Board Review
Reshaping the business portfolio
Acquisition and disposal activity continued in 2007. As in prior years we have sold businesses where we had weaker strategic positions or where businesses had maximised their value-creating activities for the group. We have also sought to buy businesses to strengthen market positions and to access growth.
Our principal disposal was the sale of the Initial Electronic Security division which raised £596.8 million. We sold this business because our markets offered limited organic growth prospects and we lacked the scale to compete effectively on an international basis. The division was sold to United Technologies Inc of the United States which viewed the acquisition as a strategic purchase for its Chubb business.
Spending on Acquisitions 2007
During 2007 we spent £201 million on acquisitions. The largest expenditure was in Asia Pacific (£74.5 million). The principal acquisitions were in the Pest Control market in Australia where we have now built a leading market position. Strategically, we are seeking to expand our operations in Asia as there is the potential for higher organic growth rates than are available in the Western economies. £42.3 million was spent in Pest Control in North America and in continental Europe. These markets are fragmented and offer attractive growth rates. Part of the expenditure was in Spain where we have now built a number one market position. In City Link we spent £17.4 million acquiring most of the remaining franchisees, substantially completing the programme which commenced in 2005. In Facilities Services we spent £38.9 million largely on the acquisition of a London-based cleaning business to strengthen our position in the key UK office cleaning market. Finally, we spent £21.9 million in Textiles and Washroom Services to improve our market positions in the Nordics.
In 2008 we expect to sharply reduce the scale of our acquisition activity and focus on deriving benefit from purchases that we have already made. Since 2005 we have sold three divisions – residential conferences in the UK (Style), Manned Guarding and Electronic Security together with some smaller activities, realising total net proceeds of £1,064.8 million. We have spent £671.0 million to improve strategic positions, the bulk of which has been spent on the City Link business (acquiring the franchisees and Target Express), and in Pest Control where we have significantly increased our scale in the fragmented North American market and deepened our positions in continental Europe. We have also expanded the scale of our operations in Asia which now represent 5.7% of reported group revenues (5.8% in 2004). Disposal proceeds have exceeded the cost of acquisitions by £393.8 million and the balance has been used to reduce debt.