Letter from the Chairman & CEO
WHAT WE EXPECT TO ACHIEVE IN 2007
In 2007, shareholders can expect to see progress in those businesses which have been undergoing deep change to the extent that by the end of the year they will be back to “business as usual”. In particular Pest Control and Washroom in the UK will both complete the transition to their final planned configurations.
The Pest Control division is now on a satisfactory growth path and with the completion of the UK changes during the year we are confident this sound business will return to profitable growth in 2007 and beyond.
Textiles and Washroom Services still has a number of operational issues to deal with and faces difficult market conditions in continental Europe which impacted our ability to recover higher costs in 2006, leading to margin erosion. The board believes that this division is the major challenge for the group and it is vital that progress is made in 2007. New divisional management is in place and shareholders will be kept informed of our plans as the year progresses.
Overall, we expect to achieve more in terms of both customer retention and new sales growth. We also expect to make progress in improving efficiencies. We are confident that productivity improvements can be made in most areas including administration, service and sales. Given the scope in this area we expect gains to be made over each of the next several years.
2007 will be an important year for those businesses that have been active acquirers as they progress integration and development plans; most particularly in Parcel Delivery and Asia Pacific. In Asia Pacific, the integration plans for both larger acquisitions like Pink and Campbell Brothers (acquired in January 2007) and the smaller businesses are reasonably straightforward and should be largely completed within the year. Parcel Delivery requires a much more sophisticated process as it absorbs both the franchise network and combines with Target Express. The integration will be completed by the end of 2008.
The sale of Electronic Security is expected to be completed before the end of June. The proceeds of this sale will be used to pay down debt. Further acquisitions will be made, including the outstanding City Link franchises and additional deals in Asia Pacific. The board believes there may be some consolidation in the European textiles and washroom industry during 2007 and will monitor this situation to ensure we are able to take advantage of any opportunities that might arise to protect or enhance shareholder value.
Overall, the board expects 2007 to be a year of stabilisation, building on the progress made in 2006 in revenue growth – particularly organic growth – and improvements in contract retention rates. Profit before tax and amortisation will be in line with 2006 before the impact of costs associated with rationalisation projects and the integration of Target Express. Some regression is expected in the first quarter due to a number of specific factors, not least the declining trends in Textiles and Washroom Services which were still apparent in the fourth quarter of 2006. However, we have recently begun to see some improvements in contract portfolio development in this division and, if these trends continue, we would expect to improve on the position for the year.
The dividend policy is unchanged; we will continue to take a cautious approach to dividend growth until the recovery in the businesses is well established. However, the board does not believe there will be a need to reduce it from the 2006 level.
