Business review

Facilities Services

Market conditions

Market conditions deteriorated during 2009 with customers continuing to look for cost reductions. However, the number of administrations/closures has slowed considerably.

£m	Fourth quarter 2009	2008	Change	Full year 2009	2008	Change
At 2008 constant exchange rates:
Revenue	150.6	164.4	(8.4%)	608.6	653.0	(6.8%)
APBITA*	11.6	9.2	26.1%	26.3	18.4	42.9%
At actual exchange rates:
APBITA*	11.6	9.2	26.1%	26.6	18.4	44.6%

*Adjusted profit before interest, one-off items and amortisation and impairment of intangible assets, other than computer software.

Market conditions have been challenging in both the UK and Spain with severe price cutting from competitors, site closures and reductions in service frequency. Revenue decreased 6.8%, of which 1.8% can be attributed to Retail. Adjusted operating profit rose 42.9% almost entirely due to improved profitability from UK Washrooms. The Division delivered an outstanding cash performance in 2009 with cash flow of £46.4 million (representing 176% conversion) and significant improvement in debtors in all business units.

Cleaning revenue fell by 7.2% on the prior year, largely reflecting retail contract losses as a result of pricing pressure. However, over 75% of the lost portfolio was recovered by contract wins in Q4 which will take effect in Q2 2010.

Catering revenue fell by 1.6% following the loss of a large schools contract in H1 2009. This was replaced with other contracts which commenced in Q4. Underlying profit performance was positive (after an exceptional VAT recovery in the prior year) due to the exit of unprofitable contracts and new profitable wins in the latter part of 2008 and H1 2009.

Hospital Services revenue fell by 8.2% due to the loss of two large hospitals contracts at the end of 2008. The business has focused on the innovation of its food offering and has been recently merged with the Catering business under a single management team in order to leverage its expertise in this area.

Market conditions have been challenging for the UK Washrooms business with revenue down 8.2% year on year. After adjusting for the £6 million bad debt provision taken in Q3 2008, profit grew by £3.1 million driven by various cost-savings initiatives and reduced service credits. 95%+ service levels are now being consistently maintained despite reductions in headcount and service centres. The business has had continued success in the collection of debt, with DSO down 39 days since December 2008 and 90-day debt reduced by over 70%.

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2010 preview

Our focus for 2010 is on growth and we have had an excellent start to the year with a major contract win in the transport sector. However, markets will continue to be difficult in 2010. As in 2009 we will continue to focus on on-going cost reductions and cash.

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