23rd Feb 2007 07:02
Davis Service Group PLC23 February 2007 FOR IMMEDIATE RELEASE 23rd February 2007 THE DAVIS SERVICE GROUP Plc Preliminary results announcement for the year ended 31st December 2006 RESULTS IN LINE WITH EXPECTATIONS GROWTH PLATFORMS PROGRESSED Financial highlights Continuing operations Revenue Up 7% to £704.6 million (2005**: £655.7 million) Adjusted operating profit* Up 3% to £94.9 million (£92.4 million) Adjusted profit before tax* Unchanged at £85.3 million (£85.2 million) Profit before tax Up 1% to £82.0 million (£81.6 million) Adjusted earnings per share* Up 11% to 35.7p (32.1p) Free cash flow £60.0 million generated (£62.8 million) Earnings per share 32.4p (66.8p including the gain on sale of Elliott) Total dividends per share Up 5% to 18.2p (17.3p) * before exceptional items and amortisation of customer contracts andintellectual property rights ** 2005 numbers have been restated for the disposal of the French Modeluxebusiness Additional Highlights • Operating margin maintained in Continental Europe and encouraging new contract wins• UK margin down but acquisitions benefited the second half with profit growth as expected• Acquisition of Permaclean in 2007 an important first step in establishing a national workwear business in Germany• Total of £96 million spent on acquisitions in 2006 and 2007 to date• Board strengthened with appointment of a Non-Executive Director since year end Christopher Kemball, Chairman of Davis Service Group, commented: "I am pleased to report revenue growth of 7% and a continued increase inadjusted earnings over the prior year. We had positive momentum in most of ourmarkets in Continental Europe although the UK remained challenging. "In the year ahead, we expect further progress in Continental Europe throughorganic growth, the benefit of bolt-on acquisitions and the expansion of ourworkwear business in Germany. In the UK, while we see no significant overalleasing in the difficult market conditions as yet, we will continue with tightoperational management and expect increased contributions from acquisitions. Overall we expect to deliver a satisfactory outcome for 2007." For further information contact: Davis Service Group Financial DynamicsRoger Dye, Chief Executive Richard Mountain/Harriet KeenKevin Quinn, Finance Director Telephone 020 7269 7121Telephone 020 7269 7121 (today until 12 noon) Telephone 020 7259 6663(thereafter) The Davis Service Group Plc Results for the year ended 31st December 2006 In our 2005 Annual Report and Accounts we stated that the group was "Focused forGrowth". We are pleased to report an increase in revenue of 7% in 2006, whichhas been delivered by a combination of organic growth of 2% and targetedacquisitions. The Permaclean acquisition, completed in January 2007, marks an important firststep in our ambition to achieve a national workwear business of real scale inGermany. We expect that our acquisitions, which totalled £96 million in 2006and 2007 to date, will deliver good returns once they are fully integrated intothe business. There is positive momentum in most of our markets in Continental Europe, whereprofits increased ahead of revenues and our adjusted operating margin was 16.3%(2005: 16.1%). The UK continued to face the more significant challenge fromincreased costs and difficulties in obtaining matching price increases, but theexpected benefit from acquisitions was delivered in the second half of 2006.Overall, the group traded in line with our expectations in 2006. Results Overview Revenue from continuing operations in the year was £704.6 million (£655.7million) and operating profit before exceptional items and amortisation ofcustomer contracts and intellectual property rights (adjusted operating profit)was £94.9 million compared with £92.4 million last year, an increase of 3%.Overall, our adjusted return on sales for the group was 13.5% compared with14.1% last year. Our net finance expense was £9.6 million compared with £7.2million last year, reflecting both interest rate rises and the additionalfunding required for the investments we have made. Our adjusted earnings pershare rose 11% to 35.7 pence from 32.1 pence last year helped by a smalldecrease in the effective tax rate from 28.8% to 28.3% and taking into accountthe 2005 share consolidation. During the period we realised exceptional income totalling £2.8 million, whichprimarily related to the further receipt of cash from the sale of the HSSbusiness. Amortisation of acquired customer contracts and intellectual propertyrights amounted to £6.1 million compared with £1.8 million last year, due to thefull year effect of the 2005 and the 2006 acquisitions. Operating profit afterthese items was £91.6 million (£88.8 million). The sale of our business inFrance is treated as a discontinued operation for both 2006 and 2005. Thebusiness reported a loss after tax of £0.3 million (£0.9 million) prior to saleand the loss on sale was £2.7 million. Total earnings per share were 32.4 pencecompared with 66.8 pence in 2005, which included the profit on the sale ofElliott. Free cash flow of £60.0 million was generated in the year (£62.8 million) forthe continuing business. As planned, we increased our capital expenditure to£144.6 million (£136.7 million) as we invested in new plants in the growingmarkets of Norway and Poland and in textiles to support our new contracts. Thefree cash flow conversion of adjusted profit for the continuing business was 99%compared with 103% last year. Net borrowings at 31st December 2006 were £237.2million compared with £214.2 million at 31st December 2005, followinginvestments of £40.4 million for acquisitions in 2006. The Board is recommending a final dividend of 12.4 pence, which together withthe interim dividend of 5.8 pence paid in October 2006, gives a total of 18.2pence, an increase of 5% on last year. The total dividend per share is covered2 times by the adjusted earnings per share. Strategy and achievements Our core strategy is to build leading market positions in textile maintenancefrom which to deliver revenue growth both organically and by makingacquisitions. These acquisitions are either bolt-on to our existing scalebusinesses or are investments in expanding markets within our core area ofexpertise. We focus on managing our operations efficiently to ensure our growthin revenue delivers sustainable profit growth, stable cash flows and higherlevels of return to shareholders. Geographically we remain focused on Europe. In 2006, we have continued to invest to broaden the reach of our existingbusiness through bolt-on acquisitions but also to expand our platform for futuregrowth. In December 2006, we agreed to acquire the Permaclean Group in Germany,which completed in January 2007. The Permaclean acquisition is an importantstep in establishing a workwear business in Germany on a national scale in linewith our stated strategy. In the UK we invested in an improved productionnetwork and direct sales opportunities to complement our existing service areas.We continue to review areas for further expansion. Geographical expansion, particularly into Central Europe, remains an importantarea of development. In 2006, we spent a significant amount of time looking atmarket entry into the Czech Republic through acquisition, but have not yet beenable to find companies with the right profile. We are reviewing our strategyfor entry into that market as well as other markets in Central Europe. We are investing in new plants where we see the opportunity for more significantgrowth. In 2006, we made further investment in plants in Poland and in Norway and also in our existing workwear business in Germany. At the same time we are divesting businesses where we see limited growth opportunities. In 2006, we sold our small business in France, serving hotels and restaurants from a single plant in Paris, as well as our last remaining flat linen plant in Lillehammer, which leaves our Norwegian business now focused on higher margin workwear, mats and washrooms. Board and management There were no changes to the Board during 2006. In early February 2007 weannounced that Rene Schuster would join the Board as a Non-Executive Directorfrom 1st March 2007. Rene is CEO for the UK and Ireland business of Adecco SA,the recruitment and managed service business, and a member of their ExecutiveCommittee. He has extensive international experience and we are confident thathe will be a valuable contributor to the Board. We were disappointed to receive the resignation in January 2007 of ChristerStrom, the Managing Director of our Continental European business, who isleaving to take up a major international appointment. Christer has worked forBerendsen since 2001 and has been Managing Director since January 2005. Heremains with us until June and the process to appoint his successor is underway. The existing management team continue actively to follow the agreed growthstrategy. Steve Finch, the Managing Director in the UK, and his team have succeeded indelivering a good result in the very challenging UK market where they have seencompetitors exiting and their operational excellence has contributed greatly tothe year's performance. Other financial matters In December 2006 we made a payment of £12.5 million into the Group's UK PensionPlan, which when added to the £5 million funding made earlier in the year,totalled £17.5 million for 2006. The deficit on the main UK plan was £25.3million at 31st December 2006 before we made a further payment into the plan of£12.5 million in January 2007. Our balance sheet remains strong with gearing of60% at 31st December 2006 (57%). Taking account of the January 2007 pensionfunding and our acquisitions in 2007 the pro forma gearing is 77%. The financing of the Permaclean acquisition was made from drawings under ourrevolving credit facility and we have increased the proportion of borrowings atfixed rates by entering into two further 5 year swap agreements for a total ofEuro 55 million (£37 million) in January 2007. These were made at a rate of4.4% and our gross fixed borrowings now amount to £252 million (65% of totalborrowings) at an average annual rate of 4.1%. This is in line with the Group'spolicy of maintaining at least 50% of Group borrowings at fixed rates. Ourinterest was covered 10 times by operating profits in 2006 (13 times). Our post tax return on invested capital was 8.4%, up from 8.2% last year. Operations review Continental Europe Revenue in Continental Europe increased by 4% to £403.0 million from £387.3million in 2005 and adjusted operating profit was £65.5 million compared with£62.4 million last year. The adjusted operating margin was 16.3%, up from 16.1%last year. These results have been restated to show Modeluxe, France as adiscontinued operation. Foreign exchange had a negative impact on revenue of£3.1 million and operating profit of £0.5 million, compared with the rates lastyear. Organic growth in revenue was 2% and we have made 17 bolt-on acquisitionsin 2006, investing £19.7 million. Since year end we have spent a further £44.2million, including the acquisition of Permaclean. Our businesses in Scandinavia performed well, growing revenue, profit andmargins. Business confidence improved throughout the year and we wereencouraged by the level of new sales. The acquisitions we made have beensuccessfully integrated and our strong position in these markets is producing agood pipeline of future opportunities. We are investing in a new workwear plantin Bergen, Norway, which we expect to complete shortly. We grew our revenue in Holland by 3%, following the investment we made last yearin increasing our sales force and improving its efficiency. We continue toimprove our market position with new contract wins. Having invested in 2005, wewere able to deliver higher margins from the revenue gains. Although theopportunities for acquisition are more limited in this market, we neverthelessmade three small acquisitions. We took a major step this year in Germany to expand the base of our business.In December 2006, we announced the purchase of the Permaclean group, which isfocused on workwear rental. Together with our small existing business, we nowhave a workwear business in Germany that provides coverage on a real scale. Itwill enable us to start to compete nationally and will provide an operationalbase for delivering faster growth from the opportunities we see in the marketand enhanced value from bolt-on acquisitions. The German healthcare marketremained our most challenging on the Continent as it continued to face astructural change in the provision of its healthcare service with governmentpolicy to reduce costs and overcapacity in the market. Disappointingly, thebusiness finished the year with profits down on last year. Our Polish business grew strongly both its revenue and profits. We continued toinvest in this market to support the level of growth with the extension to oursecond plant in the south of the country opened during 2006. We commencedbuilding a further plant in Warsaw and also identified land elsewhere in Polandfor further stages of development. Our direct sale business in Sweden continued to perform well and achieved goodrevenue growth. We expanded the number of our retail outlets to develop anational business, which complements our rental service business in the country.During the year, we separated this retail business from our supply sourcingbusiness, also based in Sweden, and which has manufacturing in Estonia. Oursupply business continued to innovate in terms of the sourcing and range ofgarments that it supplied to the Group and we expect the proportion of garmentssupplied to Group companies to increase over the coming years, benefiting fromimproved sourcing terms. UK and Ireland Our revenue grew by 12% from £268.4 million to £301.6 million as a result ofboth organic growth of 2% and the impact of acquisitions. As expected, theseacquisitions contributed well to second half profits, but adjusted operatingprofit as a whole was down from £34.3 million in 2005 to £33.9 million in 2006,due to the challenging market conditions. The business performed well in the second half with profits up on 2005.However, year on year there was a margin decline from 12.8% to 11.2%, reflectingthe significant increase in wage and energy costs and the continuingdifficulties in passing these on to customers. The linen division saw volumes increase in a buoyant hotel and hospitalitymarket, especially by comparison with the second half of 2005, which includedthe effect of the London bombings. Even with strong levels of volume within thedivision, the business was still able to make site rationalisations with theclosure of three sites during the year. The drive for operational efficiencycontinued as ever throughout our remaining plants. Overall the division wasable to report increased operating profits over 2005, which was a good result. The healthcare division performed in line with expectations with higher revenuesbut profits down on last year. This resulted from the expected price and costpressures within the business, with the implementation of the PASA (thePurchasing and Supply Agency of the NHS) framework agreement in May 2006 beingthe most significant event of the year. This agreement delayed tender activitybefore its publication and resulted, in some cases, in price reductions. Wehave seen a greater level of interest in outsourcing of linen services from thePrimary Care Trusts, as the remaining in-house commercial laundries are alsosubject to this new agreement. This developing trend is being actively reviewedby our management team. Our workwear division delivered in line with expectation but the price and costpressures resulted in a significant decline in profitability. This continued tobe a very competitive market. The UK generally has higher cancellation ratesthan in Continental Europe. With prices under pressure from competition and thechanging mix of the business from higher priced industrial garments to lighterservice industries, the business continued to require a significant level of newcontract wins to offset these effects. While sales were strong, particularly inthe second quarter with the withdrawal of Rentokil Initial from workwear rental,this was insufficient to maintain profitability. We continued our focus onoperating excellence but also invested in sales and service to achieve growthfrom developing sectors. In Ireland, we grew both organically and through an acquisition in NorthernIreland at the end of 2005, resulting in increased profits. We have a good mixof business in Ireland, including an established washroom and hygiene business,and we continue to look for opportunities to expand in this market. During 2006, we invested £20.7 million in acquisitions primarily strengtheningour position in specific regions of the UK. These acquisitions have contributedwell since joining the business, particularly in the second half of the year.Since year end we have made further acquisitions amounting to £11.4 million. Since the start of 2007, Brooks, a major supplier to the UK linen and workwearmarket, went into administration. We have reacted immediately to secureavailable customer accounts, from which we expect to obtain increased volumesand the potential of higher pricing. Outlook On the Continent, we expect further progress through organic growth, the benefitof bolt-on acquisitions and the expansion of our workwear business in Germanythrough the Permaclean acquisition. In the UK, while we see no significant overall easing in the difficult marketconditions as yet, we will continue with tight operational management and expectincreased contributions from acquisitions. Overall we expect to deliver a satisfactory outcome for 2007. CONSOLIDATED INCOME STATEMENTFor the year ended 31st December 2006 Notes Year to Year to 31 December 31 December 2006 2005 £m £m Continuing operations Revenue 1 704.6 655.7Cost of sales (395.6) (357.4)Gross profit 309.0 298.3 Other operating income 4.9 5.9Distribution costs (130.7) (122.6)Administrative expenses (87.8) (81.2)Other operating expenses (3.8) (11.6)Operating profit 1 91.6 88.8 Analysed as:Operating profit before exceptional items and amortisation of customercontracts and intellectual property rights 1 94.9 92.4Exceptional items 2 2.8 (1.8)Amortisation of customer contracts and intellectual property rights (6.1) (1.8)Operating profit 1 91.6 88.8 Finance expense (16.0) (14.5)Finance income 6.4 7.3Profit before taxation 82.0 81.6Taxation 6 (23.5) (23.2) Profit for the year from continuing operations 58.5 58.4 Discontinued operations(Loss)/profit for the year from discontinued operations (0.3) 1.7(Loss)/profit on sale of discontinued operations 9 (2.7) 66.9 (Loss)/profit for the year from discontinued operations (3.0) 68.6 Profit for the year 55.5 127.0 Profit/(loss) attributable to minority interest 0.3 (0.1)Profit attributable to equity shareholders 55.2 127.1 55.5 127.0 Earnings per share expressed in pence per share- Basic 4 32.4 66.8- Diluted 4 32.3 66.5 Earnings per share from continuing operations- Basic 4 34.2 30.7- Diluted 4 34.1 30.6 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31st December 2006 Year to Year to 31st December 31st December 2006 2005 £m £m Profit for the year 55.5 127.0 Exchange adjustments offset in reserves (4.0) (8.2) Actuarial losses recognised in the pension scheme (2.7) (14.4) Gains on cash flow hedges 7.6 - Tax on items taken directly to equity 3.5 4.3 Net gains/(losses) not recognised in income statement 4.4 (18.3) Total recognised income for the year 59.9 108.7 Attributable to: Minority interests 0.3 (0.1) Equity shareholders 59.6 108.8 CONSOLIDATED BALANCE SHEETAs at 31st December 2006 Notes 31 December 31 December 2006 2005 £m £m AssetsGoodwill 297.0 287.1Intangible assets 29.5 16.4Property, plant and equipment 392.3 367.2Assets classified as held for sale 3.6 4.4Deferred tax assets 21.1 27.9Derivative financial instruments 4.1 - Total non-current assets 747.6 703.0 Inventories 12.9 12.3Income tax receivable 6.9 4.0Trade and other receivables 122.0 118.1Cash and cash equivalents 149.7 117.6Total current assets 291.5 252.0 LiabilitiesBank overdrafts - 0.5Interest bearing loans and borrowings 2.8 3.2Income tax payable 8.9 7.1Trade and other payables 139.1 131.9Provisions 1.3 3.3Total current liabilities 152.1 146.0 Net current assets 139.4 106.0 Interest bearing loans and borrowings 384.1 328.1Derivative financial instruments 13.2 -Retirement benefit obligations 42.1 57.2Other payables 0.1 0.8Deferred tax liabilities 49.2 45.1Total non-current liabilities 488.7 431.2 Net assets 398.3 377.8 EquityShare capital 5 51.2 57.7Share premium 5 93.6 93.2Other reserves 5 5.8 0.5Capital redemption reserve 5 150.9 144.4Retained earnings 5 95.1 80.5Total shareholders' equity 396.6 376.3 Minority interest in equity 5 1.7 1.5Total equity 5 398.3 377.8 Net borrowings (see note 8) 237.2 214.2 CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31st December 2006 Notes Year to Year to 31 December 31 December 2006 2005 £m £m Cash flows from operating activities Cash generated from operations 7 216.9 219.5Interest paid (14.7) (18.0)Interest received 6.4 7.7Income tax paid (15.1) (19.0)Net cash generated from operating activities 193.5 190.2 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired 9 (36.0) (19.3)Purchases of property, plant and equipment (140.2) (132.8)Proceeds from the sale of property, plant and equipment 11.0 11.1Purchases of intangible assets (4.4) (3.9)Proceeds from sale of businesses, net of cash 0.1 153.2Special pension contribution payments (17.5) (23.0)Issue of loan notes - 20.5Receipt of promissory loan notes 2.9 5.0Net cash (used in)/generated from investing activities (184.1) 10.8 Cash flows from financing activities Net proceeds from issue of ordinary share capital 0.4 4.9Purchase of treasury shares (3.6) -Drawdown of borrowings 209.8 443.6Repayment of borrowings (142.8) (412.4)Repayment of finance leases/hire purchase liabilities (3.6) (3.6)Dividends paid to company's shareholders (30.2) (32.2)Dividends paid to minority interests (0.1) -Redemption of B Shares (6.5) (144.4)Share redemption issue costs - (0.5)Net cash generated from/(used in) financing activities 23.4 (144.6) Net increase in cash and bank overdrafts 32.8 56.4 Cash and bank overdrafts at beginning of year 117.1 61.7Exchange losses on cash and bank overdrafts (0.2) (1.0)Cash and bank overdrafts at end of year (note i) 149.7 117.1 Free cash flow 59.9 64.6 Analysis of free cash flowNet cash generated from operating activities 193.5 190.2Purchases of property, plant and equipment (140.2) (132.8)Proceeds from the sale of property, plant and equipment 11.0 11.1Purchases of intangible assets (4.4) (3.9)Free cash flow 59.9 64.6 Free cash flow of continuing operations 60.0 62.8 (i) There are no current year overdrafts (2005: £0.5m) NOTES TO THE FINANCIAL STATEMENTS 1 SEGMENT INFORMATION (a) Primary reporting format - business segments At 31st December 2006, the Group has only one business segment being textilemaintenance within Continental Europe, UK and Ireland. In October 2006, theGroup completed the sale of Modeluxe, its operation in France. On 25th May2005, the Group sold its building systems division. The segment resultsrelating to these disposals are reported as discontinued operations. Based on the risks and returns the directors consider that the primary reportingformat is by business segment and that the secondary reporting format is bygeographical analysis by origin and destination. The segment results for the year ended 31st December 2006 are as follows: Continuing operations Textile Textile Total Textile Unallocated Group maintenance maintenance UK maintenance Continent & Ireland £m £m £m £m £m Revenue 403.0 301.6 704.6 - 704.6Operating profit before exceptional itemsand amortisation of customer contracts andintellectual property rights 65.5 33.9 99.4 (4.5) 94.9Exceptional items 0.4 (0.5) (0.1) 2.9 2.8Amortisation of customer contracts andintellectual property rights (3.7) (2.4) (6.1) - (6.1) Segment result 62.2 31.0 93.2 (1.6) 91.6Net finance expense (9.6)Profit before taxation 82.0Taxation (23.5)Profit from continuing operations 58.5Loss from discontinued operations (0.3)Loss on sale of discontinued operations (2.7)Profit for the year 55.5 Profit attributable to minority interests 0.3Profit attributable to equity shareholders 55.2Capital expenditure 97.0 89.0 186.0 - 186.0Depreciation and amortisation 68.7 64.1 132.8 0.1 132.9 The capital expenditure and depreciation and amortisation for discontinuedoperations for the year was £0.6 million and £0.8 million respectively. Capital expenditure comprises additions to property, plant and equipment andintangible assets, including additions resulting from acquisitions throughbusiness combinations. 1 SEGMENT INFORMATION CONTINUED The segment results for the year ended 31st December 2005 are as follows: Textile Textile Total Textile Unallocated Group maintenance maintenance UK maintenance Continent & Ireland £m £m £m £m £m Revenue 387.3 268.4 655.7 - 655.7 Operating profit before exceptionalitems and amortisation of customercontracts and intellectual propertyrights 62.4 34.3 96.7 (4.3) 92.4Exceptional items (2.2) 0.4 (1.8) - (1.8)Amortisation of customer contracts andintellectual property rights (1.4) (0.4) (1.8) - (1.8) Segment result 58.8 34.3 93.1 (4.3) 88.8Net finance expense (7.2)Profit before taxation 81.6 Taxation (23.2)Profit from continuing operations 58.4Profit from discontinued operations 1.7Profit on sale of discontinued 66.9operationsProfit for the year 127.0 Loss attributable to minority (0.1)interestsProfit attributable to equity 127.1shareholders Capital expenditure 72.4 68.4 140.8 0.2 141.0Depreciation and amortisation 65.1 56.2 121.3 0.1 121.4 The capital expenditure and depreciation and amortisation for discontinuedoperations for the year was £8.2 million and £6.9 million respectively. The segment assets and liabilities at 31st December 2006 are as follows: Textile Textile Total Textile Unallocated Group maintenance maintenance UK maintenance Continent & Ireland £m £m £m £m £m Operating assets 625.1 288.1 913.2 90.2 1,003.4Deferred tax assets 4.2 8.7 12.9 8.2 21.1Income tax assets 1.8 - 1.8 5.1 6.9Non-current assets held for sale 0.9 2.7 3.6 - 3.6Derivative financial instruments - - - 4.1 4.1Total assets 632.0 299.5 931.5 107.6 1,039.1 Operating liabilities 76.2 56.6 132.8 7.7 140.5Bank loans & finance leases - - - 386.9 386.9Derivative financial instruments - - - 13.2 13.2Deferred tax liabilities 33.4 18.0 51.4 (2.2) 49.2Income tax liabilities 4.2 1.0 5.2 3.7 8.9Retirement benefit obligations 14.4 23.2 37.6 4.5 42.1Total liabilities 128.2 98.8 227.0 413.8 640.8 1 SEGMENT INFORMATION CONTINUED The segment assets and liabilities at 31st December 2005 are as follows: Textile Textile Total textile Unallocated Discontinued Group maintenance maintenance UK maintenance operations Continent & Ireland £m £m £m £m £m £m Operating assets 593.9 261.6 855.5 58.5 4.7 918.7Deferred tax assets 5.2 7.4 12.6 15.3 - 27.9Income tax assets 2.0 - 2.0 2.0 - 4.0Non-current assets held for 2.9 1.5 4.4 - - 4.4saleTotal assets 604.0 270.5 874.5 75.8 4.7 955.0 Operating liabilities 74.0 52.7 126.7 8.6 1.2 136.5Bank loans & finance leases - - - 331.3 - 331.3Deferred tax liabilities 27.9 12.8 40.7 4.4 - 45.1Income tax liabilities 5.5 0.5 6.0 1.1 - 7.1Retirement benefit 13.4 26.2 39.6 17.6 - 57.2obligationsTotal liabilities 120.8 92.2 213.0 363.0 1.2 577.2 Segment assets consist primarily of property, plant and equipment, intangibleassets, goodwill, inventories, receivables and cash. Assets such asinvestments, deferred taxation, income tax assets and assets classified as heldfor sale are separately identified. Segment liabilities comprise operating liabilities and retirement benefitobligations but exclude items such as taxation and corporate borrowings. 1 SEGMENT INFORMATION CONTINUED (b) Secondary reporting format - geographical segments The Group's operations are based in three main geographical areas. The UK isthe home country of the parent. The main operations in the principalterritories are as follows: UK and IrelandScandinaviaOther European The sales analysis in the information below is based on the location of thecustomer which is not materially different from the location where the order isreceived and where the assets are located. Segment assets, which comprise totalassets, including financial assets, and capital expenditure are allocated on thebasis on where the assets are located. Revenue Segment assets Capital expenditure Year to Year to Year to Year to Year to Year to 31 December 31 December 31 December 31 December 31 December 31 December 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m Continuing operationsUK and Ireland 301.6 268.4 389.7 329.1 89.0 68.4Scandinavia 251.4 240.1 401.8 391.2 56.4 38.0Other Europe 169.4 161.7 234.3 212.7 40.6 34.4Inter segment sales/unallocated (17.8) (14.5) 13.3 17.3 - 0.2 704.6 655.7 1,039.1 950.3 186.0 141.0Discontinued operationsUK and Ireland - 52.5 - - - 7.3Other Europe 4.3 6.0 - 4.7 0.6 0.9 708.9 714.2 1,039.1 955.0 186.6 149.2 2 Exceptional Items Year to Year to 31 December 31 December 2006 2005 £m £m Income from receipt of promissory loan notes (note i) 2.9 5.0Property sales (note ii) (0.1) 0.3Closure costs of laundries (note iii) - (7.1) 2.8 (1.8) (i) During the year the Group received settlement of promissory notesamounting to £2.9 million (2005: £5.0 million) which had previously been fullyprovided. The tax charge on this is nil (2005: £1.2 million) (ii) The loss on property sales in 2006 arises primarily from the SunlightGroup as did the profit in 2005. The tax charge on this is £1.1 million (2005: £0.6 million). (iii) In 2005, the Group completed a significant restructuring of itsoperations in Germany, following the purchase of healthcare contracts fromRentokil Initial Plc. 3 DIVIDENDS Year to Year to 31 December 31 December 2006 2005 £m £m Equity dividends declared and paid during the yearFinal dividend for the year ended 31 December 2005 of 11.8 pence per share(2004: 11.25 pence) 20.3 22.8Interim dividend for the year end 31 December 2006 of 5.8 pence per share(2005: 5.5 pence) 9.9 9.4 30.2 32.2Proposed final equity dividend for approval at the AGMProposed final dividend for the year ended 31 December 2006 of 12.4 pence per share(2005: 11.8 pence) 21.1 20.3 The directors recommend a final dividend in respect of the financial year ending31st December 2006 of 12.4 pence per ordinary share to be paid on 2nd May 2007to shareholders who are on the register at 13th April 2007, subject to approvalby shareholders at the Annual General Meeting. The dividend is not reflected inthese financial statements as it does not represent a liability at 31st December2006. 4 EARNINGS PER SHARE Basic earnings per ordinary share are based on the group profit for the periodand a weighted average of 170,164,428 (2005: 190,186,349) ordinary shares inissue during the year. Diluted earnings per share are based on the group profit for the year and aweighted average of ordinary shares in issue during the year calculated asfollows: 31 December 31 December 2006 2005 No. of shares No. of shares In issue 170,164,428 190,186,349Dilutive potential ordinary shares arising fromunexercised share options 674,449 959,694 170,838,877 191,146,043 An adjusted earnings per ordinary share figure has been presented to eliminatethe effects of property sales, exceptional income, restructuring items andamortisation of customer contracts and intellectual property rights. This presentation shows the trend in earnings per ordinary share that isattributable to the underlying trading activities of both the total group andcontinuing operations. 4 EARNINGS PER SHARE CONTINUED The reconciliation between the basic and adjusted figures for continuingoperations is as follows: Year to 31 December 2006 Year to 31 December 2005 Earnings per Earnings per share share £m pence £m pence Profit attributable to equity shareholders of the Companyfor basic earnings per share calculation 58.2 34.2 58.4 30.7Loss on sale of properties (after taxation) 1.2 0.7 0.3 0.2Exceptional income (after taxation) (2.9) (1.7) (3.7) (2.0)Restructuring items (after taxation) - - 4.5 2.3Amortisation of customer contracts and intellectualproperty rights (after taxation) 4.3 2.5 1.6 0.9Adjusted earning - continuing group 60.8 35.7 61.1 32.1Diluted earnings - continuing group 34.1 30.6 The reconciliation between the basic and adjusted figures for the total groupincluding the earnings of the discontinued Modeluxe business in 2006 and 2005,and the Elliott business in 2005, is as follows: Year to 31 December 2006 Year to 31 December 2005 Earnings per Earnings per share share £m pence £m pence Profit attributable to equity shareholders of the Companyfor basic earnings per share calculation 55.2 32.4 127.1 66.8Loss/(profit) on sale of business (after taxation) 2.7 1.6 (66.9) (35.1)Loss on disposal of properties (after taxation) 1.2 0.7 0.3 0.2Exceptional income (after taxation) (2.9) (1.7) (3.7) (2.0)Restructuring items (after taxation) - - 4.5 2.3Amortisation of customer contracts and intellectualproperty rights (after taxation) 4.3 2.5 1.6 0.9Adjusted earnings per share - total group 60.5 35.5 62.9 33.1Diluted earnings per share - total group 32.3 66.5 Basic earnings - discontinued operations (1.8) 36.1Diluted earnings - discontinued operations (1.8) 35.9 5 SHAREHOLDERS' FUNDS AND STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Attributable to shareholders of the company Share Share Other Capital Retained Total Minority Total capital premium reserves redemption earnings interest equity reserve £m £m £m £m £m £m £m £m At 1 January 2005 50.7 240.2 1.1 - 148.0 440.0 1.7 441.7Issue of share capital inrespect of share optionschemes 0.5 4.4 - - - 4.9 - 4.9Share redemption issue costs - (0.5) - - - (0.5) - (0.5)Issue of B shares 150.9 (150.9) - - - - - -Redemption of B shares (144.4) - - - - (144.4) - (144.4)Transfer of capitalredemption reserve arisingfrom redemption of B shares - - - 144.4 (144.4) - - -Dividends - - - - (32.2) (32.2) - (32.2)Actuarial losses - - - - (14.4) (14.4) - (14.4)Tax on items taken directlyto equity - - - - 4.6 4.6 - 4.6Profit for the year - - - - 127.1 127.1 (0.1) 127.0Currency translation - - (0.6) - (8.2) (8.8) (0.1) (8.9)At 31 December 2005 57.7 93.2 0.5 144.4 80.5 376.3 1.5 377.8 Issue of share capital inrespect of share optionschemes - 0.4 - - - 0.4 - 0.4Purchase of treasury shares - - - - (3.6) (3.6) (3.6)Redemption of B shares (6.5) - - - - (6.5) - (6.5)Transfer to capitalredemption reserve arisingfrom redemption of B shares - - - 6.5 (6.5) - - -Dividends - - - - (30.2) (30.2) (0.1) (30.3)Actuarial losses - - - - (2.7) (2.7) - (2.7)Value of employee service inrespect of share options - - - - 0.6 0.6 - 0.6Cash flow hedges - - 7.6 - - 7.6 - 7.6Tax on items taken directlyto equity - - (2.3) - 5.8 3.5 - 3.5Profit for the year - - - - 55.2 55.2 0.3 55.5Currency translation - - - - (4.0) (4.0) - (4.0) At 31 December 2006 51.2 93.6 5.8 150.9 95.1 396.6 1.7 398.3 The number of treasury shares held by the company as at 31st December 2006 was825,000 (2005: nil). 6 TAXATION Analysis of tax charge for the year Year to Year to 31 December 31 December 2006 2005 £m £mCurrent tax:Tax on profits for the current year 14.1 14.8Adjustments in respect of previous years (0.5) 0.4 13.6 15.2Deferred tax:Origination and reversal of temporary differences 9.7 8.9Changes in tax rates or imposition of new taxes 0.2 (0.2)Credit due to previously unrecognised temporary differences - (0.7) 9.9 8.0 Total tax charge on continuing operations 23.5 23.2 The amount of overseas tax included in the total tax charge is £18.2 m (2005:£17.6m) 7 CASH FLOW FROM OPERATING ACTIVITIES Reconciliation of operating profit to net cash inflow from operating activities: Year to Year to 31 December 31 December 2006 2005 £m £m Profit for the year 55.5 127.0 Adjustments for: Taxation 23.5 24.7 Amortisation of intangible fixed assets 7.7 3.0 Impairment of goodwill - 0.2 Depreciation of tangible fixed assets 126.0 125.4 Loss/(profit) on sale of property 0.1 (0.3) Profit on sale of plant and equipment (1.2) (0.2) Loss/(profit) on sale of business 2.7 (68.0) Receipt of promissory loan notes (2.9) (5.0) Negative goodwill (0.5) - Finance income (6.4) (6.8) Finance expense 16.0 15.0 Exchange losses on borrowings - (0.1) Changes in working capital (excluding effect of acquisitions, disposals and exchangedifferences on consolidation): Inventories (0.1) (1.6) Trade and other receivables 1.3 0.6 Trade and other payables (2.9) 2.3 Provisions (1.9) 3.3 Cash generated from operations 216.9 219.5 In the cash flow statement, proceeds from sale of property, plant and equipmentcomprise: Net book amount 7.1 10.6Profit on sale of property, plant and equipment 1.0 0.5Proceeds from sale of property, plant and equipment 8.1 11.1 Additionally the group received £2.9 million in respect of assets held fordisposal. 8 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Year to Year to 31 December 31 December 2006 2005 £m £m Increase in cash 32.8 56.4Cash outflow from movement in debt and lease financing (63.4) (27.7)Changes in net debt resulting from cash flows (30.6) 28.7 New finance leases (3.3) (3.9) Bank loans and lease obligations (acquired)/disposed with subsidiaries (4.2) 5.4Currency translation 15.1 6.1Movement in net debt in year (23.0) 36.3 Net debt at beginning of year (214.2) (250.5) Net debt at end of year (237.2) (214.2) 9 Acquisition and disposals (a) Acquisitions of subsidiary undertakings During the year the Group acquired a number of small textile maintenancebusinesses and companies. Details of the carrying values and provisional fairvalues of the assets and liabilities acquired are set out below: Carrying values Provisional pre acquisition fair values £m £m Intangible fixed assets 4.9 16.4Property, plant and equipment 17.4 19.7Inventories 0.5 0.3Receivables 6.3 6.6Payables (6.8) (7.0)Taxation- Current (0.6) (0.6)- Deferred (2.3) (4.1)Overdrafts (0.6) (0.6)Bank loans (3.9) (3.9)Lease finance obligations (0.5) (0.5)Net assets acquired 26.3Goodwill 10.5Consideration 36.8 Consideration satisfied by:Cash 34.6Deferred consideration 1.4Legal and professional fees 0.8 36.8 The fair value amounts contain some provisional amounts in relation toacquisitions made in the last quarter of 2006. These amounts will be finalisedin the 2007 accounts. An adjustment for £0.5 million to deferred taxes was madeto provisional fair values relating to acquisitions made in 2005. The totalgoodwill addition is therefore £11.0 million. The outflow of cash and cash equivalents on acquisition is calculated asfollows: £m Cash (including legal and professional fees) 35.4Overdrafts 0.6 36.0 The total consideration including assumed net debt is £40.4 million. The intangible assets acquired relate to values attributed to customercontracts. Details of the amortisation periods for these contracts are given innote 10 of the 2006 Annual Report and Accounts. Shown below are the revenues and profit for the year after tax as if the aboveacquisitions had been made at the beginning of the period. This information isnot indicative of the results of operations that would have occurred had thepurchase been made at the beginning of the year or the future results of thecombined operations. £m Revenue 39.6Profit for the year after tax 2.1 From the dates of acquisition to 31st December 2006 the above acquisitionscontributed £29.4m to revenue and £1.7m to the profit for the year after tax. (b) Disposal of Modeluxe In October 2006, the Group completed the sale of Modeluxe, its operation inFrance for a gross consideration of £0.4 million. £m Net assets disposed (3.0) (3.0) Cash consideration 0.4 Loss on disposal before expenses (2.6) Transaction expenses (0.1) Loss on disposal (2.7) (c) Post balance sheet events In January 2007 the Group acquired the textile service business of thePermaclean group in Germany, which primarily provides workwear rental services.Further smaller acquisitions have also been made in the UK and in ContinentalEurope. The total cash consideration and liabilities assumed for theseacquisitions amounts to £55.6 million since year end. 10 The information on pages 5 to 18 has been extracted from the auditedfinancial statements for the year ended 31st December 2006 and has been preparedin accordance with International Financial Reporting Standards as adopted by theEU and IFRIC interpretations issued and effective at the time of preparing thesestatements. The figures and financial information for the years ended 31stDecember 2006 and 2005 do not constitute the financial statements for that year. Those financial statements have been delivered to the Registrar and includedthe auditor's report which was unqualified and did not contain a statement undereither Sections 237(2) or 237(3) of the Companies Act 1985. The 2006 Report andAccounts will be posted to shareholders on 14th March 2007. 11 The final dividend is subject to confirmation at the Annual General Meetingwhich will be held on Monday, 23rd April 2007 at Royal Aeronautical Club, 4Hamilton Place, London W1J 7BQ at 11.00am. Transfers to be taken into accountfor the proposed final dividend for ordinary shareholders must be lodged at thecompany's transfer office, Lloyds Bank Registrars, Goring-on-Sea, Worthing, WestSussex by mid-day on Friday 13th April 2007, the expected record date. Theproposed final dividend for ordinary shareholders will be paid on Tuesday 2ndMay 2007. 12 The directors are responsible for the maintenance and integrity of thecompany's website. Information published on the internet is accessible in manycountries with different legal requirements. Legislation in the United Kingdomgoverning the preparation and dissemination of financial statements may differfrom legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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