How we performed
and what lies ahead
This Review of Performance takes a close look at each of our business areas – Textiles and Washroom Services, Pest Control, Tropical Plants, Electronic Security, Parcel Delivery, 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 2006 and preview our plans for 2007.
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 tax and amortisation (PBTA) also exclude items of a one-off nature, totalling a net cost of £23.6 million (2005: £30.5 million) that have impacted the results for the period. They primarily relate to the group’s restructuring programmes and consist of the profit on the sale of the former head office, consultancy, reorganisation and redundancy costs and a pension curtailment credit. These have been separately identified because they are not considered to be “business as usual” expenses and, although they are small, they are numerous 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 2005 full year average exchange rates.
GROUP PERFORMANCE REVIEW
Revenue from the group’s continuing operations increased by 13.2% over last year. Organic revenue growth was 3.1%. Revenue was higher year-on-year across all divisions and organic revenue growth was achieved in all businesses except Electronic Security. The highest increases in revenue were achieved by Parcel Delivery, Pest Control and Asia Pacific.
The contract portfolio, which is the annualised value of customer contracts, increased by 11.6% during the course of the year to £1,530.6 million. The group’s customer retention rate of 88.5% was an improvement over the 87.1% achieved in 2005.
Operating profit from continuing operations before amortisation of intangible assets was £277.4 million. This represented a decline of 4.4% versus 2005. All businesses recorded lower operating profit with the exception of Parcel Delivery and Electronic Security. Operating profit numbers include significant one-off costs incurred during the course of the year. These one-off costs – which relate principally to reorganisation and rationalisation projects – totalled £23.6 million in 2006 (2005: £30.5 million). Excluding the impact of these one-off items, adjusted operating profit before amortisation of intangible assets fell by 6.2% for the year as a whole to £301.0 million.
Net margins came under pressure during the course of 2006 for a number of reasons. Firstly, market factors including competitive pressure and slowing demand affected businesses such as Textiles and Washroom Services where it was not always possible to increase prices to cover higher costs. In addition, in some divisions there has been a move towards lower margin activities. This includes Parcel Delivery, where margins are lower for the acquired franchise businesses than the original owned branch network, and Pest Control whose expanding US activities are lower margin than its established UK and European operations. Overall, the group’s net adjusted margin was 14.1% in 2006 compared with 17.0% in 2005.
Profit before tax and amortisation of intangible assets fell by 4.1% to £227.8 million. Adjusted profit before tax – which excludes one-off items – of £251.4 million was 6.2% lower than last year. After amortisation of intangible assets, profit before tax of £199.1 million was 8.4% lower than last year. Profit after tax fell by 2.3% to £154.3 million. Profit for the year including discontinued operations, predominantly Manned Guarding, was down 23.8% at £247.1 million.
Basic earnings per share from continuing operations fell by 2.0% compared to last year to 8.43 pence per share. Basic earnings per share from total operations decreased by 23.8% to 13.57 pence per share. The dividend paid and proposed was unchanged at 7.38 pence per share.
