Other statutory disclosures

The directors submit to the members their annual report and accounts for the year ended 31 December 2011. In accordance with the requirements of the Companies Act 2006 and the UK Listing Authority’s Listing and Disclosure and Transparency Rules, the Governance report comprises the directors’ report, together with other sections relating to principal activities and business review listed below which are incorporated into this report by reference.

Rentokil Initial plc is the holding company of a group which through its operating businesses in some 60 countries provides a range of principally business to business support services. A summary description of the group’s principal activities is given on the inside front cover and the principal subsidiary undertakings and joint ventures of the company are shown in Principal operating subsidiary and associated undertakings.

The directors’ report includes a description of the company’s current business model providing an explanation of the basis on which the group generates value over the long-term and strategy for delivering its objectives. The information that fulfils the business review requirements can be found in the following sections:

• › Statement by the chairman and chief executive pages
• › Progress on key objectives
• › Strategy update
• › Business overview
• › Business review
• › Risks and uncertainties
• › Financial review
• › Financial risks in note 21

The adjusted operating profit for the financial year ended 31 December 2011 was £224.7 million (2010: £239.3 million). The directors recommend payment of a final dividend in respect of the year to 31 December 2011 of 1.33p per ordinary share, which subject to approval at the annual general meeting on 1 May 2012, will be paid on 15 May 2012 to shareholders on the register on 10 April 2012.

The articles of association set up the internal regulations of the company and cover such matters as the rights of shareholders and the conduct of the board and general meetings.

Under the articles, the directors are responsible for the management of the business of the company and may exercise all the powers of the company subject to the provisions of relevant statutes and the company’s articles of association. For example, the articles contain specific provisions and restrictions regarding the company’s power to borrow money.

Powers relating to the issuing of shares are also included in the articles of association and such authorities are renewed by shareholders each year at the annual general meeting. The articles do not contain special control rights or restrictions on transfer or limitations on the holding of ordinary shares and no requirements for the prior approval of any transfers. No person holds securities in the company carrying special rights with regard to control of the company. The company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities or on voting rights.

The articles of association also give power to the board to appoint and replace directors, but also require directors to retire and submit themselves for re-election at the first annual general meeting following the appointment and for re-election by rotation although directors now submit themselves for re-election annually. The articles themselves may be amended by special resolution of the shareholders.

In accordance with the articles of association directors can be appointed or removed by the board or shareholders in general meeting. Amendments to the articles of association have to be approved by at least 75% of those voting in person or by proxy at the general meeting. Subject to company law and the articles of association the directors may exercise all the powers of the company and may delegate authority to committees and day-to- day management and decision-making to individual executive directors. Copies of the articles of association are available upon request and are displayed on the company’s website at www.rentokil-initial.com

In accordance with section 489 of the Companies Act 2006, a resolution to re-appoint KPMG Audit Plc as auditors of the company and to authorise the directors to determine their remuneration will be proposed at the forthcoming annual general meeting.

In concluding that KPMG Audit Plc should be reappointed as auditors at the 2012 annual general meeting, the board and the audit committee took into account the need to ensure that auditor independence was safeguarded. The committee also took into account the review undertaken of the effectiveness of the audit process as well as input from executive management.

The company considers that there are sufficient controls and processes in place to ensure that the required level of independence is maintained. The company has a formal policy on the provision of non-audit services provided by the company’s auditors. The amount of non-audit fees earned by the auditors is routinely reported to the committee. The board does not consider that there is any material risk of the company’s auditors withdrawing from the market. Further information on auditor independence is provided in the report of the audit committee.

The board is required by the Code to present a balanced and understandable assessment of the company’s position and prospects. In relation to this requirement, reference is made to the statement of directors’ responsibilities for preparing the financial statements.

The independent auditor’s report includes a statement by the auditors about their reporting responsibilities. The board recognises that its responsibility to present a balanced and understandable assessment extends to interim and other price- sensitive public reports, reports to regulators, and information required to be presented by law.

Insofar as each of the directors are aware, there is no relevant audit information (as defined by section 418 of the Companies Act 2006) of which the company’s auditors are unaware; and each director has taken all of the steps that should have been taken to ensure that they are each aware of any relevant audit information (as defined) and to establish that the company’s auditors are aware of that information.

The company has granted indemnities in favour of its directors as is permitted by Section 232-235 of the Companies Act 2006. It has also purchased insurance cover for the directors against liabilities arising in relation to the company, as permitted by the Companies Act 2006. This insurance does not cover criminal activity.

There are a number of agreements that take effect, alter or terminate upon a change of control of the company, such as some commercial agreements, financing arrangements and employee share plans. None of these are deemed to be significant in terms of their potential impact on the group as a whole.

The company’s approach to the community consists of three separate elements – charitable cash donations (mainly linked to employees’ initiatives), community support and community investment. Community support and investment is locally rather than centrally driven.

Donations for UK charitable purposes in 2011 amounted to £58,000 and a further £77,000 was donated in other countries. Total charitable donations amounted to £135,000 (2010: £130,000). This amount excludes value in kind donations or colleagues’ time. The company operates a matched giving scheme whereby the company matches donations raised by employee fundraising. No company donation was greater than £2,000. Payments are made to a wide range of charitable organisations both in the UK and overseas.

There were no payments to political organisations during 2011 (2010: nil).

Further details of charity and community involvement are provided in the corporate responsibility section.

The company attaches considerable importance to communicating with colleagues. Internal communications take place at a group, divisional, business and team level in order to ensure that colleagues receive accurate information in a timely manner and a variety of structures exist for two-way communications at all levels. At a corporate level the group intranet which was refreshed in 2010 is used to announce company news with the support of direct email communication from the executive team. This is supplemented by a periodic electronic magazine called ‘Horizon’ which features interviews with senior executives about major initiatives and performance.

In Europe, the company meets its European Forum (European Works Council) usually twice a year to communicate with colleagues’ representatives from across the continent. The company maintains an open dialogue with the Forum at times of business change. Divisional communications use a wide range of channels such as email, divisional intranets, electronic newsletters and quarterly magazines to communicate business issues including financial and economic factors affecting the operations. Great importance is placed on face-to-face team meetings.

Applications for employment by disabled persons are always fully considered, taking into account the aptitudes of the applicants. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with Rentokil Initial continues and that appropriate re-training is made available. It is the policy of Rentokil Initial that the training, career development and promotion of disabled persons should, as far as possible, be identical with those of other employees.

The directors, having made enquiries consider that the company has adequate resources to continue in operational existence for the foreseeable future and therefore consider it appropriate to maintain the going concern basis in preparing the financial statements.

The group signed a new five year revolving credit facility (RCF) in December 2011 and has no bond maturities in the 12 months from 1 March 2012. At 31 December 2011 and 1 March 2012, headroom on the RCF, the group’s principal source of day-to-day liquidity, was £180 million.

The group’s practice is to forecast a year-end position three years forward and to prepare a monthly budget in advance of each financial year. The expected full-year outcome in terms of profit and cash every month and current and prospective performance is reviewed formally with each of the group’s divisions monthly and forecasts are updated accordingly.

The group’s RCF contains two financial covenants requiring EBITDA to be no less than 4x interest payable (on the basis of the definitions and subject to the adjustments set out in the bank facility documentation) and net debt to be no more than 3x EBITDA. The covenant is tested on 30 June and 31 December. At 31 December the group had good headroom on both measures, with an interest cover ratio of 9.3x and a net debt ratio of 2.1x representing EBITDA headroom of £168 million or debt headroom of £584 million.

The directors considered a base case using the above forecasts and sensitivity analysis including a downside scenario to ensure that headroom and covenants would not be breached.

It was considered that in the event that cash flows from trading, acquisitions or disposals were significantly below expectations, operating capital expenditure, or bolt-on acquisitions could be reduced to protect headroom on the RCF.

On the basis of the available headroom provided by the RCF, projected cash flows and the levels of discretion available to management to manage cash flow, the directors continue to adopt the going concern basis in preparing the accounts.

Full details of the group’s net debt and borrowing facilities are set out in the financial statements

Rentokil Initial has a variety of payment terms with its suppliers in various countries. These are either negotiated along with other contract terms or conform to standard terms applied either by the relevant group company or by the supplier. It is the company’s policy to pay suppliers in accordance with either negotiated or standard terms, provided that the relevant invoice is properly presented in a timely manner and is not the subject of dispute. The company is a signatory to the UK ‘Prompt Payment Code’. At 31 December 2011 the trade creditors of the group represented 57 days of annual purchases and the UK businesses’ trade creditors represented 49 days of purchases; UK trade debtors represented 31 days of turnover. During the year the parent company did not have any trade creditors.

Please refer to note 34 to the accounts.

Other than in respect of arrangements relating to the employment of directors, details of which are provided in the remuneration report or as set out in note 33, there is no material indebtedness owed to or by the company to any employee or any other person considered to be a related party.

The company invests in an active programme of research and development in support of its major international business streams. This programme includes the conception, design, testing and manufacture of new products to enhance the quality, effectiveness and safety of the company’s services and minimise their environmental impact. Where appropriate, work may be sponsored at universities with expertise in relevant areas. The company’s total research and development expenditure in 2011 was £2.0 million (2010: £1.9 million).

The group does not have any dominant customer or supplier relationships.

As a means of helping shareholders assess the success and impact of our strategies, the company uses non-financial performance indicators, which are shown in Measuring achievement in 2011.