic before amortisation of customer lists                                                   6.48p              7.26p

Net liabilities                                                                                 777.6              558.5


Changes in Revenue, Profit before tax and Net liabilities                  Revenue  Profit before tax    Net liabilities
                                                                                £m                 £m                 £m

As reported under UK GAAP                                                  1,213.6              180.4            (558.5)

IAS 19 - Defined benefit pensions                                                -              (3.1)            (213.9)
IAS 19 - Other employee benefits                                                 -              (8.4)             (27.4)
IAS 38 - Amortisation of customer lists                                          -             (11.1)             (75.9)
IAS 21 - Foreign currencies                                                      -              (0.5)                  -
IFRS 2 - Share based payments                                                    -              (0.4)                  -
IAS 10 - Dividends payable                                                       -                  -               34.8
IAS 12 - Taxation                                                                -                  -               72.2
Others                                                                           -                  -              (8.9)
Presentation changes

- discontinued activities                                                   (13.1)              (0.7)                  -

- franchisees                                                               (52.5)                  -                  -

- associates                                                                 (9.3)              (0.8)                  -

As reported under IFRS                                                    1,138.7*             155.4*            (777.6)

*Excludes trading from discontinued activities and profit and loss on disposal
of businesses.

Transition Document

A Transition Document, providing more detail and showing the changes required to
restate the Primary Financial Statements from a UK GAAP basis on to a pro-forma
IFRS basis, is available on the Group's website - rentokil-initial.com. The
statements contained in that Transition Document are intended to show the impact
of transition to IFRS rather than give the exact presentation to be made under
IFRS.

Contact Details

Charles Grimaldi, Corporate Affairs Director           01342 833022

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