Trading Statement

Rentokil Initial PLC
30 November 2004

News Release



                                                              30th November 2004


                 Update for the ten months to 31st October 2004


CHAIRMAN'S OVERVIEW

Chairman Brian McGowan said today:-


        'The actions which I initiated back in July were and continue to be
        aimed at re-energising the company. We have been reinvesting in sales,
        service, marketing, IT, R&D and HR and increasing the pace of activity
        on acquisitions. These initiatives will continue. The Board and I are
        encouraged that our management around the world has accepted the need
        for this change and positively support it.

        Following a thorough review, we have taken the decision to dispose of
        the linen and garment elements of our UK Hygiene business. The board
        believes this action will enhance the medium-term profitability and
        competitive position in the remaining parts of this business. The Board
        is also in the process of identifying the options open to it in respect
        of the loss-making German hospital textiles activity.

        I have no specific news regarding the search for a new Chief Executive
        and, given the critical importance of making the right appointment, the
        search could well take some time. In the meantime, I will continue to
        drive the pace of action and change. We are at an advanced stage in our
        search for an Acquisitions Director.

        We are certain that we are taking the right actions to return the
        company to future sustainable growth. There is, however, no single,
        easy, quick-fix solution. Whilst, in the light of current trends, we
        expect a further deterioration in trading results into the first half of
        2005, the benefits of the investments and cultural changes should start
        to come through thereafter, although the year as a whole is likely to
        give a weaker performance than in 2004.'





Financial Summary

   •  Turnover                     from continuing operations increased by 1.9% 
                                   to £2,059.9m.

   •  Operating Profit             from continuing operations declined by 11.1% 
                                   to £332.5m.

   •  Profit Before Tax            declined by 11.9% to £293.9m.

   •  Operating Cash Flow          has been good and in line with our 
                                   expectations.

   •  Contract Portfolio           Increased by £32.7m over the ten months.



SEGMENTAL COMMENTARY - CONTINUING OPERATIONS

Hygiene

Total Hygiene turnover grew by 1.3% to £829.2m with operating profit down by
12.3% to £209.7m.

Hygiene Services turnover was up by 1.2% at £638.7m with operating profits down
by 14.7% to £144.2m. Contract portfolio net gain for the ten months (including
£3.3m from acquisitions) was £12.5m to exit at £739.0m.

   • Within the total turnover of £638.7m, washroom declined by 0.5% to
     £253.6m, garments increased by 4.1% to £209.9m, floorcare increased by 5.0%
     to £35.2m, linen increased by 0.9% to £92.7m, whilst other specialist
     hygiene services decreased by 3.3% to £47.3m.
   • In the UK the turnover regression of 4.7% for the first half improved to
     3.7% for the ten months, albeit the operating profit decline increased from
     39.6% to 42.3%. In Germany turnover regression at 3.5% increased from the
     first half's 1.8%, although the operating profit reduction at 23.3% was
     broadly in line with that of the first half. An update on these two
     businesses is set out below.

Pest Control turnover increased by 1.6% to £190.5m whilst operating profit fell
by 6.4% to £65.5m. Contract portfolio net gain for the ten months was £3.7m
(with only £0.3m of this coming from acquisitions) to exit at £183.5m.

Security

Turnover increased by 1.0% to £490.6m with operating profit down by 7.3% at
£43.3m, in part impacted by reorganisation costs on recent acquisitions in the
UK and increased SUI and healthcare costs in the US. Within the total,
electronic turnover grew by 4.1% to £202.0m whilst manned guarding turnover
declined by 1.1% to £288.6m. Contract portfolio net gain for electronic, for the
ten months, was £8.9m (of which £5.3m was from acquisitions) to exit at £90.3m,
whilst manned guarding increased by £3.7m to £317.9m.

Facilities Management

Total Facilities Management turnover grew by 1.4% to £545.0m with operating
profit declining by 14.0% to £55.0m.

Facilities Management Services increased turnover by 1.4% to £381.2m with
operating profit regressing by 13.3% to £25.5m. Contract portfolio net gain for
the ten months was £2.5m to exit at £382.6m.

Tropical Plants turnover regression at 1.9% to £87.7m improved from the 3.5% for
the first half. This slow down also showed in operating profit regression at
32.0% compared to the 38.0% for the first half, to leave operating profit at
£8.1m. Contract portfolio net gain for the ten months was flat with £0.5m from
acquisitions compensating for losses of a similar amount, to leave the exit
portfolio unchanged at £91.7m.

Conferencing turnover growth accelerated to 5.4% from 4.3% for the first half;
at the same time the operating profit regression for the first half of 6.2%
reducing to 5.5% for the ten months. This produced ten month turnover and
operating profit of £76.1m and £21.4m respectively. Contract portfolio net gain
for the ten months was £1.4m to leave the exit position at £37.4m.

Parcels Delivery

Turnover grew by 8.3% to £195.1m producing a 0.5% increase in operating profits
to £24.5m.

GEOGRAPHICAL COMMENTARY - CONTINUING OPERATIONS

UK turnover grew by 1.1% to £1,024.9m with operating profit down by 17.9% to
£150.3m.

Continental Europe turnover was up by 3.0% at £688.1m with operating profit
declining by 3.0% to £136.4m.

North America turnover increased by 2.6% to £235.6m with operating profit 19.5%
lower at £9.7m.

Asia Pacific and Africa turnover at £111.3m was 0.5% higher but operating profit
fell by 5.7% to £36.1m.

OTHER ITEMS

Acquisitions

Fifteen bolt-on acquisitions, with aggregate annualised turnover of c. £18.5m,
were made in Hygiene, Security and Tropical Plants, in UK, Continental Europe,
North America and Asia Pacific at a total cost of c. £26.0m.



Disposals

In addition to the two previously reported disposals in the first half of 2004,
the company has since disposed of its peripheral UK courier business which in
2003 broke even on turnover of c. £4.5m.

In the context of the increasing importance in business development and customer
retention resulting from BEE (Black Economic Empowerment) in South Africa, a
conditional agreement has been reached to sell a 25.1% shareholding in the
company's South African subsidiary to a consortium of local investors for c.
£20m, the funding thereof to be provided by interest-bearing vendor finance.
Completion, which is subject to South African reserve bank approval, is
anticipated in December and should produce a gain on sale of c. £15.0m (see
below).

UK Textiles

As indicated in the interim results announcement LEK, consultants have been
performing a review of the under-performing UK hygiene business. Their focus has
been on the textile-related operations comprising of table and bed linen,
workwear, roller towels and specialist floorcare. Having evaluated the options
identified by LEK, the Board has decided to dispose of the loss-making linen and
related workwear activities in order to concentrate upon washroom services,
including roller towels (third party turnover of c. £75.0m), floorcare (c.
£13.0m) and other specialist hygiene services (£31.0m). The linen and workwear
activities have a combined turnover of c. £55.0m and certain specific related
assets of c. £40.0m. The envisaged disposal of these activities should improve
profits by c. £5.0m p.a. although the potential disruption arising from the
reorganisation and exit processes are such that the benefits are not expected to
be realised until 2006. Exceptional costs, before any gain or loss on disposal,
will clearly depend upon the nature and timing of the exit strategy and our
current assessment is that these could amount to some £25m - £30m in 2005.
Continuity of supply of roller towels and floorcare 'product' is likely to be
achieved through a combination of limited retained in-house capability and
sub-contract arrangements.

German Hospital Textiles

Within the German hygiene business, which has an annualised turnover of c.
£78.0m and operating profits of c. £12.5m, the hospital linen activities, which
are currently loss-making, represent some £17.0m (22%) of the turnover. The
current run rate of losses is in the order of £1.5m p.a. The Board is
identifying the options open to it with a view to consulting the representatives
of the work force in accordance with the requirements of German law.

International Financial Reporting Standards (IFRS)

The company continues to make good progress in preparing for and evaluating the
financial effects of the impending move to IFRS for the financial year 2005. We
anticipate, subject to audit, the principal impacts on profits are likely to be
restricted to IAS19 (employee benefits and IAS38 (intangible assets)). It is not
envisaged that IFRS2 (share-based payments), IAS17 (leases), and IAS39
(financial instruments) will have any material impact on profits.


    IAS19

    Implementation of IAS19 will give rise to a c. £11.5m reduction in 2004
    profit before tax as restated under IFRS, representing, in the main,
    differing treatment of defined benefit pension costs under IAS19 compared to
    SSAP24. In addition, given the phasing of holiday pay within the year, the
    total IAS19 adjustment would reduce restated profit before tax by c. £14.0m
    in the first half, but increase the second half profit by £2.5m. It is
    anticipated that the full year IAS19 defined benefit pension charge will
    increase by a further c. £4.0m in 2005 to c. £20.0m with the effects of
    holiday pay giving similar phasing characteristics to 2004.

    IAS38

    Since 1998, on adoption of FRS10, the company has held goodwill in respect
    of acquisitions on its balance sheet with the carrying value being subject
    to the usual impairment testing under FRS11. It is anticipated that on
    transition to IFRS, having analysed all acquisitions since 1998, this
    previous goodwill balance will be split between goodwill and other
    specifically identifiable intangible assets such as customer contracts and
    lists. In future, under IAS38, this latter category of intangible assets
    will be amortised over their anticipated useful lives. On a pro-forma
    full-year basis, based upon all acquisitions completed from 1998 to date,
    the likely effect of the resulting amortisation charge would be to reduce
    2004 profit before tax by c. £23.0m, with a corresponding anticipated 2005
    profit impact of c. £21.0m.

It is anticipated that a number of the IFRS profit effects will be partially
mitigated by taxation, so as to leave our medium-term tax rate in the previous
anticipated range of 26% - 28% of profits.

It is currently envisaged that a seminar will be held ahead of the announcement
of the 2004 preliminary results, specifically to cover, in considerably more
detail, the likely effects pro-forma of IFRS on both the company's profit and
loss account and balance sheet.

PROSPECTS FOR 2004

The Board is currently still of the view that, based upon most recent internal
estimates, profit before tax for the year 2004, at constant average 2003
exchange rates, should be not less than £350m. This is despite the delays in
realising the benefits from the increased level of investment in the business
and the ongoing challenging market conditions.

It is anticipated, however, that the aforementioned profit before tax for the
year 2004, at constant average 2003 exchange rates, will be reduced by adverse
foreign currency exchange adjustments (currently estimated to be c. £5m) and by
a number of specific exceptional one-off items, the latter aggregating to a
likely net negative of some £35m. These items are anticipated to be:-

                                                                                          £m
-     Gain on the planned sale of a 25.1% stake in the South African business as part  
      of a black economic empowerment (B.E.E.) initiative                                 15

-     Impairment of goodwill, in particular US Tropical Plants and German Hospital     
      Textile Services                                                                   (15)

-     Impairment of fixed assets in US Facilities Management                              (9)

-     Increases in vacant property and environmental provisions in respect of specific 
      properties in UK and US                                                            (20)

-     Potentially uninsured losses in respect of product supply by a discontinued      
      business.                                                                           (6)
                                                                                         
                                                                                         (35)
                                                                                       
Notwithstanding the above, the Board reaffirms its previously announced
intention to recommend a total dividend of 6.71p per share for the year to 31st
December 2004 representing an increase of 10.0% over 2003.

PROSPECTS FOR 2005

The Board remains convinced that the right actions are being taken to return to
a path of sustainable growth over the medium to longer term. However, following
a review of 2005 budgets and recognising a combination of:-

  • the full year effect of the significant and wide ranging investments in
    the business;
  • the current trends and the slower than previously envisaged growth in
    contract portfolios;
  • the uncertainty over the potentially disruptive effects of, and the delay
    in the timing of the realisation of the eventual benefits from, the
    restructuring of the UK textiles operations;

...the Board anticipates a further deterioration in trading results into the
first half of 2005, although the benefits of the investments and cultural
changes should start to come through thereafter. However, the year as a whole is
likely to give a weaker performance than in 2004.

Again as previously announced, in the absence of unforeseen circumstances, the
Board restates its intention to recommend an increase in the dividend for 2005
of a further 10% to 7.38 pence per share.

                                      END



Note

The above statement is made based upon unaudited management accounts and at
constant rates of exchange, these being the average rates of exchange for
foreign currencies for the year 2003, as used in the 2003 Annual Report.

For further information



B D McGowan, Chairman

R C Payne, Finance Director

C D Grimaldi, Corporate Affairs Director

01342 833022



John Sunnucks, Brunswick Group LLP

020 7404 5959

Alex Mackey, Catullus Consulting

07773 787458





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