Business review
Initial Facilities Services
Market conditions
Market conditions deteriorated in the second half of 2008 and are expected to continue to deteriorate in 2009. Some of our customers have looked to reduce service levels and we have been affected by some building closures and administrations.
Key performance indicators
| £m | Change vs 2007 | |
|---|---|---|
| Revenue | 605.1 | +3.2% |
| Organic revenue growth | -1.1% | |
| Operating profit | 40.2 | +3.9% |
| Adjusted operating profit | 40.8 | +4.9% |
| Net adjusted margin | 6.7% | +0.1% |
| Contract portfolio gain | 1.5 | – |
| New business wins | 52.4 | +19.9% |
| Net additions/reductions | – | – |
| Acquisitions | 4.1 | -92.7% |
| Terminations | (55.0) | +4.0% |
| Retention rate | 88.1% | +1.9% |
2008 review
During a year of worsening economic conditions, particularly in the retail sector, Initial Facilities Services has again delivered a solid performance during 2008. Revenue and adjusted operating profit increased by 3.2% and 4.9% respectively. Excluding the acquisition in July 2007 of our office cleaning business Lancaster and disposal of our Netherlands Cleaning business in Q3 2007, organic revenue growth was 0.5%. Profit improvement is principally a result of an improved performance in Catering and strong delivery from Medical and from Supplies.
In the UK Cleaning revenue increased by 3.7%, largely as a result of the Lancaster acquisition. Excluding its contribution underlying revenue declined by 7.0%.
Profit from our Catering business grew on flat revenue. This follows the decision taken in 2007 to exit a number of unprofitable school contracts and this, along with procurement and other initiatives, has delivered substantially improved results. A number of new contracts secured at the end of 2008 will commence in Q1 2009.
Hospital Services, which provides cleaning, catering and porterage services to NHS hospitals in the UK and independent healthcare sector, increased revenue by 3.5%. This can be attributed to an ongoing focus on efficiency improvements particularly in relation to several contracts identified as being unprofitable during the prior year. A number of contracts that were up for re-tender have been extended and the trend for hospitals to manage these services in-house appears to be slowing.
In our Specialist Hygiene business revenues were up 5.4% on 2007, with strong growth coming from the UK and Benelux. However, profit declined as a result of integration and management issues in the French business acquired in 2007. Management changes effected in Q4 2008 are anticipated to significantly improve performance in 2009.
In our Supplies business profit increased sharply as a consequence of increased third party activity, coupled with higher demand for products resulting from the strong portfolio growth of the European Washrooms businesses.
Back to top2009 preview
We expect market conditions to be very difficult in 2009 but this business has a good track record of delivering bottom line improvement as a result of productivity savings whilst offering excellent customer service.