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Spotless first-half profit falls 5.2%

Friday 17th February 2012

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Cleaning and other services provider Spotless said first-half net profit fell 5.2 percent, reflecting the costs of dealing with private equity firm Pacific Equity Partners which wants to take over Spotless.

The Australia-based company said net profit for the six months ended December 31 fell to A$16.5 million from A$17.4 million in the same six months of 2010. Excluding the PEP-related costs, net profit was up 0.6 percent to A$17.8 million.

Spotless, which granted PEP the right to non-exclusive due diligence on February 6, said it had no further update on this situation. Its agreement with PEP would allow the private equity firm to launch a takeover bid at not less than A$2.68 per share although Spotless' board has said it won't recommend an offer less than A$2.80 per share. PEP's initial price indication last year was A$2.63 per share.

Managing director Josef Farnik said market conditions are mixed but the outlook for outsourcing remains strong.

Subject to no further deterioration in trading conditions, Farnik reiterated previous guidance that earnings before interest and tax (EBIT) for the full year, before the costs of dealing with PEP, will be between A$90 million to A$94 million. First-half EBIT rose 1.6 percent to A$38.6 million.

Its Australian and New Zealand businesses have a strong pipeline of new contract opportunities and the profitability of new revenue streams secured in the year ended June last year “continues to mature in the face of challenging economic conditions.”

After breaking even in the first-half, Spotless expects its international services division will make a positive contribution, including from its London Olympics contract, in the second half. In early 2011, Spotless won the contract to supply this year's Olympics with cleaning, housekeeping, linen and laundry services.

Its Braiform division, which supplies garment hangers in 32 countries, saw unit sales drop 19 percent in the first-half and Spotless anticipates little recovery in volumes in the second half but a strong improvement in margins.

Spotless will pay a fully franked first-half dividend of 5 Australian cents per share, steady with last year's first-half payout which was 60 percent franked.

The dual-listed Spotless shares hardly trade in New Zealand, and are 2 cents higher at A$2.39 on the ASX.

The shares have lifted off last October's A$1.655 low in the wake of PEP's intentions becoming known but have been trending lower from above the A$5 mark in 2007 before the global financial crisis began to take its toll.

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