Annual Report and Accounts

16th Mar 2009 14:13



FOR IMMEDIATE RELEASE  16th March 2009

THE DAVIS SERVICE GROUP PLC

(the "Company") 

Publication of Annual Report and Accounts 2008 and Notice of Annual General Meeting 2009

The Company announces that the Company's Annual Report and Accounts in respect of the year ended 31 December 2008 and the Notice of Annual General Meeting for 2009 (to be held on 28th April 2009), are now available for viewing on the Company's website, www.dsgplc.co.uk. 

Copies of the above documents have been submitted to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility situated at:

Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS. 

Telephone: 020 7676 1000

D A Lawler

Company Secretary 

Tel: 020 7259 6663

Attached to this announcement is the information required for the purposes of compliance with the Disclosure and Transparency Rules, including the condensed IFRS financial statements for the year ended 31 December 2008 prepared in accordance with IAS 34, the principal risks and uncertainties facing the group and a responsibility statement. 

  

Information 

BUSINESS OVERVIEW (as previously announced on 27th February 2009) 

Overview of the 12 months ended 31st December 2008

We are pleased to report continued growth in 2008 for The Davis Service Group, despite the general economic downturn that progressively took hold during the second half of the year. Overall, we have delivered on the expectations we set out in our Interim Management Statement in October 2008. We have been preparing our operations for the changing economic conditions and ensuring that we are positioned to take both timely and effective action.

At the half year, we reported that 2008 had started strongly, but we could see evidence of the economic downturn developing, especially in our UK linen operations and German Healthcare. This early recognition allowed us to put in place programmes and contingency plans aimed at mitigating the adverse impacts that we subsequently encountered during the second half. We expect these difficult conditions to continue in 2009.

However, despite these challenging times, the markets we service present us with growth opportunities. We have continued our plant roll-out in Poland; we have developed our businesses in the Baltics and the Czech Republic; we have launched new services in Scandinavia and we have started construction of facilities for our two UK surgical instrument decontamination contracts which we expect will commence service during the second half of 2009.

To handle both a downturn in mature markets and growth opportunities in new markets requires focused and experienced management. At all levels, from the six man Executive Board and country Board members to local plant, sales, service and administration managers, our management team understands the requirements of our broad range of customers and will take appropriate action to address our customers' changing fortunes.

Results

Revenue increased to £953.9 million in the year, up 16% (2007: £822.1 million). Adjusted operating profit (before exceptional items and amortisation of customer contracts and intellectual property rights) was £116.6 million, compared with £106.6 million last year, an increase of 9%. We have seen a significant strengthening of the European currencies with foreign exchange benefits to revenue and adjusted operating profit of £75.8 million and £10.7 million respectively. Excluding the impact of foreign exchange, revenue grew 7% and adjusted operating profit declined by 0.7%. The underlying growth in revenue excluding acquisitions was 2%. Our net finance expense was £25.3 million compared with £16.3 million last year, reflecting the acquisitions we have made, the effect of foreign exchange and the higher variable rates in Continental European currencies which were charged during the majority of 2008. Adjusted profit before tax was £91.3 million (£90.3 million) with an overall net favourable impact of exchange rates in the year of £7.4 million. Adjusted earnings per share were 39.3 pence (38.4 pence) an increase of 2%. Our second half 2008 adjusted earnings per share of 22.2 pence (21.5 pence) showed a 3% growth.

Our tax rate on adjusted profit before tax was 26.4%, down from 27.1% last year as a result of the lower rates in Germany and the UK. Our group rate is expected to remain at around 26.5% in 2009.

In 2008 net exceptional costs totalled £11.5 million. These included restructuring costs (£6.6 million) primarily in Germany where we took action to lower the direct cost base of our Healthcare business. In particular, we announced the closure of two plants, and refocused central functions in Germany so that they are more closely aligned to the growing Workwear business. Given the current economic uncertainty, we put on hold a number of growth initiatives throughout the year, incurring exceptional costs of £2.2 million. A net cost of £2.7 million was incurred in preparing property for disposal.

Amortisation of acquired customer contracts and intellectual property rights increased to £19.4 million (£12.4 million) resulting from the acquisitions we have made both in 2008 and earlier. After these items and exceptional costs, operating profit was £85.7 million (£95.0 million), profit before taxation was £60.4 million (£78.7 million) and basic earnings per share was 24.5p compared with 37.1p in 2007.

During the year, we invested selectively in the higher growth areas of our business. Our net capital expenditure increased to £175.0 million (£169.3 million), reflecting exchange rate movements and in particular investing in new plants for Workwear and Facilities in the rapidly growing market of Poland and also commencing the construction of facilities for our UK surgical instrument decontamination contracts (£7.2 million spend in 2008). We reduced our textile spend in constant currency terms by £12 million to £115.7 million reflecting the changing economic circumstances as the year progressed. We have also continued to make improvements in the terms for sourcing of our textiles and savings of approximately £10 million were negotiated in 2008. This programme will continue into 2009 as we have identified more segments of our business that can be more economically sourced from the Far East.

Our capital expenditure programme for 2009 has identified a number of expansion opportunities but these will only be approved as the trading conditions justify. Investment in textiles is monitored closely and management are able to react to adjust these investments, which would have an immediate favourable impact on cash flow and on profitability over time.

2008 free cash flow of £47.2 million (£47.8 million) reflected the investments that have been progressively made throughout the year, including the initial investment in decontamination facilities in the UK. Free cash flow of our textile maintenance businesses was £54.6 million (£49.1 million), 11% higher than last year. Net debt at 31 December 2008 was £544.1 million (£367.1 million). The impact of exchange rates increased net borrowings by £131.4 million with continental currencies at their strongest at year end, notably the Euro at €1.03:£1. Since year end, with Sterling strengthening somewhat, the impact of exchange rates has been reduced by almost £45 million. £61.6 million was invested in acquisitions including deferred consideration and financial liabilities assumed, made primarily in the first half of the year. The group had total facilities of £788m at 31 December 2008, committed to between 2012 and 2018. Fixed borrowings totalled approximately £416 million with an average interest rate of 4.3% per annum in place until 2010 at the earliest.

We ended the year with net retirement benefit obligation liabilities for the group of £23.5 million (£5.7 million). These liabilities are primarily in the UK, Sweden, Ireland and Germany and are regularly reviewed by both the group and the pension fund trustees. The next tri-annual valuation is scheduled for February 2010.

Overall the group retains a strong balance sheet with net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) of 1.97 times at year end, compared with a covenant level of not more than 3 times.

The Board is recommending a final dividend of 13.5p, which, together with the interim dividend of 6.5p paid in October 2008, gives a total of 20.0p, an increase of 3% on last year. The dividend will be paid on 7 May 2009 to shareholders on the register at the close of business on 17 April 2009.

Nordic Region

We have seen growth in higher margin Workwear and Facilities and benefited from good continued organic growth following the investment in our sales forces.
£m	2008	2007
Revenue	326.5	263.8
Adjusted operating profit*	51.2	43.8
Adjusted operating margin*	15.7%	16.6%
*Before exceptional items and amortisation of customer contracts and intellectual property rights.

Our Nordic region covers the country operations in Denmark, Sweden (including our direct sales business Björnkläder), Norway and Finland. In January 2008, we acquired textile maintenance businesses in the Baltic countries of Estonia, Latvia and Lithuania. We are market leading across the region as a whole, with 51 plants and nearly 3,500 staff.

Revenue in our Nordic region increased 24% to £326.5 million (£263.8 million) with adjusted operating profit up 17% to £51.2 million (£43.8 million). At constant currency revenue grew 9% and adjusted operating profit 3%. Organic revenue growth excluding acquisitions was 4%. In our more developed textile markets of Denmark, Sweden and Norway our operating margin increased by 0.5% in 2008 with an increase of 1.5% in the second half, as the expected benefit of sales force investments began to be realised. In addition, we increased our margin for the year in each of these markets individually. The decrease of 0.9% in the total margin for the region reflected our investment in Finland and the Baltics countries where we incurred losses in the start up and integration phases, but where profitable growth opportunities exist.

In Denmark, we advanced further with a strong performance, delivering good organic growth in our higher margin Workwear and Facilities markets. Our Workwear business has a strong position in public services, pharmaceutical and food industries and should be relatively defensive in the current economic conditions. In Hotels we continue to work towards a lower cost operation and we completed the construction of a new hotel linen plant, which consolidated the production of two older plants. We were able to realise cash from the sale of the existing sites. This will help us in managing the lower volumes we are seeing in this market at the moment with improved efficiency.

In Sweden, we made further progress making bolt-on acquisitions in the early part of the year to strengthen our overall market position. We developed new market areas, such as local community services whose staff provide care services to people at home and new concepts such as washable shoes. However the local economic climate worsened in the second half of the year in the manufacturing sector of the economy, which is significant for our Swedish Workwear business and where we have a strong market position. We have already seen the impact of reduced employment levels on our Workwear revenues while our Healthcare and Facilities businesses continued to make progress. Hotels have also seen lower volumes, as expected.

Björnkläder is our direct Workwear and protection equipment supplies business with a strong brand and revenues of approximately £50 million. It has a network of 24 retail outlets in Sweden. There was strong growth during the first half of the year which, although it reduced in the second half, helped drive an increased operating profit for the year.

Our Norwegian business had a record year as clear leader in the growing Workwear and Facility market. The Bergen plant which opened in 2007 is operating at good capacity utilisation and saw particularly strong growth of above 20%. Overall we saw organic growth of 15%, which contributed to adjusted operating profit and margin improvements. We made good progress with our mat offering and made an acquisition in washroom services, broadening our service base.

We continued to develop our business in Finland, opening our new Helsinki plant in December, which will be the base of our operations in Finland. As expected, we incurred losses during this start up phase. During the year we entered into agreements to dispose of the final part of our flat linen business in 2009 and the focus of the business will now solely be on the Workwear and Facilities markets.

In January 2008, we entered the Baltic region with our textile service operations. We are pleased with acquisitions of mat companies in Estonia, Latvia and Lithuania where underlying sales growth is around 15%. Now fully integrated into the group, these companies will form the base for a broader product and service offering at the right time in the future.

We invested £46.9 million in new acquisitions, primarily in the first half of the year. These investments have brought new profitable customer contracts, provided useful additional capacity and have further consolidated our leading market positions, particularly in Denmark and Sweden. In addition, the investments allowed us to enter new Baltic territories with profitable growth opportunities. We believe there will be opportunities for further bolt-on acquisitions but we are particularly cautious on timing and pricing in the current environment.

Continent Region

Good organic revenue growth in Holland, Poland and German Workwear with margin development. The German Healthcare business has been restructured to address the decline in profitability.
£m	2008	2007
Revenue	226.2	191.8
Adjusted operating profit*	29.2	29.2
Adjusted operating margin*	12.9%	15.2%
*Before exceptional items and amortisation of customer contracts and intellectual property rights.

Our Continent region covers the country operations of Germany, Austria, Holland and Poland with 32 plants and 4,000 staff. In January 2008, we commenced trading through a new company in the Czech Republic. We have strong market positions in Holland, Poland and German Healthcare.

Revenue in our Continent region grew 18% to £226.2 million (£191.8 million) while adjusted operating profit was flat at £29.2 million. At constant currency, revenue grew 1% but adjusted operating profit declined by 14%. The organic revenue growth delivered by our Dutch, Polish, and German Workwear businesses was offset by the expected decline in German Healthcare. Excluding German Healthcare, where revenue was 7% lower in local currency, underlying growth was 7%. 

Germany remains a key market with revenues of approximately £135 million. The Workwear business, which now represents over 25% of total German revenue, continued to develop with top line growth of 5% and with new sales achieving the target level for the year, including a stronger second half. Adjusted operating profit margins continued to progress. Further resources were redirected to the Workwear business from Healthcare and these added costs are expected to be offset by improvements in the operational efficiency of the Workwear business. This business has a large proportion of catering and food customers, as well as public services, and these customers are expected to be more stable in the current environment. Overall, we are pleased with the progress in this part of the business, which is targeted for longer term growth in a fragmented market.

As expected the Healthcare business in Germany showed a reduction in both revenue and profits. The adjusted operating margin finished the year at 2%, down from 7% in 2007. The market continued to operate with excess capacity and during the second half of the year we reduced further the cost base in operations to align it with the lower volume and difficult pricing environment. As indicated above, we are also allocating more resource to support the growth potential in Workwear and reducing the overhead support cost in Healthcare. The restructuring, announced in December, will result in a reduction in headcount of 410, two plant closures and restructuring costs of £6.3 million. This is largely a cash cost, which will be paid in the first half of 2009. In contrast, our Healthcare business in Austria, which is more stable and has higher margins, grew its revenues.

Our business in Holland had a good result with revenue growth of 7%, primarily organic, and improved its adjusted operating margin. Holland is a competitive market for us but we captured new sales opportunities whilst retaining our existing customers by investing in our salesforce and service and by improving their efficiency. In 2008, we also invested in clean room capacity to ensure we captured the maximum opportunity in this niche, higher margin part of the business. We have a very solid business with a low customer churn rate of below 4%.

2008 was an outstanding year for our Polish business with revenue of almost £17 million, up 30%. Our new plants in Warsaw and Poznan are operating well and we have opened clean room facilities in the Poznan site, which is the first such facility in Poland to capture this growing opportunity. We commenced construction of a new plant in Wroclaw, which should be open in April 2009, and we made two bolt-on acquisitions during the year. Our growth is driven by both the high margin Workwear and mat businesses, with mats now accounting for over 20% of the total revenue.

We established a company in the Czech Republic and completed the acquisition of land for a greenfield site for Workwear and Facilities services. We are building a salesforce, which is already delivering sales and a growing order intake, which is being serviced from our plant in the south of Poland. We have also established a Slovakian company and are in the process of recruiting a salesforce.

Acquisitions in the Continent region totalled £6.7 million.

UK and Ireland

Our core textile maintenance business has performed well despite the sharp downturn in the economy. We have achieved financial close on two decontamination contracts and have commenced construction of the new sites.
£m	2008	2007
Revenue	401.2	366.5
Adjusted operating profit*	40.2	38.2
Adjusted operating margin*	10.0%	10.4%
*Before exceptional items and amortisation of customer contracts and intellectual property rights.

Our revenue grew by 10% to £401.2 million (£366.5 million) including £55.4 million (£35.6 million) from Clinical Solutions and Decontamination which has been reported as a separate segment. Organic revenue growth was 5% at the half year but ended the year at 2% because of the lower volumes in the hotel linen business. The plants in operation number 54, with 9,800 staff in the region.

Adjusted operating profit was up 5% to £40.2 million (£38.2 million), including £3.8 million (£2.9 million) for Clinical Solutions and Decontamination Services. The core textile maintenance businesses in the UK and Ireland have performed solidly, with revenue up 5% to £345.8 million (£330.9 million) and adjusted operating profit 3% higher at £36.4 million (£35.3 million) resulting in a margin of 10.5%, close to the previous year.

As indicated at the time of the Interim Announcement in August 2008, our Hotel business volumes have reduced and in the second half they were 5% lower year on year as a result of the economic downturn. The London market was particularly affected and has seen a progressive softening in the second half and into 2009. We reacted quickly and closed two plants in response. We are also redirecting capacity towards the growing hospital volumes. We took the opportunity of falling energy prices to fix and secure a majority of our gas supply for 2009 and we will seek in our pricing to recover cost inflation, which has come down from its peak in the summer. Overall the division is reacting well to the challenging economic environment.

Our Healthcare division saw revenue grow at around 10% with profits moving ahead as a result of higher volumes and improved pricing. The main drivers for this good volume growth were new contract wins from further outsourcing by NHS Trusts and the continued emphasis on cleanliness and hygiene at NHS hospitals, which has increased underlying volumes on existing contracts by 4%.

Performance in the Workwear division was stable during the year, growing revenues and benefiting from the additional contracts acquired in 2007. Opportunities for new sales remain with a significant level of new contracts signed in quarter four of 2008. This momentum will be required to offset the potential impact of lower customer volumes.

Our Sunlight business has a direct sales business with revenues of £15 million which complements primarily our hotel contract business. It was significantly impacted by the economy during the second half of the year and we took mitigating actions to reduce costs.

The Clinical Solutions and Decontamination business has continued to make good progress through the year following its integration into the group. The sterile consumables business is generating good contract wins and there is a pipeline of profitable opportunities. On a pro forma basis the business grew 7%. During the year we started the construction of the four new decontamination centres for the North West London and Kent contracts which are expected to begin operation during the second half of 2009. Capital expenditure of £7.2 million has been incurred in 2008 with £11 million expected in the first half of 2009. During 2008 we have seen progress on the NHS tendering of contracts for the National Decontamination Programme stall. The driver for outsourcing of decontamination services (investment to meet regulatory compliance) remains strong and we are committed to the opportunities that this will bring in the longer term. Our priority is to establish our existing contracts where we see the opportunity for profitable growth. 

During the year, we paid £7 million of deferred consideration to the previous owners of the business on achieving financial close on the two decontamination contract awards. No further deferred consideration is payable on this acquisition.

Our operations in Ireland grew revenue 6% in constant currency with higher adjusted operating profit margin. The business has benefited in recent years from a well executed textile management programme that has reduced textile investment and depreciation charges significantly. The Irish economy, particularly around Dublin, has been impacted by the economic downturn but we are well placed with good management to meet the challenges that this has brought. A small acquisition was transacted in Ireland for £1.0m consideration.

Outlook 

The group is well placed to meet the demands of the current testing conditions. We are responding to the economic uncertainties by taking advance action to reduce costs in those parts of the group that are most directly affected. Our balance sheet will remain robust due to the cash generative nature of our business and by close management of the group's capital expenditure. We have secure financing with approximately £190 million of headroom at year-end on our facilities which are committed until at least 2012.

Uncertain market conditions look set to continue but our management team has considerable experience and is committed to addressing the challenge. The Board remains confident in the medium and long term prospects for the group.

  

Consolidated income statement (as previously announced on 27th February 2009)

For the year ended 31st December 2008

		Notes				Year to  31st December  2008 £m				Year to  31st December 2007  £m
Continuing operations
Revenue		2				953.9				822.1
Cost of sales						(519.0)				(455.4)
Gross profit						434.9				366.7
Other operating income						0.9				3.9
Distribution costs						(180.5)				(153.4)
Administrative expenses						(135.4)				(105.5)
Other operating expenses						(34.2)				(16.7)
Operating profit		2				85.7				95.0
Analysed as:
Operating profit before exceptional items and amortisation of customer contracts and intellectual property rights		2				116.6				106.6
Exceptional items		4				(11.5)				0.8
Amortisation of customer contracts and intellectual property rights		9				(19.4)				(12.4)
Operating profit		2				85.7				95.0
Finance expense						(28.7)				(21.7)
Finance income						3.4				5.4
Profit before taxation						60.4				78.7
Taxation		5				(18.3)				(15.1)
Profit for the year						42.1				63.6
Analysed as:
Profit attributable to minority interest						0.4				0.4
Profit attributable to equity shareholders						41.7				63.2
Earnings per share expressed in pence per share
- Basic		7				24.5				37.1
- Diluted		7				24.5				37.0

  Consolidated statement of recognised income and expense (as previously announced on 27th February 2009)

For the year ended 31st December 2008

		Notes				Year to 31st December 2008 £m				Year to 31st December 2007 £m
Profit for the year						42.1				63.6
Exchange adjustments offset in reserves		13				38.8				13.3
Actuarial (losses)/gains recognised in the pension scheme						(17.8)				23.1
Gain on cash flow hedges		13				3.7				3.3
Tax on items taken directly to equity						3.7				(11.3)
Net gains not recognised in income statement						28.4				28.4
Total recognised income for the year						70.5				92.0
Attributable to:
Minority interest						0.4				0.4
Equity shareholders						70.1				91.6

  Consolidated balance sheet (as previously announced on 27th February 2009)

As at 31st December 2008

		Notes				As at  31st December 2008 £m				As at  31st December 2007 £m
Assets
Goodwill		8				488.0				383.7
Other intangible assets		9				55.6				40.1
Property, plant and equipment		10				576.6				469.4
Assets classified as held for sale						3.3				2.2
Deferred tax assets						16.6				9.0
Derivative financial instruments						54.5				3.5
Trade and other receivables						3.6				-
Pension scheme surplus		17				6.9				12.9
Total non-current assets						1,205.1				920.8
Inventories						43.4				30.6
Income tax receivable						8.5				10.5
Derivative financial instruments						1.1				0.4
Trade and other receivables						171.7				161.7
Cash and cash equivalents						72.5				82.2
Total current assets						297.2				285.4
Liabilities
Interest bearing loans and borrowings		11				(3.9)				(3.9)
Derivative financial instruments						(0.2)				(0.6)
Income tax payable						(20.7)				(16.2)
Trade and other payables						(208.0)				(188.7)
Provisions		12				(5.8)				(0.6)
Total current liabilities						(238.6)				(210.0)
Net current assets						58.6				75.4
Interest bearing loans and borrowings		11				(612.7)				(445.4)
Derivative financial instruments						(49.2)				(15.4)
Pension scheme deficits		17				(30.4)				(18.6)
Deferred tax liabilities						(72.8)				(56.7)
Provisions		12				(2.5)				-
Total non-current liabilities						(767.6)				(536.1)
Net assets						496.1				460.1
Equity
Share capital		13				51.4				51.4
Share premium		13				95.6				95.5
Other reserves		13				11.1				8.4
Capital redemption reserve		13				150.9				150.9
Retained earnings		13				183.7				151.7
Total shareholders' equity		13				492.7				457.9
Minority interest in equity		13				3.4				2.2
Total equity		13				496.1				460.1

  Consolidated cash flow statement (as previously announced on 27th February 2009)

For the year ended 31st December 2008

				Notes				Year to 31st December 2008 £m				Year to  31st December 2007 £m
		Cash flows from operating activities
		Cash generated from operations		14				262.8				246.4
		Interest paid						(28.1)				(21.0)
		Interest received						3.4				5.4
		Income tax paid						(15.9)				(13.7)
		Net cash generated from operating activities						222.2				217.1
		Cash flows from investing activities
		Acquisition of subsidiaries, net of cash acquired		16				(50.3)				(103.7)
		Purchases of property, plant and equipment						(175.5)				(172.1)
		Proceeds from the sale of property, plant and equipment		14				6.0				8.0
		Purchases of intangible assets		9				(5.5)				(5.2)
		Special pension contribution payments						-				(12.5)
		Receipt of loan notes						-				0.4
		Net cash used in investing activities						(225.3)				(285.1)
		Cash flows from financing activities
		Net proceeds from issue of ordinary share capital						0.1				2.1
		Purchase of treasury shares and own shares by the Employee Benefit Trust						(2.1)				(1.1)
		Drawdown of borrowings						25.2				34.6
		Repayment of finance leases/hire purchase liabilities						(4.1)				(3.4)
		Dividends paid to company's shareholders						(33.8)				(31.4)
		Dividends paid to minority interest						(0.1)				(0.1)
		Net cash (used in)/generated from financing activities						(14.8)				0.7
		Net decrease in cash						(17.9)				(67.3)
		Cash at beginning of year						82.2				149.7
		Exchange gains/(losses) on cash						8.2				(0.2)
		Cash at end of year						72.5				82.2
		Free cash flow						47.2				47.8
		Analysis of free cash flow
		Net cash generated from operating activities						222.2				217.1
		Purchases of property, plant and equipment						(175.5)				(172.1)
		Proceeds from the sale of property, plant and equipment						6.0				8.0
		Purchases of intangible assets						(5.5)				(5.2)
		Free cash flow from continuing operations						47.2				47.8

  Notes to the consolidated financial statements

1 Basis of preparation

The consolidated financial statements for the year ended 31st December 2008 have been approved by the directors and prepared in accordance with EU endorsed International Financial Reporting Standards ('IFRS') and interpretations of the International Financial Reporting Interpretations Committee ('IFRIC'). The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, with the exception of certain items which are measured at fair value.

The Davis Service Group Plc's Report and Accounts 2008 will be posted to shareholders on 16th March 2009. The financial information set out herein does not constitute the financial statements for the year ended 31 December 2008 but is derived from those financial statements and the accompanying directors' report. The financial statements for 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 28th April 2009. The auditors have reported on the financial statements; the report was unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985.

The comparative figures for the year ended 31 December 2007 are not the financial statements for the financial year but are derived from those accounts which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report was unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985.

2 Segment information (as previously announced on 27th February 2009)

(a) Primary reporting format - business segments 

Following a review of the reportable segments, the directors consider that the group now has two business segments: textile maintenance and clinical solutions and decontamination. The clinical solutions and decontamination business segment includes the Sunlight theatre textile business. The prior year results have been restated accordingly.

Based on the risks and returns the directors consider that the primary reporting format is by business segment and that the secondary reporting format is by geographical analysis by origin and destination. We provide additional disclosure for our secondary segment below.

The segment results for the year ended 31st December 2008 are as follows:

		Continuing operations		Textile maintenance Nordic £m				Textile maintenance Continent £m				Textile maintenanceUK and Ireland £m				Total textile maintenance £m				Clinical solutions anddecontamination £m				Unallocated £m				Group £m
		Revenue		326.5				226.2				345.8				898.5				55.4				-				953.9
		Operating profit before  exceptional items and  amortisation of customer contracts  and intellectual  property rights		51.2				29.2				36.4				116.8				3.8				(4.0)				116.6
		Exceptional items		(1.6)				(6.8)				(2.1)				(10.5)				-				(1.0)				(11.5)
		Amortisation of customer contracts  and intellectual  property rights		(7.6)				(7.1)				(4.7)				(19.4)				-				-				(19.4)
		Segment result		42.0				15.3				29.6				86.9				3.8				(5.0)				85.7
		Net finance expense																										(25.3)
		Profit before taxation																										60.4
		Taxation																										(18.3)
		Profit for the year																										42.1
		Profit attributable to minority interests																										0.4
		Profit attributable to equity shareholders																										41.7
		Capital expenditure		97.5				45.0				69.4				211.9				9.0				-				220.9
		Depreciation		44.0				42.3				67.0				153.3				3.5				0.1				156.9
		Amortisation		9.6				7.3				4.8				21.7				1.0				-				22.7

Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations.

  2 Segment information continued

The segment results for the year ended 31st December 2007 were as follows:

		Continuing operations		Total maintenance  Nordic £m				Total maintenance Continent £m				Total maintenanceUK and Ireland £m				Total textile maintenance £m				Clinical solutions and decontamination £m				Unallocated £m				Group £m
		Revenue		263.8				191.8				330.9				786.5				35.6				-				822.1
		Operating profit before exceptional items and amortisation of  customer contracts  and intellectual  property rights		43.8				29.2				35.3				108.3				2.9				(4.6)				106.6
		Exceptional items		-				(2.1)				2.6				0.5				-				0.3				0.8
		Amortisation of customer contracts  and intellectual  property rights		(3.6)				(5.1)				(3.7)				(12.4)				-				-				(12.4)
		Segment result		40.2				22.0				34.2				96.4				2.9				(4.3)				95.0
		Net finance expense																										(16.3)
		Profit before taxation																										78.7
		Taxation																										(15.1)
		Profit for the year																										63.6
		Profit attributable to minority interests																										0.4
		Profit attributable to equity shareholders																										63.2
		Capital expenditure		56.2				69.2				99.3				224.7				2.9				-				227.6
		Depreciation		37.3				38.8				64.7				140.8				3.0				0.1				143.9
		Amortisation		4.6				5.7				3.8				14.1				0.5				-				14.6

The segment assets and liabilities at 31st December 2008 are as follows:

		Textile maintenance Nordic £m				Textile maintenance Continent £m				Textile maintenanceUK and Ireland £m				Total textile maintenance £m				Clinical solutions anddecontamination £m				Unallocated £m				Group £m
Operating assets		617.9				394.6				308.3				1,320.8				84.8				5.8				1,411.4
Deferred tax assets		4.5				6.0				5.0				15.5				-				1.1				16.6
Income tax assets		0.2				0.2				0.6				1.0				-				7.5				8.5
Non-current assets held for sale		0.7				1.4				1.2				3.3				-				-				3.3
Derivative financial instruments		0.4				-				0.7				1.1				-				54.5				55.6
Pension scheme surplus		-				-				-				-				-				6.9				6.9
Total assets		623.7				402.2				315.8				1,341.7				84.8				75.8				1,502.3
Operating liabilities		77.1				51.7				42.9				171.7				34.9				9.7				216.3
Bank loans and  finance leases		4.1				3.3				7.1				14.5				-				602.1				616.6
Derivative financial instruments		-				-				-				-				-				49.4				49.4
Deferred tax liabilities		31.1				20.3				16.8				68.2				-				4.6				72.8
Income tax liabilities		8.4				3.5				3.0				14.9				0.4				5.4				20.7
Pension scheme deficit		21.6				3.9				4.9				30.4				-				-				30.4
Total liabilities		142.3				82.7				74.7				299.7				35.3				671.2				1,006.2

  2 Segment information continued

The segment assets and liabilities at 31st December 2007 were as follows:

		Textile maintenance Nordic £m				Textile  maintenance Continent £m				Textile maintenance UK and Ireland £m				Total textile maintenance £m				Clinical solutions and decontamination £m				Unallocated £m				Group £m
Operating assets		448.0				293.0				317.1				1,058.1				74.4				35.2				1,167.7
Deferred tax assets		2.9				2.5				3.6				9.0				-				-				9.0
Income tax assets		-				0.1				1.2				1.3				0.2				9.0				10.5
Non-current assets held for sale		-				1.0				1.2				2.2				-				-				2.2
Derivative financial instruments		-				-				-				-				-				3.9				3.9
Pension scheme surplus		-				-				-				-				-				12.9				12.9
Total assets		450.9				296.6				323.1				1,070.6				74.6				61.0				1,206.2
Opening liabilities		57.2				34.3				61.5				153.0				30.2				6.1				189.3
Bank loans and  finance leases		3.3				3.4				7.4				14.1				0.1				435.1				449.3
Derivative financial instruments		-				-				-				-				-				16.0				16.0
Deferred tax liabilities		23.0				12.8				19.2				55.0				-				1.7				56.7
Income tax liabilities		3.9				2.2				0.3				6.4				-				9.8				16.2
Pension scheme deficit		14.2				3.2				1.2				18.6				-				-				18.6
Total liabilities		101.6				55.9				89.6				247.1				30.3				468.7				746.1

Segment assets consist primarily of property, plant and equipment, goodwill, other intangible assets, inventories, receivables and cash. Assets such as investments, pension scheme surplus, deferred tax assets, income tax assets and assets classified as held for sale are separately identified.

Segment liabilities comprise operating liabilities and separately identify pension scheme deficits, deferred tax liabilities, income tax liabilities and corporate borrowings.

Unallocated assets include segment assets as above for corporate entities.

Unallocated liabilities include segment liabilities as above for corporate entities.

(b) Secondary reporting format - geographical segments 

The group's operations are based in three main geographical areas. The UK is the home country of the parent. The main operations are in the principal following territories:

- Nordic 

- Continent

- UK and Ireland

The relevant information is given as part of the primary segment disclosure.

The group's revenue from the provision of services is 93% (2007: 93%).

3 Net finance costs

		Year to 31st December 2008 £m				Year to 31st December 2007 £m
Interest payable on bank borrowings		(26.7)				(20.0)
Interest payable on finance leases		(0.7)				(0.6)
Interest payable on other borrowings		(1.0)				(0.8)
Amortisation of issue costs of bank loans (note i)		(0.3)				(0.3)
Fair value gains on interest rate swaps (fair value hedge)		4.3				0.9
Fair value adjustment of bank borrowings attributable to interest rate risk		(4.3)				(0.9)
Finance expense		(28.7)				(21.7)
Finance income		3.4				5.4
Net finance costs		(25.3)				(16.3)

(i) This relates to loan issue costs arising on the Revolving Credit Facility and the US Private Placement which have been capitalised and will be amortised over the shortest period of the loan being five years and eight years respectively. During the year the group put in place a further €200 million Revolving Credit Facility. The loan issue costs arising have been capitalised and will be amortised by June 2012.

  4 Exceptional items (as previously announced on 27th February 2009)

Included within other operating expenses are the following items which the group considers to be exceptional:

		Year to 31st December 2008 £m				Year to 31st December 2007 £m
Restructuring costs		6.6				2.1
Loss/(profit) on property disposals		2.7				(2.6)
Growth initiatives written off		2.2				-
Income from receipt of loan notes		-				(0.3)
Total		11.5				(0.8)

The restructuring costs relate primarily to Germany where the Healthcare business has undergone a significant reorganisation to lower the direct cost base. Central functions have been refocused to more closely align to the Workwear business. The cost comprises largely of employee termination payments. The tax credit on this is £0.5 million (2007: £0.8 million).

During the year net charges have been incurred for property disposals. This includes the closure of properties which are expected to be sold and realise an overall net profit in the future. The tax credit on this is £0.7 million (2007: charge of £0.3 million).

During the year the group incurred costs in relation to a number of growth initiatives and development investments. However, due to the current economic uncertainty these projects have been terminated or put on hold. The tax credit on this is £0.3 million.

In 2007, the group received a net settlement of loan notes amounting to £0.3 million, in relation to a previous disposal which had previously been fully provided. There was no tax charge.

5 Taxation (as previously announced on 27th February 2009)

		Year to 31st December 2008 £m				Year to 31st December 2007 £m
Analysis of tax charge for the year
Current tax:
Tax on profits for the current year		20.5				17.7
Adjustments in respect of previous years		(0.1)				(0.3)
		20.4				17.4
Deferred tax:
Origination and reversal of temporary differences		(1.2)				2.9
Changes in statutory tax rates		(0.9)				(4.9)
Credit due to previously unrecognised temporary differences		-				(0.3)
Adjustment due to review of deferred tax assets		0.4				-
Adjustments in respect of previous years		(0.4)				-
		(2.1)				(2.3)
Total tax charge on continuing operations		18.3				15.1

The amount of overseas tax included in the total tax charge is £16.6 million (2007: £12.1 million).

6 Dividends (as previously announced on 27th February 2009)

	Year to 31st December 2008 £m		Year to 31st December 2007 £m
Equity dividends paid during the year
Final dividend for the year ended 31st December 2007 of 13.3 pence per share (2006: 12.4 pence)	22.7		21.1
Interim dividend for the year ended 31st December 2008 of 6.5 pence per share (2007: 6.1 pence)	11.1		10.3
	33.8		31.4
Proposed final equity dividend for approval at the AGM
Proposed final dividend for the year ended 31st December 2008 of 13.5 pence per share (2007: 13.3 pence)	22.9		22.7

The directors recommend a final dividend for the financial year ended 31st December 2008 of 13.5 pence per ordinary share to be paid on 7th May 2009 to shareholders who are on the register at 17th April 2009. This dividend is not reflected in these financial statements as it does not represent a liability at 31st December 2008.

  7 Earnings per share (as previously announced on 27th February 2009)

Basic earnings per ordinary share are based on the group profit for the year and a weighted average of 170,099,000 (2007: 170,101,043) ordinary shares in issue during the year.

Diluted earnings per share are based on the group profit for the year and a weighted average of ordinary shares in issue during the year calculated as follows:

	31st December 2008 Number of shares		31st December 2007 Number of shares
In issue	170,099,000		170,101,043
Dilutive potential ordinary shares arising from unexercised share options	197,867		671,998
	170,296,867		170,773,041

An adjusted earnings per ordinary share figure has been presented to eliminate the effects of exceptional items and amortisation of customer contracts and intellectual property rights. This presentation shows the trend in earnings per ordinary share that is attributable to the underlying trading activities of the total group.

The reconciliation between the basic and adjusted figures for the group is as follows:

		Year to 31st December 2008								Year to 31st December 2007
		£m				Earnings per share pence				£m				Earnings per share pence
Profit attributable to equity shareholders of the company  for basic earnings per share calculation		41.7				24.5				63.2				37.1
Loss/(profit) on property disposals (after taxation)		2.0				1.2				(2.3)				(1.3)
Exceptional income (after taxation)		-				-				(0.3)				(0.2)
Restructuring costs (after taxation)		6.1				3.6				1.3				0.8
Growth initiatives written off (after taxation)		1.9				1.1				-				-
Amortisation of customer contracts and intellectual property rights (after taxation)		14.4				8.5				8.4				4.9
Exceptional net tax effect due to changes in statutory tax rates and tax laws		0.7				0.4				(4.9)				(2.9)
Adjusted earnings		66.8				39.3				65.4				38.4
Diluted basic earnings						24.5								37.0

  8 Goodwill

		2008 £m				2007 £m
Cost
At 1st January		409.5				325.6
Acquisitions (note 16)		23.6				72.2
Currency translation		92.2				11.7
At 31st December		525.3				409.5
Aggregate impairment
At 1st January		25.8				28.6
Currency translation		11.5				(2.8)
At 31st December		37.3				25.8
Net book amount at 31st December		488.0				383.7

During the year, goodwill was tested for impairment in accordance with IAS 36 'Impairment of assets'. Following the impairment test, it was determined that no impairment was required (2007: nil). 

The recoverable amount for cash generating units has been measured based on a value-in-use calculation. A weighted average pre-tax discount rate of 11.0% (2007: 11.0%) was used in the value-in-use calculation. 

The allocation of goodwill to cash generating units (CGU) by geographical segments is as follows:

	As at 31st December 2008 £m		As at 31st December 2007 £m
UK and Ireland	74.7		74.0
Nordic	253.7		193.1
Continent	159.6		116.6
Total	488.0		383.7

In testing goodwill for impairment, the recoverable amount of each CGU's goodwill is calculated, based on an estimate of their discounted future cash flows. Future cash flows are based on board approved budgets and strategic plans for a period of the next three years. Forecasts for the following years are conservatively extrapolated based on the growth rate and profitability outlined in the approved plans.

The following key assumptions in the value-in-use calculations were uniformly applied to each CGU:

- Budgeted revenue and salary growth was based on the group's approved budgets and strategic plans between 2009 and 2011.

- Budgeted margin between 2009 and 2011 was based on the average achieved margin in the 12 month period before the budget period uplifted

for expected efficiency improvements which management believes are reasonably achievable.

- Prior to 2011, growth rates in excess of 10% are assumed in the developing countries where the group operates. This reflects the rate of growth

historically in such countries and the significant potential for growth in the textile maintenance market.

- Growth rates reflected within the cash flows after 2011 have been increased in line with historic GDP growth for the appropriate country in

determining the appropriate terminal value multiple.

	UK and Ireland		Nordic		Continent
Revenue growth after 2011	2.3%		2.3%		Up to 2.3%
Salary growth after 2011	2.3%		2.3%		Up to 2.3%

Management are of the opinion that it does not currently foresee a change in the key assumptions it has employed when determining the value-in-use calculations would result in any impairment.

The German Healthcare division has undergone significant restructuring in the second half of 2008 and from 2009 will be managed as a separate business with its own management board. An impairment review in accordance with the approach and assumptions outlined above has been carried out on the division and no impairment was recognised as the recoverable amount of goodwill and net assets exceeded its carrying value by 8%. The key assumptions used for the value-in-use calculation are as follows:

- A small revenue decline from 2008 level is assumed in 2009 and 2010 and to remain flat thereafter.

- As a result of the restructuring programmes implemented in 2008 and further efficiency improvement initiatives, operating margins have been

assumed to grow from 2% in 2008 to double digit in the medium term in line with those previously achieved.

If the above assumptions are not achieved then impairment may become necessary.

  9 Other intangible assets

		Computer software £m				Intellectual property rights £m				Customer contracts £m				Total £m
Cost
At 1st January 2008		22.0				1.4				49.0				72.4
Acquisitions (note 16)		-				-				25.6				25.6
Additions		5.5				-				-				5.5
Disposals		(0.2)				-				-				(0.2)
Currency translation		3.7				-				12.9				16.6
At 31st December 2008		31.0				1.4				87.5				119.9
Aggregate amortisation
At 1st January 2008		10.2				1.2				20.9				32.3
Charge for the year		3.3				0.2				19.2				22.7
Disposals		(0.2)				-				-				(0.2)
Currency translation		2.8				-				6.7				9.5
At 31st December 2008		16.1				1.4				46.8				64.3
Net book amount at 31st December 2008		14.9				-				40.7				55.6
Net book amount at 31st December 2007		11.8				0.2				28.1				40.1

		Computer software £m				Intellectual property  rights £m				Customer contracts £m				Total £m
Cost
At 1st January 2007		16.4				1.4				27.7				45.5
Acquisitions		-				-				19.3				19.3
Additions		4.8				-				0.4				5.2
Currency translation		0.8				-				1.6				2.4
At 31st December 2007		22.0				1.4				49.0				72.4
Aggregate amortisation
At 1st January 2007		7.4				0.8				7.8				16.0
Charge for the year		2.2				0.4				12.0				14.6
Currency translation		0.6				-				1.1				1.7
At 31st December 2007		10.2				1.2				20.9				32.3
Net book amount at 31st December 2007		11.8				0.2				28.1				40.1
Net book amount at 31st December 2006		9.0				0.6				19.9				29.5

All amortisation charges have been charged through other operating expenses. The following useful lives have been determined for the intangible assets acquired during the year:

Computer software - three to five years.

Intellectual property rights - three to five years.

Customer contracts - two to five years.

10 Property, plant and equipment

		Land and buildings £m				Plant and machinery  £m				Textile  assets and washroom equipment  £m				Total £m
Cost
At 1st January 2008		177.1				416.3				530.2				1,123.6
Additions at cost		18.6				45.0				115.7				179.3
Acquisitions (note 16)		2.5				5.3				2.7				10.5
Disposals		(2.9)				(15.2)				(74.6)				(92.7)
Assets classified as held for sale		(0.6)				-				-				(0.6)
Currency translation		42.8				67.6				94.4				204.8
At 31st December 2008		237.5				519.0				668.4				1,424.9
Accumulated depreciation
At 1st January 2008		57.8				258.5				337.9				654.2
Charge for the year		5.9				35.5				115.5				156.9
Disposals		(0.5)				(13.2)				(73.6)				(87.3)
Currency translation		16.0				45.5				63.0				124.5
At 31st December 2008		79.2				326.3				442.8				848.3
Net book amount at 31st December 2008		158.3				192.7				225.6				576.6
Net book amount at 31st December 2007		119.3				157.8				192.3				469.4

10 Property, plant and equipment continued

		Land and buildings £m				Plant and machinery  £m				Textile  assets and washroom equipment £m				Total £m
Cost
At 1st January 2007		148.3				360.1				425.2				933.6
Additions at cost		8.8				47.6				121.2				177.6
Acquisitions		11.3				7.7				6.5				25.5
Disposals		(1.2)				(17.7)				(48.7)				(67.6)
Currency translation		9.9				18.6				26.0				54.5
At 31st December 2007		177.1				416.3				530.2				1,123.6
Accumulated depreciation
At 1st January 2007		49.3				230.8				261.2				541.3
Charge for the year		5.1				32.2				106.6				143.9
Disposals		(0.6)				(16.5)				(47.7)				(64.8)
Currency translation		4.0				12.0				17.8				33.8
At 31st December 2007		57.8				258.5				337.9				654.2
Net book amount at 31st December 2007		119.3				157.8				192.3				469.4
Net book amount at 31st December 2006		99.0				129.3				164.0				392.3

Plant and machinery net book value includes assets held under finance leases of £10.5 million (2007: £10.1 million). Additions in the year include £3.8 million relating to finance leases (2007: £5.4 million).

11 Financial liabilities - borrowings

Current	As at 31st December 2008 £m		As at 31st December 2007 £m
Bank loans:
Unsecured	0.5		0.4
	0.5		0.4
Finance lease obligations	3.4		3.5
	3.9		3.9

Non-current	As at 31st December 2008 £m		As at 31st December 2007 £m
Bank loans:
Unsecured	605.3		438.3
	605.3		438.3
Finance lease obligations	7.4		7.1
	612.7		445.4

Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the currency in which the borrowing is incurred together with a margin as appropriate.

The effective interest rates (EIR) for the group's bank borrowings (including interest rate swaps) by currency at the balance sheet date were as follows:

		As at 31st December 2008								As at 31st December 2007
		£m				EIR %				£m				EIR %
Borrowings under the revolving credit facility
Euro		248.5				4.05				156.6				3.79
Danish krone		53.8				4.57				69.3				5.19
Swedish krona		123.1				5.08				84.2				4.79
		425.4				4.41				310.1				4.37
Borrowings under the US private placement
Euro		73.1				4.36				55.3				4.36
Danish krone		61.8				5.39				43.7				4.79
Swedish krona		62.7				4.32				55.1				4.32
Currency translation		(19.7)				-				(28.0)				-
		177.9				4.67				126.1				4.47
Unamortised loan costs		(1.2)				-				(1.1)				-
Other bank borrowings
Euro		3.2				5.26				3.2				5.06
		605.3				4.50				438.3				4.41

On 22nd August 2008, the group entered into a €200 million revolving credit facility with five of its existing relationship banks. The facility will expire on 23rd June 2012 in line with the existing £420 million revolving credit facility.

 

11 Financial liabilities - borrowings continued

Maturity of financial liabilities

		As at 31st December 2008												As at 31st December 2007
		Borrowings £m				Finance leases £m				Total £m				Borrowings £m				Finance leases £m				Total £m
Within one year		0.5				3.4				3.9				0.4				3.5				3.9
In more than one year but not more than two years		0.1				3.5				3.6				0.4				2.8				3.2
Over two years but not more than five years		425.9				3.9				429.8				311.4				4.3				315.7
Over five years		179.3				-				179.3				126.5				-				126.5
		605.8				10.8				616.6				438.7				10.6				449.3

Borrowing facilities 

The group has the following undrawn committed borrowing facilities available at 31st December and on which it incurs commitment fees at market rates:

		As at 31st December 2008 £m				As at 31st December 2007 £m
Expiring in more than two years		189.3				109.9
		189.3				109.9

12 Provisions

		Vacant properties £m				Restructuring £m				Property disposals £m		Total £m
At 1st January 2008		0.3				0.3				-		0.6
Charged in the year		-				6.6				-		6.6
Utilised in the year		(0.1)				(2.3)				-		(2.4)
Reclassification from other creditors		-				-				2.5		2.5
Currency translation		-				1.0				-		1.0
At 31st December 2008		0.2				5.6				2.5		8.3

All provisions except for the property disposal provisions are current in nature.

Vacant properties 

Vacant property provisions are made in respect of vacant and partly sub-let leasehold properties to the extent that the future rental payments are expected to exceed future rental income. It is further assumed, where reasonable, that the properties will be able to be sub-let beyond the present sub-let lease agreements. In determining the vacant property provision, the cash flows have been discounted on a pre-tax basis using the appropriate government bond rates.

Restructuring 

Restructuring provisions comprise largely of employee termination payments. Provisions are not recognised for future operating losses.

Property disposals

The group has outstanding warranties, indemnities and guarantees given previously on a number of properties operated by businesses which have been disposed. The majority of these expire in 2017 with the remaining expiring by 2022.

  13 Shareholders' funds and statement of changes in shareholders' equity (as previously announced on 27th February 2009)

		Attributable to shareholders of the company																										Minority interest £m				Total equity £m
		Share capital £m						Share premium £m				Other reserves £m				Capital redemption reserve £m				Retained earnings £m				Total £m
At 1st January 2007		51.2						93.6				5.8				150.9				95.1				396.6				1.7				398.3
Issue of share capital in respect of share  option schemes		0.2						1.9				-				-				-				2.1				-				2.1
Purchase of  treasury shares		-						-				-				-				(1.1)				(1.1)				-				(1.1)
Dividends		-						-				-				-				(31.4)				(31.4)				(0.1)				(31.5)
Actuarial gains		-						-				-				-				23.1				23.1				-				23.1
Value of employee  service in respect of share option schemes  and share awards		-						-				-				-				0.6				0.6				-				0.6
Cash flow hedges		-						-				3.3				-				-				3.3				-				3.3
Tax on items taken  directly to equity		-						-				(0.7)				-				(10.9)				(11.6)				-				(11.6)
Profit for the year		-						-				-				-				63.2				63.2				0.4				63.6
Currency translation		-						-				-				-				13.1				13.1				0.2				13.3
At 31st December 2007		51.4						95.5				8.4				150.9				151.7				457.9				2.2				460.1
Issue of share capital in respect of share  option schemes				-				0.1				-				-				-				0.1				-				0.1
Purchase of own shares by the Employee Benefit Trust				-				-				-				-				(2.1)				(2.1)				-				(2.1)
Dividends				-				-				-				-				(33.8)				(33.8)				(0.1)				(33.9)
Actuarial losses				-				-				-				-				(17.8)				(17.8)				-				(17.8)
Value of employee  service in respect of share option schemes  and awards				-				-				-				-				1.8				1.8				-				1.8
Cash flow hedges				-				-				3.7				-				-				3.7				-				3.7
Tax on items taken  directly to equity				-				-				(1.0)				-				4.3				3.3				-				3.3
Profit for the year				-				-				-				-				41.7				41.7				0.4				42.1
Currency translation				-				-				-				-				37.9				37.9				0.9				38.8
At 31st December 2008				51.4				95.6				11.1				150.9				183.7				492.7				3.4				496.1

As at 31st December 2008 the company held 1,025,000 (2007: 1,025,000) treasury shares. The Employee Benefit Trust held 441,873 (2007:nil) shares that had been purchased during the year.

  14 Cash flow from operating activities (as previously announced on 27th February 2009)

Reconciliation of operating profit to net cash inflow from operating activities:

										Total group
Cash generated from operations										Year to 31st December 2008 £m				Year to 31st December 2007 £m
Profit for the year										42.1				63.6
Adjustments for:
Taxation										18.3				15.1
Amortisation of intangible fixed assets										22.7				14.6
Depreciation of tangible fixed assets										156.9				143.9
Loss/(profit) on property disposals										2.7				(2.6)
Profit on sale of plant and equipment										(0.6)				(0.9)
Restructuring costs										6.6				-
Growth initatives written off (non-cash element)										0.3				-
Profit on loan notes										-				(0.3)
Negative goodwill										-				(1.1)
Finance income										(3.4)				(5.4)
Finance expense										28.7				21.7
Other non cash movements										(1.0)				0.6
Changes in working capital (excluding effect of acquisitions,  disposals and exchange differences on consolidation):
Inventories										(7.4)				(4.6)
Trade and other receivables										13.0				(14.8)
Trade and other payables										(13.7)				17.4
Provisions										(2.4)				(0.8)
Cash generated from operations										262.8				246.4

In the cash flow statement, proceeds from sale of property, plant and equipment comprise: 

					Year to 31st December 2008 £m		Year to 31st December 2007 £m
Net book amount					5.4		2.8
Profit on sale of property, plant and equipment					0.6		0.9
Proceeds from sale of property, plant and equipment					6.0		3.7

Additionally, in 2007, the group received £4.3 million in respect of assets held for disposal.

15 Reconciliation of net cash flow to movement in net debt (as previously announced on 27th February 2009)

		Year to 31st December 2008 £m				Year to 31st December 2007 £m
Decrease in cash		(17.9)				(67.3)
Cash outflow from movement in debt and lease financing		(21.1)				(31.2)
Changes in net debt resulting from cash flows		(39.0)				(98.5)
New finance leases		(3.8)				(5.5)
Bank loans and lease obligations acquired with subsidiaries (note 16)		(2.8)				(4.7)
Currency translation		(131.4)				(21.2)
Movement in net debt in year		(177.0)				(129.9)
Net debt at beginning of year		(367.1)				(237.2)
Net debt at end of year		(544.1)				(367.1)

  16 Acquisitions (as previously announced on 27th February 2009)

During the year the group acquired a number of textile maintenance businesses in existing territories as well as in the Baltic countries of Latvia, Lithuania and Estonia.

Details of the carrying values and provisional fair values of the assets and liabilities are set out below:

		Carrying values pre-acquisition £m				Provisional fair values £m
Intangible fixed assets		2.4				25.6
Property, plant and equipment		9.0				10.5
Inventories		1.5				0.6
Receivables		4.0				3.6
Payables		(3.7)				(4.0)
Taxation
- Current		(0.3)				(0.2)
- Deferred		(0.6)				(5.3)
Cash and cash equivalents		1.5				1.5
Overdrafts		(0.5)				(0.5)
Bank loans		(2.3)				(2.3)
Lease finance obligations		(0.5)				(0.5)
Net assets acquired		10.5				29.0
Goodwill						23.6
Consideration						52.6
Consideration satisfied by:
Cash						43.2
Deferred consideration						8.5
Legal and professional fees						0.9
						52.6

The goodwill arising on these acquisitions is attributable to the acquired work force and the expected synergies to be achieved. The fair values contain some provisional amounts which will be finalised in the 2009 accounts.

The outflow of cash and cash equivalents on acquisition is calculated as follows:

		£m
Cash consideration		44.1
Cash acquired		(1.5)
Overdrafts		0.5
Deferred consideration paid for 2007 acquisitions		7.2
		50.3

The total consideration including net financial liabilities assumed and deferred consideration payable for the acquisitions is £61.6 million. The intangible assets acquired relate primarily to values attributed to customer contracts. 

Shown below are the revenues and profit for the year after tax as if the above acquisitions had been made at the beginning of the period. The information may not be indicative of the results of operations that would have occurred had the purchase been made at the beginning of the period presented or the future results of the combined operations.

	2008 £m
Revenue	23.4
Profit after tax	0.7

From the date of acquisition to 31st December 2008, the above acquisitions contributed £18.8 million to revenue and £0.5 million to the profit after tax for the year.

  17 Pension commitments

Defined benefit plans 

Within the United Kingdom, the group principally operates a registered defined benefit scheme (The Davis Service Group Retirement Benefits Scheme). There was a triennial valuation in February 2007.

Overseas, the only significant pension arrangements are the defined benefit scheme operated in Ireland and unfunded schemes within Sweden, Germany and Norway. Under such schemes the group discharges its pension obligations through schemes administered by insurance companies or government agencies.

The overall surplus on the funded plans is £2.0 million (of which £6.9 million is in respect of the main UK plan). There is a deficit of £25.5 million on unfunded plans.

	As at 31st December 2008 £m		As at 31st December 2007 £m
The amounts recognised in the balance sheet are determined as follows:
Present value of obligations	(203.4)		(216.0)
Fair value of plan assets	179.9		210.3
Net liability recognised in balance sheet	(23.5)		(5.7)
Analysed as:
Pension scheme surplus	6.9		12.9
Pension scheme deficit and unfunded schemes	(30.4)		(18.6)
	(23.5)		(5.7)

18 Contingent liabilities (as previously announced on 27th February 2009)

The group operates from 137 laundries across Europe. Some of the sites have operated as laundry sites for many years and historic environmental liabilities may exist, although the group has indemnities from third parties in respect of a number of sites. Such liabilities are not expected to give rise to any significant loss.

19 Related parties

There have been no significant related party transactions in the year ended 31st December 2008 (2007: nil).

20 Principal risks and uncertainties

The group has established procedures for the identification, evaluation, management and monitoring of risks. We have identified a number of potential risks and uncertainties which could have a significant impact on the group's trading, operational performance or financial position. These principal risks and uncertainties, and the procedures we have or are taking to manage them, include the following:

Risk description		Potential impact		Mitigation
Economic
Prolonged economic recession in Northern Europe.		Reduction in future profitability and cash flow. Limit to the group's ability to complete its strategy within its chosen markets. Impairment of goodwill.		Swift actions taken to reduce capacity and overhead where necessary. Increased controls over capital expenditure and working capital. Monthly reports by business units show key changes in trading against latest forecast assumptions. Contingency actions identified.
Financial
Insufficient free cash flow and borrowings headroom.		Reduced liquidity and working capital funds, which in extremity may impact on the group's ability to continue as a going concern. Breach of banking covenants.		Monthly management accounts analyse free cash flow. Free cash flow and net borrowings formally reforecast three times each year and reviewed monthly. Annual budget and next year forecast to identify any short/medium term funding issues. €200m Revolving Credit Facility (2012) agreed in August 2008. Finance Director monitors and reports borrowing headroom to the Board monthly - at 31st December 2008 this was £190m.

Risk description		Potential impact		Mitigation
Financial continued
One or more of the group's lenders is unable to meet its obligations.		Reduction in available funds to manage the business. Reduction in borrowing headroom.		8 participants in £420m multi-currency facility agreement and 5 in €200m revolving credit facility - maximum contribution per lender is about £92m. Regular communication with all current and potential lenders. $250m of borrowings are from US Private Placements which is not affected by counter party risk.
Interest rate volatility.		Fluctuating impact on profits before taxation.		£416 million (70%) of borrowings at fixed rates including interest rate swaps. Interest rate movements continually monitored by the Finance Director and reviewed with the Board at least every six months.
Foreign currency exposure.		Fluctuations in the group's overseas net asset values and overseas profits, upon translation into sterling. Banking covenants are reported in Sterling.		Borrowings in currencies that provide hedge against investments in overseas net assets. Majority of Euro, DKK and SEK assets are hedged by borrowings. New €200m revolving facility.
Falling equity values during last six months  of 2008 has increased the likelihood that additional funding is required in the main UK defined benefit pension scheme.		Adverse impact on liquidity.		The Davis Service Group Retirement Benefits Scheme closed to new entrants. The company and the Trustees' Investment Sub-Committee regularly discuss funding and investment policies, and legislative changes. Actuarial valuations every three years to review status and investment strategy - next valuation due 1st February 2010. Regular meetings between Chief Executive and chairman of the trustees.
People
Inadequate talent management.		Lack of internal succession to key management roles within the group in the event of unexpected departure. Short/medium term disruption to the business.		Succession planning reviewed annually by Nomination Committee with Group Chief Executive. Talent management programme reviewed annually by Nomination Committee. Succession planning recurring agenda item at Executive Board.
Inability to recruit and retain sufficiently qualified and experienced senior management.		Shortage of appropriately skilled management. Loss of key personnel. Disruption to the business.		Remuneration packages for executive and senior management reviewed annually with benchmarking. Ongoing management development programme. Chief Executive regularly reviews current and future management requirements.
Operational
Breach of health and safety regulations.		Damage to our reputation. Loss of licence to operate.		Local health, safety and fire management systems. Prompt incident reporting procedures to senior management with subsequent monitoring. Monthly reports to Chief Executive detailing any major incidents. Regular board review of major incidents and statistics.
Unforeseen loss of capacity.		Inability to service customer requirements. Adverse impact on reputation.		Fire prevention and security procedures. Business continuity plans with identification of alternative production locations. Comprehensive Property Damage and Business Interruption insurance.
Risk description		Potential impact		Mitigation
Operational continued
Further deterioration in market presence and/or profitability of the German Healthcare business.		Reduced profitability and cash flow.		Separate stand-alone business - own dedicated management team from 1st January 2009. New Managing Director recently appointed. Approved 2009 Budget and action plan. Steering Committee to assist with transformation of the Healthcare business. Ongoing review of volumes, capacity and cost base. Monthly Regional Managing Director reports updating Board on progress.
Reduction in hotel volumes and pressure on pricing in the UK.		Reduced profitability and cash flow.		Regular reviews with principal hotel groups. Volumes and prices regularly monitored and formally reviewed internally each month. Volume relocated to optimise use of capacity. Where necessary plants mothballed to reduce short-term capacity.
Failure to deliver in accordance with the Clinical Solutions business acquisition model.		Failure to deliver the identified business benefits. Failure to establish an instrument decontamination business.		Acquired business integrated into Sunlight's theatre care business. Detailed reviews of cross-selling opportunities, new business wins and customer retention. Monthly project reviews of decontamination business and building of decontamination centres for contract gains.
Adverse media publicity including competition issues, non-compliance with Group Corporate Responsibility (CR)  Policies or lack of cleanliness of staff and/or facilities.		Loss of customer goodwill and/or damage  to our reputation. Loss of licence to operate.		Board approved CR Policies communicated to the business. Cleaning and maintenance programmes. Prompt incident reporting procedures to senior management with subsequent monitoring.  Nominated and appointed public relations advisors.

21 Forward-looking statements

This announcement contains certain statements about the future outlook for the group. Although the company believes that expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different. These forward-looking statements speak only as at the date of this announcement. The company undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Factors that may affect the group's operations are described in section 20 "Principal and uncertainties" above.

22 Responsibility statements

The Annual Review and Summary Financial Statements and the Directors' Report and Accounts comply with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority in respect of the requirement to produce an annual financial report.

In accordance with DTR 4.1.12, each of the directors confirms that, to the best of their knowledge:

i) the financial statements of the group, prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the financial statements of the company, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

ii) the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

By order of the boardDavid Lawler 

Company Secretary

26th February 2009

 

ENDFR BQLFFKXBLBBE

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