Advanced Corporate Reporting: Rentokil Initial Plc Analysis

This report provides a comprehensive financial analysis of Rentokil Initial Plc, a major provider of pest control and hygiene services. It examines the company's annual reporting, focusing on the impairment review under IAS 36 and the strategies employed to maintain profitability. The analysis includes an assessment of financial risks identified by the company and the policies implemented to mitigate them. Furthermore, the report discusses the changes in hedge accounting policies from IAS 39 to IFRS 9, the company's post-employment scheme, specifically the Rentokil Initial Pension Scheme 2015, and how Rentokil Initial Plc adheres to the IASB's revised conceptual framework for financial reporting. The report highlights key financial data, the regulatory framework, and the company's responses to various financial challenges, providing a detailed overview of Rentokil Initial's financial management and performance.

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RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
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1RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
Executive Summary
This paper will discuss the company Rentokil Initial Plc, which is one of the largest
companies in providing services, related to Pest Control and Hygiene. This paper will
focus on the annual reporting of the company and it will analyze the impairment review
of the company (IAS 36) and the strategies taken by the management to make a profit
without any impairment. Financial risk identified by the company and the policies are
taken by the company to eliminate the risk. The Hedge Accounting Policies of the
company to maintain the effectiveness of hedging shifted from IAS 39 to IFRS 9. The
post-employment scheme of the company and The Rentokil Initial Pension Scheme
2015 in the UK will be taken into consideration as a growth strategy by the company.
Lastly it will discuss the International Accounting Standards Board (IASB) revised the
conceptual framework for financing reporting and how Rentokil Initial Plc followed the
IASB revised framework to maintain the standard.

2RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
Table of Contents
Executive Summary......................................................................................................................1
Introduction....................................................................................................................................3
Discussion......................................................................................................................................3
The Company and Impairment review (IAS 36)...................................................................3
Financial Risk and Policies are taken to eliminate the risks..............................................4
Change in Hedge Accounting Policies..................................................................................5
The Company with post-employment scheme.....................................................................5
Conclusion......................................................................................................................................7
References.....................................................................................................................................8

3RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
Introduction
This paper will discuss the Rentokil Initial Plc. Rentokil Initial is known as one of
the top service providing companies in the world. Rentokil Initial Plc is providing hygiene
services, pest control services, protect and enhancement related to property care,
plants, specialist hygiene and medical, operational expertise by using apps related to
Google and connecting technologies for better customer satisfaction and innovation.
Rentokil is a company established in the year of 1925 by Harold Maxwell Lefroy who
invented a fluid named Ento Kill Fluids which was an anti-woodworm fluid. The first
acquisition by British Ratin was made in the year of 1957 used the name of Rentokil for
the integrated business. In 1969 Rentokil Group plc came under the listing of the
London Stock Exchange and took over by BET plc and became Rentokil Initial plc. The
subsidiaries of Rentokil Initial are large in numbers consisting of more or less 63
companies. The regulatory framework for the financial reporting of the company
involves good corporate governance. It ranges from the board of the company to the
lowest level of the hierarchy which is the business unit and it involves the right decision-
making procedures, controls and direction to achieve long term shareholder value
through the plan of action.
Discussion
The Company and Impairment review (IAS 36)
Impairment of Assets as defines under IAS 36 should be assessed by a company
where the asset of the company damaged by identifying external sources like the
decline in the market value, the rise of market interest rates, adverse change in
business and internal sources like the bad economic performance of any asset, any
physical loss, plan to reconstruct the operation (André, Dionysiou and Tsalavoutas
2018). The impairment review is needed to be performed as per the Financial
Reporting Standard (FRS) in the UK and it lies on FRS 102. Impairment review is
necessary where there is any indication of impairment in the intangible assets or
goodwill of the company. The management of Rentokil Initial as per the preliminary
statement of 2018 has taken into consideration the right way plan to generate profit
without any impairment and had an increase in profit of 13.3%, which is higher than
the 2017 profit. However Rentokil Initial for the scheme of arrangement in the year
2005 effected capital reduction. It occurred because of the formation of a new
holding company under the Companies Act, 1982 and the value of ordinary share
fall from 100p to 1p (Othon 2019). The interest received by the company has also
fallen in 2015 as 10.2 which was high in 2014 as 10.9. As per IAS 36 an annual
measurement need to be taken into consideration for the intangible assets which are

4RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
not available at the final reporting date (Mazzi, Liberatore and Tsalavoutas 2016).
The recoverable amounts related to goodwill and indefinite useful life of any
intangible assets are coming under the category ignoring the fact that any
impairment indicators are existing or not (Wen and Moehrle 2016). As per the
analysis impairment, testing should be followed in some steps. Firstly cash flows in
the impairment calculations need to be fair, secondly illogical discount rates must be
identified, thirdly the value in use needs to be calculated with the standard, fourthly
market capitalization should be taken into consideration, fifthly cash flows being
tested are consistent with the assets being tested. Other steps are harmonizing the
conclusion to the current environment, need to check the current policy cash flows
as per IAS 36, disclosure requirements need to be maintained by IAS 36 and IAS 1,
goodwill allocation need to be applied to the appropriate CGUs and need to start the
impairment evaluation at an early stage (D’Arcy and Tarca 2016). The goodwill of
the company never effected as it is one of the leading company in the market for
providing services to the society at large without any obstacle and has taken an
international approach to enlarge the business from the United States of America to
the Asian country India it has been taken as a top company irrespective of the
borderline. The recent report of the company shows that it has grown to the highest
level with 4.5% organic revenue growth which is considered as the top in 15 years.
The Rentokil founded in the year of 1925 by the professor of Maxwell
Lefroy and in the initial year the company was under timber treatment fluid selling
in the market (Clark 2017). The company also invented pest control powder for
kitchen and bakeries. The company in the year of 1933 shifted to the new office
in Bermondsey St, London. During the period the profit related to sales were not
good and there was a significant loss of 64 in that year. The time of the Second
World War was came with massive destruction towards the world and the
branches of the company were destroyed by a bomb blasting and it was
considered as the historical loss in the account of the company. An impairment
loss is recognized as a downturn in the fair value which affects a recognized
decline in the carrying amount of an asset. The company has taken a strategy
from the year 2014 which is known as the Right Way plan and it worked through
the continuous process of development through improving the quality of
revenues and it was able to generate an 83% of the revenue growth through the
main services of the company which is hygiene and pest control.
Financial Risk and Policies are taken to eliminate the risks
The financial risks identified by the Rentokil Initial has been mentioned in
the annual report. The main risks which are identified by the Rentokil are various
(Chamizo and Novales 2016). Firstly risk related to the satisfaction of the
customers by delivering high-quality services and the contracts of the company is
bound to meet the levels as mentioned in the contract. Rentokil analyzed that if
the operators are not qualified enough or lacking in the appropriate skills or there
is any failure related to generating the innovative ideas then it will affect
negatively to maintain the loyal customers and it will affect the cash flow, profit
generation and the overall growth. If the situation continues in the long run then it

5RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
will affect the reputation of the organization and problems will be generated in the
account of contracts. Secondly the risk related to the growth of business
profitability in a macroeconomic environment which is changing and taken into
account unpredictability for example increase of any commodity price will also
affect the cost of providing services by Rentokil Initial. The third risk is related to
the inability to produce products and services which are needed by the local
market and people. If the needs of the local people are not satisfied then it can
stay back from contract renew and may ask for discounts. The fourth risk is
related to the external incidents which can affect on the continuation of the
business, the Fifth risk is related to violation of rules and laws which take into
account the global law related to tax, anti-trust laws, and competition law. The
sixth risk is related to fraud, disclosure of secret data of the company and any
financial loss. Other risks are related to the inability to reduce the financial market
hazards, fail to generate profit and revenue through acquisition, failure to provide
a healthy and hazard-free work environment.
The Rentokil Initial to eliminate the risk has taken sudden actions through the
management of the company for example debt financing arrangement and cash pooling
to match currency availability through the border. Treasury policies formulated to make
limitations on foreign exchange use. Monitoring and reporting every month of rating
agency metrics and financial covenants and conformity with treasury policies. Keep a
check on the impact of exchange rate movements on non-GBP profits and net debt. The
company must show that it has financial resources to finance operations secure
acquisition. The management of the company to address each of the identified risks has
taken actions so in future the company will not be hampered by the risks of the
company.
Change in Hedge Accounting Policies
IAS 39 overrides by IFRS 9 which has taken into account the choice for
accounting policy as to continue with the IAS 39 which talks about hedge accounting as
sited in paragraph 7.2.21 or it can be followed by the IFRS 9 of the paragraph 6.1.3. As
per paragraph 20A of IFRS 4 it gives some insurers temporary exemption from IFRS 9
application until IFRS 17 is applied. Rentokil Initial to make interim financial statements
follow the IAS 34 and for the annual financial statements the company follows the
International Financial Reporting Standards (IFRS). To comply with the Financial
Conduct Authority the interim and financial statements of the company made by the
application of the policies related to accounting and consolidated financial statements
must be taken into consideration for presentation. Rentokil Initial is under the hedge
accounting model in IFRS 9 which is considered as the general hedge accounting. This
hedge accounting is subjected to a forward-looking and qualitative approach. The
hedge accounting as used by the company in 2017 was under IAS 39 and in 2018 it
changed to IFRS 9. The change in accounting policy was able to meet the hedge
effectiveness as shown in the financial assets by showing the result in IAS 39 and IFRS
9 in the table under the 2018 preliminary statement.

6RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
The Company with the post-employment scheme
Rentokil Initial Plc is considered as one of the most recommended
company to work in the job market. Rentokil Initial has pension liabilities for the
employees. Employee benefits are provided under IAS 19 (Billings, O’Brien,
Woods and Vencappa 2017). Employment benefits are divided into three main
heads and they are known as the short term benefits, long term benefits, and
termination benefits. Short term paid absence for example leaves for illness and
maternity leaves, Non- monetary benefits for example free lunch and medical
care for the employees, salary and wages all are coming under the short term
benefits. Long term benefits are long term bonuses, long term service leave and
long disability benefits and post-employment benefits which can be a Pension
scheme and after retirement medical facilities. Under IAS 19, two types of
Pension plans are there defined contribution plans, defined benefits plans.
Rentokil Initial provides Pension Plan, Retirement Plan, Stock Options or Equity
and performance bonus. The company also provides lots of other benefits to the
employees. The retirement benefits for the employees are very much real
because the company has taken into account the rights of the employees which
need to be followed. The employees can get a safe work environment without
any hazards, the retirement plans are eligible to encourage the people to work
with dedication. Benefits given by the company are based on the needs of a
regular person to lead life easily without any problems. The discount rate is
known as the rate for the current cost of future pension liabilities. The pension
scheme is considered the long term plan and it is made for the employees who
are working with the company for a long period. Rentokil Initial to deal with
employees always keep in mind that the employees are the assets of the
company and it must be taken into account under retaining the employees. The
employees of the company are involved in providing fast services to the
customers. The discount rates of the company depend upon the importance of
the employee in that particular section and Rentokil Initial provides an equal pay
system to all the employees. Rentokil Initial has a good percentage profit
throughout the years because the strategies it has taken by the management
helps to grow the company in the international market and the benefits are given
to employees play a vital role in the company.
The current plans towards the employees are very much
satisfactory as the revenue growth of Rentokil Initial is at the top level.
Rentokil Initial Pension scheme is taken into consideration the hired hands
of Rentokil Initial plc and the subsidiaries. The pension scheme is known
as a Defined Benefits Scheme. The Rentokil Initial Pension Scheme 2015
in the UK is carried out every 3 years and in 2014 it was 192.2m which
increased in 2015 by 237.0m as a surplus on the balance sheet of the
group. However in 2013 a deficit of 17.8m was observed. The future of the
hired hands depends on the grade. The company gives rights to the
employees to plan for their pension and it helps to benefit the employees.
Rentokil initially allows the employer to contact the administrator of
the employee who has any complaints related to the benefits of the

7RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
company. The employee can contact the trustee of the company if he/she
is not satisfied with the help of the administrator because it consists of a
formal Internal Dispute Procedure (IDR). Dissatisfaction at this point will
lead to communication to the Pensions Advisory Service and at the last
level of authority for the company is Pensions Ombudsman. The general
rule for the Ombudsman scheme to look after a complaint need it to go
through the Internal Dispute Procedure.
Conclusion
Therefore, from the above discussion it can be said that Rentokil Initials Plc is a
leading company in the field of pest control and hygiene. It has been discussed above
that how the company evolved and extended towards the world and it has been seen
that the strategies taken by the company helped it to meet the satisfaction of the
customers. Maintaining quality and providing quick services are the key elements to
success. The International Accounting Standards Board (IASB) revised the conceptual
framework for financing reporting which issued in March 2018. The revised framework
also takes into account the IFRS interpretation committee. Annual reporting for the
revised framework will be effective on or after 1st January 2020. Rentokil Initial has full
filled the IASB revised framework. Rentokil has fulfilled the qualitative feature of useful
financial information, idea related to capital maintenance and capital. Rentokil Initial
showed the measurement bases and advice related to the use, standard for involving
assets and liabilities in a financial statement and advice to remove it on the situation
based. Rentokil Initial showed the objective of the general purpose of financial reporting.
So from the above discussion it is clear that Rentokil Initial is a perfect example for a
leading international company.

8RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS
References
André, P., Dionysiou, D. and Tsalavoutas, I., 2018. Mandated disclosures under IAS 36
Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on
analysts’ forecasts. Applied Economics, 50(7), pp.707-725.
Billings, M., O’Brien, C., Woods, M. and Vencappa, D., 2017. Discretion in accounting
for pensions under IAS 19: using the ‘magic telescope’?. Accounting and Business
Research, 47(2), pp.123-143.
Chamizo, A. and Novales Cinca, A., 2016. Credit risk decomposition for asset
allocation. The Capco Institute Journal of Financial Transformation, (43).
Clark, J.F.M., 2017. Pesticides, pollution and the UK's silent spring, 1963–1964: Poison
in the Garden of England. Notes and Records: The Royal Society Journal of the History
of Science, 71(3), pp.297-327.
D’Arcy, A. and Tarca, A., 2016. Reviewing goodwill accounting research: What do we
really know about IFRS 3 and IAS 36 implementation effects. Working paper.
Mazzi, F., Liberatore, G. and Tsalavoutas, I., 2016. Insights on CFOs’ perceptions about
impairment testing under IAS 36. Accounting in Europe, 13(3), pp.353-379.
Othon, S., Rentokil Initial PLC, 2019. Bait station for pest control. U.S. Patent
10,357,027.
Wen, H. and Moehrle, S.R., 2016. Accounting for goodwill: An academic literature
review and analysis to inform the debate. Research in Accounting Regulation, 28(1),
pp.11-21.

9RENTOKIL INITIAL PLC AND THE DIFFERENT ASPECTS