2010 has been a challenging year for Rentokil Initial and the group has undergone a period of significant change. Although our overall financial performance has been unsatisfactory, we are making progress on fixing our operational problems and improving the predictability of profits.

Your company had a difficult start to the year and following its second profits warning on 28 February 2008 and subsequent 23% fall in share price, it became clear to the senior independent director and the non-executive directors of the board that radical action was required if better value was to be created for shareholders.

Ambius has experienced exceptionally difficult market conditions in 2009. Revenue fell 10.5% as a result of increasing contract terminations and a 22.3% decline in job sales. Although overall customer retention fell from 81.9% in 2008 to 77.3%, it improved in the second half to 79.8% (H1 2009: 75.2%).

Adjusted operating profit fell 23.2%. In addition to adjusting service head count in line with portfolio movement, the business has been pursuing a number of cost savings initiatives to mitigate revenue decline.

North America has been weak with a 12.3% decline in revenue. Portfolio has been impacted by the difficult economy and customer retention fell by five percentage points to 75.0% but improved as the year progressed. Job sales declined 21.0% year on year, but showed greater resilience in Q4 with Holiday sales only falling by 11.2% year on year.

Revenue in Europe declined 8.1% with most countries experiencing difficult economic conditions. Customer retention declined from 83.8% in 2008 to 79.9% but, as with the US, improved towards the end of the year. Profit was adversely impacted by increased redundancy costs, an increase in bad debts and a 24.6% reduction in job sales year on year.

Sales of brand extension services, including ambient scenting and fresh fruit delivery, have continued to rise during the period and now account for 11.8% of total contract sales compared to 7.2% in 2008.

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2011 preview

Our focus for 2011 is on growth and we have had an excellent start to the year with a major contract win in the transport sector. However, markets will continue to be difficult in 2010. As in 2009 we will continue to focus on on-going cost reductions and cash.

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