Textiles and Washroom Services
Principal Geographies
- France
- UK
- Netherlands
- Germany
- Belgium
Principal Activities
- Workwear rental
- Flat linen rental
- Washroom equipment and consumables
- Floor mats
Our Objective:
To become Europe’s leading textiles and washroom operator, driving value through operational efficiencies and organic sales growth
Strategic Priorities:
- Operational efficiency improvements (processing, route logistics, supply chain)
- Organic sales growth in continuing tough markets (cross selling, range selling, new accounts)
- Opportunity to participate in value-enhancing consolidation of European textiles and washroom markets
The Initial Textiles division hires, cleans and returns 900,000 pieces of garments per week. Increasingly, customer requirements are changing to include specialist items such as high visibility protective equipment, smart reception wear and cold room clothing. The specialist clothing ranges are able to command higher margins. The division recently signed an exclusive agreement to supply employees of the French national railway, SNCF, with high visibility personal protective equipment until June 2011. The first phase will roll out in September 2008 for a minimum of 12,000 staff at 180 sites.
During 2007 the UK Washroom business made significant progress by improving its infrastructure and operations. In particular, it opened three new processing plants in Reading, Birmingham and Glasgow, while closing its former plants in Bradford and Chorley. The new facilities are ideally located close to major customer footprints and feature the state-of-the-art auto-roll and other processing facilities. The new equipment achieves water recycling of up to 90% and reduces chemicals usage by a third, thus reducing cost and environment impact.
Key Performance Indicators
| £m | Change vs 2006 | |
|---|---|---|
| Revenue | 603.0 | + 1.3% |
| Organic revenue | + 2.3% | |
| Operating profit | 105.9 | + 15.0% |
| Adjusted operating profit | 108.0 | -0.4% |
| Net adjusted margin | 17.9% | -0.3% |
| Contract portfolio gain | 4.7 | -50.5% |
| New business wins | 54.6 | + 2.2% |
| Net additions/reductions | 14.8 | + 33.3% |
| Acquisitions/disposals | (7.5) | – |
| Terminations | (57.2) | + 1.1% |
| Retention rate | 90.0% | + 0.1% |
Market Conditions
The market dynamics have varied more in 2007 than in previous years based principally on the performance of local economies. The industrial base, especially large manufacturers, have continued to steadily downsize. Small to medium size enterprises remain strong. Energy, labour, general regulation and environmentally related costs continue to apply cost pressure across all markets. This drives an increasing need for innovation and operational efficiencies for which larger players in the markets and international operators are better placed.
2007 Review
Although adjusted operating profit was broadly flat compared with 2006, the Textiles and Washroom Services division performed significantly better in 2007. The business was stabilised and returned to year-on-year profit growth after the first quarter. This represents a considerable improvement on 2006 when the division posted an 18.7% decline in adjusted operating profit on flat revenue. Revenue growth was 1.3% of which, organic growth was 2.3%.
Following a year of flat revenue in 2006 efforts were focused on restoring the division to sales growth in 2007 and the business has achieved some steady portfolio gains throughout the period in continental Europe. 2007 operating profit was down on 2006 in the first half of the year but showed modest growth in the second.
The UK business, which accounts for 12% of divisional revenue, has remained the most challenged part of the division, undergoing a major re-engineering programme during the year. Following the closure of its loss-making linen and garment activities in 2006, and wipers business in the second half of 2007, the infrastructure of the washroom business has been completely changed. This was a necessary step in the plan to return this important part of the business to growth.
Although they remain challenging, the market and economic conditions experienced in continental Europe during 2006 eased slightly with customer garment volumes improving modestly. Pricing is competitive and we expect it to remain so in 2008.
During the year we completed a management restructuring of the continental European business, creating a new role of Operations Director and merging the former 19-country national structure into seven regions. This move is improving efficiency and will also help us to develop and manage a number of international accounts.
The biggest turnaround programme during 2007 centred on the UK washroom business which underwent major infrastructure changes. In the fourth quarter we announced the closure of our plants at Bradford and Chorley allowing us to complete the transfer of roller-towel and mats processing to three new modern sites in Reading, Birmingham and Glasgow by the end of January 2008, and exit the wipers business. The development of these three new laundry plants and a significant number of new service centres were major achievements as we exited the year. The physical infrastructure changes to this business are now complete. Despite the reorganisation, the UK business was able to reduce the rate of washroom portfolio attrition during the year. The overall effect has been a deceleration in the rate of decline of performance ending with Q4 profit level with prior year. For the full year, profits were £3.3 million lower than last year, but we enter 2008 with a restructured business positioned for future development.
In France, the industrial sector of the textiles business has seen a steady trend of customer development during the year and as a result the business exited the year with a number of important contract wins. The revised organisational structure put in place during 2006 has restored greater profit and loss accountability within the business, which is the largest contributor to profit in the division. The washroom business has seen consistent portfolio growth throughout the year. This can be attributed to a combination of some creative client solutions and also the impact of the sale of the CWS business to Elis. On the strength of its return to profit and revenue growth (up by £8.0 million and 3.8% respectively over 2006) the business was taken off the turnaround list during the year.
During the period, the Netherlands business returned to profit and revenue growth, posting full year increases of £2.0 million and 2.1% respectively. This is a result of a new management team introduced earlier in the year, a smaller but more effective sales team and an improving contract portfolio position.
In last year’s report we announced plans to exit our loss-making hospital services business in Germany. We secured a successful exit from the business in the fourth quarter of the year. This led to a 6.9% decline in revenue compared to the prior year, but has assisted profit which is up £0.8 million in the year.
Revenue increased in the division’s business in Belgium by 3.2% over last year but higher costs associated with the settling down of the new plant at Lokeren resulted in a decline in adjusted operating profit in the second half, which held full year profits growth to £0.2 million.
All of the division’s smaller continental European businesses recorded higher revenue in 2007 and, in general, higher profits. The change from a country to a regional management structure will help reduce overheads in these businesses in 2008. Some small acquisitions have been undertaken during the year in Poland and Sweden to build scale.
A number of capital investment programmes continued in continental Europe in 2007. The developments in Amstetten in Austria, Lokeren in Belgium and Brie-Comte Robert in France were all completed to budget and on time. A new plant for Prague in the Czech Republic continues in development and is due to open on schedule in the autumn of 2008. The total investment associated with these projects is estimated to be £21.0 million, of which £17.5 million was spent in 2006 and 2007 with the balance to follow in 2008.
Restructuring and other one-off costs in the division were a net £2.1 million (2006: £16.3 million), because costs were offset by the profit on sale of surplus UK washroom property of £10.7 million. Costs were incurred in plant closure in Belgium, the closure of the wipers business in the UK, UK branch closures and management reorganisation and redundancy. The division continues to explore opportunities to improve procurement and supply chain efficiency, but it is not yet clear whether this will result in restructuring or other one-off costs being incurred in 2008.
2008 Preview
2007 was an important year for the division. It was the year that marked the cessation of a declining trend and a return to portfolio growth.
During the year we structured the division in such a way as to reduce overall costs and overhead of the business. We also improved efficiency and processes. Looking forward the divisional team is focusing on a number of potentially powerful initiatives that will help protect the business in future years. The regional structures in particular create significant opportunities for improvements in customer service and cost reductions in processing, service and management activities. Market research commissioned by us in 2007 has also given the business some useful insights into future development opportunities.
The restructuring programme in the UK will be completed early in 2008. At this time the business will be fully operational from its final 20 locations and will have modern, efficient processing plants incorporating the latest technology. In addition the centralised back office facilities will be running at full strength.
In France we expect the positive trends in portfolio development towards the end of 2007 to continue in 2008. Our aim throughout the coming year is to continue to develop the profitability of the French business. A number of initiatives designed to improve productivity, particularly in the washroom business, will be implemented. We are also aiming to improve sales productivity and continue to develop range selling in order to increase the number of products taken by each customer. Elsewhere in continental Europe cost recovery is a high priority. We will be seeking to maximise the benefits associated with the investment in the new processing capacity in Belgium, France, Austria, the Czech Republic and will build upon acquisitions made, especially in Sweden and Poland.