Business overview

Basis of preparation

Segmental information has been presented in accordance with IFRS 8 “Operating Segments” which the group has implemented with effect from 1 January 2009. This statement reflects internal organisation changes made on 1 January 2010 resulting in UK Hygiene and Ireland Healthcare businesses moving from Facilities Services to Textiles & Hygiene and also the changes made on 1 July 2010 resulted in these same businesses moving from Textiles & Hygiene to Pest Control and the transfer of the UK Shared Service Centre from Facilities Services to Central Costs on 1 November 2010. Prior year comparisons have been restated. In all cases references to operating profit are for continuing businesses before amortisation and impairment of intangible assets (excluding computer software). References to adjusted operating profit and adjusted profit before tax also exclude items of a one-off nature, totalling a net cost of £25.9m at constant exchange rates, £25.1m at actual exchange rates (2009: £40.2m at constant and actual exchange rates) that have had a significant impact on the results of the group. £28.0m (at constant exchange rates, £27.9m at actual exchange rates) of these relate directly to the group’s major reorganisation programme and consists mainly of redundancy costs, consultancy and plant and office closure costs net of the profit on sale of certain properties. One-off items also include the profit or loss on the disposal of businesses, which totalled £3.7m (at constant exchange rates, £3.0m at actual exchange rates) in 2010. In 2010, a credit of £35.0m (at constant and actual exchange rates) in respect of a change in pension liabilities as a result of using CPI rather than RPI for calculating certain future pensions increases and a £29.2m (at constant and actual exchange rates) charge in respect of a claim under a lease guarantee, given by a subsidiary following the disposal of a business some 20 years ago, are also included in one-off items. These costs have been separately identified as they are not considered to be “business as usual” expenses and have a varying impact on different businesses and reporting periods. Details of one-off items incurred in the period, for which adjustments have been made, are set out in Note 1. All comparisons are at constant 2009 full year average exchange rates. Constant exchange rate refers to the translation of two different periods using the same exchange rate for a particular currency (the prior year’s average rate of exchange). Both the current and prior years’ currencies are translated at the prior years’ rate of exchange (£/$: 1.5620, £/€: 1.1196). This gives a clearer indication of the actual performance of the business when measured against the previous year by separately identifying the impact of foreign exchange by providing information on both an actual and constant exchange rate basis. When using actual exchange rates, currencies are translated using the rate of exchange for that year.

Full year financial overview

Full year revenue of £2,499.7m (at constant exchange rates) declined by 1.2% on 2009 (a decline of 1.4% at actual exchange rates). Revenue performance showed an improving trend during the year but was held back principally by Textiles & Hygiene in the Benelux and City Link, both of which suffered from a combination of difficult market conditions and issues arising from weak management. Facilities Services recorded revenue growth largely due to the contributions from Knightsbridge Guarding (acquired in June) and a new Transport for London cleaning contract. Pest Control revenue was broadly flat year on year, held back by a decline in the UK Hygiene business, but nevertheless reported good levels of growth in its UK, North American, Northern European and East Africa & Caribbean Pest Control businesses. While Ambius revenue declined 3.6% this represents a significant improvement on 2009’s decline of 10.5% and reflects an easing of market conditions and improving retention. The division moved into positive revenue growth in Q4 2010, the first time since Q4 2008. Asia Pacific revenue declined by 4.9%, impacted by the exit in 2009 of the low-margin Hong Kong Government contract. However, underlying revenue growth was broadly flat year on year, with Asia growing by 1.4% and the Pacific declining by 1.1%.

The contract portfolio, which accounts for 74.3% of revenue, grew by 1.8% year on year of which 1.0% is due to the net effect of acquisitions and disposals and the remainder to significantly improved customer retention rates.

Adjusted operating profit (before amortisation and impairment of intangible assets and one-off items) amounted to £239.2m, an increase of 8.3% on the prior year. Adjusted profit before tax (before amortisation and impairment of intangible assets and one-off items) grew by 15.1% to £191.7m and adjusted earnings per share (at AER) grew by 18.2% to 7.81p. Strong divisional profit performances were recorded in Pest Control, Facilities Services and Asia Pacific. The after tax loss for the year was £20.3m, primarily due to the recognition of a £95m impairment of goodwill in City Link.