Financial Review
ACQUISITIONS
The group acquired 71 businesses in the year for a net consideration of £429 million.
Details of the businesses acquired and the revenue and operating profit therefrom are set out in note 32 to the accounts. By consideration value, the most significant transactions undertaken during the year were:
- J.C. Ehrlich Co. Inc., the fourth largest pest control company in the USA, for a consideration of £75.0 million.
- The washroom businesses of CWS (Asia) and SGS Pink in Asia Pacific for £12.9 million and £25.3 million respectively.
- The purchase of the next day parcel delivery business Target Express for £213.3 million.
- Nine City Link franchises for total consideration of £51.2 million.
PENSIONS
The IAS 19 pension deficit was £118.8 million at the end of 2006 compared with £182.3 million in December 2005. The group has a number of small defined benefit schemes but the principal liability relates to the UK Scheme (the “Scheme”) which had a deficit of £108 million at December 2006 compared with £170 million a year ago. The principal reason for the reduction in the deficit is the £14 million reduction in the Scheme’s liabilities following the cessation of accrual and an increase in the value of the Scheme’s assets as a result of favourable market movements in the early part of the year. During 2006, a series of interest and inflation rate hedges were executed by the Scheme and its investment mix changed from approximately 80% equities/20% fixed interest to the new asset allocation of 20% equities/80% fixed interest. The effect of the hedging will be to reduce the exposure of the pension Scheme’s assets and liabilities to market movements by linking the cash flow profile of the bond investments to the Scheme’s liabilities. In addition, an interim review by the Scheme’s actuaries resulted in an £11 million increase in the Scheme’s liabilities to reflect the differences between some valuation assumptions made previously and recent experience.
At 30 June 2006, the UK Scheme’s IAS 19 deficit was estimated at £76 million. The £32 million increase in the deficit since that date reflects the impact of updated actuarial assumptions following the interim review performed in the second half, the scheme closure effects and changes to IAS 19 interest and inflation assumptions.
ACCOUNTING STANDARDS
The financial statements included in this annual report have been prepared and presented under IFRS as adopted by the EU. The group’s accounting policies are set out in a PDF document.
Amendments to IAS 21, “The effects of changes in foreign exchange rates”, IAS 39, “Financial Instruments: Recognition and Measurement”, IFRC 4, “Determining whether an arrangement contains a lease” and IFRIC 6, “Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment” have been implemented in 2006 with no material effect on either the current or prior periods.
Amendments to IFRS 1, “First-time adoption of International Financial Reporting Standards” and IFRS 6, “Exploration for and evaluation of Mineral Resources” and interpretation IFRIC 5, “Rights to interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds” have become applicable in the year but are not relevant to the group’s operations.
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the group’s accounting periods beginning on or after 1 January 2007 or later periods but which the group has not early adopted. We have identified IFRS 7, “Financial Instruments: Disclosure” (effective 1 January 2007) and IFRS 8, “Operating Segments” (effective 1 January 2009) as being relevant to its business. The impact on the group’s operations is currently being assessed.
