Business Review
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This review of performance takes a close look at each of our business areas – Textiles and Washroom Services, Pest Control, Ambius, City Link, Facilities Services and Asia Pacific. In each case we report on market conditions, record our progress against key performance indicators, discuss the most important developments in 2007 and preview our plans for 2008.
Basis of Preparation
In all cases, references to operating profit are for continuing businesses before amortisation of intangible assets (other than computer software and development costs). References to adjusted operating profit and adjusted profit before income tax (adjusted PBTA) also exclude items of a one-off nature, totalling a net cost of £28.4 million (2006: £22.6 million) that have impacted the results for the period. They relate to the group’s restructuring programme and consist of consultancy, redundancy and reorganisation costs net of the profit on sale of certain properties in the UK washroom business. They have been separately identified as they are not considered to be “business as usual” expenses and have a varying impact on different businesses and reporting periods. All references to intangible assets exclude computer software and development costs. This commentary reflects the management divisional structure and not the statutory segmental information (see note 1c). All comparisons are at constant 2006 full year average exchange rates.
Full year revenue of £2,216.7 million was 20.3% higher than 2006 with all segments increasing their revenue. Group organic growth was 3.0% with all businesses except City Link reporting positive outcomes for the year. Excluding City Link, group organic growth was 3.8% compared with 2.7% in 2006. The contract portfolio expanded by £119.2 million or 8.4%. New business wins contributed £173.9 million, acquisitions/disposals £72.7 million and net additions/reductions £49.6 million whilst terminations were £177.0 million. The group’s overall customer retention rate was 87.5% compared to 88.4% for 2006.
Adjusted operating profit rose by 8.8% over the year to £280.8 million with gains delivered by City Link as a result of acquisitions, Asia Pacific, Facilities Services and Ambius. Full year profits in Pest Control and Textiles and Washroom were flat, held back in each case by the performance of their UK businesses, which remain the subject of turnaround initiatives. In both cases, however, these businesses improved quarter on quarter.
Adjusted profit before income tax of £211.4 million represented a 1.1% increase on last year as second half profit growth offset the decline in first half profit at this level. Net margin was 9.5% for the year as a whole, compared with 11.3% last year. Although full year margins were lower than 2006, the trend has been improving quarter-by-quarter. Statutory profit before income tax from continuing operations was £142 million (2006: £165.4 million). The Business and Financial Review have been prepared in accordance with the reporting statement “Operating and Financial Review”.
Key Performance Indicators
| £m | Change vs 2006 | |
|---|---|---|
| Revenue | 2,216.7 | +20.3% |
| Organic revenue | + 3.0% | |
| Operating profit | 252.4 | + 7.1% |
| Adjusted operating profit | 280.8 | + 8.8% |
| Net adjusted margin | 12.7% | + 1.3% |
| Contract portfolio gain | 119.2 | -22.0% |
| New business wins | 173.9 | +2.9% |
| Net additions/reductions | 49.6 | + 16.4% |
| Acquisitions | 72.7 | -17.8% |
| Terminations | (177.0) | +20.3% |
| Retention rate | 87.5% | -0.9% |
| Operating cash flow | 188.1 | -10.8% |
| Free cash flow | 102.1 | -20.6% |
| PBTA | 183.0 | -1.9% |
| Adjusted PBTA | 211.4 | +1.1% |