24th Feb 2006 07:01
Davis Service Group PLC24 February 2006 FOR IMMEDIATE RELEASE 24 February 2006 DAVIS SERVICE GROUP Preliminary results announcement for the year ended 31 December 2005 SATISFACTORY RESULT WITH REVENUE AND PROFIT GROWTH SUBSTANTIAL INCREASE IN ADJUSTED EARNINGS PER SHARE Financial highlights Continuing operations Revenue Up 2% to £661.7 million (2004: £651.5 million) Adjusted operating profit* Up 1% to £91.7 million (2004: £91.0 million) Adjusted profit before tax* Up 9% to £84.5 million (2004: £77.7 million) Profit before tax Down 1% to £80.7 million (2004: £81.1 million) Adjusted earnings per share* Up 20% to 31.7p (2004: 26.5p) Earnings per share 66.8p (2004: 23.2p) Total dividends Up 5% to 17.3 p (2004: 16.5 p) Free cash flow Generation of £64.6 million (£62.8 million for our continuing operations, £3.4 million above 2004) *before exceptional items and amortisation of customer contracts Additional Highlights • Now a focused European textile maintenance business • Continued operating margin growth in Continental Europe • UK margin down but opportunities arising from market capacity reductions • £23 million investment in acquired contracts and bolt-on acquisitions; a further £20 million invested since year end • £145 million of capital returned to shareholders; remaining B shares will be redeemed in May for £6 million • Smooth transition in key Board roles Christopher Kemball, Chairman of Davis Service Group, commented: "Davis has achieved a great deal in 2005 and delivered a satisfactory tradingresult for the year. While the UK market has continued to be challenging,profit and margin targets for the Continental European business have again beenachieved. In the year ahead, the UK will remain challenging, especially in the short-term.On Continental Europe, we are targeting further good progress in 2006, whilecontinuing to pursue acquisition opportunities. Overall we expect to deliver asatisfactory outcome for 2006." For further information contact: Davis Service Group Financial Dynamics Roger Dye, Chief Executive Richard Mountain/ Harriet Keen Kevin Quinn, Finance Director Telephone 020 7269 7291 Telephone 020 7269 7291 (today until 12 noon) Telephone 020 7259 6663(thereafter) The Davis Service Group PlcResults for the year ended 31 December 2005 Davis achieved a great deal in 2005. We focused the group on European textilemaintenance, completed the transition of the Board and returned capital to ourshareholders. The Board has addressed the future strategy of the Group. Themarkets in which we operate are mature and therefore relatively low growth. Inorder to increase our top-line growth, we are cautiously expanding the breadthof our activities within the textile maintenance sector, both organically andthrough bolt-on acquisitions. Our focus is on improving our service tocustomers without compromising our strong operational and financial controls.Geographically, we are concentrating on Europe. The UK market has continued to be very challenging this year, especially in thesecond half. The Continental European business, on the other hand, has hadanother good year and coupled with lower financing costs and a lower tax ratehas resulted in a satisfactory set of results. Revenue from continuing operations in the year was £661.7 million (2004: £651.5million), an increase of 2%. Operating profit from continuing operations beforeexceptional items and amortisation of customer contracts (adjusted operatingprofit) was £91.7 million compared with £91.0 million last year, an increase of1%. With the benefit of the substantial reduction in the net interest chargefrom £13.3 million to £7.2 million and a lower effective tax rate of 28.8% forour continuing businesses (2004: 30.3 %), adjusted earnings per share rose from26.5 pence to 31.7 pence, an increase of 20%. In 2005 we implemented a significant restructuring programme in Germany and wehave recognised a charge of £7.1 million for the cost of this restructuring. Wealso received cash in the year of £5.0 million owed to our Berendsensubsidiaries on asset sales prior to our acquiring the business in 2002. Theseitems, together with a profit on property sales of £0.3 million, are shown asexceptional items. Amortisation of acquired customer contracts amounted to£2.0 million and operating profit after exceptional items and amortisation ofcustomer contracts was £87.9 million (2004: £94.4 million). Earnings per share, including the discontinued operations of Elliott and itsprofit on sale and the exceptional items, were 66.8 pence compared to 23.2 pencein 2004. The net proceeds of the sale of Elliott amounted to £160.4 million andin August 2005 we returned £144.4 million to shareholders by way of a B sharescheme. We today announce that we will redeem all remaining B shares for afurther £6.5 million on 2 May 2006. In addition, we made a contribution of £23million into the UK pension fund to cover the past service liabilities ofElliott and HSS staff. The Board is recommending a final dividend of 11.80 pence, which together withthe interim dividend of 5.50 pence paid in October 2005, gives a total of 17.30pence, an increase of 5% on last year. The total dividend is covered just undertwo times by the adjusted earnings per share, taking into account thecontribution of the Elliott business prior to disposal. Free cash flow generated was £64.6 million, £62.8 million for our continuingbusiness, which is £3.4 million above 2004. The Group ended the year with netdebt of £214.2 million compared with £250.5 million at 31 December 2004 and withgearing of 57%, the same as last year. Operations Review UK and Eire Review This has been a challenging year for our UK and Eire operations. Revenue forthe year increased by 2% to £268.4 million (2004: £263.3 million) but adjustedoperating profit at £34.3 million was down on last year (2004: £38.4 million). The more significant part of this profit decrease occurred in the second half ofthe year and followed the adverse impact on the London hotel market from thebombings in July. Management took prompt action to mitigate the impact of theseunexpected events as well as continuing to operate in a competitive and pricedriven market place. With the significant rises in energy and fuel prices andalso in labour costs as a result of minimum wage legislation, managementcontinued to improve efficiency. However, these improvements were insufficientto prevent a reduction in the adjusted operating margin from 14.6% in 2004 to12.8% in 2005. While the hotel and restaurants sector saw volume growth in the first half of2005, trading in the second half was significantly depressed. Although hoteloccupancy gradually returned towards the end of October, weekend occupancy fromthe tourist market continued at a lower level. In addition, hotels continued torationalise their linen stocks and this meant that volume did not recover to thesame extent as occupancy. We ended the year with revenues broadly unchangedcompared to last year, having been some 3% up at the half year, withprofitability significantly impacted by the lower volumes in the second half. The healthcare division achieved solid growth in revenue with some significantnew contract wins in 2005. Re-tendering of existing contracts continued to putpressure on pricing as the NHS Trusts faced greater Department of Healthscrutiny in managing their deficits. In the third quarter we also experiencedsome volume fluctuations as Trusts reacted to these pressures. Our workwear business continued to face the biggest impact of pricing andincreased costs, and gains were difficult to achieve in a competitive market.The ongoing shift from heavy duty industrial products to lighter serviceoriented products has continued to put further pressure on sales. However, wehave strengthened our sales force to win new business in this important sector. In Eire, our businesses faced similar trading conditions to those experienced inthe UK but management has succeeded in growing the business albeit at lowermargins. We have recently acquired processing facilities in Northern Irelandand a strong position in the province. Management has taken steps to improve the quality, efficiency and reach of thebusiness organically and through acquisition. During the year we completedimprovements at our Merton and Wednesbury plants. We made acquisitionstotalling £13.3 million (including the acquisition in Northern Ireland). Weacquired Hall & Letts, a direct supplier to the hospitality sector,supplementing this with the acquisition of a small workwear supplier. InDecember we completed the purchase of a workwear facility in East Anglia, whichhas allowed us to consolidate and extend our service in that region. Since theyear end, we have spent £13.5 million acquiring further operations. Our ITinvestment programme continued and we expect to substantially complete the newsystems implementation in operations and customer support in 2006. Continental Europe Review This was another successful year for our operations on the Continent. Revenuewas up 1% on last year at £393.3 million (2004: £388.2 million) while adjustedoperating profit increased by 9% to £61.7 million from £56.4 million in 2004.Revenue benefited from a favourable impact of foreign exchange by £3.7 million,and adjusted operating profit by £0.6m, compared to 2004 exchange rates. We saw only marginal improvement in the economies of Continental Europe in 2005and trading conditions were similar to those experienced last year. However,against this backdrop, we were able to increase our adjusted operating marginfrom 14.5% to 15.7% as a result of our continued focus on efficiency,productivity and cost control. In Scandinavia there was little growth overall in our core rental businessalthough we continued to make changes to our customer base by not renewingcontracts with unprofitable customers at the same time as bolt-on acquisitions.This has enabled us to deliver further profits growth in the region in the year.We believe that we are well placed to benefit from economic growth when itemerges in these countries. We were disappointed with the lack of progress in our workwear business inHolland, which is seeing its traditional manufacturing customer base decline.However, we continued to achieve good contract growth in the market overall, butthe benefit was offset by the overall impact of more competitive pricing andreducing numbers of garment users in our existing contracts. During the year weexpanded our sales force and, although this adversely impacted our profitabilityin the short term, we expect this to improve in the current year. In Germany, we took the first steps to restructure our operating base with aworkforce reduction at our plant near Hamburg in the first half of 2005. Wealso acquired healthcare contracts from Rentokil Initial. Faced with a sluggishfederal economy, the healthcare market was particularly challenging withgovernment policy to reduce costs and overcapacity in the market place,principally by more effective control of patients' stays in hospitals andclinics. However, we were pleased that the German management achievedequivalent profitability to 2004 at acceptable margins. Since the year end, wehave continued to take steps to improve efficiency with the announcement toclose two of our smaller plants later in 2006. Our business in Poland is growing rapidly and at good margins. We opened asecond plant in the south of Poland and plan to open a further plant in Polandduring 2006. The progress we are making in this market has been veryencouraging. Our business in France is small and had another disappointing year. With onlyone plant operating in difficult trading conditions, there was a small loss. Our direct sale business in Sweden continued to perform well and saw goodrevenue growth in the year. Its manufacturing site in Estonia now supplies asignificant proportion of the garments for new and repeat rental contracts inSweden and Denmark. A fundamental part of our strategy is to seek bolt-on acquisitions, as theseprovide us with significant potential for profit enhancement. In 2005 weacquired businesses and contracts in Sweden, Denmark and Norway and entered theFinnish market by acquiring two small businesses. The total cost of theseacquisitions, with our purchase of contracts in Germany, was £9.4 million.Since the year end, we have acquired businesses and contracts for a further £6.2million. We invested in our plant and IT infrastructure and we are introducingsubstantial new IT systems into a number of countries. We have upgraded thequality of our sales forces in particular in Denmark and Holland. Outlook We expect the UK market to remain challenging, especially in the short term.Hotel volumes will be uncertain until Easter when the level at which the Londontourist traffic returns can be assessed. In healthcare, notwithstanding theattractive longer term opportunities, we continue to monitor the potentialimpact of budget pressures in the NHS. In workwear, we are seeing more pricecompetition. Cost pressures, particularly in energy and fuel and wages, willremain. However, the acquisitions we have made, together with our continuedfocus on operational efficiency and plant restructuring, will go some way toreducing the impact of these on our business. In January 2006, Rentokil Initial announced the closure of its UK linen andworkwear operations. We are actively marketing our high quality services to itscustomers where we can secure appropriate pricing for the service offered.While we do not expect this to provide a significant profit contribution in 2006we do expect it to deliver benefits from 2007 onwards. In Continental Europe, we are targeting further good progress at the tradinglevel, notwithstanding that the healthcare business in Germany continues to be aparticular challenge. We are seeing small levels of growth reappearing inScandinavian countries and we continue to pursue targeted bolt-on acquisitions. Overall, we expect to deliver a satisfactory outcome for 2006. CONSOLIDATED INCOME STATEMENTFor the year ended 31st December 2005 Year to Year to Notes 31 December 31 December 2005 2004 £m £m Continuing operations Revenue 1 661.7 651.5Cost of sales (361.9) (354.3) Gross profit 299.8 297.2 Other operating income 5.9 4.9Distribution costs (123.9) (121.0)Administrative expenses (81.9) (85.0)Other operating expenses (12.0) (1.7) Operating profit 1 87.9 94.4 Analysed as:Operating profit before exceptional items and amortisation of 1 91.7 91.0customer contracts Exceptional items 2 (1.8) 4.0Amortisation of customer contracts (2.0) (0.6) Operating profit 1 87.9 94.4 Finance expense (14.5) (17.0)Finance income 7.3 3.7Profit before taxation 80.7 81.1Taxation 6 (23.2) (25.4) Profit for the year from continuing operations 57.5 55.7 Discontinued operations Profit for the period from discontinued operations 1 2.6 11.9Profit/(loss) on sale of discontinued operations 1 66.9 (20.3) Profit for the year from discontinued operations 69.5 (8.4) Profit for the year 127.0 47.3 (Loss)/profit attributable to minority interest (0.1) 0.3Profit attributable to equity shareholders 127.1 47.0 1 127.0 47.3 Earnings per share expressed in pence per share- Basic 4 66.8 23.2- Diluted 4 66.5 23.2 Earnings per share from continuing operations- Basic 4 30.3 27.4- Diluted 4 30.2 27.4 CONSOLIDATED BALANCE SHEET As at 31st December 2005 31 December 31 December 2005 2004 £m £mAssetsGoodwill 287.1 295.0Intangible assets 16.4 9.8Property, plant and equipment 367.2 449.9Investments - 20.0Assets classified as held for sale 4.4 1.4Deferred tax assets 27.9 23.4 Total non-current assets 703.0 799.5 Inventories 12.3 22.3Income tax receivable 4.0 2.3Trade and other receivables 118.1 149.0Cash and cash equivalents 117.6 73.9 Current assets 252.0 247.5 Liabilities Bank overdrafts 0.5 12.2Interest bearing loans and borrowings 3.2 46.4Income tax payable 7.1 8.8Trade and other payables 76.2 91.7Accruals and deferred income 55.7 64.4Provisions 3.3 - Total current liabilities 146.0 223.5 Net current assets 106.0 24.0 Interest bearing loans and borrowings 328.1 265.8Retirement benefit obligations 57.2 71.2Other payables 0.8 0.3Deferred tax liabilities 45.1 44.5 Total non current liabilities 431.2 381.8 Net assets 377.8 441.7 Equity Share capital 57.7 50.7Share premium 93.2 240.2Other reserves 0.5 1.1Capital redemption reserve 144.4 -Retained earnings 80.5 148.0 Total shareholders' equity 376.3 440.0 Minority interest in equity 1.5 1.7 Total equity (see note 5) 377.8 441.7 Net borrowings (see note 8) 214.2 250.5Gearing 57% 57% CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31st December 2005 Notes Year to Year to 31 December 31 December 2005 2004 £m £m Cash flows from operating activities Cash generated from operations 7 219.5 227.7Interest paid (18.0) (15.8)Interest received 7.7 2.9Income tax paid (19.0) (17.0) Net cash generated from operating activities 190.2 197.8 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired 9 (19.3) (11.7)Purchases of property, plant and equipment (132.8) (140.6)Proceeds from the sale of property, plant and equipment 11.1 19.1Purchases of intangible assets (3.9) (2.0)Proceeds from sale of businesses, net of overdrafts 153.2 116.9Repayment/ (issue) of loan notes 20.5 (20.5)Receipt of promissory loan notes 5.0 -Special pension contribution payments following disposal of (23.0) -businesses Net cash generated from/(used in) investing activities 10.8 (38.8) Cash flows from financing activities Net proceeds from issue of ordinary share capital 4.9 4.1Drawdown of borrowings 443.6 -Repayment of borrowings (412.4) (105.3)Repayment of loan notes - (0.1)Repayment of finance leases/hire purchase liabilities (3.6) (4.3)Dividends paid to Company's shareholders (32.2) (32.1)Dividends paid to minority interests - (0.1)Redemption of B Shares (144.4) -Share redemption issue costs (0.5) - Net cash used in financing activities (144.6) (137.8) Net increase in cash and bank overdrafts 56.4 21.2 Cash and bank overdrafts at beginning of period 61.7 38.2Exchange gains/(losses) on cash and bank overdrafts (1.0) 2.3 Cash and bank overdrafts at end of year (note i) 117.1 61.7 Free cash flow 64.6 74.3 Analysis of free cash flow Net cash generated from operating activities 190.2 197.8Purchases of property, plant and equipment (132.8) (140.6)Proceeds from the sale of property, plant and equipment 11.1 19.1Purchases of intangible assets (3.9) (2.0)Free cash flow 64.6 74.3 Free cash flow of continuing operations 62.8 59.4 (i) Included within cash and bank overdrafts are £0.5m of overdrafts (2004:£12.2m) NOTES TO THE FINANCIAL STATEMENTS 1 SEGMENTAL INFORMATION (a) Primary reporting format - business segments At 31st December 2005, the Group has only one business segment being textilemaintenance within UK, Eire and Continental Europe. On 25th May 2005, the Groupsold its building systems division and the segment results relating to thisdivision are reported as a discontinued operation. The unallocated segment relates to corporate overheads, assets and liabilities. 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 segments results for the year ended 31st December 2005 are as follows: Textile Textile Total Textile Unallocated Group maintenance UK & maintenance maintenance Eire Continent £m £m £m £m £m Revenue 268.4 393.3 661.7 - 661.7Operating profit before exceptional 34.3 61.7 96.0 (4.3) 91.7items and amortisation of customercontractsExceptional items 0.4 (2.2) (1.8) - (1.8)Amortisation of customer contracts (0.4) (1.6) (2.0) - (2.0)Segment result 34.3 57.9 92.2 (4.3) 87.9 Net finance expense (7.2)Profit before taxation 80.7Taxation (23.2)Profit from continuing operations 57.5Profit from discontinued operations 2.6Profit on sale of discontinued operations 66.9Profit for the year 127.0Loss attributable to minority (0.1)interestsProfit attributable to equity 127.1shareholdersCapital expenditure 68.4 73.3 141.7 0.2 141.9Depreciation and amortisation 56.2 66.4 122.6 0.1 122.7 The capital expenditure and depreciation and amortisation for discontinuedoperations for the year was £7.3m and £5.6m respectively. Capital expenditure comprises additions to property, plant and equipment andintangible assets, including additions resulting from acquisitions throughbusiness combinations. 1 SEGMENTAL INFORMATION CONTINUED The segment results for the year ended 31st December 2004 are as follows: Textile Textile Total Textile Unallocated Group maintenance UK & maintenance maintenance Eire Continent £m £m £m £m £m Revenue 263.3 388.2 651.5 - 651.5 Operating profit before exceptional 38.4 56.4 94.8 (3.8) 91.0items and amortisation of customercontractsExceptional items 2.9 1.1 4.0 - 4.0Amortisation of customer contracts (0.2) (0.4) (0.6) - (0.6)Segment result 41.1 57.1 98.2 (3.8) 94.4 Net finance expense (13.3)Profit before taxation 81.1Taxation (25.4)Profit from continuing operations 55.7Profit from discontinued operations 11.9Loss on sale of discontinued (20.3)operationsProfit for the year 47.3 Profit attributable to minority 0.3interests Profit attributable to equity 47.0shareholdersCapital expenditure 62.6 75.8 138.4 0.1 138.5Depreciation and amortisation 54.5 67.7 122.2 0.2 122.4 The capital expenditure and depreciation and amortisation for discontinuedoperations for the year was £18.3m and £13.2m respectively. The segment assets and liabilities at 31st December 2005 are as follows: Textile Textile Total Textile Unallocated Group maintenance UK & maintenance maintenance Eire Continent £m £m £m £m £m Operating assets 261.6 598.5 860.1 58.6 918.7Deferred tax assets 7.4 5.2 12.6 15.3 27.9Income tax assets - 2.0 2.0 2.0 4.0Non current assets held for sale 1.5 2.9 4.4 - 4.4Total assets 270.5 608.6 879.1 75.9 955.0 Liabilities 52.7 75.2 127.9 8.6 136.5Bank loans & finance leases - - - 331.3 331.3Deferred tax liabilities 12.8 27.9 40.7 4.4 45.1Income tax liabilities 0.5 5.5 6.0 1.1 7.1Retirement benefit obligations 26.2 13.4 39.6 17.6 57.2Total liabilities 92.2 122.0 214.2 363.0 577.2 1 SEGMENTAL INFORMATION CONTINUED The segment assets and liabilities at 31st December 2004 are as follows: Textile Textile Total textile Unallocated Discontinued Group maintenance UK & maintenance maintenance operations Eire Continent £m £m £m £m £m £m Operating assets 254.7 623.9 878.6 (4.0) 125.3 999.9Investments - - - 20.0 - 20.0Deferred tax assets 7.1 5.6 12.7 8.6 2.1 23.4Income tax assets - 0.9 0.9 1.4 - 2.3Non current assets held 0.3 1.1 1.4 - - 1.4for saleTotal assets 262.1 631.5 893.6 26.0 127.4 1,047.0 Liabilities 48.2 89.9 138.1 (4.2) 34.7 168.6Bank loans & finance - - - 312.2 - 312.2leasesDeferred tax liabilities 10.2 26.0 36.2 0.1 8.2 44.5Income tax liabilities 1.9 4.9 6.8 0.6 1.4 8.8Retirement benefit 26.5 11.8 38.3 25.9 7.0 71.2obligationsTotal liabilities 86.8 132.6 219.4 334.6 51.3 605.3 Segment assets consist primarily of operating assets such as property, plant andequipment, intangible assets, goodwill, inventories, receivables and operatingcash. Assets such as investments, deferred taxation, income tax assets andassets classified as held for sale are separately identified. Segment liabilities comprise operating liabilities and separately identifyretirement obligations, deferred tax liabilities, income tax liabilities andcorporate borrowings. 1 SEGMENTAL 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 EireScandinaviaOther 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. Segmental assets, which comprisetotal assets, including financial assets, and capital expenditure are allocatedon the basis on where the assets are located. Revenue Segmental assets Capital expenditure Twelve Twelve Twelve Twelve Twelve Twelve months to months to months to months to months to months to 31 December 31 December 31 December 31 December 31 December 31 December 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m Continuing operations UK and Eire 268.4 263.3 321.7 251.0 68.6 62.7Scandinavia 240.1 234.2 386.7 401.8 38.0 44.0Other European 167.7 166.2 214.7 223.2 35.3 31.8Inter segment sales (14.5) (12.2) 31.9 45.7 - - 661.7 651.5 955.0 921.7 141.9 138.5 Discontinued operations UK and Eire 52.5 146.2 - 125.3 7.3 18.3 714.2 797.7 955.0 1,047.0 149.2 156.8 2 Exceptional Items Year to Year to 31 December 31 December 2005 2004 £m £m Closure costs of laundries (note i) (7.1) -Property sales (note ii) 0.3 3.0Income from receipt of promissory loan notes (note iii) 5.0 -Release of provisions (note iv) - 1.0 (1.8) 4.0 (i) During the year the group completed a significant restructuring ofits operations in Germany, following the purchase of healthcare contracts fromRentokil Initial Plc. An exceptional charge of £7.1m (tax relief of £2.6m) hasbeen recognised for the costs of this restructuring, including £1.1m of non-cashasset write offs. (ii) The profit on the sale of properties realised in 2005 relatesprimarily to the sale of properties within the Sunlight Group (tax charge of£0.6m). (iii) During the year the group received settlement of promissory notesand debts amounting to £5.0m (tax charge of £1.2m), which had previously beenfully provided. (iv) The exceptional income reflected in 2004 relates to the release ofexcess provisions not required in respect of the reorganisation of flatworkactivities in Scandinavia. 3 DIVIDENDS Year to Year to 31 December 31 December 2005 2004 £m £m Final paid: 11.25 pence per share (2004:10.60 pence) 22.8 21.4Interim paid: 5.50 pence per share (2004: 5.25 pence) 9.4 10.7 The directors recommended a final dividend in respect of the financial yearending 31st December 2005 of 11.80 per ordinary share to be paid on 2nd May 2006to shareholders who are on the register at 7th April 2006. In addition, adividend of 1.64 pence per share is payable on the redeemable B shares. Thefinal proposed dividend to ordinary and redeemable B shareholders will reduceshareholders' funds by an estimated £20.1m. 4 EARNINGS PER SHARE Basic earnings per ordinary share are based on the group profit for the periodand a weighted average of 190,186,349 (2004: 202,346,162) 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 2005 2004 No. of shares No. of shares In issue 190,186,349 202,346,162Dilutive potential ordinary shares arising from 959,694 1,367,305unexercised share options 191,146,043 203,713,467 An adjusted earnings per ordinary share figure has been presented to eliminatethe effects of property sales, exceptional income, restructuring items andamortisation of customer contracts. This presentation shows the trend in earnings per ordinary share that isattributable to the underlying trading activities of both the total group andcontinuing operations. The reconciliation between the basic and adjusted figures for continuingoperations is as follows: Year to Year to 31 December 31 December 2005 2004 £m Earnings per £m Earnings per share share pence pence Profit attributable to equity shareholders of the 57.6 30.3 55.4 27.4CompanyLoss / (profit) on sale of properties (after taxation) 0.3 0.2 (1.3) (0.7)Exceptional income (after taxation) (3.7) (2.0) - -Restructuring items (after taxation) 4.5 2.3 (1.0) (0.5)Amortisation of customer contracts (after taxation) 1.6 0.9 0.5 0.3Adjusted earning per share - continuing group 60.3 31.7 53.6 26.5Diluted earnings per share - continuing group 30.2 27.4 4 EARNINGS PER SHARE CONTINUED The reconciliation between the basic and adjusted figures for the total groupincluding the earnings of the discontinued Elliott business is as follows: Year to Year to 31 December 2005 31 December 2004 Earnings per Earnings per share share £m pence £m pence Profit attributable to equity shareholders of the Companyfor basic earnings per share calculation 127.1 66.8 47.0 23.3 (Profit)/loss on sale of business (after taxation) (66.9) (35.1) 20.3 10.0Loss/(profit) on disposal of properties (after taxation) 0.3 0.2 (2.3) (1.2)Exceptional income (after taxation) (3.7) (2.0) - -Restructuring items (after taxation) 4.5 2.3 (1.0) (0.5)Amortisation of customer contracts (after taxation) 1.6 0.9 0.5 0.3Adjusted earnings per share - total group 62.9 33.1 64.5 31.9Diluted earnings per share - total group 66.5 23.2 Basic earnings per share - discontinued operations 36.5 (4.1)Diluted earnings per share - discontinued operations 36.3 (4.3) In accordance with IAS33 'earnings per share', prior period earnings per sharehave not been restated for the capital return and share consolidation as theoverall commercial effect is that of a share repurchase at fair value. 5 SHAREHOLDERS' FUNDS AND STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Attributable to equity holders of the company Share Share Other Capital Retained Minority Total Capital Premium Reserves redemption Earnings Interest Equity reserve £m £m £m £m £m £m £m At 1 January 2004 50.3 236.5 0.2 - 153.7 2.2 442.9 Issue of share capital in 0.4 3.7 - - - - 4.1respect of share option schemesPurchase of shares - - - - - (0.8) (0.8)Currency translation - - 0.9 - 2.0 0.1 3.0Dividends - - - - (32.1) (0.1) (32.2)Actuarial losses net of deferred tax - - - - (22.4) - (22.4)Deferred tax arising on share options - - - - (0.2) - (0.2)Profit for the year - - - - 47.0 0.3 47.3 -At 31 December 2004 50.7 240.2 1.1 - 148.0 1.7 441.7 Issue of share capital in 0.5 4.4 - - - - 4.9respect of share option schemesShare redemption issue costs - (0.5) - - - - (0.5)Issue of B shares 150.9 (150.9) - - - - -Redemption of B shares (144.4) - - - - - (144.4)Transfer to capital redemption - - - 144.4 (144.4) - -reserve arising from redemptionof B sharesCurrency translation - - (0.6) - (8.2) (0.1) (8.9)Dividends - - - - (32.2) - (32.2)Actuarial losses net of deferred tax - - - - (10.1) - (10.1)Deferred tax arising on share - - - - 0.3 - 0.3optionsProfit for the period - - - - 127.1 (0.1) 127.0 At 31 December 2005 57.7 93.2 0.5 144.4 80.5 1.5 377.8 6 TAXATION Analysis of tax charge for the year Year to Year to 31 December 31 December 2005 2004 £m £mCurrent tax:Tax on profits for the current year 14.8 16.9Adjustments in respect of previous years 0.4 1.1 15.2 18.0Deferred tax:Origination and reversal of temporary differences 8.9 8.6Changes in tax rates or imposition of new taxes (0.2) (0.4)Credit due to previously unrecognised temporary differences (0.7) (0.8) 8.0 7.4 Total tax charge on continuing operations 23.2 25.4 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 2005 2004 £m £m Profit for the period 127.0 47.3 Adjustments for: Taxation 24.7 30.2 Amortisation of intangible fixed assets 3.0 1.5 Impairment of goodwill 0.2 - Depreciation of tangible fixed assets 125.4 134.2 Profit on sale of property (0.3) (3.4) Profit on sale of plant and equipment (0.2) (3.1) Profit on sale of business (68.0) 19.9 Redemption of promissory loan notes (5.0) - Interest income (6.8) (3.8) Interest expense 15.0 19.4 Exchange losses on borrowings (0.1) - Changes in working capital (excluding effect of acquisitions, disposals andexchange differences on consolidation): Inventories (1.6) 2.9 Trade and other receivables 0.6 (10.4) Trade and other payables 2.3 (7.0) Provisions 3.3 - Cash generated from operations 219.5 227.7 In the cash flow statement, proceeds from sale of property, plant and equipmentcomprise: Net book amount 10.6 12.6Profit on sale of property, plant and equipment 0.5 6.5Proceeds from sale of property, plant and equipment 11.1 19.1 8 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Year to Year to 31 December 31 December 2005 2004 £m £m Increase in cash 56.4 21.2Cash (outflow)/inflow from movement in debt and lease financing (27.7) 109.8 Changes in net debt resulting from cash flows 28.7 131.0 New finance leases (3.9) (3.8) Bank loans and lease obligations disposed/(acquired) with subsidiaries 5.4 (2.8)Currency translation 6.1 1.8 Movement in net debt in period 36.3 126.2 Net debt at beginning of period (250.5) (376.7) Net debt at end of period (214.2) (250.5) 9 Acquisition and disposals (a) Acquisitions of subsidiary undertakings During the year the group acquired Hall and Letts Ltd in the UK, the healthcarecontracts from Rentokil Initial Plc in Germany together with a number of smalltextile maintenance operations details of the carrying values and provisionalfair values of the assets and liabilities are set out below: Carrying values Provisional pre acquisition fair values £m £m Intangible fixed assets - 5.9Property, plant and equipment 6.5 6.7Inventories 1.2 1.4Receivables 4.6 4.5Payables (4.2) (4.2)Taxation- Current (0.5) (0.5)- Deferred (0.5) (0.5)Cash and cash equivalents 1.8 1.8Overdrafts (0.5) (0.5)Bank loans (0.9) (0.9)Lease finance obligations (0.2) (0.3)Net assets acquired 7.3 13.4Goodwill 9.3Consideration 22.7 Consideration satisfied by:Cash 20.0Deferred consideration 2.1Legal and professional fees 0.6 22.7 9 Acquisition and disposals continued The fair value amounts contain some provisional amounts due to some acquisitionsbeing made in the last quarter of 2005, these amounts will be finalised in the2006 accounts. The outflow of cash and cash equivalents on acquisition is calculated asfollows: £m Cash consideration 20.6Cash acquired (1.8)Overdrafts 0.5 19.3 The intangible assets acquired are customer contracts. Details of theamortisation periods for these contracts can be found in note 10 of the 2005Annual 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 period presented or the futureresults of the combined operations. £m Revenue 25.5 Profit for the year after tax 1.6 From the dates of acquisition to 31st December 2005 the above acquisitionscontributed £7.5m to revenue and £0.7m to the profit for the year after tax. (b) Disposal of Elliott Group On 25 May 2005 The Davis Service Group Plc announced the completion of sale ofthe Elliott Group for a gross consideration of £166 million. The profit ondisposal is calculated as follows: £m Total assets carrying value 131.5Total liabilities carrying value (35.4) 96.1 Gross consideration 166.0 Profit on disposal before expenses and curtailment gain 69.9 Transaction expenses (5.6) Curtailment gain 3.7 Profit on disposal 68.0 10 The information on pages 6 to 17 have been extracted from theaudited financial statements for the year ended 31 December 2005 and have beenprepared in accordance with International Financial Reporting Standards andIFRIC interpretations issued and effective at the time of preparing thesestatements (January 2006). The figures and financial information for the yearended 31 December 2004 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 2005 Report andAccounts will be posted to shareholders on 14 March 2006. 11 The final dividend is subject to confirmation at the Annual GeneralMeeting which will be held on Tuesday, 25 April 2006 at Glaziers Hall, 9Montague Close, London Bridge, London SE1 9DD at 11.00am. Transfers to be takeninto account for the proposed final dividend for ordinary shareholders must belodged at the company's transfer office, Lloyds Bank Registrars, Goring-on-Sea,Worthing, West Sussex by mid-day on Friday 7 April 2005, the expected recorddate. The proposed final dividend for ordinary and redeemable B shareholderswill be paid on Tuesday 2 May 2006. 12 The directors are responsible for the maintenance and integrity ofthe company's website. Information published on the internet is accessible inmany countries with different legal requirements. Legislation in the UnitedKingdom governing the preparation and dissemination of financial statements maydiffer from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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