Facilities Services
Principal Geographies
- UK
- Spain
- Netherlands
Principal Activities
- Cleaning
- Catering
- Hospital services
- Speciality Hygiene
- Medical
Our Objective:
To become the UK’s leading cleaning and facilities services company exploiting high quality client list to drive specialist and bundled cleaning and support services
Strategic Priorities:
- Drive organic sales in core cleaning disciplines
- Single minded focus on cost and productivity
- Optimise non-cleaning service offering
Airports are busy places requiring smooth operation throughout daily and seasonal fluctuations in demand. Initial Air Services, part of Initial Facilities Services, is a long-established partner at Manchester Airport. During the most recent round of re-tendering it was successful in gaining the business as sole cleaning contractor until 2010. This will represent an unbroken tenure of some 24 years. In 2007 it also won a £1.1 million a year cleaning and support services contract with the Peel Airport Group to service Liverpool John Lennon, Robin Hood Doncaster and Durham Tees Valley Airports.
Countering the highly competitive commercial environment in the UK facilities services market, Initial has introduced efficiency initiatives including SMART cleaning, a day time cleaning concept, and RAPID Customer Account Management, an industry first in the remote management of cleaning contracts. Initial has led the market with its deployment of daytime cleaning; innovating to match day-time cleaning needs including battery and cordless powered cleaning machines and escalator cleaning machinery which cleans without having to switch off the escalators. Cleaner premises, cost reduction and customer benefit. That’s smarter cleaning.
Key Performance Indicators
| £m | Change vs 2006 | |
|---|---|---|
| Revenue | 585.7 | +12.8% |
| Organic revenue | +3.9% | |
| Operating profit | 38.7 | +41.2% |
| Adjusted operating profit | 38.9 | +24.7% |
| Net adjusted margin | 6.6% | +0.6% |
| Contract portfolio gain | 47.0 | -25.3% |
| New business wins | 43.7 | -27.2% |
| Net additions/reductions | 15.7 | -5.4% |
| Acquisitions | 44.9 | +156.6% |
| Terminations | (57.3) | -84.2% |
| Retention rate | 86.2% | -4.9% |
Market Conditions
Market conditions remained difficult throughout 2007 and our competitors continued with aggressive pricing strategies. Towards the end of 2007 there was a significant downturn in conditions in the UK retail sector, where we have a strong presence. However this can also create opportunities. Anti-smoking legislation in the UK affected the Leisure Industry.
2007 Review
Initial Facilities Services delivered a good performance in 2007, increasing revenue by 12.8% and adjusted operating profit by 24.7%. The Netherlands cleaning business was sold in the third quarter. Excluding acquisitions and disposals, revenue grew organically by 3.9%. The focus on expanding group services into existing customers, an activity in which this division takes the lead, is also beginning to show rewards.
In the UK, Cleaning revenue increased by 22.1% to £318.8 million (2006: £261 million), largely as a result of increased contract turnover and portfolio growth coming from the acquisitions of InSitu and Lancaster. Adjusted operating profit from Cleaning was £2.3 million higher than in 2006 due principally to higher volumes and acquisitions. Margins remain under pressure and management remains focused on cost and productivity. We are implementing a number of service initiatives including the “SmartClean” daytime cleaning concept; RAPID customer account management – an industry first in remote management of cleaning contracts; and streamlining our operating structure to offset price pressure. Annualised customer retention rates fell in the second half largely as a result of one major loss and a 25% reduction in contract scope by our largest customer.
During the year, revenues in the catering service business declined to £59.7 million following our decision to exit a number of unprofitable schools contracts. Contract wins effective from Q4 will offset much of this revenue loss and at better margins. The catering business is now profitable (it made a loss of £0.8 million in 2006) due to both the above factors and the success of procurement initiatives on food purchasing and distribution.
Hospital Services, which provides cleaning, catering and porterage services to NHS hospitals in the UK and independent healthcare sector, recorded revenue up 10.5% at £62.8 million and profit up 33.8%. Focus has been on improving efficiency generally and addressing a number of unprofitable contracts.
Our specialist hygiene businesses increased revenues by 26% to £52.0 million and profit by £1.1 million, largely as a result of the acquisition of Technivap in France in January 2007.
Improved profitability in Catering and Hygiene Services offset the continued margin pressure in UK Cleaning to give a divisional margin of 6.6% for 2007, compared with 6.0% for the prior year.
In UK Cleaning, market conditions during 2008 are expected to remain unchanged on 2007 with pressure on margins continuing, particularly in the retail sector. We continue to roll out service initiatives across the business to add value and differentiate ourselves from competitors. Retention and new business will be a key focus for 2008. In Catering the focus for growth is on the business and industry segment but returns on education contracts are improving. In Hospital Services we will continue to focus on growth opportunities outside the NHS.
2008 Preview
In UK Cleaning, market conditions during 2008 are expected to remain unchanged on 2007 with pressure on margins continuing, particularly in the retail sector. We continue to roll out service initiatives across the business to add value and differentiate ourselves from competitors. Retention and new business will be a key focus for 2008. In Catering the focus for growth is on the business and industry segment but returns on education contracts are improving. In Hospital Services we will continue to focus on growth opportunities outside the NHS.