26th Feb 2010 07:00
26th February 2010
THE DAVIS SERVICE GROUP PLC
Annual results announcement
for the year ended 31st December 2009
"A solid foundation for future growth"
Financial Highlights
|
Revenue |
Up 2% to £970.9 million (2008: £953.9 million), down 3% at constant currency |
|
Adjusted operating profit* |
Down 1% to £115.3 million (£116.6 million), down 6% at constant currency |
|
Adjusted profit before tax* |
£91.7 million (£91.3 million) |
|
Adjusted earnings per share* |
39.4 pence (39.3 pence) |
|
Free cash flow |
Up 63% to £76.7 million (£47.2 million) |
|
Dividend per share |
Maintained at 20.0 pence |
|
Profit before taxation |
Up 2% to £61.7 million (£60.4 million) |
|
Basic earnings per share |
Up 9% to 26.6 pence (24.5 pence) |
* before exceptional items of £12.7 million (£11.5 million) and amortisation of customer contracts of £17.3 million (£19.4 million)
Highlights
Nordic
·; Adjusted operating profit maintained at £51.2 million, with the benefit of foreign exchange
·; Strengthened market position in facilities through recent acquisition, a strategic growth sector
Continent
·; Adjusted operating profit increased 12% to £32.7 million, with the benefit of foreign exchange
·; Improvement in German Healthcare delivering increased operating margin
·; Strengthened market position in German Workwear through recent acquisition, a strategic growth sector
UK and Ireland
·; Adjusted operating profit down 6% to £37.6 million
·; Business cost model improved in hotels and workwear
·; Higher revenues in healthcare services, a strategic growth sector
Group
·; Succession of CEO managed smoothly
·; Board strengthened from 1st March 2010 with three new Non Executive Directors
·; £188 million of long term funding secured
Christopher Kemball, Chairman of The Davis Service Group, commented:
"We report a good set of results against a difficult economic background with a significant increase in free cash flow, a strengthened balance sheet and earnings slightly ahead of last year."
"The group remains well placed in its markets and has further strengthened its position in strategic growth sectors through recent acquisitions. Looking at 2010, we do not expect any marked improvement in our markets, but we will receive the full benefit of the reductions we made to the group's cost base last year. Overall, with our strong free cash flow and robust balance sheet, the Board believes that the group is positioned to benefit once growth returns to its markets."
For further information contact:
The Davis Service Group Plc Financial Dynamics
Peter Ventress, Chief Executive Richard Mountain
Kevin Quinn, Finance Director Telephone 020 7269 7291
Telephone 020 7269 7291 (today until 12 noon)
Telephone 020 7259 6663 (thereafter)
Overview of the 12 months ended 31st December 2009
We present a good set of results for 2009 against the very challenging economic background. Our businesses have remained resilient overall with profit growth in some sectors and countries. All our businesses acted in a timely way by reducing their cost base where customer demand was expected to be impacted. We show higher revenue with a small decline in adjusted operating profit in 2009 helped by favourable exchange rates. At the half year we reported that the economic downturn had particularly impacted our hotel linen business in the UK and Ireland and our workwear and direct sales businesses in Sweden. This trend continued in the second half of the year. Excluding these businesses adjusted operating profits were broadly the same as last year in local currencies, which we consider a good performance given the economic climate.
Free cash flow was significantly ahead of last year at £76.7 million (2008: £47.2 million). Our strong cash flow generation reflects the resilient trading performance and management's focus on reducing capital expenditure and tightly managing working capital. Together with the strengthening of sterling, this resulted in net debt of £484.9 million, compared with £544.1 million at 31st December 2008.
In December 2009 we made a fixed rate debt private placement of US$259.0 million and £25.0 million with maturities from 2016 to 2021 at an average interest rate of 5.3% to provide the group with further long term funding. We swapped these immediately into euros and used the funds in January 2010 to repay amounts drawn under the £420 million revolving credit facility. We now have over £300 million of long term funding with maturities beyond 2016 and an average interest rate of 4.9% (3.6% after tax), thus significantly reducing our reliance on bank finance.
Overall, we have delivered on the expectations we set out in our Interim Management Statement in October 2009.
We have also announced today the appointment of Iain Ferguson, David Lowden and Andrew Wood as Non-Executive Directors of the Company with effect from 1st March 2010. Iain Ferguson was Chief Executive of Tate and Lyle plc from 2003 to 2009, David Lowden was Chief Executive of Taylor Nelson Sofres PLC from 2006 to 2009 and Andrew Wood has been Group Finance Director since January 2001 of BBA Aviation PLC from which he will be retiring on 29th April 2010.
Philip Rogerson and René Schuster will both step down from the Board on 28th February 2010. Philip Rogerson is stepping down following his appointment as Chairman of Bunzl plc. René Schuster has also decided to step down as he has recently become CEO of Telefonica O2 in Germany and no longer feels able to meet his obligations as a Davis Board member. We are very grateful for the valuable counsel provided by both Philip Rogerson and René Schuster during their time as members of the Davis Board.
Results
Revenue increased to £970.9 million in the year, up 2% (2008: £953.9 million). Adjusted operating profit (before exceptional items and amortisation of customer contracts) was £115.3 million, compared with £116.6 million last year, a decline of 1%. Revenue and adjusted operating profit were favourably impacted by foreign exchange translation of £49.3 million and £6.4 million respectively. At constant rates revenue and adjusted operating profit were down 3% and 6% respectively. Our net finance expense was £23.6 million compared with £25.3 million last year, reflecting our cash generation and lower interest rates, offset by adverse currency translation compared with 2008 as we draw most of our debt in Continental European currencies. The average interest rate based on our net debt is 4.9% for the full year, which we expect to increase to 5.5% in 2010 following the refinancing in 2009 to secure long term funding. Adjusted profit before tax was £91.7 million (£91.3 million) with an overall net favourable impact of exchange rates in the year of £4.5 million. Adjusted earnings per share were 39.4 pence (39.3 pence).
Our tax rate on adjusted profit before tax was 26.4%, the same as last year and is expected to remain at around this level in 2010.
In 2009, we incurred net exceptional costs of £12.7 million. These included restructuring costs of £8.7 million, £5.4 million of which was in German Healthcare where we have restructured our plant operations in the south of the country, closing one plant as well as exiting a number of smaller businesses. As we indicated at the half year, we have also incurred restructuring charges of £3.3 million for the closure of plants in the Nordic region, primarily in Sweden, in response to the recession and in exiting our flat linen and direct sales operations in Finland. We have taken a £2.7 million goodwill impairment charge in relation to the direct sales businesses in Germany and Finland which we have exited. We also took an impairment charge of £3.3 million for UK direct sales, which although restructured, has been severely impacted by the recession, and we therefore believe it is prudent to recognise that the business may not be able to perform at the expected level. A profit of £2.0 million was generated from UK property disposals. The net cash effect of exceptional items during the year was an outflow of £2.8 million.
Amortisation of acquired customer contracts decreased to £17.3 million (£19.4 million). After these items and exceptional costs, operating profit was £85.3 million (£85.7 million), profit before taxation was £61.7 million (£60.4 million) and basic earnings per share was up 9% to 26.6 pence compared with 24.5 pence in 2008.
During 2009 cash management has been a key focus and we have reduced our net capital expenditure by £29.0 million from 2008, notwithstanding the investment of £12.9 million in four decontamination centres in the UK. Our textile maintenance businesses undertook active programmes to reduce capital expenditure but we have done this in a way that protects our service levels and continues to invest in strategic areas for growth. The investment in textiles of £105.0 million was £10.7 million lower than 2008 representing 86% (100%) of the related depreciation. We have also continued to make improvements in the terms of sourcing our textiles and savings of approximately £6 million were negotiated in 2009. In the first half of the year we opened a new plant in Poland, in Wroclaw, and we are nearing completion on construction of our mixed workwear and mat plant near Brno, Czech Republic and mat plant in Stockholm, both due to commence operation in Spring 2010.
Free cash flow was £76.7 million (£47.2 million). We have contributed £6.0 million to the UK pension fund with a further £6.0 million planned in 2010 ahead of the completion of the triennial valuation. We ended the year with net retirement benefit obligation liabilities for the group of £32.9 million (£23.5 million). Net debt at 31st December 2009 was £484.9 million (£544.1 million) with exchange rate translation decreasing net borrowings by £35.5 million. £7.5 million cash consideration was invested in acquisitions in the year, primarily deferred consideration from prior acquisitions and a small number of acquired contracts.
On 30th December 2009, we acquired the Norwegian and Swedish mat service businesses of ISS. We have also entered into a strategic partnership agreement with ISS under which the group will provide mat services to ISS' customer base across the Nordic region and we are already targeting key accounts for contract growth. In our Continent region, we acquired on 4th January 2010 the workwear business of Klarner, a privately owned company based near Cologne, which further strengthens our German workwear business. These acquired businesses are profitable and cash generative, and the group has well-developed plans to increase both sales and margins.
Overall the group retains a strong balance sheet with a ratio of net debt to earnings before exceptional items, interest, tax, depreciation and amortisation (EBITDA) of 1.7 times at year end, compared with a covenant level of not more than three times. The group's bank facilities extend to June 2012 and amount to £600 million of which £217.6 million was drawn in January 2010 following repayment out of the funds of our recent private placement transaction. At current exchange rates we have total private placement notes of £345.0 million with maturities between 2014 and 2021.
The Board is recommending a final dividend of 13.5 pence, which, together with the interim dividend of 6.5 pence paid in October 2009, gives a total of 20.0 pence, maintained at last year's level. The final dividend will be paid on 6th May 2010 to shareholders on the register at the close of business on 16th April 2010.
Nordic region
Our Nordic region covers the country operations in Denmark, Sweden (including our direct sales business Björnkläder), Norway, Finland, Latvia, Lithuania and Estonia. We are the market leader across the whole region, with 46 plants and nearly 3,200 staff.
Revenue in our Nordic region increased 1% to £330.8 million (£326.5 million) with adjusted operating profit maintained at £51.2 million (£51.2 million). At constant currency, revenue was 5% lower and adjusted operating profit 5% lower. Cash generation was very strong reflecting good management of working capital and lower capital expenditure. Sweden is the economy in Scandinavia that has been most severely impacted by the economic downturn because of its more significant manufacturing base with GDP falling by more than 5% in the year. The reduction in revenue in our Swedish textile maintenance and direct sales operations was the primary reason for the shortfall in operating profit against the comparative period. Elsewhere we saw like for like revenue growth and achieved margins similar to last year.
In 2009, we launched a new line of washroom products, significantly improving the design and utility of our service offering. These have been well received in our Nordic markets and further support our drive to grow the facilities segment of our business in the Nordic as well as our other regions.
During 2009, we benefited from our balanced customer portfolio in Denmark and from the strong customer relationships we hold in public services and the pharmaceutical and food industries. The expected impact of lower volumes in the hotels division reduced profits by more than £1 million year on year but has been offset by growth in other parts of the business, primarily facilities, where we saw double digit profit growth. We have focused on cost reduction activities to improve efficiency, which have included the closure of one plant, in addition to concluding the consolidation we undertook last year. As a result the operating margin improved slightly.
As expected our revenues in Swedish textile maintenance reflected lower volumes in hotels and workwear segments where we have a more significant exposure to a manufacturing customer base. We took action in the first half to reduce costs by consolidating two workwear plants into one and relocating one mat plant for additional capacity in the south of the country. Our higher margin facilities business has continued to grow operating profit and encouraged by the growth potential and current trading, we commissioned the new mat plant in Stockholm. Our Healthcare business has progressed well.
While profits were down on lower volumes, Björnkläder, our direct sales business in Sweden, has increased its gross margin and generated significantly more cash than last year through improved inventory management.
Our business in Norway continues to grow well and improved its operating margin by more than 1% during the year. In December 2009 we strengthened our position in the mats market by acquiring the mat services business of ISS in Norway (and a smaller business in Sweden) giving us a market leading position in this high growth and return business.
Our business in Finland is now operating from a new plant in Helsinki and is focused on the higher margin workwear and facilities segments following the disposal of the much lower margin flat linen and direct sales business.
Our relatively small Baltic mat businesses have maintained revenues and remained cash generative despite their local economies being severely impacted by the global economic downturn. We are pleased with the progress of the business operations since joining the group, particularly the level of new contracts we have won.
Continent Region
Our Continent region covers operations in Germany, Austria, Holland, Poland, Czech Republic and Slovakia with 30 plants and almost 3,800 staff. We continue to have leading market positions in Holland, Poland, German Healthcare and an improved position in German Workwear.
Revenue in our Continent region grew 8% to £245.2 million (£226.2 million) with a 12% increase in adjusted operating profit to £32.7 million (£29.2 million). At constant currency, revenue was 2% down but adjusted operating profit increased by 2%. The adjusted operating margin increased to 13.3% from 12.9% due to the improvement in profitability of German Healthcare and continued progress in our workwear and facilities businesses. The region has delivered good free cash flow reflecting the better profitability and the improvement in textile management.
German Healthcare delivered an adjusted operating margin of close to 5% following the restructuring to reduce the cost base undertaken in 2008, which is a significant improvement from the 2% margin in 2008. Adjusted operating profit doubled from 2008. The market has remained difficult as a result of over capacity and continued pressure on price and we have yet to see a positive impact from the announcement of a minimum wage structure for our industry. As a result, revenues were down 6% compared with 2008 and we have taken further action by restructuring our operations in the south of Germany. Our focus continues to be on reducing costs to align with lower volumes and the difficult pricing environment, and to continue improving the margin over the medium term. We are prepared to take further restructuring action as necessary. Our Healthcare business in Austria continues to perform well in a stable market, growing revenues and improving its margin.
Our German Workwear business maintained its revenues and adjusted operating profit with a good proportion of food and catering customers as well as public services, which have remained relatively stable despite the difficult environment. The acquisition of the workwear business of Klarner will further strengthen our position for longer term growth in this fragmented market. This business adds to our existing plant footprint and has a good customer base which complements our portfolio.
Holland is our most competitive market but we have worked with our customers to manage the volume downturn and with high service standards have maintained a relatively low customer loss rate. We have also reduced costs by improving efficiencies. As a result, the business delivered a solid performance, maintaining revenue and adjusted operating profit in line with last year.
Revenues in Poland grew 5% during 2009. The economy was impacted in the second half of the year with local GDP growth rates falling to 1% and unemployment levels above 10%. We have reacted quickly and have reduced the cost base and maintained the adjusted operating profit. With the plant investments we have made in Poland in recent years, we will be able to accommodate higher volumes when the market recovers.
We are making good progress in the Czech Republic and Slovakia where our salesforce are delivering new workwear and mat customer contracts which will be serviced from our new plant near Brno, Czech Republic when this is operational in March 2010.
UK and Ireland
Our revenue declined 2% to £394.9 million (£401.2 million), including an improved contribution of £60.2 million (£55.4 million) from Clinical Solutions and Decontamination services, which is reported as a separate segment. Adjusted operating profit was down 6% to £37.6 million (£40.2 million) including £2.2 million (£3.8 million) for Clinical Solutions and Decontamination services. The core textile maintenance businesses have performed well in a challenging year, managing to hold margins close to last year with revenue down 3% to £334.7 million (£345.8 million) and profits down 3% to £35.4 million (£36.4 million). The decline in profit is primarily related to lower volumes in hotel linen and we have seen a 3% growth in adjusted operating profit overall in the other parts of the business. The plants in operation number 49, with 9,300 staff in the region.
In the early months of the year we saw like for like volumes down significantly in our hotel business but as the year has progressed we have seen the rate of decline reduce to 3% in the last quarter. We have benefited from the early action we took on costs, both in reducing fixed costs and securing energy prices below current levels, but also in rebuilding work flows, textile management and transport around more efficient models. While profits and margins were down in 2009, the business cost model is well positioned as we enter 2010. Through this difficult year, we have continued to focus on customer service and this has been recognised in price increases that have covered cost inflation. We will continue to work with our customers to ensure appropriate pricing for 2010.
Our healthcare division reported good growth in revenue of 8% with continued increases in like for like volumes, winning new contracts and an excellent record in retaining contracts up for re-tender. Profits also moved ahead and we have redirected capacity from hotels towards the growing hospital volumes. The NHS still provides one quarter of hospital laundry from in-house operations and we believe there are further significant opportunities for the NHS to achieve additional savings from outsourcing.
Revenue of our workwear business held flat in the first half of 2009 but declined in the second half, despite continued good level of new sales, as the average number of wearers in customers contracts reduced in response to the general economy. Cost cutting measures largely mitigated the reduction in volumes but the outlook for the business remains challenging against a cautious view of the economic outlook.
The Clinical Solutions and Decontamination business has grown revenues well and in line with our expectations. Sterile consumables and operating theatre textiles grew 9%, broadening the strong relationships we have with our customers. The challenges for our business in the start up of the two decontamination contracts this year, which added £2.1 million of revenue, have been significant with the transition of service over a relatively short period of time to four new service centres from the six hospital trusts, involving 16 hospitals and a significant number of primary care units. There have been delays in transitioning of service from some hospitals against the original plan to make sure that our customers are ready to accommodate the changes in service patterns and we are ready to deliver to our service standards. Start up losses of £2.1 million were incurred in 2009, which was greater than the amount we had planned. We continue to work with our customers on the transfer to full volumes in 2010 and we are focusing on our operations to ensure that we move this service into profitability as quickly as possible.
There was significant economic upheaval for our business in Ireland. As a result, there was a small reduction in profits as cost cutting largely kept pace with the reduction in revenues. 2010 is expected to be again challenging. Longer term we have good market positions, including a market leading facilities business, and we have added clean room services in 2009. These are both key growth sectors for the group.
Outlook
The group remains well placed in its markets and has further strengthened its position in strategic growth sectors through recent acquisitions. Looking at 2010, we do not expect any marked improvement in our markets, but we will receive the full benefit of the reductions we made to the group's cost base last year. Overall, with our strong free cash flow and robust balance sheet, the Board believes that the group is positioned to benefit once growth returns to its markets.
|
Consolidated income statement For the year ended 31st December 2009 |
|||
|
|
Notes |
Year to 31st December 2009 £m |
Year to 31st December 2008 £m |
|
Continuing operations |
|
|
|
|
Revenue |
2 |
970.9 |
953.9 |
|
Cost of sales |
|
(525.2) |
(519.0) |
|
Gross profit |
|
445.7 |
434.9 |
|
Other operating income |
|
3.1 |
0.9 |
|
Distribution costs |
|
(182.2) |
(180.5) |
|
Administrative expenses |
|
(144.8) |
(135.4) |
|
Other operating expenses |
|
(36.5) |
(34.2) |
|
Operating profit |
2 |
85.3 |
85.7 |
|
Analysed as: |
|
|
|
|
Operating profit before exceptional items and amortisation of customer contracts and intellectual property rights |
2 |
115.3 |
116.6 |
|
Exceptional items |
4 |
(12.7) |
(11.5) |
|
Amortisation of customer contracts and intellectual property rights |
9 |
(17.3) |
(19.4) |
|
Operating profit |
2 |
85.3 |
85.7 |
|
Finance expense |
3 |
(25.1) |
(28.7) |
|
Finance income |
3 |
1.5 |
3.4 |
|
Profit before taxation |
|
61.7 |
60.4 |
|
Taxation |
5 |
(15.9) |
(18.3) |
|
Profit for the year |
|
45.8 |
42.1 |
|
Analysed as: |
|
|
|
|
Profit attributable to minority interest |
|
0.7 |
0.4 |
|
Profit attributable to equity shareholders of the company |
|
45.1 |
41.7 |
|
Earnings per share expressed in pence per share |
|
|
|
|
- Basic |
7 |
26.6 |
24.5 |
|
- Diluted |
7 |
26.6 |
24.5 |
|
Consolidated statement of comprehensive income and expense For the year ended 31st December 2009 |
|||
|
|
|
Year to
31st December
2009
£m
|
Year to
31st December
2008
£m
|
|
Profit for the year |
|
45.8 |
42.1 |
|
Other comprehensive income: |
|
|
|
|
Currency translation differences |
|
(4.5) |
39.7 |
|
Actuarial losses |
|
(13.4) |
(14.0) |
|
(Loss)/gain on cash flow hedges |
|
(14.4) |
2.7 |
|
Other comprehensive (expense)/income for the year, net of tax |
|
(32.3) |
28.4 |
|
Total comprehensive income for the year |
|
13.5 |
70.5 |
|
Attributable to: |
|
|
|
|
Minority interest |
|
0.5 |
1.3 |
|
Equity shareholders |
|
13.0 |
69.2 |
Items in the statement above are disclosed net of tax.
|
Consolidated balance sheet As at 31st December 2009 |
|||
|
|
Notes |
As at 31st December
2009
£m
|
As at
31st December
2008
£m
|
|
Assets |
|
|
|
|
Intangible assets: |
|
|
|
|
- Goodwill |
8 |
461.7 |
488.0 |
|
- Other intangible assets |
9 |
68.0 |
55.6 |
|
Property, plant and equipment |
10 |
535.3 |
576.6 |
|
Assets classified as held for sale |
|
1.6 |
3.3 |
|
Deferred tax assets |
|
30.4 |
16.6 |
|
Derivative financial instruments |
|
24.7 |
54.5 |
|
Trade and other receivables |
|
3.6 |
3.6 |
|
Pension scheme surplus |
16 |
- |
6.9 |
|
Total non-current assets |
|
1,125.3 |
1,205.1 |
|
Inventories |
|
39.9 |
43.4 |
|
Income tax receivable |
|
8.8 |
8.5 |
|
Derivative financial instruments |
|
0.2 |
1.1 |
|
Trade and other receivables |
|
161.0 |
171.7 |
|
Cash and cash equivalents |
|
272.2 |
72.5 |
|
Total current assets |
|
482.1 |
297.2 |
|
Liabilities |
|
|
|
|
Interest bearing loans and borrowings |
11 |
(3.2) |
(3.9) |
|
Derivative financial instruments |
|
(3.4) |
(0.2) |
|
Income tax payable |
|
(17.8) |
(20.7) |
|
Trade and other payables |
|
(206.0) |
(208.0) |
|
Provisions |
12 |
(5.2) |
(5.8) |
|
Total current liabilities |
|
(235.6) |
(238.6) |
|
Net current assets |
|
246.5 |
58.6 |
|
Interest bearing loans and borrowings |
11 |
(753.9) |
(612.7) |
|
Derivative financial instruments |
|
(42.3) |
(49.2) |
|
Pension scheme deficits |
16 |
(32.9) |
(30.4) |
|
Deferred tax liabilities |
|
(62.6) |
(72.8) |
|
Trade and other payables |
|
(1.8) |
- |
|
Provisions |
12 |
(2.5) |
(2.5) |
|
Total non-current liabilities |
|
(896.0) |
(767.6) |
|
Net assets |
|
475.8 |
496.1 |
|
Equity |
|
|
|
|
Share capital |
|
51.5 |
51.4 |
|
Share premium |
|
96.4 |
95.6 |
|
Other reserves |
|
(3.3) |
11.1 |
|
Capital redemption reserve |
|
150.9 |
150.9 |
|
Retained earnings |
|
176.5 |
183.7 |
|
Total shareholders' equity |
|
472.0 |
492.7 |
|
Minority interest in equity |
|
3.8 |
3.4 |
|
Total equity |
|
475.8 |
496.1 |
|
Consolidated cash flow statement For the year ended 31st December 2009 |
|||
|
|
Notes |
Year to
31st December
2009
£m
|
Year to
31st December
2008
£m
|
|
Cash flows from operating activities |
|
|
|
|
Cash generated from operations |
13 |
270.5 |
262.8 |
|
Interest paid |
|
(25.1) |
(28.1) |
|
Interest received |
|
1.5 |
3.4 |
|
Income tax paid |
|
(24.2) |
(15.9) |
|
Net cash generated from operating activities |
|
222.7 |
222.2 |
|
Cash flows from investing activities |
|
|
|
|
Acquisition of subsidiaries, net of cash acquired |
15 |
(7.5) |
(50.3) |
|
Purchases of property, plant and equipment |
|
(149.7) |
(175.5) |
|
Proceeds from the sale of property, plant and equipment |
13 |
11.2 |
6.0 |
|
Purchases of intangible assets |
9 |
(7.5) |
(5.5) |
|
Special pension contribution payments |
|
(6.0) |
- |
|
Net cash used in investing activities |
|
(159.5) |
(225.3) |
|
Cash flows from financing activities |
|
|
|
|
Net proceeds from issue of ordinary share capital |
|
0.9 |
0.1 |
|
Purchase of own shares by the Employee Benefit Trust |
|
(3.4) |
(2.1) |
|
Drawdown of borrowings |
|
199.3 |
25.2 |
|
Repayment of borrowings |
|
(22.8) |
- |
|
Repayment of finance leases/hire purchase liabilities |
|
(4.1) |
(4.1) |
|
Dividends paid to company's shareholders |
6 |
(33.9) |
(33.8) |
|
Dividends paid to minority interest |
|
(0.1) |
(0.1) |
|
Net cash generated/(used) from financing activities |
|
135.9 |
(14.8) |
|
Net increase/(decrease) in cash |
|
199.1 |
(17.9) |
|
Cash and cash equivalents at beginning of year |
|
72.5 |
82.2 |
|
Exchange gains on cash |
|
0.6 |
8.2 |
|
Cash and cash equivalents at end of year |
|
272.2 |
72.5 |
|
Free cash flow |
|
76.7 |
47.2 |
|
Analysis of free cash flow |
|
|
|
|
Net cash generated from operating activities |
|
222.7 |
222.2 |
|
Purchases of property, plant and equipment |
|
(149.7) |
(175.5) |
|
Proceeds from the sale of property, plant and equipment |
|
11.2 |
6.0 |
|
Purchases of intangible assets |
|
(7.5) |
(5.5) |
|
Free cash flow |
|
76.7 |
47.2 |
|
Consolidated statement of changes in total equity
|
||||||||
|
|
Attributable to shareholders of the company |
|
||||||
|
|
Share capital £m |
Share premium £m |
Other reserves £m |
Capital redemption reserve £m |
Retained earnings £m |
Total £m |
Minority interest £m |
Total equity £m |
|
At 1st January 2008 |
51.4 |
95.5 |
8.4 |
150.9 |
151.7 |
457.9 |
2.2 |
460.1 |
|
Comprehensive income: |
||||||||
|
Profit for the year |
- |
- |
- |
- |
41.7 |
41.7 |
0.4 |
42.1 |
|
Other comprehensive income: |
||||||||
|
Actuarial losses |
- |
- |
- |
- |
(17.8) |
(17.8) |
- |
(17.8) |
|
Cash flow hedges |
- |
- |
3.7 |
- |
- |
3.7 |
- |
3.7 |
|
Currency translation |
- |
- |
- |
- |
37.9 |
37.9 |
0.9 |
38.8 |
|
Tax on items taken directly to equity |
- |
- |
(1.0) |
- |
4.3 |
3.3 |
- |
3.3 |
|
Transactions with owners: |
||||||||
|
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 (note 6) |
- |
- |
- |
- |
(33.8) |
(33.8) |
(0.1) |
(33.9) |
|
Value of employee service in respect of share option schemes and share awards |
- |
- |
- |
- |
1.8 |
1.8 |
- |
1.8 |
|
At 31st December 2008 |
51.4 |
95.6 |
11.1 |
150.9 |
183.7 |
492.7 |
3.4 |
496.1 |
|
Comprehensive income: |
||||||||
|
Profit for the year |
- |
- |
- |
- |
45.1 |
45.1 |
0.7 |
45.8 |
|
Other comprehensive income: |
||||||||
|
Actuarial losses |
- |
- |
- |
- |
(18.8) |
(18.8) |
- |
(18.8) |
|
Cash flow hedges |
- |
- |
(20.0) |
- |
|
(20.0) |
- |
(20.0) |
|
Currency translation |
- |
- |
- |
- |
(10.2) |
(10.2) |
(0.2) |
(10.4) |
|
Tax on items taken directly to equity |
- |
- |
5.6 |
- |
11.5 |
17.1 |
- |
17.1 |
|
Transactions with owners: |
||||||||
|
Issue of share capital in respect of share option schemes |
0.1 |
0.8 |
- |
- |
- |
0.9 |
- |
0.9 |
|
Purchase of own shares by the Employee Benefit Trust |
- |
- |
- |
- |
(3.4) |
(3.4) |
- |
(3.4) |
|
Dividends (note 6) |
- |
- |
- |
- |
(33.9) |
(33.9) |
(0.1) |
(34.0) |
|
Value of employee service in respect of share option schemes and share awards |
- |
- |
- |
- |
2.5 |
2.5 |
- |
2.5 |
|
At 31st December 2009 |
51.5 |
96.4 |
(3.3) |
150.9 |
176.5 |
472.0 |
3.8 |
475.8 |
At 31st December 2009, the company held 1,025,000 (2008: 1,025,000) treasury shares with a nominal value of 30 pence each.
The group has an Employee Benefit Trust to administer the share plans and to acquire company shares, using funds contributed by the group, to meet commitments to group employees. At 31st December 2009, the Trust held 1,447,409 (2008: 441,873) shares.
Notes to the consolidated financial statements
1 Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
The Davis Service Group Plc's Report and Accounts 2009 (the "Annual Report") will be posted to shareholders on 15th March 2010. The Annual Report will also be made available on the company's website, www.dsgplc.co.uk, from 15th March 2010. The financial information set out herein does not constitute the company's statutory accounts for the year ended 31st December 2009 but is derived from those financial statements and the accompanying directors' report. The statutory accounts for 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 30th April 2010. The auditors have reported on the company's statutory accounts; the report was unqualified and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.
The comparative figures for the year ended 31st December 2008 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.
Notes to the consolidated financial statements
2 Segment information
The segment results for the year ended 31st December 2009 are 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 |
|
Total segment revenue |
331.6 |
248.5 |
334.7 |
914.8 |
61.0 |
- |
975.8 |
|
Inter-segment revenue |
(0.8) |
(3.3) |
- |
(4.1) |
(0.8) |
- |
(4.9) |
|
Revenue from external customers |
330.8 |
245.2 |
334.7 |
910.7 |
60.2 |
- |
970.9 |
|
Operating profit before exceptional items and amortisation of customer contracts and intellectual property rights |
51.2 |
32.7 |
35.4 |
119.3 |
2.2 |
(6.2) |
115.3 |
|
Exceptional items |
(5.1) |
(6.4) |
(1.2) |
(12.7) |
- |
- |
(12.7) |
|
Amortisation of customer contracts and intellectual property rights |
(11.3) |
(2.6) |
(3.4) |
(17.3) |
- |
- |
(17.3) |
|
Segment result |
34.8 |
23.7 |
30.8 |
89.3 |
2.2 |
(6.2) |
85.3 |
|
Net finance expense |
|
|
|
|
|
|
(23.6) |
|
Profit before taxation |
|
|
|
|
|
|
61.7 |
|
Taxation |
|
|
|
|
|
|
(15.9) |
|
Profit for the year |
|
|
|
|
|
|
45.8 |
|
Profit attributable to minority interests |
|
|
|
|
|
|
0.7 |
|
Profit attributable to equity shareholders |
|
|
|
|
|
|
45.1 |
|
Capital expenditure |
72.7 |
47.8 |
55.9 |
176.4 |
14.0 |
0.6 |
191.0 |
|
Depreciation (note 10) |
50.1 |
46.6 |
68.3 |
165.0 |
1.2 |
- |
166.2 |
|
Amortisation (note 9) |
13.1 |
3.7 |
3.8 |
20.6 |
1.0 |
- |
21.6 |
Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations.
Sales between segments are carried out at arm's length. The company is domiciled in the UK. Revenue from external customers in the UK is £358.0 million (2008: £365.1 million) and the total revenue from external customers from other countries is £612.9 million (2008: £588.8 million).
Analysis of revenue by category:
|
|
Year to
31st December
2009
£m
|
Year to
31st December
2008
£m
|
|
Sale of goods |
51.0 |
62.3 |
|
Provision of services |
919.9 |
891.6 |
|
|
970.9 |
953.9 |
2 Segment information continued
The segment results for the year ended 31st December 2008 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 |
|
Total segment revenue |
328.4 |
227.6 |
345.8 |
901.8 |
55.9 |
- |
957.7 |
|
Inter-segment revenue |
(1.9) |
(1.4) |
- |
(3.3) |
(0.5) |
- |
(3.8) |
|
Revenue from external customers |
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 (note 10) |
44.0 |
42.3 |
67.0 |
153.3 |
3.5 |
0.1 |
156.9 |
|
Amortisation (note 9) |
9.6 |
7.3 |
4.8 |
21.7 |
1.0 |
- |
22.7 |
The segment assets and liabilities at 31st December 2009 are 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 |
609.1 |
358.4 |
282.0 |
1,249.5 |
91.8 |
200.4 |
1,541.7 |
|
Deferred tax assets |
4.5 |
7.6 |
9.8 |
21.9 |
|
8.5 |
30.4 |
|
Income tax assets |
0.2 |
0.3 |
4.9 |
5.4 |
0.9 |
2.5 |
8.8 |
|
Non-current assets held for sale |
0.4 |
1.2 |
- |
1.6 |
- |
- |
1.6 |
|
Derivative financial instruments |
0.1 |
- |
0.1 |
0.2 |
- |
24.7 |
24.9 |
|
Total assets |
614.3 |
367.5 |
296.8 |
1,278.6 |
92.7 |
236.1 |
1,607.4 |
|
Operating liabilities |
92.8 |
43.6 |
59.2 |
195.6 |
15.2 |
4.7 |
215.5 |
|
Bank loans and finance leases |
4.0 |
2.5 |
5.7 |
12.2 |
- |
744.9 |
757.1 |
|
Derivative financial instruments |
- |
- |
- |
- |
- |
45.7 |
45.7 |
|
Deferred tax liabilities |
28.3 |
20.2 |
12.2 |
60.7 |
- |
1.9 |
62.6 |
|
Income tax liabilities |
8.7 |
0.9 |
6.4 |
16.0 |
- |
1.8 |
17.8 |
|
Pension scheme deficit |
19.7 |
3.5 |
4.3 |
27.5 |
- |
5.4 |
32.9 |
|
Total liabilities |
153.5 |
70.7 |
87.8 |
312.0 |
15.2 |
804.4 |
1,131.6 |
2 Segment information continued
The segment assets and liabilities at 31st December 2008 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 |
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 |
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 identified 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.
The total of non-current assets other than financial instruments, deferred tax assets and retirement benefit assets located in the UK is £262.8 million (2008: £270.8 million) and outside the UK is £802.2 million (2008: £849.4 million).
3 Net finance costs
|
|
Year to
31st December
2009
£m
|
Year to
31st December
2008
£m
|
|
Interest payable on bank borrowings |
(23.1) |
(26.7) |
|
Interest payable on finance leases |
(0.3) |
(0.7) |
|
Interest payable on other borrowings |
(1.3) |
(1.0) |
|
Amortisation of issue costs of bank loans (note i) |
(0.4) |
(0.3) |
|
Fair value (loss)/gain on interest rate swaps (fair value hedge) |
(2.5) |
4.3 |
|
Fair value adjustment of bank borrowings attributable to interest rate risk |
2.5 |
(4.3) |
|
Finance expense |
(25.1) |
(28.7) |
|
Finance income |
1.5 |
3.4 |
|
Net finance costs |
(23.6) |
(25.3) |
(i) This relates to loan issue costs arising on the £420 million and €200 million revolving credit facilities and the 2006 US$250 million and 2009 US$259 million and £25 million private placements. The costs have been capitalised and are being amortised over the shortest period of the loan being seven, four, eight and seven years respectively.
4 Exceptional items
Included within other operating (income)/expenses are the following items which the group considers to be exceptional:
|
|
Year to
31st December
2009
£m
|
Year to
31st December
2008
£m
|
|
Restructuring costs |
8.7 |
6.6 |
|
Goodwill impairment (note 8) |
6.0 |
- |
|
(Profit)/loss on property disposals |
(2.0) |
2.7 |
|
Growth initiatives written off |
- |
2.2 |
|
Total |
12.7 |
11.5 |
The restructuring costs relate primarily to our Germany Healthcare business where we have closed one plant in the South as well as disposing of a number of smaller businesses. We have also incurred restructuring costs for the closure of plants primarily in Sweden, in response to the recession, and in exiting our flat linen and direct sales operations in Finland. The tax credit on these is £3.0 million (2008: £0.5 million).
The goodwill impairment charge is in relation to the direct sales business in Germany and Finland which we have exited and in the UK, which has been severely impacted by the recession. There was no tax charge.
During the year a net profit has been realised on UK property disposals. The tax charge on this is £0.4 million (2008: credit of £0.7 million).
In 2008 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 was £0.3 million.
5 Taxation
|
|
Year to
31st December
2009
£m
|
Year to
31st December
2008
£m
|
|
Analysis of tax charge for the year |
|
|
|
Current tax: |
|
|
|
Tax on profits for the current year |
21.7 |
20.5 |
|
Adjustments in respect of previous years |
3.3 |
(0.1) |
|
|
25.0 |
20.4 |
|
Deferred tax: |
|
|
|
Origination and reversal of temporary differences |
(2.5) |
(1.2) |
|
Changes in statutory tax rates |
- |
(0.9) |
|
Credit due to previously unrecognised temporary differences |
(1.4) |
- |
|
Change due to review of deferred tax assets |
(0.9) |
0.4 |
|
Adjustments in respect of previous years |
(4.3) |
(0.4) |
|
|
(9.1) |
(2.1) |
|
Total tax charge |
15.9 |
18.3 |
The amount of overseas tax included in the total tax charge is £18.1 million (2008: £16.6 million).
6 Dividends
|
|
Year to
31st December
2009
£m
|
Year to
31st December
2008
£m
|
|
Equity dividends paid during the year |
|
|
|
Final dividend for the year ended 31st December 2008 of 13.5 pence per share (2007: 13.3 pence) |
22.9 |
22.7 |
|
Interim dividend for the year end 31st December 2009 of 6.5 pence per share (2008: 6.5 pence) |
11.0 |
11.1 |
|
|
33.9 |
33.8 |
|
Proposed final equity dividend for approval at the AGM |
|
|
|
Proposed final dividend for the year ended 31st December 2009 of 13.5 pence per share (2008: 13.5 pence) |
22.8 |
22.9 |
The directors recommend a final dividend for the financial year ended 31st December 2009 of 13.5 pence per ordinary share to be paid on 6th May 2010 to shareholders who are on the register at 16th April 2010. This dividend is not reflected in these financial statements as it does not represent a liability at 31st December 2009.
7 Earnings per share
Basic earnings per ordinary share are based on the group profit for the year and a weighted average of 169,533,679 (2008: 170,099,000) 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 2009 Number of shares |
31st December 2008 Number of shares |
|
In issue |
169,533,679 |
170,099,000 |
|
Dilutive potential ordinary shares arising from unexercised share options |
150,955 |
197,867 |
|
|
169,684, 634 |
170,296,867 |
An adjusted earnings per ordinary share figure has been presented to eliminate the effects of exceptional items, amortisation of customer contracts and intellectual property rights and non-recurring tax items. 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 2009 |
Year to 31st December 2008 |
||
|
|
£m |
Earnings per share pence |
£m |
Earnings per share pence |
|
Profit attributable to equity shareholders of the company for basic earnings per share calculation |
45.1 |
26.6 |
41.7 |
24.5 |
|
(Profit)/loss on property disposals (after taxation) |
(1.6) |
(0.9) |
2.0 |
1.2 |
|
Goodwill impairment (after taxation) |
6.0 |
3.5 |
- |
- |
|
Restructuring costs (after taxation) |
5.7 |
3.3 |
6.1 |
3.6 |
|
Growth initiatives written off (after taxation) |
- |
- |
1.9 |
1.1 |
|
Amortisation of customer contracts and intellectual property rights (after taxation) |
13.2 |
7.8 |
14.4 |
8.5 |
|
Non-recurring tax effect due to losses used but not previously recognised for deferred tax (2008: changes in statutory tax rates and tax laws) |
(1.6) |
(0.9) |
0.7 |
0.4 |
|
Adjusted earnings |
66.8 |
39.4 |
66.8 |
39.3 |
|
Diluted basic earnings |
|
26.6 |
|
24.5 |
8 Goodwill
|
|
2009 £m |
2008 £m |
|
Cost |
|
|
|
At 1st January |
525.3 |
409.5 |
|
Acquisitions (note 15) |
- |
23.6 |
|
Adjustment to provisional goodwill (note i) |
(1.3) |
- |
|
Disposal (note ii) |
(0.3) |
- |
|
Currency translation |
(19.9) |
92.2 |
|
At 31st December |
503.8 |
525.3 |
|
Aggregate impairment |
|
|
|
At 1st January |
37.3 |
25.8 |
|
Impairment |
6.0 |
- |
|
Currency translation |
(1.2) |
11.5 |
|
At 31st December |
42.1 |
37.3 |
|
Net book amount at 31st December |
461.7 |
488.0 |
(i) This relates to the finalisation of fair values for acquisitions in 2008 where the amount has been reclassified to customer contracts. It is not considered material for the restatement of comparative information.
(ii) This relates to goodwill disposed of on exiting the Finland flat linen operations.
During the year, goodwill was tested for impairment in accordance with IAS 36 'Impairment of assets'. As a result, an impairment charge of £6.0 million (2008: nil) was made and is shown in other operating expenses in the income statement. The components of the impairment charge are explained below.
The allocation to reportable segments is as follows:
|
|
2009 |
2008 |
||
|
|
Impairment charge £m |
Net book amount of goodwill £m |
Impairment charge £m |
Net book amount of goodwill £m |
|
Textile maintenance UK and Ireland |
3.3 |
36.3 |
- |
39.7 |
|
Textile maintenance Nordic |
1.7 |
244.8 |
- |
253.7 |
|
Textile maintenance Continent |
1.0 |
145.6 |
- |
159.6 |
|
Clinical Solutions and Decontamination |
- |
35.0 |
- |
35.0 |
|
Total |
6.0 |
461.7 |
- |
488.0 |
The group's goodwill is allocated across 18 cash generating units (CGUs). The recoverable amount of each CGU is based on value-in-use calculations. These calculations require the use of estimates and use pre-tax cash flow projections based on the group's current three-year strategic plan. Cash flows beyond the three-year period have been generally extrapolated using an estimated growth rate of 2%-2.25% depending upon the CGU and are appropriate because these are long-term businesses. The main assumptions on which forecast cash flows have been based are revenue and operating margin growth. The growth rates used are consistent with the long-term average growth rates for the industry.
Projected cash flows have been discounted using pre-tax discount rates of 11%-17% depending upon the CGU (2008: weighted average pre-tax rate of 11%). The discount rates have been revised to reflect the latest market assumptions for the Risk Free-rates and Equity Risk Premiums and also to take into account the net cost of debt.
Impairment tests are carried out annually, or when indicators show that assets may be impaired. The group's direct sales businesses have been severely impacted by the recession, primarily in the UK and to a lesser extent in the Nordic and Continent regions. The annual impairment tests carried out have resulted in a total impairment charge of £6.0 million (2008: nil) resulting in the carrying value of goodwill being written down to its recoverable amount.
The German Healthcare business has undergone a significant restructuring in 2008 and 2009. An impairment review in accordance with the approach and assumptions outlined above has been carried out and no impairment was recognised as the recoverable amount of goodwill and net assets exceeded its carrying value by 13%. The key assumptions used for the value-in-use calculation are as follows:
·; A small revenue decline from 2009 level is assumed in 2010 with modest growth thereafter.
·; Following the restructuring programmes implemented in 2008 and efficiency improvements initiatives implemented in 2009, operating margins have grown from 2% in 2008 close to 5% in 2009. With further efficiency improvements, operating margins are assumed to grow 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.
The goodwill in the Clinical Solutions and Decontamination CGU arose on acquisition of the Inhealth group in 2007. An impairment review in accordance with the approach and assumptions outlined above has been carried out and no impairment was recognised as the recoverable amount of goodwill and net assets exceeded its carrying value by 13%. During the year, we commenced operational service on the two decontamination contracts. There have been delays in transitioning of service from the six hospital trusts in this start up phase. The key assumptions used for the value-in-use calculation are as follows:
·; The revenues and volumes in the forecast cash flows are based on existing contracts, transferring full volumes in 2010 and modest growth thereafter.
·; Achieving a high single digit operating margin in the medium term, although higher margins are targeted for this business.
If the above revenue and volume assumptions are not achieved then impairment may become necessary.
For all other CGUs the main assumptions on which the forecast cash flows are based are revenue and operating margin growth. Management believe that currently no reasonably possible changes in these assumptions would cause an impairment charge to arise.
9 Other intangible assets
|
|
Computer software £m |
Intellectual property rights £m |
Customer contracts £m |
Total £m |
|
Cost |
|
|
|
|
|
At 1st January 2009 |
31.0 |
1.4 |
87.5 |
119.9 |
|
Acquisitions (note 15) |
- |
- |
26.9 |
26.9 |
|
Adjustment to provisional fair value (note i) |
- |
- |
1.3 |
1.3 |
|
Additions |
7.5 |
- |
- |
7.5 |
|
Disposals (note ii) |
(1.0) |
- |
(1.3) |
(2.3) |
|
Currency translation |
(1.2) |
- |
(2.1) |
(3.3) |
|
At 31st December 2009 |
36.3 |
1.4 |
112.3 |
150.0 |
|
Aggregate amortisation |
|
|
|
|
|
At 1st January 2009 |
16.1 |
1.4 |
46.8 |
64.3 |
|
Charge for the year |
4.3 |
- |
17.3 |
21.6 |
|
Disposals (note ii) |
(0.5) |
- |
(0.7) |
(1.2) |
|
Currency translation |
(0.8) |
- |
(1.9) |
(2.7) |
|
At 31st December 2009 |
19.1 |
1.4 |
61.5 |
82.0 |
|
Net book amount at 31st December 2009 |
17.2 |
- |
50.8 |
68.0 |
|
Net book amount at 31st December 2008 |
14.9 |
- |
40.7 |
55.6 |
(i) This relates to the finalisation of fair values for acquisitions in 2008 where the amount has been reclassified from goodwill. It is not considered material for the restatement of comparative information.
(ii) The disposal of customer contracts relates to contracts disposed of on exiting the Finland flat linen operations.
|
|
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 |
- |
- |
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 |
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 2009 |
237.5 |
519.0 |
668.4 |
1,424.9 |
|
Acquisitions (note 15) |
0.5 |
1.6 |
1.8 |
3.9 |
|
Additions at cost |
15.0 |
32.7 |
105.0 |
152.7 |
|
Disposals |
(4.2) |
(25.7) |
(57.4) |
(87.3) |
|
Currency translation |
(13.0) |
(19.1) |
(24.0) |
(56.1) |
|
At 31st December 2009 |
235.8 |
508.5 |
693.8 |
1,438.1 |
|
Accumulated depreciation |
|
|
|
|
|
At 1st January 2009 |
79.2 |
326.3 |
442.8 |
848.3 |
|
Charge for the year |
7.0 |
37.5 |
121.7 |
166.2 |
|
Disposals |
(1.9) |
(21.9) |
(55.2) |
(79.0) |
|
Currency translation |
(4.5) |
(12.5) |
(15.7) |
(32.7) |
|
At 31st December 2009 |
79.8 |
329.4 |
493.6 |
902.8 |
|
Net book amount at 31st December 2009 |
156.0 |
179.1 |
200.2 |
535.3 |
|
Net book amount at 31st December 2008 |
158.3 |
192.7 |
225.6 |
576.6 |
|
|
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 |
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 |
Plant and machinery net book value includes assets held under finance leases of £9.1 million (2008: £10.5 million). Additions in the year include £3.0 million relating to finance leases (2008: £3.8 million).
11 Financial liabilities - borrowings
|
Current |
As at 31st December 2009 £m |
As at 31st December 2008 £m |
|
Bank loans: |
|
|
|
Unsecured |
- |
0.5 |
|
|
- |
0.5 |
|
Finance lease obligations |
3.2 |
3.4 |
|
|
3.2 |
3.9 |
|
Non-current |
As at 31st December 2009 £m |
As at 31st December 2008 £m |
|
Bank loans: |
|
|
|
Unsecured |
747.6 |
605.3 |
|
|
747.6 |
605.3 |
|
Finance lease obligations |
6.3 |
7.4 |
|
|
753.9 |
612.7 |
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 2009 |
As at 31st December 2008 |
||
|
|
£m |
EIR % |
£m |
EIR % |
|
Borrowings under the revolving credit facilities |
|
|
|
|
|
Euro |
229.7 |
3.24 |
248.5 |
4.05 |
|
Danish krone |
48.4 |
4.51 |
53.8 |
4.57 |
|
Swedish krona |
120.9 |
1.73 |
123.1 |
5.08 |
|
|
399.0 |
2.94 |
425.4 |
4.41 |
|
Borrowings under the private placement (2006) |
|
|
|
|
|
Euro |
67.5 |
4.36 |
73.1 |
4.36 |
|
Danish krone |
55.1 |
2.86 |
61.8 |
5.39 |
|
Swedish krona |
61.6 |
4.32 |
62.7 |
4.32 |
|
Currency translation |
(24.4) |
- |
(19.7) |
- |
|
|
159.8 |
3.90 |
177.9 |
4.67 |
|
Borrowings under the private placement (2009) |
|
|
|
|
|
Sterling |
25.0 |
5.74 |
- |
- |
|
Euro |
155.5 |
5.22 |
- |
- |
|
Currency translation |
7.1 |
- |
- |
- |
|
|
187.6 |
5.29 |
- |
- |
|
Unamortised loan costs |
(1.4) |
- |
(1.2) |
- |
|
Other bank borrowings |
|
|
|
|
|
Euro |
2.6 |
5.19 |
3.2 |
5.26 |
|
|
747.6 |
3.73 |
605.3 |
4.50 |
The group has two revolving credit facilities, for €200 million and £420 million. Both these facilities expire on 23rd June 2012.
In December 2009, the group issued private placement notes of US$259 million and £25 million. The US$259 million was immediately swapped into euros.
In May 2006, the group issued private placement notes of US$250 million which were immediately swapped into a basket of Danish krone, Swedish krona and euros.
The private placement amounts in the table above are stated at the year end exchange rates.
As underlying currencies have been swapped from US dollars via derivative contracts the group has a gain on financial instruments which is offset by the currency translation loss on the underlying borrowing noted above. The borrowing under the US private placements of £347.4 million reflects the £25 million, US$509 million translated at the year end sterling to dollar rate and the impact of fair value hedge movement.
11 Financial liabilities - borrowings continued
Fair value of financial assets and liabilities
|
|
As at 31st December 2009 |
As at 31st December 2008 |
||
|
|
Book value £m |
Fair value £m |
Book value £m |
Fair value £m |
|
Long-term borrowings |
(753.9) |
(780.9) |
(612.7) |
(633.6) |
|
Fair value of other financial assets and liabilities |
|
|
|
|
|
Short-term borrowings |
(3.2) |
(3.2) |
(3.9) |
(3.9) |
|
Trade and other payables |
(207.8) |
(207.8) |
(208.0) |
(208.0) |
|
Trade and other receivables |
131.5 |
131.5 |
144.0 |
144.0 |
|
Short-term deposits |
17.3 |
17.3 |
- |
- |
|
Cash at bank and in hand |
254.9 |
254.9 |
72.5 |
72.5 |
The fair value of the group's fixed rate loans are calculated by discounting expected future cash flows using the appropriate yield curve.
The book values of floating rate borrowings approximate their fair value.
Maturity of financial liabilities
|
|
As at 31st December 2009 |
As at 31st December 2008 |
||||
|
|
Borrowings £m |
Finance leases £m |
Total £m |
Borrowings £m |
Finance leases £m |
Total £m |
|
Within one year |
- |
3.2 |
3.2 |
0.5 |
3.4 |
3.9 |
|
In more than one year but not more than two years |
- |
3.1 |
3.1 |
0.1 |
3.5 |
3.6 |
|
Over two years but not more than five years |
430.2 |
3.2 |
433.4 |
425.9 |
3.9 |
429.8 |
|
Over five years |
317.4 |
- |
317.4 |
179.3 |
- |
179.3 |
|
|
747.6 |
9.5 |
757.1 |
605.8 |
10.8 |
616.6 |
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 2009 £m |
As at 31st December 2008 £m |
|
Expiring in more than two years |
201.0 |
189.3 |
|
|
201.0 |
189.3 |
The minimum lease payments under finance leases fall due as follows:
|
|
As at 31st December 2009 £m |
As at 31st December 2008 £m |
|
Not later than one year |
3.3 |
3.7 |
|
Later than one year but not more than five |
6.7 |
8.7 |
|
|
10.0 |
12.4 |
|
Future finance charges on finance leases |
(0.5) |
(1.6) |
|
Present value of finance lease liabilities |
9.5 |
10.8 |
12 Provisions
|
|
Vacant properties £m |
Restructuring £m |
Property disposals £m |
Total £m |
|
At 1st January 2009 |
0.2 |
5.6 |
2.5 |
8.3 |
|
Charged in the year |
0.4 |
8.3 |
- |
8.7 |
|
Utilised in the year |
(0.1) |
(9.0) |
- |
(9.1) |
|
Currency translation |
- |
(0.2) |
- |
(0.2) |
|
At 31st December 2009 |
0.5 |
4.7 |
2.5 |
7.7 |
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 Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
|
|
Total group |
|
|
Cash generated from operations |
Year to 31st December 2009 £m |
Year to 31st December 2008 £m |
|
Profit for the year |
45.8 |
42.1 |
|
Adjustments for: |
|
|
|
Taxation |
15.9 |
18.3 |
|
Goodwill impairment |
6.0 |
- |
|
Amortisation of intangible assets |
21.6 |
22.7 |
|
Depreciation of property, plant and equipment |
166.2 |
156.9 |
|
(Profit)/loss on property disposals |
(2.0) |
2.7 |
|
Profit on sale of plant and equipment |
(0.9) |
(0.6) |
|
Restructuring costs (non-cash element) |
5.9 |
6.6 |
|
Vacant property leases |
0.4 |
- |
|
Growth initiatives written off (non-cash element) |
- |
0.3 |
|
Finance income |
(1.5) |
(3.4) |
|
Finance expense |
25.1 |
28.7 |
|
Other non-cash movements |
0.7 |
(1.0) |
|
Changes in working capital (excluding effect of acquisitions, disposals and exchange differences on consolidation): |
||
|
Inventories |
2.4 |
(7.4) |
|
Trade and other receivables |
5.2 |
13.0 |
|
Trade and other payables |
(13.8) |
(13.7) |
|
Provisions |
(6.5) |
(2.4) |
|
Cash generated from operations |
270.5 |
262.8 |
In the cash flow statement, proceeds from sale of property, plant and equipment comprise:
|
|
Year to 31st December 2009 £m |
Year to 31st December 2008 £m |
|
Net book amount |
8.3 |
5.4 |
|
Profit on sale of property, plant and equipment |
2.9 |
0.6 |
|
Proceeds from sale of property, plant and equipment |
11.2 |
6.0 |
14 Reconciliation of net cash flow to movement in net debt
|
|
Year to 31st December 2009 £m |
Year to 31st December 2008 £m |
|
Increase/(decrease) in cash |
199.1 |
(17.9) |
|
Cash outflow from movement in debt and lease financing |
(172.4) |
(21.1) |
|
Changes in net debt resulting from cash flows |
26.7 |
(39.0) |
|
New finance leases |
(3.0) |
(3.8) |
|
Bank loans and lease obligations acquired with subsidiaries |
- |
(2.8) |
|
Currency translation |
35.5 |
(131.4) |
|
Movement in net debt in year |
59.2 |
(177.0) |
|
Net debt at beginning of year |
(544.1) |
(367.1) |
|
Net debt at end of year |
(484.9) |
(544.1) |
15 Acquisitions
During the year the group acquired the trade and assets of five textile maintenance businesses, principally in Norway and Sweden.
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 assets |
0.5 |
26.9 |
|
Property, plant and equipment |
5.1 |
3.9 |
|
Receivables |
- |
0.1 |
|
Payables |
- |
(0.1) |
|
Taxation |
|
|
|
- Deferred |
- |
(0.3) |
|
Net assets acquired |
5.6 |
30.5 |
|
Consideration |
|
30.5 |
|
Consideration satisfied by: |
|
|
|
Cash paid in 2009 |
|
3.0 |
|
Cash payable in 2010 |
|
26.4 |
|
Other assets |
|
0.8 |
|
Legal and professional fees |
|
0.3 |
|
|
|
30.5 |
The fair value amounts contain provisional amounts which will be finalised in the accounts for the year ended 31st December 2010.
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.
|
|
2009 £m |
|
Revenue |
12.4 |
|
Profit after tax |
1.9 |
From the date of acquisition to 31st December 2009, the above acquisitions contributed £1.1million to revenue and £0.1million to the profit after tax for the year.
15 Acquisitions continued
During the year the group paid deferred consideration on previous acquisitions. A reconciliation of the total net cash paid for acquisitions is provided:
|
|
£m |
|
Cash consideration |
3.0 |
|
Deferred consideration paid for previous acquisitions |
4.5 |
|
|
7.5 |
The group made several acquisitions during the year ended 31st December 2008. Certain of the fair values assigned to these net assets at the date of acquisition were provisional and in accordance with IFRS 3 Business Combinations, the group has adjusted the fair values attributable to goodwill and customer contracts in the year ended 31st December 2009. This has not had a material impact on the consolidated accounts and, as such, the group has not restated the balance sheet at 31st December 2008.
The acquisition of Klarner, a German workwear business, took place on 4th January 2010 and estimated gross assets of £5 million were acquired. The fair value exercise is in progress.
16 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 deficit on the funded plans is £9.7 million (of which £5.4 million is in respect of the main UK plan). There is a deficit of £23.2 million on unfunded plans.
Where a defined benefit scheme is administered by an insurance company with a collective of other companies and the insurance company is unable to assess the share of the group's pension obligation, the pension scheme has been accounted for as a defined contribution scheme.
|
|
As at 31st December 2009 £m |
As at 31st December 2008 £m |
|
The amounts recognised in the balance sheet are determined as follows: |
|
|
|
Present value of obligations |
(246.6) |
(203.4) |
|
Fair value of plan assets |
213.7 |
179.9 |
|
Net liability recognised in balance sheet |
(32.9) |
(23.5) |
|
Analysed as: |
|
|
|
Pension scheme surplus |
- |
6.9 |
|
Pension scheme deficit and unfunded schemes |
(32.9) |
(30.4) |
|
|
(32.9) |
(23.5) |
17 Contingent liabilities
The group operates from 125 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. The extent of these liabilities and the cover provided by the indemnities are reviewed where appropriate with the relevant third party. Such liabilities are not expected to give rise to any significant loss.
18 Related parties
There have been no significant related party transactions in the year ended 31st December 2009 (2008: nil).
19 Post balance sheet events
The acquisition of Klarner, a German workwear business, took place on 4th January 2010 and gross assets of approximately £5 million were acquired. The fair value exercise is in progress.
20 Principal risks and uncertainties
The company believes the following to be the principal risks and uncertainties facing the group. If any of these risks occur the company's business, financial condition and results of operations could suffer.
In the current uncertain economic environment certain risks may gain greater prominence either individually or when taken together and accordingly their potential impact on the group's business, financial condition and results of operations may be exacerbated.
1 Delivering organic revenue growth
|
Risk description |
Potential impact |
Mitigation |
|
The European economies in which the group operates do not return to economic growth as forecast if the recovery is weaker than anticipated. |
·; Reduction in future profitability and cash flow. ·; Limit to the group's ability to complete its strategy within its chosen markets. ·; Impairment of goodwill. |
·; Long range plans until 2012 based on agreed scenarios. ·; Further 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. |
|
Further deterioration in market presence and/or profitability of the German healthcare business. |
·; Reduced profitability and cash flow. ·; Impairment of goodwill |
·; Approved 2010 Budget and action plan. ·; Steering committee to assist with transformation of the business. ·; Ongoing review of volumes, capacity and cost base. ·; Monthly Regional Managing Director Reports update the board on progress. |
|
Reduction in hotel volumes and pressure on pricing in the UK and Ireland and Nordic Regions. |
·; 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 and/or considered for healthcare volume requirements. |
2 Delivering on acquisitions
|
Risk description |
Potential impact |
Mitigation |
|
Failure to deliver in accordance with the Clinical Solutions business acquisition model. |
·; Failure to achieve the identified business benefits and failure to establish an instrument decontamination business. ·; Impairment of goodwill. |
·; Detailed reviews of cross-selling opportunities, new business wins and customer retention. ·; Ongoing and frequent project reviews of decontamination business and building of decontamination centres for contract gains. ·; Management strengthened by transfer in of experienced Sunlight middle management, restructuring of sales teams, and reporting lines restructured with direct involvement of Sunlight's Board members during the critical start-up phase of decontamination. ·; Regular reporting against acquisition targets. ·; Cautious on further investment/contract negotiations until business model proved out. |
3 Maintaining operational efficiency
|
Risk description |
Potential impact |
Mitigation |
|
Unforeseen loss of capacity. |
·; Inability to service customer requirements and adverse impact on reputation. |
·; Fire protection/security procedures and regular internal audits of compliance. ·; Independent surveys to assess the design and effectiveness of plant fire protection, security and business continuity arrangements. ·; Documented and evaluated continuity plans including identification of alternative production locations. ·; Comprehensive Property Damage and Business Interruption insurance. |
|
A flu pandemic results in significant levels of employee absenteeism. |
·; Failure to service our customers' requirements. |
·; Business unit contingency planning in order to address the impacts of a flu pandemic, both in-plant and at customers. ·; Employee communication on practical steps to limit transfer of infection. |
|
One of our major textile suppliers is unexpectedly unable to meet our textile requirements. |
·; Shortage of textiles and inability to service new and existing customer requirements. |
·; Regular risk assessment of our major textile suppliers to identify areas of most exposure, considering social, political and economic factors. ·; Identification of alternative production sources in case of interruption to supply. ·; Secured availability of alternative stocks in the event of a serious interruption to supply. |
4 Maintaining a sound financial position
|
Risk description |
Potential impact |
Mitigation |
|
Insufficient free cash flow. |
·; 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 targets agreed with each business unit as part of the annual budget process. ·; Free cash flow formally reforecast three times each year and reviewed monthly. ·; Business unit senior management bonus structure includes targets for free cash flow. |
|
Foreign currency exposures and interest rate volatility. |
·; Unexpected variations in net earnings. |
·; Borrowings in currencies to provide hedge against investments in overseas net assets. ·; Majority of Euro, DKK and SEK assets are hedged by borrowings. ·; £572 million (77%) of borrowings at fixed rates including interest rate swaps. ·; Interest rate movements continually monitored and reviewed with the board at least every six months. |
|
Significant increase in the liability associated with the main UK defined benefit pension scheme. |
·; Adverse impact on cash flow and retained earnings. |
·; The Davis Service Group Retirement Benefits Scheme is closed to new entrants. ·; The company and the Trustees' Investment Sub-Committee regularly discuss the fund's risk profile, funding and investment policies, and legislative changes. ·; Following actuarial valuations every three years, or as required, agreement of Schedule of Contributions between the company and the trustees in order to meet future accrued pension rights. ·; Regular meetings between the company and the chairman of the trustees. |
5 Maintaining health and safety as a priority
|
Risk description |
Potential impact |
Mitigation |
|
Breach of health and safety regulations or lack of cleanliness of staff and/or facilities. |
·; Damage to reputation and/or loss of licence to operate. |
·; Local health, safety and fire management systems. ·; Cleaning and maintenance programmes. ·; 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. |
|
Adverse media publicity. |
·; Loss of customer goodwill, damage to reputation and/or loss of licence to operate. |
·;Nominated and appointed public relations advisers. ·; Any significant media-related incidents are promptly reported to the Chief Executive and the board. |
6 Maintaining a motivated workforce driven by an experienced management team
|
Risk description |
Potential impact |
Mitigation |
|
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. ·; Regional talent management programmes in place which are reviewed regularly by the executive board. ·; 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. |
·; Remuneration packages for executive and senior management reviewed annually with benchmarking. ·; Ongoing management development programmes. ·; Chief Executive regularly reviews current and future management requirements. |
7 Reducing our impact on the environment
|
Risk description |
Potential impact |
Mitigation |
|
Non-compliance with Group Corporate Responsibility (CR) Policies including Environmental Policy. |
·; Loss of licence to operate, loss of customer goodwill and/or damage to reputation. |
·; Board approved CR Policies communicated to the business. ·; Prompt incident reporting procedures to senior management with subsequent monitoring. ·; Ongoing recording and monitoring of water, electricity, chemicals, oil/gas costs. ·; Research programmes with suppliers to reduce water, energy and chemical usage rates. ·; Development and maintenance of ongoing procedures to monitor compliance with the United Nations Global Compact's "Ten Principles". |
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 risks and uncertainties" above.
22 Responsibility statements
The company's Annual Report for the year ended 31st December 2009, which will be published on 15th March 2010, contains the following statement regarding responsibility for the financial statements and management report included in the Annual 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 board
David Lawler
Company Secretary
25th February 2010
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