HALFYR: SPT: Interim Results - Spotless Group Limited

19 Feb 2010 10:38 am

SPT 19/02/2010 HALFYR

REL: 1038 HRS Spotless Group Limited

HALFYR: SPT: Interim Results - Spotless Group Limited

19 February 2010

ASX/NZSX RELEASE

SPOTLESS 2010 INTERIM RESULTS

- Reported EBIT up 13.4% to $47.3 million, reported NPAT up 40.8% to $24.5 million - Reported earnings per share (EPS) up 25% to 10.0 cents per share - Underlying EBIT growth of 9.5% (pre-NRIs and asset sales in the pcp)

- Interim dividend of 5.0 cents per share franked to 60% - EBIT growth in both Facility Services and Braiform over pcp - Significant new business won in the first half - Strategic acquisition of CE Property Services - Transformation continues in line with strategic plan - Balance sheet in excellent shape with gearing at 30.1% - Second half revenue and earnings expected to exceed first half

2010 INTERIM RESULTS HIGHLIGHTS

Spotless Group Limited (ASX/NZSX: SPT) today reported NPAT of $24.5 million in the first half of 2010 (1H10), an increase of 40.8 per cent on the prior corresponding period (pcp). Reported EPS increased 25.0 per cent to 10.0 cents per share. Underlying NPAT (prior to NRIs and asset sales in the pcp) increased 29.6 per cent over the pcp to $24.5 million. Underlying EPS rose 14.9 per cent on pcp to 10.0 cents per share. Group sales revenue prior to pass-through revenue rose 5.4 per cent over the pcp as early signs of a demand recovery has emerged in some areas.

Spotless delivered a strong financial result based on the pcp, despite significant volatility and continued economic uncertainty. Facility Services (food, cleaning, laundries and facilities management and asset maintenance) delivered EBIT growth of 4.3 per cent on pcp to $44.1 million (prior to NRIs and asset sales). Retailer Services (operating under the brand Braiform) EBIT rose 255.6 per cent on pcp to $3.2 million.

According to Managing Director and CEO, Mr Josef Farnik, the group's first half performance underscores the company's ability to deliver organic growth across its service lines. Several new wins demonstrate a strong client response to the Group's integrated 'multi-service' offer tailored to key market sectors.

"Spotless delivered a strong result in the first half of 2010. A number of large and strategically important contracts were secured in all geographies and our pipeline of contract opportunities has strengthened. The quality and value of contract wins in the first half, combined with the strong new business pipeline, demonstrates the value of our deep service expertise and relevance of our specialist market knowledge."

"The ability to seamlessly deliver and manage a broad range of services on behalf of clients provides Spotless with a significant competitive advantage. In the first half our Facility Services business secured a number of major contracts, including wins in the resources and government sectors. Braiform, in addition to European closed loop reuse contracts already announced, won new business in the UK and the US combining garment hangers with print and packaging solutions. These contracts demonstrate the supply chain efficiencies that can be delivered through a complete service offering," said Mr Farnik.

The group's solid first half performance also reflects ongoing financial discipline particularly in the areas of improved contract management and tighter cost control through efficiency initiatives. Meanwhile, the company continues to reinvest on a range of fronts that are critical to the future of the business, such as safety training and systems, environmental management, and in technology platforms that will provide efficiencies and improved operating performance.

In terms of the continuing impact of economic conditions, Facility Services is still experiencing areas of demand weakness, particularly across the hospitality sector where discretionary spending remains soft. Additionally, reduced Government fiscal stimulus spending is expected. However, early signs of general economic recovery are evident in the resources and industrial sectors.

Braiform's earnings growth in the first half was underpinned by restructuring efforts and a continued focus on improving distribution and administration. The business is well positioned to take advantage of market opportunities when retail conditions improve. The business has regionally focused sales teams, consolidated moulding and warehouse facilities and new IT systems, which enhance communication and streamline back office processes.

The group has strong free cash flows and a robust balance sheet to support future investment. During the period Spotless raised $86 million through an institutional placement and Share Purchase Plan. Subsequent to the equity raising, Spotless successfully acquired all the shares in Taylors Group Limited (Spotless' Laundry Services business in New Zealand) that it did not already own.

In early February 2010 Spotless signed a conditional agreement to acquire privately owned international cleaning and related services company CE Property Services Group, widely known for the Cleanevent and CleanDomain brands. CE Property Services has revenue of over $140 million, with approximately 60 per cent of revenue generated in Australia. The principal condition precedent relates to the novation of contracts, which is progressing.

CE Property Services provides cleaning, environmental waste management, housekeeping and security services in over six countries and employs approximately 4,000 people, primarily in Australia, United Kingdom, United States, France and the United Arab Emirates.

"CE Property Services Group is a natural fit with Spotless and would enable us to offer additional services to existing and potential clients, improve outsourcing efficiencies and ultimately increase value for our clients. Importantly, its international footprint would deliver an important building block in our growth plans," said Mr Farnik.

"Our organic growth continues to be supported by an active acquisitive agenda with strict strategic and financial filters. We will continue to identify and assess opportunities that provide Spotless with a competitive advantage in terms of scale, geographical expansion or technical expertise," said Mr Farnik.

Spotless also became a Dual Listed Issuer on NZSX during the period. The listing demonstrates Spotless' long-term commitment to New Zealand, and provides a broader group of investors with an opportunity to own part of a growing global services business with close links to New Zealand.

"In the absence of major unforseen events, Spotless expects that second half revenue and earnings will exceed the first half. We remain confident that we have the right strategy to enable Spotless to fully realise its potential and remain committed to delivering sustainable value for our clients, shareholders and people," said Mr Farnik. End CA:00191390 For:SPT Type:HALFYR Time:2010-02-19:10:38:54

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