Interim Results

29th Aug 2008 07:00



FOR IMMEDIATE RELEASE  29th August 2008

THE DAVIS SERVICE GROUP PLC

Interim results announcement

for the six months ended 30th June 2008

Good growth in revenue and adjusted operating profit

Financial Highlights

Revenue		Up 21% to £467.1 million (2007: £387.4 million)
Adjusted operating profit*		Up 11% to £52.2 million (£47.1 million)
Adjusted profit before tax*		Flat at £40.1 million (£40.1 million)
Adjusted earnings per share*		Up 1% to 17.1p (16.9p)
Interim dividend per share		Up 7% to 6.5p (6.1p)
Profit before taxation		Down 18% to £29.9 million (£36.3 million)
Basic earnings per share		Down 22% to 12.8p (16.4p)

* before £2.3m exceptional charges (£1.5m income) and £7.9m (£5.3m) amortisation of customer contracts and intellectual property rights

Operational Highlights

Nordic region:

Revenue up 26% to £159.0m (£126.1m); organic revenue growth was 6%

Adjusted operating profit up 14% to £23.1m (£20.2m)

Further bolt-on acquisitions in Sweden, Denmark and Norway

Continent region:

Revenue up 19% to £110.1m (£92.7m) 

Adjusted operating profit down 4% to £12.9m (£13.5m)

Organic revenue growth in Holland, Poland and workwear in Germany of 7%; decline in German healthcare

UK and Ireland:

Revenue up 17% to £198.0m (£168.6m); organic revenue growth was 5%

Adjusted operating profit up 15% to £18.1m (£15.8m)

Financial close achieved on two decontamination contracts

2008 acquisitions totalling £46.5 million, investing for the future.

Christopher Kemball, Chairman of Davis Service Group, commented:

"We are pleased to report a good set of results for the first six months of the year in line with expectations.

"Our businesses in Nordic region continue to demonstrate organic growth, principally from the broadening of our product and service offering, supported by additional focused sales and marketing resources which we expect to benefit us in the second half. Targeted investments will continue in existing and new territories.

"In the Continent region, opportunities remain for our Dutch and Polish businesses, which are growing well, along with further expansion of our German workwear business. Our German healthcare operations face a challenging time, given market over-capacity, but we expect that the actions we have taken will lead to an improved performance in the second half.

"In the UK, we have strengthened our market positions, particularly in healthcare, and have an experienced management team, well used to managing the business through challenging trading periods. Looking forward we anticipate that our hotel business may well see reduced volumes, due to lower hotel occupancy levels and the continuation of our policy to seek appropriate pricing which reflects our high service level.

"The majority of our businesses continue to perform well. However, given the changing trading environment in UK hotels, German healthcare over-capacity and higher interest costs, the Board has marginally reduced its expectations for the group for 2008 and 2009. With the many opportunities available, the Board remains confident in the ongoing prospects for the Group."

For further information contact:

The Davis Service Group Plc	Financial Dynamics
Roger Dye, Chief Executive	Richard Mountain/Harriet Keen
Kevin Quinn, Finance Director	Telephone 020 7269 7121
Telephone 020 7269 7121 (today until 12 noon)
Telephone 020 7259 6663 (thereafter)

  Results for the six months ended 30th June 2008

We are pleased to report a good set of results for the first six months of the year which are in line with our expectations. There has been a 21% growth in revenue resulting from continued healthy organic growth, acquisitions and the benefit of foreign currency. We continued to invest in the business for future growth which has resulted in the anticipated lower first half margin compared with the same period last year. These investments include entering new markets in the Baltics and Czech Republic, higher sales and marketing costs as we recruited salesforce to capture new contract opportunities, and made acquisitions that provide entry into attractive markets with the potential to deliver good financial returns in the medium to longer term. After accounting for these factors adjusted operating profit grew 11%.

 

Results

Revenue increased to £467.1 million in the period, up 21% (first half 2007: £387.4 million). Adjusted operating profit (before exceptional items and amortisation of customer contracts and intellectual property rights) was £52.2 million compared with £47.1 million last year, an increase of 11%. Both revenue and adjusted operating profit were positively impacted by exchange rates, where we have seen a significant strengthening of European currencies, and by acquisitions. Excluding the impact of these, the underlying growth in revenue was 4% with a benefit to revenue and adjusted operating profit from foreign exchange of £36.0 million and £4.7 million respectively. Our net finance expense was £12.1 million compared with £7.0 million last year, reflecting the acquisitions we have made, the effect of foreign exchange and the higher variable interest rates in Continental European currencies which we highlighted in our April Interim Management Statement. Adjusted profit before tax was £40.1 million, equivalent to last year, with an overall net favourable impact of exchange rates in the period of £2.8 million. Adjusted earnings per share were 17.1 pence (16.9 pence). Our tax rate on adjusted profit before tax was 26.8% compared with 28.0% last year, benefiting from lower rates in Germany and the UK. 

We have reported for the first time a new segment for the Clinical Solutions and Decontamination businesses of the UK and Ireland which we acquired in June 2007. This segment also includes the existing Sunlight theatre textile business, which is now managed with these businesses to form an integrated service to UK hospital operating theatres. The prior year results have been restated accordingly. Revenue of £27.0 million (£9.3 million) and operating profit of £1.8 million (£1.1 million) were reported in this developing market segment.

During the period we incurred exceptional costs of £2.3 million. This included restructuring costs in Germany (£1.0 million) where we have taken steps to lower the direct cost base of our Healthcare business and also to refocus central functions in Germany so that they are more closely aligned to the growing workwear business. We expect to incur further restructuring costs of £1.5 million in the second half. As previously indicated we incurred costs on the integration of Permaclean of £0.3 million in the period. Costs of £1.0 million have been incurred for property disposals. In addition, amortisation of acquired customer contracts and intellectual property rights increased to £7.9 million (£5.3 million) resulting from the acquisitions we have made. Operating profit after these items was £42.0 million (£43.3 million) and profit before taxation was £29.9 million (£36.3 million). Basic earnings per share were 12.8 pence compared with 16.4 pence in the first half of 2007 reflecting the exceptional charge and increase in amortisation charge for customers' contracts and intellectual property rights.

Our net capital expenditure rose to £82.4 million (£79.4 million). In particular, we have invested in new plants for workwear and facilities in Poland and our textiles spend has increased, primarily to support the new contracts we have won in all our regions.

Free cash flow was £12.1 million (£12.0 million), a pleasing achievement given that the first half was a period of further investment. Net borrowings at 30th June were £449.8 million (£358.2 million), reflecting 2008 acquisitions with a total consideration of £46.5 million and deferred consideration of £7.7 million, primarily in relation to the UK decontamination contracts. The impact of exchange rates increased net borrowings by £21.2 million. In August 2008 we successfully negotiated a new €200 million revolving credit facility with five of our existing relationship banks at reasonable margins. This facility will expire on 23rd June 2012 in line with our existing £420 million revolving credit facility. By obtaining this facility, we will be able to continue to capitalise on any new opportunities, as well as fund our capital investment programme for growth. The total facilities available to the Group are £700 million and are committed to 2012 - 2018.  We have approximately £310 million of borrowings with an average fixed rate of 4.2%. Overall the group retains a strong balance sheet.

The Board is recommending an interim dividend of 6.5 pence, an increase of 7% on last year. The dividend will be paid on 16th October 2008 to shareholders on the register at the close of business on 19th September 2008.

The financial statements for the six months ended 30th June 2008 have been reviewed by Pricewaterhouse Coopers LLP.

Nordic Region

Our Nordic region covers the country operations in Denmark, Sweden (including our direct sales business Björnkläder), Norway and Finland. During the period we acquired leading textile maintenance businesses in the Baltic countries of Estonia, Latvia and Lithuania.

Revenue in our Nordic region increased 26% to £159.0 million (£126.1 million) with adjusted operating profit up 14% to £23.1 million (£20.2 million). Organic revenue growth was 6% and the new sales trends from 2007 continued in the period. Operating margins have continued to increase in our developed textile markets of Denmark, Sweden and Norway before taking account of the investments we have made in sales and marketing. As previously indicated, we expanded our salesforces from the second half of last year and overall these costs were 20% higher in the first half of 2008 than the first half of 2007. We expect to see the benefit of these investments in the second half of the year with a much lower level of increase on the second half 2007 cost base.

The economies of Scandinavia remained resilient. Local management in Denmark continued to see good growth above the level of GDP. In Sweden we have made further attractive bolt-on acquisitions, as previously announced, to strengthen our market position. Our Norwegian business is performing strongly with revenue, profit and margin growth. This is an economy which is benefiting from higher oil prices driving overall economic growth. We have seen our revenue growth accelerate in the first half to well above GDP growth as the business is now focused on growing the workwear and facilities sectors where we see significant opportunities to expand our offering. At the same time we are developing new sectors, such as hygiene services which likewise provide further opportunities for growth.

We are pleased with the acquisitions of mat companies in the three Baltic countries of Estonia, Latvia, and Lithuania where underlying sales growth is running around 20%. We intend that these companies will form the base for a broader product and service offering once fully integrated into the group. We continued to develop our business in Finland and we have made good progress with the construction of our new plant near Helsinki which is expected to be operational in the final quarter of 2008. Our direct sale business in Sweden, Björnkläder, has seen strong growth resulting from its expansion in the number of outlets following the acquisitions last year, new store opening and market entry into Finland.

 

Acquisitions in the Nordic Region totalled £40.8 million. These investments have brought new profitable customer contracts and will consolidate further our market positions especially in Denmark and Sweden, while providing useful additional capacity.

Continent Region

Our Continent region covers the country operations of Germany, Austria, Holland and Poland. In January 2008, we established a new company in the Czech Republic and expect to commence operations towards the end of this year.

Revenues in our Continent region grew 19% to £110.1 million (£92.7 million) while adjusted operating profit was down 4% to £12.9 million (£13.5 million). The organic revenue growth delivered by our Dutch and Polish business was offset by the expected but disappointing decline in German healthcare. Excluding German healthcare, where revenues were 5% lower in local currency, underlying organic growth was 7%.

Our German business has annual revenues of approximately £125 million. The workwear business, which now represents approximately 25% of total German revenues, continued to develop with top line growth and further progress in adjusted operating profit and margins. There are opportunities for expansion, both organically and through acquisition, in workwear in what remains a fragmented market although we remain cautious about timing.

As expected, the healthcare business in Germany showed a reduction in both revenues and profits. Margin was down from 7% for full year 2007 to 3% in the first half of 2008. The market has continued to operate with excess capacity and it took us longer than anticipated to manage down our cost base to align it with the lower volume and poor pricing environment. Our management team has now reduced direct costs and implemented a restructuring of the operations which has resulted in 220 positions being removed. We are also restructuring central costs in Germany to reallocate resource to support the growth potential of workwear. This will be completed in the second half of 2008. These actions will improve performance in the second half of the year but we still expect margins for the full year to be below 5% for the healthcare business.

Our business in Holland continued to grow solidly, delivering organic revenue growth which, with a small benefit from acquisitions, provided an improvement in margin, which was a good result. In 2008, we are investing in our clean room plant to ensure we capture the maximum opportunity in this niche, higher margin part of the business.

Growth in our Polish business underlines the confidence we have in this market and which has underpinned the investments we have made. Revenue growth has accelerated in the first half of 2008 and was above 25% on the prior year period. Our new plants in Warsaw and Poznan are operating well and we have opened clean room facilities in the Poznan site which will be the first such facility in Poland to capture this growing opportunity. We have commenced construction of a new plant in Wroclaw, which we expect to be ready by April 2009 and have identified our next city for development. We are making bolt-on acquisitions as these become available. Management remains confident that the current trends are well set for the immediate future.

We have established a company in the Czech Republic and have recently completed the acquisition of land for a greenfield site for workwear and facilities services. This site is in the Brno region which is well placed from a distribution and infrastructure perspective. Our plan is to have this operational in 2009. We are building a salesforce, which has delivered its first sales and we are targeting the strong industrial base in this new member state within the European Union.

Acquisitions in the Continent Region totalled £4.7 million. We have targeted and expect appropriate returns from these investments.

  UK and Ireland

Our total revenue in the UK and Ireland was £198.0 million (£168.6 million), including £27.0 million (£9.3 million) from Clinical Solutions and Decontamination which has been reported as a separate segment. Overall, revenue grew 17% with organic revenue growth of 5%. Adjusted operating profit was up 15% to £18.1 million (£15.8 million) including £1.8 million (£1.1 million) for Clinical Solutions and Decontamination. The core textile maintenance businesses in the UK and Ireland have performed well, with revenue up 7% to £171.0 million (£159.3 million) and adjusted operating profits 11% higher at £16.3 million (£14.7 million) resulting in margins 0.3% ahead of last year.

Our hotel business benefited in the first half of 2008 from higher volumes and improved prices. Recently, our volumes have softened by around 4% due to lower hotel occupancy levels. Our cost inflation (excluding the benefit of our fixed energy contracts) is currently running at around 8%, though we are taking actions to mitigate the impact of this. Given the high level of service we provide, we continue to seek appropriate pricing with our customers. These factors may impact our volumes in the second half of 2008. 

Our healthcare division saw revenue and profits move ahead as a result of a good increase in volumes. This resulted from a number of factors including new contract wins from further outsourcing by NHS Trusts and the continued emphasis on cleanliness and hygiene at NHS hospitals. The workwear division has benefited from the additional contracts we acquired last year. We have direct sales businesses with £8 million of revenues which are unchanged from last half year.

The Clinical Solutions and Decontamination business continued to make progress and we now have an integrated salesforce for the consumables business which has generated some good contract wins and has started to build a pipeline of opportunities particularly in custom procedure trays. We have achieved financial close on two decontamination contracts (North West London and Kent), as previously announced. We expect these contracts to begin operations towards the middle of 2009 with capital expenditure on building the new decontamination supercentres expected to be £8 million in the second half of 2008 and a similar amount in the first half of 2009. 

Our operations in Ireland grew revenue, operating profit and margins. The business has benefited in recent years from a well-executed textile management programme that has reduced textile investments and depreciation significantly.

During the period, we invested £1.0 million for acquisitions in the UK and Ireland region and paid £7 million of deferred consideration on achieving financial close on the two decontamination contract awards.

Principal Risks and Uncertainties 

The principal risks and uncertainties facing the group are detailed on pages 10 and 11 of the 2007 Annual Report and Accounts.  The Outlook paragraphs of this interim management report also refer to other specific risks and uncertainties and these should be considered alongside those previously reported.

Outlook 

Our businesses in Nordic region continue to demonstrate organic growth, principally from the broadening of our product and service offering, supported by additional focused sales and marketing resources which we expect to benefit us in the second half. Targeted investments will continue in existing and new territories.

In the Continent region, opportunities remain for our Dutch and Polish businesses, which are growing well, along with further expansion of our German workwear business. Our German healthcare operations face a challenging time, given market over-capacity, but we expect that the actions we have taken will lead to an improved performance in the second half.

In the UK, we have strengthened our market positions, particularly in healthcare, and have an experienced management team, well used to managing the business through challenging trading periods. Looking forward we anticipate that our hotel business may well see reduced volumes, due to lower hotel occupancy levels and the continuation of our policy to seek appropriate pricing which reflects our high service level.

The majority of our businesses continue to perform well. However, given the changing trading environment in UK hotels, German healthcare over-capacity and higher interest costs, the Board has marginally reduced its expectations for the group for 2008 and 2009. With the many opportunities available, the Board remains confident in the ongoing prospects for the group.

  CONSOLIDATED INTERIM INCOME STATEMENT For the six months ended 30th June 2008

	Notes	Unaudited Six months to  30th June  2008 £m	Unaudited Six months to  30th June  2007 £m	Audited Year to  31st December  2007 £m
Continuing operations
Revenue	3	467.1	387.4	822.1
Cost of sales		(257.7)	(215.4)	(455.4)
Gross profit		209.4	172.0	366.7
Other operating income		0.5	2.4	3.9
Distribution costs		(89.4)	(74.5)	(153.4)
Administrative expenses		(66.7)	(50.0)	(105.5)
Other operating expenses		(11.8)	(6.6)	(16.7)
Operating profit	3	42.0	43.3	95.0
Analysed as:
Operating profit before exceptional items and amortisation of customer contracts and intellectual property rights	3	52.2	47.1	106.6
Exceptional items	4	(2.3)	1.5	0.8
Amortisation of customer contracts and intellectual property rights		(7.9)	(5.3)	(12.4)
Operating profit	3	42.0	43.3	95.0
Finance expense		(13.5)	(10.0)	(21.7)
Finance income		1.4	3.0	5.4
Profit before taxation		29.9	36.3	78.7
Taxation	6	(7.9)	(8.2)	(15.1)
Profit for the period		22.0	28.1	63.6
Profit attributable to minority interest		0.2	0.2	0.4
Profit attributable to equity shareholders		21.8	27.9	63.2
		22.0	28.1	63.6
Earnings per share expressed in pence per share
- Basic	8	12.8	16.4	37.1

  CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30th June 2008

	Notes	Unaudited Six months to  30th June  2008 £m	Unaudited Six months to  30th June  2007 £m	Audited Year to  31st December  2007 £m
Profit for the period		22.0	28.1	63.6
Exchange adjustments offset in reserves	12	(9.2)	(4.7)	13.3
Actuarial (losses)/gains recognised in the pension scheme	14	(21.2)	8.5	23.1
Gains on cash flow hedges	12	11.0	5.5	3.3
Tax on items taken directly to equity	12	11.4	(4.5)	(11.3)
Net (losses)/gains not recognised in income statement		(8.0)	4.8	28.4
Total recognised income for the period		14.0	32.9	92.0
Attributable to:
Minority interest		0.2	0.2	0.4
Equity shareholders		13.8	32.7	91.6

  CONSOLIDATED INTERIM BALANCE SHEET As at 30th June 2008

	Notes	Unaudited Six months to  30th June  2008 £m	Unaudited Six months to  30th June  2007 £m	Audited Year to  31st December  2007 £m
Assets
Goodwill		412.9	359.1	383.7
Other intangible assets		51.1	39.5	40.1
Property, plant and equipment	9	504.2	427.5	469.4
Assets classified as held for sale		3.2	2.7	2.2
Deferred tax assets		11.6	17.2	9.0
Derivative financial instruments		8.7	6.0	3.9
Trade and other receivables		3.6	-	-
Pension scheme surplus		-	-	12.9
Total non-current assets		995.3	852.0	921.2
Inventories		39.6	27.8	30.6
Income tax receivable		11.8	8.5	10.5
Trade and other receivables		170.5	148.5	161.7
Cash and cash equivalents		41.7	62.9	82.2
Total current assets		263.6	247.7	285.0
Liabilities
Bank overdrafts		-	(0.1)	-
Interest bearing loans and borrowings		(5.3)	(3.0)	(3.9)
Income tax payable		(17.1)	(12.7)	(16.2)
Trade and other payables		(198.3)	(163.0)	(188.7)
Provisions		(0.7)	(0.7)	(0.6)
Total current liabilities		(221.4)	(179.5)	(209.4)
Net current assets		42.2	68.2	75.6
Interest bearing loans and borrowings		(486.2)	(418.0)	(445.4)
Derivative financial instruments		(23.1)	(13.1)	(16.0)
Pension scheme deficits		(26.5)	(20.0)	(18.6)
Deferred tax liabilities		(51.5)	(57.5)	(56.7)
Total non-current liabilities		(587.3)	(508.6)	(536.7)
Net assets		450.2	411.6	460.1
Equity
Share capital	12	51.4	51.3	51.4
Share premium	12	95.6	94.7	95.5
Other reserves	12	16.3	9.6	8.4
Capital redemption reserve	12	150.9	150.9	150.9
Retained earnings	12	133.6	103.3	151.7
Total shareholders' equity		447.8	409.8	457.9
Minority interest in equity	12	2.4	1.8	2.2
Total equity		450.2	411.6	460.1

  CONSOLIDATED INTERIM CASH FLOW STATEMENT For the six months ended 30th June 2008

	Notes	Unaudited Six months to  30th June  2008 £m	Unaudited Six months to  30th June  2007 £m	Audited Year to  31st December  2007 £m
Cash flows from operating activities
Cash generated from operations	10	116.6	106.0	246.4
Interest paid		(13.1)	(9.1)	(21.0)
Interest received		1.4	2.9	5.4
Income tax paid		(10.4)	(8.4)	(13.7)
Net cash generated from operating activities		94.5	91.4	217.1
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired	13	(45.1)	(97.2)	(103.7)
Purchases of property, plant and equipment		(83.4)	(81.1)	(172.1)
Proceeds from the sale of property, plant and equipment		2.2	4.1	8.0
Purchases of intangible assets		(1.2)	(2.4)	(5.2)
Special pension contribution payments		-	(12.5)	(12.5)
Receipt of loan notes		-	0.4	0.4
Net cash used in investing activities		(127.5)	(188.7)	(285.1)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital		0.1	1.2	2.1
Purchase of treasury shares and own shares for the Employee Benefit Trust		(2.0)	-	(1.1)
Drawdown of borrowings		18.2	32.2	34.6
Repayment of finance leases/hire purchase liabilities		(2.2)	(2.1)	(3.4)
Dividends paid to Company's shareholders	7	(22.7)	(21.1)	(31.4)
Dividends paid to minority interests		(0.1)	(0.1)	(0.1)
Net cash (used)/generated from financing activities		(8.7)	10.1	0.7
Net decrease in cash and bank overdrafts		(41.7)	(87.2)	(67.3)
Cash and bank overdrafts at beginning of period		82.2	149.7	149.7
Exchange gains/(losses) on cash and bank overdrafts		1.2	0.3	(0.2)
Cash and bank overdrafts at end of period (note i)		41.7	62.8	82.2
Free cash flow		12.1	12.0	47.8
Analysis of free cash flow:
Net cash generated from operating activities		94.5	91.4	217.1
Purchases of property, plant and equipment		(83.4)	(81.1)	(172.1)
Proceeds from the sale of property, plant and equipment		2.2	4.1	8.0
Purchases of intangible assets		(1.2)	(2.4)	(5.2)
Free cash flow		12.1	12.0	47.8

(i) There is no overdraft in the current year (30th June 2007: £0.1 million). 

  NOTES TO THE INTERIM RESULTS

1 Basis of preparation

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985 (Section 434 of the Companies Act 2006). Statutory accounts for the year ended 31st December 2007 were approved by the Board of directors on 28th February 2008 and delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under Section 237 of the Companies Act 1985.

This condensed consolidated interim financial information has been reviewed, not audited.

This condensed consolidated interim financial information for the six months ended 30th June 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31st December 2007, which have been prepared in accordance with IFRSs as adopted by the European Union.

2 Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31st December 2007, as described in those financial statements.

The following interpretations are mandatory for the first time for the financial year beginning 1st January 2008 but they are not relevant or have no material impact to the group's operation:

- IFRIC 11, 'IFRS 2 - Group and treasury share transaction's'. 

- IFRIC 12, 'Service concession arrangements'.

- IFRIC 14, 'IAS 19 - the limit on a defined benefit asset, minimum funding requirement and their interaction'.

Change in accounting policy

During the year, we have reassessed the number of reportable segments presented and have a created a new segment for 'Clinical solutions and decontamination'.

3 Segmental information

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

Based on the risks and returns the directors consider that the primary reporting format is by business segment and the secondary reporting format is by geographical analysis by origin and destination. The group's operations are based in three main geographical areas: Nordic, Continent and UK and Ireland. The UK is the home country of the parent.

We provide additional disclosure for our secondary segments.

  3 Segmental information continued

The segment results for the six months ended 30th June 2008 are as follows:

Continuing operations	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
Revenue	159.0	110.1	171.0	440.1	27.0	-	467.1
Operating profit before exceptional items and amortisation of customer contracts and intellectual property rights	23.1	12.9	16.3	52.3	1.8	(1.9)	52.2
Exceptional items	(0.5)	(1.3)	(0.5)	(2.3)	-	-	(2.3)
Amortisation of customer contracts and intellectual property rights	(2.6)	(3.0)	(2.3)	(7.9)	-	-	(7.9)
Segment result	20.0	8.6	13.5	42.1	1.8	(1.9)	42.0
Net finance expense							(12.1)
Profit before taxation							29.9
Taxation							(7.9)
Profit for the period							22.0
Profit attributable to minority interests							0.2
Profit attributable to equity shareholders							21.8
Capital expenditure	56.0	21.5	32.5	110.0	1.8	-	111.8
Depreciation	21.0	20.7	33.3	75.0	1.8	-	76.8
Amortisation	3.3	3.4	2.2	8.9	0.5	-	9.4

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

The group's revenue for the six months ended 30th June 2008 is 95% from the provision of services.

  3 Segmental information continued

The segment results for the six months ended 30th June 2007 were as follows:

Continuing operations	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
Revenue	126.1	92.7	159.3	378.1	9.3	-	387.4
Operating profit before exceptional items and amortisation of customer contracts and intellectual property rights	20.2	13.5	14.7	48.4	1.1	(2.4)	47.1
Exceptional items	-	(0.4)	1.6	1.2	-	0.3	1.5
Amortisation of customer contracts and intellectual property rights	(1.7)	(2.2)	(1.4)	(5.3)	-	-	(5.3)
Segment result	18.5	10.9	14.9	44.3	1.1	(2.1)	43.3
Net finance expense							(7.0)
Profit before taxation							36.3
Taxation							(8.2)
Profit for the period							28.1
Profit attributable to minority interests							0.2
Profit attributable to equity shareholders							27.9
Capital expenditure	29.0	39.4	53.8	122.2	1.3	-	123.5
Depreciation	16.8	17.4	32.0	66.2	1.3	-	67.5
Amortisation	2.2	2.5	1.5	6.2	-	-	6.2

The group's revenue for the six months ended 30th June 2007 is 95% from the provision of services.

The segment assets and liabilities at 30th June 2008 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 assets	513.1	316.4	312.0	1,141.5	79.6	37.8	1,258.9
Total liabilities	120.8	61.7	93.6	276.1	29.0	503.6	808.7

The segment assets and liabilities at 30th June 2007 were as follows:

	Textile maintenance  Nordic £m	Textile maintenance  Continent £m	Textile maintenance UK and Ireland  £m	Total textile maintenance  £m	Clinical  solutions and decontamination £m	Unallocated £m	Group £m
Total assets	399.3	278.2	320.6	998.1	65.3	36.3	1,099.7
Total liabilities	85.7	62.8	98.0	246.5	24.0	417.6	688.1

  3 Segmental information continued

Unallocated assets include segment assets for corporate entities and derivative financial instruments.

Unallocated liabilities include segment liabilities for corporate entities and derivative financial instruments.

4 Exceptional items

	Six months to 30th June 2008 £m	Six months to  30th June 2007 £m	Year to  31st December 2007 £m
Income from receipt of loan notes/promissory loan notes	-	0.3	0.3
Property sales	(1.0)	1.6	2.6
Restructuring and integration costs	(1.3)	(0.4)	(2.1)
Total	(2.3)	1.5	0.8

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

During the period, costs have been incurred for property disposals which are expected to be sold and realise an overall net profit in the second half of the year. The tax credit on this is £0.3 million (30th June 2007: charge of £0.5 million)

Restructuring costs have been incurred in Germany. The restructuring in healthcare is focused on lowering the cost base and in workwear is focused on aligning central functions to the business. The restructuring will be completed in the second half of 2008. A further £0.3 million costs have been incurred for the integration of Permaclean. The tax credit on this is £0.4 million (30th June 2007: £0.1 million).

5 Seasonality

The hotels and restaurants markets are subject to some seasonal fluctuation. Higher revenues in the second and third quarters of the year are expected due to increased demand during the holiday season. Other than this, there is no significant seasonality or cyclicality affecting the interim result of the operations.

6 Taxation

The income tax expense is based on an effective annual tax rate estimated individually for each tax jurisdiction in which the group operates and applied to the pre-tax profit, excluding exceptional items, of the relevant entity. Tax on exceptional items is calculated separately and specifically on those items and is disclosed in note 4.

A one-off credit of £1.6 million was recognised at 30th June 2007 to reflect the changes in deferred tax balances arising from a reduction in corporation tax rates in Denmark and in the United Kingdom which had been substantively enacted at the balance sheet date.

7 Dividends

A final dividend relating to the year ended 31st December 2007 amounting to £22.7 million was paid in May 2008 (2007: £21.1 million).

In addition, an interim dividend in respect of the financial year ending 31st December 2008 of 6.5 pence per ordinary share was proposed by the board of directors on 26th August 2008. It is payable on 16th October 2008 to shareholders who are on the register at 19th September 2008. This interim dividend amounting to £11.1 million is not reflected in these financial statements as it does not represent a liability at 30th June 2008. 

  8 Earnings per ordinary share

Basic earnings per ordinary share are based on the group profit for the period and a weighted average of 170,259,261 (30th June 2007: 170,004,033) ordinary shares in issue during the period and exclude the treasury shares and shares in the Employee Benefit Trust.

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

	30th June  2008 Number of shares	30th June 2007 Number of shares	31st December 2007 Number of shares
In issue	170,259,261	170,004,033	170,101,043
Dilutive potential ordinary shares arising from unexercised share options and awards	413,332	755,834	671,998
	170,672,593	170,759,867	170,773,041

An adjusted earnings per ordinary share figure has been presented to eliminate the effects of property sales, exceptional income, restructuring items and amortisation of customer contracts and intellectual property rights.

This measure shows the trend in earnings per ordinary share that is attributable to the underlying trading activities for the group.

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

	Six months to  30th June 2008		Six months to  30th June 2007		Year to 31st December 2007
	£m	Earnings per share pence	£m	Earnings per share pence	£m	Earnings per share pence
Profit attributable to equity shareholders of the
company for basic earnings per share calculation	21.8	12.8	27.9	16.4	63.2	37.1
Loss/ (profit) on sale of properties (after taxation)	0.7	0.5	(1.1)	(0.6)	(2.3)	(1.3)
Exceptional income (after taxation)	-	-	(0.3)	(0.2)	(0.3)	(0.2)
Restructuring items (after taxation)	0.9	0.5	0.2	0.1	1.3	0.8
Amortisation of customer contracts and intellectual property rights (after taxation)	5.7	3.3	3.6	2.1	8.4	4.9
Exceptional tax credit due to change in tax rates	-	-	(1.6)	(0.9)	(4.9)	(2.9)
Adjusted earnings	29.1	17.1	28.7	16.9	65.4	38.4
Diluted earnings		12.8		16.3		37.0

9 Property, plant and equipment

During the six months ended 30th June 2008, the group acquired assets with a cost of £85.1 million (30th June 2007: £84.7 million), not including property, plant and equipment acquired through business combinations.

Assets with a net book value of £1.8 million were disposed of by the group during the six months ended 30th June 2008 (30th June 2007: £1.2 million) resulting in a net gain on disposal of £0.4 million (30th June 2007: £0.4 million).

The group's capital commitments at 30th June 2008 were £6.5 million (30th June 2007: £5.4 million).

  10 Cash generated from operations

Reconciliation of profit for the period to cash generated from operations.

	Six months to 30th June 2008 £m	Six months to 30th June 2007 £m	Year to 31st December  2007 £m
Profit for the period	22.0	28.1	63.6
Adjustments for:
Taxation	7.9	8.2	15.1
Amortisation of intangible fixed assets	9.4	6.2	14.6
Negative goodwill	-	-	(1.1)
Depreciation of tangible fixed assets	76.8	67.5	143.9
Loss/(profit) on sale of property	0.5	(1.2)	(2.6)
Profit on sale of plant and equipment	(0.4)	(0.4)	(0.9)
Redemption of promissory loan notes	-	(0.3)	(0.3)
Finance income	(1.4)	(3.0)	(5.4)
Finance expense	13.5	10.0	21.7
Other non-cash movements	0.8	0.4	0.6
Changes in working capital (excluding effect of acquisitions,
disposals and exchange differences on consolidation):
Inventories	(7.1)	(1.2)	(4.6)
Trade and other receivables	(2.3)	(9.1)	(14.8)
Trade and other payables	(3.2)	1.4	17.4
Provisions	0.1	(0.6)	(0.8)
Cash generated from operations	116.6	106.0	246.4

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

	Six months to 30th June 2008 £m	Six months to 30th June 2007 £m	Year to 31st December 2007 £m
Net book amount	1.8	1.2	2.8
Profit on sale of property, plant and equipment	0.4	0.4	0.9
Proceeds from sale of property, plant and equipment	2.2	1.6	3.7

The group did not dispose of any assets held for sale during the period (30th June 2007: £2.5 million).

11 Reconciliation of net cash flow to movement in net debt

	Six months to 30th June 2008 £m	Six months to 30th June 2007 £m	Year to 31st December 2007 £m
Decrease in cash	(41.7)	(87.2)	(67.3)
Cash outflow from movement in debt and lease financing	(16.0)	(30.1)	(31.2)
Changes in net debt resulting from cash flows	(57.7)	(117.3)	(98.5)
New finance leases	(1.2)	(2.6)	(5.5)
Bank loans and lease obligations acquired with subsidiaries	(2.6)	(4.3)	(4.7)
Currency translation	(21.2)	3.2	(21.2)
Movement in net debt in period	(82.7)	(121.0)	(129.9)
Net debt at beginning of period	(367.1)	(237.2)	(237.2)
Net debt at end of period	(449.8)	(358.2)	(367.1)

12 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 2007	51.2	93.6	5.8	150.9	95.1	396.6	1.7	398.3
Issue of share capital for share option schemes	0.1	1.1	-	-	-	1.2	-	1.2
Dividends	-	-	-	-	(21.1)	(21.1)	(0.1)	(21.2)
Actuarial gains	-	-	-	-	8.5	8.5	-	8.5
Value of employee service for share options	-	-	-	-	0.4	0.4	-	0.4
Cash flow hedges	-	-	5.5	-	-	5.5	-	5.5
Tax on items taken directly to equity	-	-	(1.7)	-	(2.8)	(4.5)	-	(4.5)
Profit for the period	-	-	-	-	27.9	27.9	0.2	28.1
Currency translation	-	-	-	-	(4.7)	(4.7)	-	(4.7)
At 30th June 2007	51.3	94.7	9.6	150.9	103.3	409.8	1.8	411.6
Issue of share capital for share option schemes	0.1	0.8	-	-	-	0.9	-	0.9
Purchase of treasury shares	-	-	-	-	(1.1)	(1.1)	-	(1.1)
Dividends	-	-	-	-	(10.3)	(10.3)	-	(10.3)
Actuarial gains	-	-	-	-	14.6	14.6	-	14.6
Value of employee service for share options	-	-	-	-	0.2	0.2	-	0.2
Cash flow hedges	-	-	(2.2)	-	-	(2.2)	-	(2.2)
Tax on items taken directly to equity	-	-	1.0	-	(8.1)	(7.1)	-	(7.1)
Profit for the period	-	-	-	-	35.3	35.3	0.2	35.5
Currency translation	-	-	-	-	17.8	17.8	0.2	18.0
At 31st December 2007	51.4	95.5	8.4	150.9	151.7	457.9	2.2	460.1
Issue of share capital for share option schemes	-	0.1	-	-	-	0.1	-	0.1
Purchase of own shares for the Employee Benefit Trust	-	-	-	-	(2.0)	(2.0)	-	(2.0)
Dividends	-	-	-	-	(22.7)	(22.7)	(0.1)	(22.8)
Actuarial losses	-	-	-	-	(21.2)	(21.2)	-	(21.2)
Value of employee service for share options	-	-	-	-	0.8	0.8	-	0.8
Cash flow hedges	-	-	11.0	-	-	11.0	-	11.0
Tax on items taken directly to equity	-	-	(3.1)	-	14.5	11.4	-	11.4
Profit for the period	-	-	-	-	21.8	21.8	0.2	22.0
Currency translation	-	-	-	-	(9.3)	(9.3)	0.1	(9.2)
At 30th June 2008	51.4	95.6	16.3	150.9	133.6	447.8	2.4	450.2

The number of treasury shares held by the company as at 30th June 2008 was 1,025,000 (30th June 2007: 825,000).

In addition, the number of own shares held in the Employee Benefit Trust as at 30th June 2008 was 400,000 (30th June 2007: nil).

  13 Acquisitions

During the six months ended 30th June 2008, the group acquired a number of textile maintenance businesses in existing territories as well as in the Baltic countries of Latvia, Lithuania and Estonia.

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

	Total
	Carrying values  pre acquisition  £m	Provisional  fair values  £m
Intangible fixed assets	4.0	17.8
Property, plant and equipment	7.4	7.4
Inventories	1.1	0.6
Receivables	3.6	3.1
Payables and provisions	(3.7)	(4.3)
Taxation
- Current	(0.1)	(0.1)
- Deferred	(0.5)	(2.7)
Cash and cash equivalents	1.6	1.6
Overdrafts	(0.4)	(0.4)
Bank loans	(2.2)	(2.2)
Lease finance obligations	(0.4)	(0.4)
Net assets acquired	10.4	20.4
Goodwill		24.7
Consideration		45.1
Consideration satisfied by:
Cash		37.9
Deferred consideration		6.5
Legal and professional fees		0.7
		45.1

The goodwill arising on these acquisitions is attributable to the acquired work force and the expected synergies.

The fair value amounts contain some provisional amounts which will be finalised in the 2008 accounts. Provisional goodwill of £24.7 million has been recognised.

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

	£m
Cash consideration	38.6
Cash acquired	(1.6)
Overdrafts	0.4
Deferred consideration paid on 2007 acquisitions	7.7
	45.1

The total consideration including net financial liabilities assumed and deferred consideration payable for the 2008 acquisitions is £46.5 million. The intangible assets acquired relate primarily to values attributed to customer contracts. 

  13 Acquisitions continued

Shown below are the revenues and profit for the period after tax as if the above acquisitions had been made at the beginning of the period. The information is not 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.

	£m
Revenue	15.0
Profit after tax	0.5

From the date of acquisition to 30th June 2008, the above acquisitions contributed £9.7 million to revenue and £0.4 million to profit after tax for the period.

14 Pension schemes

In the first six months of the year an actuarial loss of £21.2 million was recognised in the consolidation interim statement of recognised income and expense in relation to the pension schemes. This consisted of a decrease in assets of £15.9 million and an increase in liabilities of £5.3 million.

15 Related parties

The nature of related parties as disclosed in the consolidated financial statements for the group as at and for the year ended 31st December 2007 has not changed. Further, there have been no significant related party transactions in the six month period ended 30th June 2008.

16 Post balance sheet events

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

17 Website policy

The directors are responsible for the maintenance and integrity of the company's website. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Statement of directors' responsibilities

The directors' confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and 4.2.8.

By order of the Board

I Roger Dye

28th August 2008

Chief Executive

Kevin Quinn

28th August 2008

Finance Director

  Independent review report to The Davis Service Group plc

Introduction

We have been engaged by the company to review the condensed consolidated interim financial information in the interim financial report for the six months ended 30th June 2008, which comprises the consolidated interim income statement, consolidated interim statement of recognised income and expense, consolidated interim balance sheet, consolidated interim cash flow statement and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial information included in this interim financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial information in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the interim financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

28th August 2008

ENDIR ILFSRTSITFIT

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