31st Aug 2007 07:01
Davis Service Group PLC31 August 2007 FOR IMMEDIATE RELEASE 31 August 2007 THE DAVIS SERVICE GROUP Plc Interim results announcement for the six months ended 30 June 2007 GOOD GROWTH IN REVENUE AND ADJUSTED OPERATING PROFIT WITH CONTINUING INVESTMENT FOR THE FUTURE Financial Highlights Continuing Operations Revenue Up 12% to £387.4 million (2006*: £345.9 million) Adjusted operating profit** Up 8% to £47.1 million (£43.6 million) Adjusted profit before tax** Up 2% to £40.1 million (£39.2 million) Adjusted earnings per share** Up 4% to 16.9p (16.2p) Profit before tax £36.3 million (£40.2 million) Basic earnings per share 16.4p (16.9p) Interim dividend per share Up 5% to 6.1 p (5.8p) * 2006 interim numbers have been restated for the disposal of the Modeluxebusiness, France ** before exceptional items and amortisation of customer contracts andintellectual property rights Operational Highlights • Further increase in adjusted operating profits in Continental Europe with sales growth accelerating • UK sales up 15% with the full benefit of market improvements expected in the second half of the year • Results of Permaclean, the German workwear acquisition, ahead of expectations • Acquisition of clinical solutions and decontamination businesses of InHealth Group being integrated • New Executive Board for the group with Nordic, Continent and UK and Ireland regions Christopher Kemball, Chairman of The Davis Service Group, commented: "I am pleased to report good growth in revenue and adjusted operating profit inthe first six months of the year. This has been achieved through thecombination of stronger organic growth and the benefits coming through from thetargeted acquisitions we have made both in the UK and in Continental Europe. "In 2007, we have invested in two strategic platforms for growth. In January,we acquired Permaclean to give us national coverage in our workwear business inGermany. In June, we acquired the clinical solutions and decontaminationbusinesses of InHealth Group, which provide entry into attractive markets withgrowth potential, while building on our existing strengths in the UK healthcaremarket. We are making good progress with these acquisitions. "In the second half of the year we expect to see these good trading conditionscontinue with the full benefit of the improved pricing and record volumes in thelinen market in the UK expected to have a greater impact. Overall, the Boardremains confident of our prospects for 2007 and also in the longer-termopportunities for the Group.'' For further information contact: Davis Service Group Financial DynamicsRoger Dye, Chief Executive Richard Mountain/Harriet KeenKevin Quinn, Finance Director Telephone 020 7269 7121Telephone 020 7269 7121 (today until 12 noon) Telephone 020 7259 6663 (thereafter) The Davis Service Group Plc Results for the six months ended 30 June 2007 I am pleased to report good growth in revenue and adjusted operating profit inthe first six months of the year. This has been achieved through thecombination of stronger organic growth and the benefits coming through from thetargeted acquisitions we have made both in the UK and in Continental Europe. In 2007, we have invested in two strategic platforms for growth. In January, weacquired Permaclean to give us national coverage in our workwear business inGermany. More recently in June, we acquired the clinical solutions anddecontamination businesses of InHealth Group, which provide entry intoattractive markets with growth potential, while building on our existingstrengths in the UK healthcare market. We are making good progress with theseacquisitions. As announced on 9 May 2007, a new management structure has been established inContinental Europe with Christian Ellegaard and Peter Haveus taking upappointments as Managing Directors of the Nordic and Continent regionsrespectively. Christian and Peter are also members of the newly formedExecutive Board for the Group together with Steve Finch, Managing Director ofour UK and Ireland business and Roger Dye, Chief Executive, Kevin Quinn, FinanceDirector and David Lawler, Company Secretary. The new management team hassettled in quickly and is continuing to drive our strategy for growth whilemaintaining the focus on operational excellence. Overall this has been a sound first half for the business, delivering revenueand adjusted profit growth and making key investments for the future. Results Revenue from continuing operations in the period was £387.4 million, up 12%(2006: £345.9 million). Operating profit before exceptional items andamortisation of customer contracts and intellectual property rights (adjustedoperating profit) was £47.1 million compared with £43.6 million last year, anincrease of 8%. Our net finance expense was £7.0 million compared with £4.4million last year, reflecting both interest rate rises and the additionalfunding required for the investments we have made. Adjusted earnings per sharerose 4% from 16.2 pence to 16.9 pence. Our tax rate on adjusted profit beforetax was 28%, down from 29% last year with the benefit of the reduction in ratesin Denmark and Holland. During the period we realised exceptional income totalling £1.5 million from thesale of property and a further receipt of cash from the HSS business which wassold in 2003, offset by the cost of integrating Permaclean. Amortisation ofacquired customer contracts and intellectual property rights amounted to £5.3million (£2.4 million), with the increase resulting from the acquisitions wehave made. Operating profit including these items was £43.3 million (£44.6million). Following its sale in August 2006, our business in France is treatedas a discontinued operation in 2006. Total earnings per share were 16.4 pencecompared with 16.9 pence in 2006 reflecting the increase in amortisation chargefor customer contracts and intellectual property rights. We have a number of attractive investment opportunities in the growing areas ofour business. As planned, we increased our net capital expenditure to £79.4million (£65.9 million) as we invested in new plants in the growing markets ofNorway and Poland and in textiles to support new contracts both in ContinentalEurope and the UK. In addition we have brought forward capacity investments inthe UK to accommodate the increased volumes, which are expected to be at recordlevels in the summer months. Net capital expenditure is expected to beapproximately £80 million in the second half of 2007. As a result of theinvestments we have made, free cash flow was £12.0 million in the period (£24.2million for the continuing business in 2006). Net borrowings at 30 June 2007were £358.2 million compared with £237.2 million at 31 December 2006, followinginvestments for a total consideration, including cash and liabilities, of £107million for acquisitions in the first half of the year. The Board is recommending an interim dividend of 6.1 pence, an increase of 5% onlast year. The dividend will be paid on 16 October 2007 to shareholders on theregister at the close of business on 21 September 2007. Continental Europe Revenue in Continental Europe increased by 10% to £218.8 million from £199.7million in 2006 and adjusted operating profit was £33.7 million compared with£30.8 million last year. The adjusted operating margin was 15.4%, the same aslast year. Foreign exchange had a negative impact on revenue of £3.6 millionand operating profit of £0.5 million, compared with the rates last year.Organic growth in revenue was 4% compared with 2% last year and we made a smallnumber of bolt-on acquisitions in the first half of 2007, for consideration of£7 million in addition to our investment of £41 million in Permaclean. Our businesses in the Nordic region performed well, growing revenue, profit andmargins. Business confidence continues to improve and we are benefiting fromstrong economies and stable prices. The strength of our market position and theintegration of recent acquisitions have contributed to the good performance. Wehave expanded our service offering to new and growing sectors where theBerendsen brand continues to be well received. We successfully opened our newworkwear plant in Bergen, Norway, in the early summer. In Finland, we continueto develop our market position. In Germany, the acquisition of Permaclean was a key strategic first step in theworkwear market. The Permaclean business is performing ahead of expectationsand contributed approximately £10 million of revenue at acceptable margins tothe German results. These welcome results are due to the strong performance ofthe underlying business and also good progress on integration with Permacleanmanagement adapting well to the Group's approach with its focused objectives,support and systems. We believe that there are further bolt-on acquisitionopportunities in the German workwear market. The German healthcare marketremains our most challenging area and the business is focussed on improving itsmarket position and maintaining profit levels. In Holland we grew our revenue by 7%, through organic growth of 3% and threesmall acquisitions, while our Polish business continues to grow strongly,achieving revenue growth of 20% with annualised turnover approaching £10 millionat above average Continent margins. We successfully opened a new plant inWarsaw bringing the number of plants to three and we have acquired land for afurther two sites, which we plan to bring into full production in 2008. Ourplans to develop operations in new territories, focusing on Central Europe andthe Baltics, are under way, where we are using the experience we have gainedfrom developing our operations in Poland to evaluate a greenfield strategy,alongside acquisition opportunities. UK and Ireland Our revenue grew by 15% from £146.2 million to £168.6 million as a result oforganic growth of 7% (including increased linen volumes following theadministration of Brooks) and the impact of acquisitions. Adjusted operatingprofits increased from £15.0 million in 2006 to £15.8 million. Our margindecline from 10.3% to 9.4% was expected, due to increased costs and integrationactivity. However we should see the full benefit of market improvements in ourmargins in the second half of the year. In addition to increased volumes, the linen division saw some improved pricing,covering the level of our cost increases. Looking forward we see some relieffrom the above-inflation increases in costs that we have experienced in recentyears. Minimum wage is set to increase 3.2% in October 2007, while we havesubstantially fixed our energy contract prices through to September 2008. We arenow managing the additional linen volume through the peak summer months. Inorder to do this, we increased capacity in the first half by re-commissioningthe Hayes site, which was mothballed in 2005, and by acquiring additionalcapacity in Northfleet (under lease from the Brooks' administrator). The healthcare division performed in line with expectations with increasedrevenues, but profits remained broadly at last year's level. The implementationof the PASA (the NHS Purchasing and Supply Agency) review has resulted in aperiod of contractual change. We have been successful in renewing contractsunder the framework, as well as securing new contracts from Trusts, which nowhave better visibility of the potential cost savings from outsourcing as aresult of the review. There have been some contract price reductions but thereare expected to be price increases over time as other existing contracts areretendered. Going forward we now expect the PASA framework to lead to pricestability. The integration of the InHealth group of companies is underway and making goodprogress. This strategic acquisition provides entry to attractive UK clinicalsolutions and decontamination markets, both of which have strong growthprospects. We aim to build on the strong relationships that Sunlight alreadyhas with many NHS Trusts and other healthcare providers and to develop a broaderrange of services alongside Sunlight's existing operations. In addition we willdeliver the same focus on operational excellence that exists within Sunlight,thereby improving margins. We are currently negotiating a contractual financialclose on the National Decontamination Programme contract for Kent, which wasawarded as preferred bidder prior to the acquisition of the business. Our workwear division is the most challenging market and profits declined inline with expectations. This continues to be a very competitive market but withour focus on operations and through investing in sales and service we aim toachieve growth from developing sectors. In February we bought the Brooks'workwear business from the administrators and, having stabilised it, we are nowintegrating it into our plant network, which will have a positive impact onmargins. In Ireland, the business grew well. We have a good mix of business in Ireland,including an established washroom and hygiene business, and we continue to lookfor opportunities to expand in this market. During the first half of the year, we invested £59 million in consideration foracquisitions. £43 million was paid at completion to acquire the clinicalsolutions and decontamination businesses of the InHealth group. Further deferredcash consideration is payable of up to £22.5 million dependent upon futuredecontamination contract awards. We have also acquired a linen direct supplybusiness which complements our rental business. Outlook Our Continental European business continues to see further organic revenuegrowth. This will have a favourable impact on the business going forward. Theexpansion of our workwear business in Germany is well under way through thesuccessful integration of the Permaclean business. In the UK, we are also seeing acceptable revenue growth across all sectors andwe expect enhanced trading in the second half. In the second half of the year we expect to see these good trading conditionscontinue with the full benefit of the improved pricing and record volumes in thelinen market in the UK expected to have a greater impact. Overall, the Boardremains confident of our prospects for 2007 and also in the longer-termopportunities for the Group. Christopher Kemball CONSOLIDATED INTERIM INCOME STATEMENT For the six months ended 30th June 2007 Six months to Six months to Year to Notes 30 June 30 June 31 December 2007 2006 2006 £m £m £m Continuing operations Revenue 1 387.4 345.9 704.6Cost of sales (215.4) (192.1) (395.6)Gross profit 172.0 153.8 309.0 Other operating income 2.4 3.7 4.9Distribution costs (74.5) (65.5) (130.7)Administrative expenses (50.0) (44.4) (87.8)Other operating expenses (6.6) (3.0) (3.8)Operating profit 1 43.3 44.6 91.6 Analysed as:Operating profit before exceptional items andamortisation of customer contracts and intellectualproperty rights 1 47.1 43.6 94.9Exceptional items 2 1.5 3.4 2.8Amortisation of customer contracts and intellectualproperty rights (5.3) (2.4) (6.1)Operating profit 1 43.3 44.6 91.6 Finance expense (10.0) (6.9) (16.0)Finance income 3.0 2.5 6.4Profit before taxation 36.3 40.2 82.0Taxation 3 (8.2) (11.0) (23.5) Profit for the period from continuing operations 28.1 29.2 58.5 Discontinued operationsLoss for the period from discontinued operations - (0.3) (0.3)Loss on sale of discontinued operations - - (2.7) Loss for the period from discontinued operations - (0.3) (3.0) Profit for the period 28.1 28.9 55.5 Profit attributable to minority interest 0.2 0.2 0.3Profit attributable to equity shareholders 27.9 28.7 55.2 28.1 28.9 55.5 Earnings per share expressed in pence per share- Basic 5 16.4 16.9 32.4- Diluted 5 16.3 16.8 32.3 Earnings per share from continuing operations- Basic 5 16.4 17.0 34.2- Diluted 5 16.3 16.9 34.1 Dividend per share expressed in pence per share 4 6.1 5.8 18.2 CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30th June 2007 Six months to Six months to Year to 30 June 30 June 31 December 2007 2006 2006 £m £m £m Profit for the period 28.1 28.9 55.5 Exchange adjustments offset in reserves (4.7) (1.9) (4.0) Actuarial gains/(losses) recognised in the pension scheme 8.5 9.2 (2.7) Gains on cash flow hedges 5.5 3.8 7.6 Tax on items taken directly to equity (4.5) (6.3) 3.5 Net gains not recognised in income statement 4.8 4.8 4.4 Total recognised income for the period 32.9 33.7 59.9 Attributable to: Minority interests 0.2 0.2 0.3 Equity shareholders 32.7 33.5 59.6 CONSOLIDATED INTERIM BALANCE SHEET As at 30th June 2007 As at As at As at Notes 30 June 30 June 31 December 2007 2006 2006 £m £m £mAssetsGoodwill 359.1 295.9 297.0Intangible assets 39.5 26.9 29.5Property, plant and equipment 427.5 391.6 392.3Assets classified as held for sale 2.7 5.0 3.6Deferred tax assets 17.2 23.7 21.1Derivative financial instruments 6.0 2.8 4.1Total non-current assets 852.0 745.9 747.6 Inventories 27.8 13.0 12.9Income tax receivable 8.5 3.2 6.9Trade and other receivables 148.5 125.9 122.0Cash and cash equivalents 62.9 126.3 149.7Current assets 247.7 268.4 291.5 Liabilities Bank overdrafts (0.1) (0.6) -Interest bearing loans and borrowings (3.0) (3.3) (2.8)Income tax payable (12.7) (4.5) (8.9)Trade and other payables (162.0) (142.2) (139.1)Provisions (0.7) (2.8) (1.3)Total current liabilities (178.5) (153.4) (152.1) Net current assets 69.2 115.0 139.4 Interest bearing loans and borrowings (418.0) (370.4) (384.1)Derivative financial instruments (13.1) (12.5) (13.2)Retirement benefit obligations (20.0) (45.9) (42.1)Other payables (1.0) (0.5) (0.1)Deferred tax liabilities (57.5) (45.6) (49.2)Total non-current liabilities (509.6) (474.9) (488.7) Net assets 411.6 386.0 398.3 Equity Share capital 8 51.3 51.2 51.2Share premium 8 94.7 93.5 93.6Other reserves 8 9.6 4.8 5.8Capital redemption reserve 8 150.9 150.9 150.9Retained earnings 8 103.3 84.0 95.1Total shareholders' equity 409.8 384.4 396.6 Minority interest in equity 8 1.8 1.6 1.7Total equity 411.6 386.0 398.3 CONSOLIDATED INTERIM CASH FLOW STATEMENT For the six months ended 30th June 2007 Notes Six months to Six months to Year to 30 June 30 June 31 December 2007 2006 2006 £m £m £m Cash flows from operating activities Cash generated from operations 6 106.0 104.1 216.9Interest paid (9.1) (6.3) (14.7)Interest received 2.9 2.6 6.4Income tax paid (8.4) (10.3) (15.1)Net cash generated from operating activities 91.4 90.1 193.5 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (97.2) (27.8) (36.0)Purchases of property, plant and equipment (81.1) (66.4) (140.2)Proceeds from the sale of property, plant and equipment 4.1 2.1 11.0Purchases of intangible assets (2.4) (1.6) (4.4)Proceeds from sale of businesses, net of cash/ - - 0.1(overdrafts) Special pension contribution payments (12.5) (2.6) (17.5) Receipt of loan notes 0.4 2.4 2.9 Net cash used in investing activities (188.7) (93.9) (184.1) Cash flows from financing activities Net proceeds from issue of ordinary share capital 1.2 0.3 0.4 Purchase of treasury shares - (3.6) (3.6)Drawdown of borrowings 32.2 193.4 209.8Repayment of borrowings - (148.6) (142.8)Repayment of finance leases/hire purchase liabilities (2.1) (2.1) (3.6)Dividends paid to Company's shareholders (21.1) (20.3) (30.2)Dividends paid to minority interests (0.1) (0.1) (0.1)Redemption of B Shares - (6.5) (6.5)Net cash generated from financing activities 10.1 12.5 23.4 Net (decrease)/increase in cash and bank overdrafts (87.2) 8.7 32.8 Cash and bank overdrafts at beginning of period 149.7 117.1 117.1Exchange gains/(losses) on cash and bank overdrafts 0.3 (0.1) (0.2)Cash and bank overdrafts at end of period (note i) 62.8 125.7 149.7 Free cash flow 12.0 24.2 59.9 Analysis of free cash flowNet cash generated from operating activities 91.4 90.1 193.5Purchases of property, plant and equipment (81.1) (66.4) (140.2)Proceeds from the sale of property, plant and equipment 4.1 2.1 11.0Purchases of intangible assets (2.4) (1.6) (4.4)Free cash flow 12.0 24.2 59.9 Free cash flow of continuing operations 12.0 24.2 60.0 (i) Included within cash and bank overdrafts are £0.1m of overdrafts (30th June2006: £0.6m) NOTES TO THE INTERIM RESULTS 1 SEGMENTAL INFORMATION (a) Primary reporting format - business segments The group has only one primary business segment being textile maintenance withinthe Continent, UK and Ireland. 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 six months ended 30th June 2007 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £mContinuing operationsRevenue 218.8 168.6 387.4 - 387.4Operating profit/(loss) before exceptionalitems and amortisation of customer contractsand intellectual property rights 33.7 15.8 49.5 (2.4) 47.1Exceptional items (0.4) 1.6 1.2 0.3 1.5Amortisation of customer contracts andintellectual property rights (3.9) (1.4) (5.3) - (5.3)Segment result 29.4 16.0 45.4 (2.1) 43.3Net finance expense (7.0)Profit before taxation 36.3Taxation (8.2)Profit for the period 28.1Profit attributable to minority interests 0.2Profit attributable to equity shareholders 27.9Capital expenditure 68.4 55.1 123.5 - 123.5Depreciation and amortisation 38.9 34.8 73.7 - 73.7 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 six months ended 30th June 2006 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £m Revenue 199.7 146.2 345.9 - 345.9 Operating profit/(loss) beforeexceptional items and amortisation ofcustomer contracts and intellectualproperty rights 30.8 15.0 45.8 (2.2) 43.6Exceptional items 0.8 0.2 1.0 2.4 3.4Amortisation of customer contracts andintellectual property rights (1.4) (1.0) (2.4) - (2.4)Segment result 30.2 14.2 44.4 0.2 44.6Net finance expense (4.4)Profit before taxation 40.2Taxation (11.0)Profit from continuing operations 29.2Profit from discontinued operations (0.3)Profit on sale of discontinued -operationsProfit for the period 28.9Loss attributable to minority 0.2interestsProfit attributable to equity 28.7shareholdersCapital expenditure 49.6 46.5 96.1 - 96.1Depreciation and amortisation 34.4 28.9 63.3 0.1 63.4 Revenue and operating loss for the discontinued operations (Modeluxe) was £2.9million and £0.3 million respectively. The capital expenditure and amortisationwas £0.5 million and £0.6 million respectively. The segmental assets and liabilities at 30th June 2007 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £m Operating assets 670.5 371.8 1,042.3 23.0 1,065.3Deferred tax assets 4.4 12.4 16.8 0.4 17.2Income tax assets 1.6 - 1.6 6.9 8.5Non current assets held for sale 1.0 1.7 2.7 - 2.7Derivitive financial instruments - - - 6.0 6.0Total assets 677.5 385.9 1063.4 36.3 1,099.7 Operating liabilities 86.7 77.0 163.7 - 163.7Bank loans & finance leases - - - 421.1 421.1Derivative financial instruments - - - 13.1 13.1Deferred tax liabilities 37.2 20.3 57.5 - 57.5Income tax liabilities 3.2 7.7 10.9 1.8 12.7Retirement benefit obligations 14.6 10.8 25.4 (5.4) 20.0Total liabilities 141.7 115.8 257.5 430.6 688.1 1 SEGMENTAL INFORMATION CONTINUED The segment assets and liabilities at 31st December 2006 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £m Operating assets 625.1 288.1 913.2 90.2 1,003.4Deferred tax assets 4.2 8.7 12.9 8.2 21.1Income tax assets 1.8 - 1.8 5.1 6.9Non current assets held for sale 0.9 2.7 3.6 - 3.6Derivative financial instruments - - - 4.1 4.1Total assets 632.0 299.5 931.5 107.6 1,039.1 Operating liabilities 76.2 56.6 132.8 7.7 140.5Bank loans and finance leases - - - 386.9 386.9Derivative financial instruments - - - 13.2 13.2Deferred tax liabilities 33.4 18.0 51.4 (2.2) 49.2Income tax liabilities 4.2 1.0 5.2 3.7 8.9Retirement benefit obligations 14.4 23.2 37.6 4.5 42.1Total liabilities 128.2 98.8 227.0 413.8 640.8 Segmental assets consist primarily of operating assets such as property, plantand equipment, intangible assets, goodwill, inventories, receivables and cash.Assets such as investments, deferred tax assets, income tax assets and assetsclassified as held for sale are separately identified. Segment liabilities comprise operating liabilities and separately identifyretirement obligations, deferred tax liabilities, income tax liabilities andcorporate borrowings. (b) Secondary reporting format - geographical segments The group's operations are based in three main geographical areas. The UK isthe home country of the parent. The main operations in the principalterritories are as follows: UK and IrelandScandinaviaOther Europe 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 of location. Revenue Segmental assets Capital expenditure Six months to Six months As at As at Six months to Six months to 30 June to 30 June 30 June 31 December 30 June 30 June 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Continuing operationsUK and Ireland 168.6 146.2 408.9 389.7 55.1 46.5Scandinavia 137.4 125.2 404.5 401.8 28.4 29.3Other Europe 92.7 83.0 279.0 234.3 40.0 20.3Inter segment sales/ (11.3) (8.5) 7.3 13.3 - -unallocated 387.4 345.9 1,099.7 1,039.1 123.5 96.1 Discontinued operationsOther Europe - 2.9 - - - 0.5 387.4 348.8 1,099.7 1,039.1 123.5 96.6 The group's continuing operations revenue is predominantly from services. 2 Exceptional Items Six months to Six months to Year to 30 June 30 June 31 December 2007 2006 2006 £m £m £mIncome from receipt of loan notes/promissory loan notes (note i) 0.3 2.4 2.9Property sales (note ii) 1.6 1.0 (0.1)Restructuring costs (note iii) (0.4) - -Total 1.5 3.4 2.8 (i) In 2007, the group received further net settlement of notesamounting to £0.3 million (2006: £2.4 million), which had previously been fullyprovided. There is no tax charge. (ii) The profit on sale of properties realised in the first half of2007 relates primarily to the sale of properties within the UK. The tax chargeon this is £0.5 million. (iii) In January 2007, the group acquired the Permaclean business inGermany. The costs of restructuring and integrating the business is treated asexceptional. The tax credit on this is £0.1 million. 3 TAXATION The income tax expense is based on an effective annual tax rate estimatedindividually for each tax jurisdiction in which the group operates and appliedto the pre-tax profit, excluding exceptional items, of the relevant entity. Taxon exceptional items is calculated separately and specifically on those itemsand is disclosed in note 2. A one-off credit has been recognised to reflect the changes in deferred taxbalances arising from a reduction in corporate tax rates in Denmark and in theUnited Kingdom which have been substantively enacted at the balance sheet date. Six months to 30 Six months to Year to June 30 June 31 December 2007 2006 2006 £m £m £mUK taxation (3.0) (2.7) (5.3)Credit due to reduction in UK tax rates 0.9 - -Overseas taxation (6.8) (8.3) (18.2)Credit due to reduction in overseas tax rates 0.7 - - (8.2) (11.0) (23.5) 4 DIVIDENDS Six months to 30 Six months to Year to June 30 June 31 December 2007 2006 2006 £m £m £mEquity dividends declared and paid during the periodFinal dividend for the year ended 31 December 2006 of 12.4 pence pershare (2005: 11.8 pence) 21.1 20.3 20.3Interim dividend for the year ended 31 December 2006 of 5.8 pence - - 9.9per share 21.1 20.3 30.2Proposed dividend for the periodProposed interim dividend for the year ending 31 December 2007 of6.1 pence per share (2006: 5.8 pence) 10.4 9.9 - The directors recommend an interim dividend in respect of the financial yearending 31st December 2007 of 6.1 pence per ordinary share to be paid on 16thOctober 2007 to shareholders who are on the register at 21st September 2007.This dividend is not reflected in these financial statements as it does notrepresent a liability at 30th June 2007. 5 EARNINGS PER ORDINARY SHARE Basic earnings per ordinary share are based on the group profit for the periodand a weighted average of 170,004,033 (2006: 170,479,234)ordinary shares in issue during the period and exclude the treasury shares. Diluted earnings per share are based on the group profit for the period and aweighted average of ordinary shares in issue during theperiod calculated as follows: 30 June 30 June 31 December 2007 2006 2006 Number Number Number of shares of shares of shares In issue 170,004,033 170,479,234 170,164,428Dilutive potential ordinary shares arising from unexercised share 1,213,723 511,932 674,449options 171,217,756 170,991,166 170,838,877 An adjusted earnings per ordinary share figure has been presented to eliminatethe effects of property sales, exceptional income, restructuring items andamortisation of customer contracts and intellectual property rights. This measure shows the trend in earnings per ordinary share that is attributableto the underlying trading activities for both the group and continuing group. The reconciliation between the basic and adjusted figures for continuingoperations is as follows: Six months to Six months to Year to 30 June 30 June 31 December 2007 2006 2006 Earnings Earnings Earnings per share per share per share £m pence £m pence £m pence Profit attributable to equity holders of theCompany for basic earnings per share calculation 27.9 16.4 29.0 17.0 58.2 34.2(Profit)/loss on sale of properties (after (1.1) (0.6) (0.7) (0.4) 1.2 0.7taxation)Exceptional income (after taxation) (0.3) (0.2) (2.4) (1.4) (2.9) (1.7)Restructuring items (after taxation) 0.2 0.1 - - - -Amortisation of customer contracts and intellectualproperty rights (after taxation) 3.6 2.1 1.8 1.0 4.3 2.5Exceptional tax credit due to change in tax rates (1.6) (0.9) - - - -Adjusted earning - continuing group 28.7 16.9 27.7 16.2 60.8 35.7Diluted earnings - continuing group 16.3 16.9 34.1 The reconciliation between the basic and adjusted figures for the total group isas follows: Six months to Six months to Year to 30 June 30 June 31 December 2007 2006 2006 Earnings Earnings Earnings per share per share per share £m pence £m pence £m pence Profit attributable to equity shareholders of theCompany for basic earnings per share calculation 27.9 16.4 28.7 16.9 55.2 32.4Loss on sale of business (after taxation) - - - - 2.7 1.6(Profit)/loss on sale of properties (after taxation) (1.1) (0.6) (0.7) (0.4) 1.2 0.7Exceptional income (after taxation) (0.3) (0.2) (2.4) (1.4) (2.9) (1.7)Restructuring items (after taxation) 0.2 0.1 - - - -Amortisation of customer contracts and intellectualproperty rights (after taxation) 3.6 2.1 1.8 1.1 4.3 2.5Exceptional tax credit due to change in tax rates (1.6) (0.9) - - - -Adjusted earnings per share - total group 28.7 16.9 27.4 16.2 60.5 35.5Diluted earnings per share - total group 16.3 16.8 32.3Basic earnings per share - discontinued operations - (0.1) (1.8)Diluted earnings per share - discontinued operations - (0.1) (1.8) 6 CASH GENERATED FROM OPERATIONS Reconciliation of operating profit to net cash inflow from operating activities. Six months to Six months to Year to Six months to Six months to Year to 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 £m £m £m £m £m £m Total Group Discontinued operations Profit for the period 28.1 28.9 55.5 - (0.3) (3.0) Adjustments for:Taxation 8.2 11.0 23.5 - - -Amortisation ofintangible fixed assets 6.2 3.0 7.7 - - -Negative goodwill - (0.5) (0.5) - - -Depreciation of tangiblefixed assets 67.5 61.0 126.0 - 0.6 0.8(Profit)/loss on sale ofproperty andrestructuring costs (1.2) (1.0) 0.1 - - -Profit on sale of plantand equipment (0.4) (0.2) (1.2) - - -Loss on sale of business - - 2.7 - - 2.7 Redemption of promissoryloan notes (0.3) (2.4) (2.9) - - -Finance income (3.0) (2.5) (6.4) - - -Finance expense 10.0 6.9 16.0 - - -Other non cash movements 0.4 0.1 - - - -Changes in workingcapital (excluding effectof acquisitions,disposals and exchangedifferences onconsolidation): Inventories (1.2) (0.2) (0.1) - - - Trade and otherreceivables (9.1) (3.7) 1.3 - (0.1) (0.1)Trade and other payables 1.4 3.9 (2.9) - 0.1 0.1 Provisions (0.6) (0.2) (1.9) - - - Cash generated fromoperations 106.0 104.1 216.9 - 0.3 0.5 In the cash flow statement, proceeds from sale of property, plant and equipment comprise: Six months to Six months to Year to Six months to Six months to Year to 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 £m £m £m £m £m £m Net book amount 1.2 0.9 7.1 - - -Profit on sale ofproperty, plant andequipment 0.4 1.2 1.0 - - -Proceeds from sale ofproperty, plant andequipment 1.6 2.1 8.1 - - - Additionally the group received £2.5 million in respect of assets held fordisposal. 7 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Six months to Six months to Year to 30 June 30 June 31st December 2007 2006 2006 £m £m £m (Decrease)/increase in cash (87.2) 8.7 32.8Cash outflow from movement in debt and lease financing (30.1) (42.6) (63.4)Changes in net debt resulting from cash flows (117.3) (33.9) (30.6) New finance leases (2.6) (1.5) (2.8) Bank loans and lease obligations acquired with subsidiaries (4.3) (4.3) (4.7)Currency translation 3.2 5.9 15.1Movement in net debt in period (121.0) (33.8) (23.0) Net debt at beginning of period (237.2) (214.2) (214.2) Net debt at end of period (358.2) (248.0) (237.2) 8 STATEMENT OF CHANGES IN TOTAL EQUITY Attributable to shareholders of the company Capital Share Share Other Redemption Retained Minority Total Capital Premium Reserves Reserve Earnings Total Interest Equity £m £m £m £m £m £m £m £m At 1 January 2006 57.7 93.2 0.5 144.4 80.5 376.3 1.5 377.8 Issue of share capital inrespect of share optionschemes - 0.4 - - - 0.4 - 0.4Purchase of treasury shares - - - - (3.6) (3.6) - (3.6)Redemption of B shares (6.5) - - - - (6.5) - (6.5)Transfer of capital redemptionreserve arising fromredemption of B shares - - - 6.5 (6.5) - - -Dividends - - - - (30.2) (30.2) (0.1) (30.3)Actuarial losses - - - - (2.7) (2.7) - (2.7)Value of employee service inrespect of share options - - - - 0.6 0.6 - 0.6Cash flow hedges - - 7.6 - - 7.6 - 7.6Tax on items taken directly toequity - - (2.3) - 5.8 3.5 - 3.5Profit for the period - - - - 55.2 55.2 0.3 55.5Currency translation - - - - (4.0) (4.0) - (4.0)At 31 December 2006 51.2 93.6 5.8 150.9 95.1 396.6 1.7 398.3Issue of share capital inrespect of share optionschemes 0.1 1.1 - - - 1.2 - 1.2Dividends - - - - (21.1) (21.1) (0.1) (21.2)Actuarial gains - - - - 8.5 8.5 - 8.5Value of employee service inrespect of share options - - - - 0.4 0.4 - 0.4Cash flow hedges - - 5.5 - - 5.5 - 5.5Tax on items taken directly toequity - - (1.7) - (2.8) (4.5) - (4.5)Profit for the period - - - - 27.9 27.9 0.2 28.1Currency translation - - - - (4.7) (4.7) - (4.7)At 30 June 2007 51.3 94.7 9.6 150.9 103.3 409.8 1.8 411.6 The number of treasury shares held by the company as at 30th June 2007 was825,000 (31st December 2006: 825,000). 9 ACQUISITIONS During the first six months of the year, the group acquired a number of textilemaintenance businesses and companies as well as the clinical solutions anddecontamination businesses of the InHealth Group. The primary acquisition of atextile maintenance company relates to Permaclean which was acquired in January.The total consideration including assumed net debt is £41 million. The clinicalsolutions and decontamination businesses of the InHealth Group were acquired inJune. The initial consideration including assumed net debt is £43 million withfurther deferred contingent consideration of £22.5 million dependent on winningfuture decontamination contracts. The fair value exercises of the businesses/companies acquired during the periodare in progress. Provisional fair values have been assigned and provisionalgoodwill of £63.7 million has been recognised. 10 PREPARATION OF THE INTERIM RESULTS The financial information for the six months ended 30 June 2007 included in thisconsolidated interim report (hereinafter referred to as the 'interim financialinformation') comprises the consolidated income statement, the consolidatedbalance sheet, the consolidated cash flow statement, the consolidated statementof recognised income and expense and the related notes. Following the disposalof the Modeluxe business in August 2006, the prior year comparatives have beenrestated for discontinued operations. This interim financial information has been prepared in accordance with theListing Rules of the Financial Services Authority. In preparing this interimfinancial information management has used the principal accounting policies asset out in the group's annual financial statements for the year ended 31December 2006 on pages 45 to 49. As permitted the group has chosen not to adopt IAS 34, 'Interim financialstatements', in preparing its 2007 interim statements and, therefore, thisinterim financial information is not in full compliance with IFRS. The group has reviewed new standards and amendments to standards andinterpretations issued on or after 1 January 2007 and reports that they areeither not relevant or have no material impact on the financial statements. The interim financial information is unaudited but has been reviewed by theauditors and their review opinion is included in this interim report. Thefinancial information set out in this report does not constitute statutoryaccounts as defined by the Companies Act 1985. Financial information for theyear ended 31 December 2006 included herein is derived from the statutoryaccounts for that year, which have been delivered to the Registrar of Companies.The auditors' report on those accounts was unqualified and did not contain astatement under section 237(2) or section 237(3) of the Companies Act 1985 11 WEBSITE POLICY The directors are responsible for the maintenance and integrity of the company'swebsite. Information published on the internet is accessible in many countrieswith different legal requirements. Legislation in the United Kingdom governingthe preparation and dissemination of financial statements may differ fromlegislation in other jurisdictions. INDEPENDENT REVIEW REPORT TO THE DAVIS SERVICE GROUP PLC We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprise the consolidated incomestatement, the consolidated balance sheet, the consolidated cash flow statement,the consolidated statement of recognised income and expense and related notes 1to 11. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 10. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLPChartered AccountantsLondon31 August 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Berendsen