Rentokil Initial Regulatory News (RTO)

3 Nov 2005 07:01

Rentokil Initial PLC03 November 2005 3 November 2005 RENTOKIL INITIAL plc - THIRD QUARTER TRADING UPDATE £m Q3 05 Q3 04 % change YTD 05 YTD 04 % changeAt 2004 constant exchange rates: Revenue 559.5 531.5 5.3% 1,670.6 1,612.5 3.6% Operating income before central costs* 88.7 95.9 (7.5%) 256.3 283.0 (9.4%) Operating income after central costs* 80.6 88.5 (8.9%) 227.6 265.9 (14.4%) At actual rates of exchange: Revenue 564.8 529.8 6.6% 1,678.9 1,607.9 4.4% Operating income 67.3 82.4 (18.3%) 175.7 248.2 (29.2%) Operating income analysed as: • Operating income (before amortisation of customer list & exceptional items) 81.3 87.9 (7.5%) 229.2 264.8 (13.4%) • Amortisation of customer lists (6.0) (5.5) (9.1%) (17.5) (16.6) (5.4%) • Exceptional items (8.0) - (36.0) - Share of profit after tax from associates 0.4 0.4 - 1.7 1.3 30.8% Net interest payable (14.4) (15.1) 4.6% (41.7) (37.6) (10.9%) Pre-tax profit (continuing operations) 53.3 67.7 (21.3%) 135.7 211.9 (36.0%) All figures are for continuing operations and are unaudited and unreviewed.Style Conferences and the US cleaning business have been treated asdiscontinuing/discontinued businesses respectively and their results have beenexcluded from the current and prior year figures above. Results at constantexchange rates have been translated at the full year average rates for the yearended 31 December 2004. • Q3 revenue up 5.3% over prior period and up 3.6% year-to-date at constant exchange rates; sales up in all business segments • Rate of profit deterioration slowing - at constant exchange rates business segment operating income* (ie before central costs) down 7.5% in Q3 vs last year and 9.4% lower year-to-date; H1 decline was 10.5% • Portfolio up 7.6% (annualised rate) in Q3 with better sales growth and lower terminations than H1 • Business improvement projects on track • Business re-organised into six divisions to face its markets more effectively • Recruitment of top management team now complete • Capital structure review completed *Before amortisation of customer lists and exceptional items Commenting on third quarter performance and outlook, Doug Flynn, ChiefExecutive, said: "We have made significant progress in reshaping Rentokil Initial for the future,instituting detailed turnaround plans for a number of important businessoperations, re-organising the group into six market facing divisions andcompleting the recruitment of the top management team to take the businessforward. We have also concluded how best to manage our capital structure forthe short- and medium-term. Much hard work remains ahead of us and we arerealistic about the time it is likely to take to turn this company around.However, as I said at the interim results, we know what the problems are andbelieve we have the tools to return the company to the top of its sector. "Trading in the third quarter showed a continuation of the positive trendsevident towards the end of the first half. Revenue increases were achievedacross the board. The rate of decline in operating income slowed in many areas,although most progress was made in lower margin activities and our largestbusiness, hygiene services, has yet to show improvement. The rate of marginregression also decelerated and margins were higher in all businesses in thethird quarter than the first half. The investment put in place to improve salesefficiency and customer service is gradually taking effect and we were pleasedto see some successes in the quarter, including an improvement in customerretention for UK pest control. "Despite tough economic conditions in a number of our markets, we expect to seea continuation of these encouraging trends in the remainder of the year and intothe first half of 2006. Thereafter, we anticipate a gradual acceleration in therate of improvement as our initiatives begin to take full effect. We remain ontrack to deliver the promises made at our interim results presentation." STRATEGIC AND OPERATIONAL TURNAROUND Whilst in the first half we focused on analysing the nature and scale of theproblems we face, during the third quarter our priorities have been to developand then implement plans to put things right. There have been three main areasof work. Operational turnarounds Turnaround plans have been developed for five of our most important operationsand these have now been embedded in those businesses. In most cases theimplementation phase of the turnaround has commenced and will continue into2006. At constant rates, these plans affect operations representing some 35% and51% of the group's revenue and operating income (before amortisation of customerlists and exceptional items) respectively. UK Pest Control: the principal issue is to reduce unacceptably high customertermination rates by improving service levels, as dissatisfaction with serviceis the prime cause of contract losses. UK Washrooms: this business requires wide scale restructuring which will taketime. Cost efficiencies will be obtained through merging the old Rentokil andBET washroom businesses. The separation from the UK textiles business has untilnow hindered this programme. French Textiles: the functional (rather than branch-based) operating structurewhich has been successful in our other Continental European textile businessesis being introduced into France. European Washrooms & Textiles: the old BET and Rentokil businesses have not beenfully integrated and a plan is currently underway to accelerate this process. In addition, over time Initial City Link, the parcels delivery business, willcease to operate on a franchised basis. This should deliver better returns toshareholders and improve customer service. Group reorganisation On 1 September the group was reorganised into the six divisions detailed at theinterims. We believe this structure will enable our businesses to face theirmarkets and customers more effectively. Management team The senior management team who will lead the company forward is now in place.During the third quarter, our new CFO, HR Director and Corporate DevelopmentDirector all took up their posts and other new appointments, most notably themanaging directors of the Asia Pacific and Pest Control/Plants divisions, wereannounced. The latter follows the decision of Ted Brown to retire from thegroup. The actions associated with these three areas - formulating the turnarounds,reorganising the group and assembling the management team - are now largelycomplete and provide the necessary foundations for the remaining high priorityprojects. GROUP PERFORMANCE Note: in all cases references to operating income are for continuing businessesbefore amortisation of customer lists and exceptional items. Third quarter Revenue for the group in the third quarter increased by 5.3% at constantexchange rates and 6.6% at reported exchange rates to £564.8 million. Each ofthe business segments achieved revenue growth in the quarter versus last year.Operating income, however, declined by 8.9% at constant exchange rates and by7.5% at reported exchange rates. At constant exchange rates, increases in mannedguarding and facilities management services were offset by declines in the otherbusinesses. Actual pre-tax profit for the quarter fell by 21.3% to £53.3million. The decreases in profit are largely attributable to: the investmentmade to improve sales efficiency and customer service; one-off costs associatedwith the business turnarounds; higher fuel costs spread across the group; andexceptional costs incurred in respect of the approach from Raphoe. Theadditional investment in sales and service only started to be incurred duringthe third quarter of last year but is now fully in place, adversely affectingthe period-on-period comparison. This will continue to be the case in the fourthquarter with a diminishing effect thereafter. Nine months to date Year-to-date, group revenue increased by 3.6% at constant exchange rates and by4.4% at reported exchange rates with increases recorded by all segments otherthan facilities management services, which declined by 0.5%. Operating incomefor the period fell by 14.4% at constant exchange rates and 13.4% at reportedexchange rates with declines registered across the board. Actual profit beforetax for the year-to-date fell by 36.0% for the reasons given above together withan exceptional asset impairment charge in the first half related to the plannedexit from the UK linen and garments business and exceptional costs in respect ofthe Raphoe defence. SEGMENTAL PERFORMANCE Note: all comparisons are at constant (December 2004) exchange rates. Allreferences to operating income are for continuing businesses before amortisationof customer lists and exceptional items. Please refer to appendix 1 forsegmental analysis of revenue and operating profit for the third quarter andyear-to-date at both constant and actual exchange rates. Although the groupmanagement structure was reorganised as of 1 September, the following analysishas been presented in line with the previous segmental reporting format. Hygiene Hygiene Services Hygiene Services comprises our washrooms and textiles businesses. Revenue in thethird quarter was 2.7% higher than the same quarter last year whilst operatingincome was 12.0% lower. In Continental Europe, trading conditions remained difficult in the thirdquarter as a result of limited economic growth and the adverse impact of strongcompetition on demand and pricing. There has been a marginal decline in theportfolio over the quarter. Continued investment in the salesforce is generatinggood revenue growth in the German textiles business and in a number of washroombusinesses including Portugal, Spain and Switzerland. In the French textilesbusiness, which had revenues of £150.3 million at constant exchange rates forthe nine month period and which is the subject of one of our major performanceimprovement programmes, the rate of profit decline is reducing as the benefitsof the new operating structure begin to appear. In Belgium, the textilesbusiness performed strongly in the quarter as improvements in productivityhelped to reduce costs. The Dutch textiles business is suffering from thecontinued difficult economic and trading environment in that country. This hasled to lower profits than the same quarter last year and a reduction in theportfolio. The Austrian textiles business, which was acquired in the first halfof 2005, continues to perform well. Good progress has been made with the integration of the Continental Europeanwashroom activity into the management structure of the textiles business and isexpected to be substantially complete by the end of this year. The principalbenefit should come from the additional revenue which can be generated fromcross-selling and range extension. Trading performance in the UK was adversely impacted by a number of factorswhich resulted in revenue, margins and the portfolio all declining in the thirdquarter compared with the prior year. The costs of separating the washroom andtextiles elements of the business are a drag on margins, as are the increasedlevels of investment in sales and service and higher fuel and energy costs. Inaddition, competitors exerted downward pressure on pricing and prior yearnational minimum wage increases also had an impact. Although the portfoliocontinued to decline in the combined textiles and washroom business in thequarter, the discrete washroom specialist businesses did show portfolio growth. Discussions continue with a number of parties related to our exit from UK linenand workwear. It has proven a complex task because of competition issues forsome prospective parties, the need for investment before transfer for others andthe importance of continuing supply to our customers. We have moved to an alternative approach and do now have expressions of interestin both garment services and supply and linen services although as yet they arenot binding. We anticipate making a further announcement regarding our exit fromthis business by the end of the year. Pest Control Revenue for the pest control business was some 2.6% higher year-on-year in thethird quarter whilst operating income declined by 10.5% over the same quarterlast year. The contract portfolio showed a net gain of £1.1 million during thequarter, of which £0.9 million resulted from organic portfolio growth. With year-to-date sales of £51.5 million, the UK is our largest pest controlbusiness and is implementing a major performance improvement programme.Particular progress was made during the quarter as terminations fell by 9.9% inabsolute terms compared to last year and were 3% better than the second quarter.However, revenue in the UK fell in the quarter due to lower job sales, as didoperating income, reflecting the high operational leverage in the business. InContinental Europe, where economic conditions are tough in most markets, revenuewas up but operating income down due to margin pressure following higherinvestment in sales and service. Nevertheless, there was good growth in Belgium,The Netherlands, Portugal, Spain, Switzerland and Finland. North America sawgrowth in both revenue and operating income, partly as a result of acquisitions.In Asia Pacific and Africa, revenue in the quarter was higher in all regionsexcept Fiji, although higher sales and service spend resulted in a decline inoperating income. Security Electronic Security Revenue grew by 8.7% in the third quarter compared to the same period last yearbut operating income declined by 2.1%. All parts of the business recorded higher revenue in the third quarter comparedwith the prior year. This was as a result of higher levels of both ad hoc/project work and contractual work. Operating income performance was, however,mixed. The decline in operating income for the segment as a whole was largelydue to the performance of the UK fire and security business, which was impactedby a greater mix of lower margin CCTV work, together with a lower incidence ofcall-out revenue through a more reliable equipment base. This business has yetto realise the full benefits of additional investment in its sales efforts.Conversely, the UK systems business and operations in France, The Netherlandsand USA showed operating income improvements due to higher volumes which offsetpricing pressure in the market. The portfolio for the segment as a whole showedprogress in the quarter due principally to new business, including an importantcontract gain with a major client. A programme to improve the productivity and efficiency of the electronicsecurity business in The Netherlands has commenced. Manned Guarding A good performance in the third quarter resulted in revenue increasing by 12.8%over the prior year and operating income growing by 10.0%. Revenue and operating income increases were recorded across all regions ofoperation. The US business benefited from a small mid-year acquisition. Canadaenjoyed significant profitable temporary work in the third quarter and saw apositive impact from price increases implemented in the Eastern region. The UKgained a significant amount of new business in the quarter with customerretention improving. Licensing-related price increases were implemented. Newbusiness wins also fuelled growth in Belgium. Facilities Management Services Revenue for the segment rose by 3.1% in the third quarter compared to the sameperiod last year whilst operating income grew by 10.7%. Amongst the larger businesses within this segment, UK Cleaning moved aheadstrongly in the third quarter and was a key factor in the encouragingperformance of the segment as a whole. Major contract gains had a positiveimpact on revenue and there were fewer major contract losses than last year. InSpain, revenue was higher than the previous year due to increased jobs in Madridand aircraft cleaning work in Mallorca but operating income fell due to lowermargins on re-tendered work. The catering business reported higher revenue in the third quarter. However,margins fell in the education sector due to the lower take-up of school mealsfollowing recent publicity regarding school meals in general. This business isalso seasonally affected by school summer holidays. Revenue and operating incomeincreased for catering to business and industry due to new business gains. Tropical Plants Overall, revenue was 5.2% higher in this segment than the same quarter last yearbut operating income was 3.8% lower. In the USA, third quarter revenue declined versus last year due to loweroutright sales of plants which offset an increase in contractual revenue; thiswas also reflected in lower operating income. In the UK, quarter-on-quarterrevenue declined, as a result of weaker one-off sales of plants. In Continental Europe, recent acquisition activity in Belgium and TheNetherlands has bolstered revenue with the added benefit of introducing newsales management in these businesses. New management has also been recruited forDenmark. Asia Pacific and Africa revenue in the quarter is above last year. NewZealand continues to grow strongly and the regression in Australia hasmoderated. Parcels Delivery Initial City Link revenue increased by 7.1% in the third quarter versus lastyear but operating income was 4.8% lower. Higher revenue was a result of a 5.7% increase in the number of parcels carriedcompared with the third quarter of 2004. Pricing pressure, coupled withsubstantial fuel price increases, impacted margins and caused operating incometo fall. Additional investment in sales has successfully delivered growth in theoverall network and resulted in higher margins in the third quarter than in thefirst half. We have concluded that, longer term, Initial City Link's franchise model will bea constraint on the strategic development of the business. Accordingly, weannounced on 25 October that we will cease franchising and will offer to buyback the remaining franchises. Conferencing Style Conferences has been treated as a discontinuing business for the purposeof this update. The sale process remains on track and we continue to expectproceeds in excess of £300 million. We do not expect to pay tax on the disposalproceeds. FINANCIAL ITEMS Central Items Third quarter central costs were largely in line with the prior year with thenet increase primarily due to organisational changes. Central costs for the ninemonths were £11.6 million higher than 2004 due to the formation costs of the newholding company, costs associated with the business review and additionaldivisional, IT, HR, acquisition and IFRS transition costs. Of the £11.6 millionincrease, some £9 million can be viewed as non-recurring. Interest Net interest payable in the third quarter includes an adjustment of £1.4 millionfor IAS 19 pension costs following a re-assessment of the IAS 19 pensionliabilities at December 2004 and June 2005 (see note on pensions below).Excluding this adjustment, net interest payable for the quarter was £2.1 millionlower than 2004 mainly due to the net exchange effect of foreign currencydenominated loans. Exceptional Items The company has incurred considerable expense in relation to the unwelcomeapproach by Raphoe. We were put into an offer period and then subsequentlythreatened with an EGM. As is necessary in such circumstances, the companyengaged a full team of professional advisors, inevitably at some cost. The Boardwas unanimously of the view that the proposals, such as they were, were not inthe best interests of shareholders and had prepared a vigorous defence, inconjunction with the team of advisors. In the event that a bid had emerged, oran EGM been called, our costs would have been in the order of £20 million.Raphoe and Robinson went through the deadline imposed by the Takeover Panelwithout making a bid or requisitioning an EGM and some £10 million in fees wasincurred, of which an estimated £8 million relates to the period to 30September. This has been recognised as an exceptional item in the third quarterand the balance will be reflected in the results for the fourth quarter. Pensions The UK defined benefit scheme accounts for substantially all of the group'spension deficit. The UK scheme's actuaries continue to work on the end March2005 valuation. Their latest view is that the UK pension scheme deficit ishigher than the initial estimate. A better estimate is that the group'sretirement benefit liabilities, on an IAS 19 basis, at 30 June 2005 and 31December 2004 would have been £323.7 million and £304.8 million respectively.This compares with the £283.7 million and £269.8 million that was previouslyreported. Following the recent implementation of the Pensions Act, the company has starteddiscussions with the trustees about measures to deal with the deficit and theequity and other risk exposures in the UK scheme. The Pensions Regulator will infuture require companies to deal with scheme deficits over shorter time periodsthan in the past and our discussions with the trustees reflect this. Discussions between the company and trustees are continuing and it is hoped thatthey can be concluded by the end of the year. The likely outcome is that thecompany will make a very significant contribution to the scheme in theshort-term, with the balance of the funding deficit addressed over a number ofyears. Dividend It remains our intention, in the absence of unforeseen circumstances, torecommend an increase in the total dividend for 2005 of 10%. Thereafter, and onthe assumption that the cash resources are available, our intention is toincrease the dividend in line with the medium-term trend in underlying earnings.However, in the short-term, we may take a more cautious approach to dividendgrowth until it is clear that the recovery in the business is well establishedand broadly based. Acquisitions Although a number of Rentokil's businesses face challenges, other parts of thegroup are stable with strong management teams and have attractive opportunitiesto grow by acquisition. We will continue to focus our portfolio of businessesthrough both acquisition and divestments, and it is important that we have thefinancial flexibility to do so. We will only undertake an acquisition when wehave the management capacity to execute a post acquisition plan and it isclearly strategically and financially attractive to do so. Credit rating and capital structure Our current credit rating of BBB+ from Standard and Poor's is on CreditWatch.Subject to future conditions in the debt markets, in the medium-term we expectto continue to target a stable BBB+ rating as we believe that this strikes anappropriate balance between an efficient capital structure (as represented by alow weighted average cost of capital), liquid access to the capital markets andreasonable pricing. However, in the immediate future, we believe that our business and financialprofile may not be consistent with our medium-term target, albeit no worse thanBBB flat. The combination of our high payout ratio, and the requirement to fund thepension deficit over the short to medium-term, means that in our view the groupdoes not currently have surplus capital which could be returned to shareholdersif a minimum BBB credit rating is to be maintained with an appropriate degree ofheadroom to avoid further ratings pressure. This announcement contains certain statements that are or may be forward-lookingregarding the group's financial position and results, business strategy, plansand objectives. Such statements involve risk and uncertainty because they relateto future events and circumstances, and there are accordingly a number offactors which might cause actual results and performance to differ materiallyfrom those expressed or implied by such statements. A conference call for analysts and shareholders will be held at 9:00am GMTtoday. You can access this call on +44 (0) 20 7784 1017. Shareholder/analyst enquiries: Andrew Macfarlane, CFO 01342 833022 Lisa Williams, IR Manager 01342 833022 Media enquiries: Kate Miller/John Sunnucks, Brunswick Group LLP 020 7404 5959 Notes for editors: Rentokil Initial is one of the largest business services companies in the world,operating in all the major economies of Europe, North America, Asia Pacific andAfrica. The company has some 90,000 employees providing a range of supportservices in over 40 countries where the 'Rentokil' and 'Initial' brands havecome to represent innovation, deep expertise and consistent quality of service.Services include pest control, tropical plants, hygiene services, facilitiesservices, electronic security and parcels delivery. APPENDIX 1 - SEGMENTAL ANALYSIS Segmental Analysis - constant rates 3 months to 3 months to 9 months to 9 months to 30 September 30 September 30 September 30 September 2005 2004 2005 2004(at 2004 full year average exchange rates) £m £m £m £m (unaudited & (unaudited & (unaudited & (unaudited & unreviewed) unreviewed) unreviewed) unreviewed)Business analysis Revenue Continuing operations at 2004 average exchange rates: Hygiene Services 188.6 183.6 564.4 549.1Pest Control 59.3 57.8 173.1 168.2Hygiene 247.9 241.4 737.5 717.3 Electronic Security 63.7 58.6 194.5 179.8Manned Guarding 88.7 78.6 255.9 239.4Security 152.4 137.2 450.4 419.2 Facilities Management Services 105.9 102.7 319.8 321.4Tropical Plants 26.3 25.0 78.4 74.3Facilities Management 132.2 127.7 398.2 395.7 Parcels Delivery 27.0 25.2 84.5 80.3 Total continuing operations at 2004 average exchange rates 559.5 531.5 1,670.6 1,612.5 Exchange 5.3 (1.7) 8.3 (4.6) Continuing operations at actual average exchange rates 564.8 529.8 1,678.9 1,607.9 Operating Income * Continuing operations at 2004 average exchange rates: Hygiene Services 39.7 45.1 118.3 132.1Pest Control 19.7 22.0 54.7 61.1Hygiene 59.4 67.1 173.0 193.2 Electronic Security 9.2 9.4 27.0 29.1Manned Guarding 3.3 3.0 8.7 9.5Security 12.5 12.4 35.7 38.6 Facilities Management Services 8.3 7.5 21.8 23.3Tropical Plants 2.5 2.6 7.3 7.8Facilities Management 10.8 10.1 29.1 31.1 Parcels Delivery 6.0 6.3 18.5 20.1 Total Business Segments 88.7 95.9 256.3 283.0 Central Items (8.1) (7.4) (28.7) (17.1) Total continuing operations at 2004 average exchange rates* 80.6 88.5 227.6 265.9 Exchange 0.7 (0.6) 1.6 (1.1) Continuing operations at actual average exchange rates* 81.3 87.9 229.2 264.8 * Before amortisation of customer lists and items identified as exceptional Segmental Analysis - actual rates 3 months to 3 months to 9 months to 9 months to 30 September 30 September 30 September 30 September 2005 2004 2005 2004(at actual exchange rates) £m £m £m £m (unaudited & (unaudited & (unaudited & (unaudited & unreviewed) unreviewed) unreviewed) unreviewed)Business analysis Revenue Continuing operations at actual average exchange rates: Hygiene Services 190.2 182.3 568.7 546.0Pest Control 59.9 57.5 174.2 167.5Hygiene 250.1 239.8 742.9 713.5 Electronic Security 63.8 58.4 195.0 179.3Manned Guarding 91.0 78.8 257.7 239.4Security 154.8 137.2 452.7 418.7 Facilities Management Services 106.1 102.6 320.2 321.1Tropical Plants 26.8 25.0 78.6 74.3Facilities Management 132.9 127.6 398.8 395.4 Parcels Delivery 27.0 25.2 84.5 80.3 Continuing operations at actual average exchange rates 564.8 529.8 1,678.9 1,607.9 Operating Income * Continuing operations at actual average exchange rates: Hygiene Services 40.2 44.7 119.4 131.3Pest Control 19.8 21.9 55.0 60.9Hygiene 60.0 66.6 174.4 192.2 Electronic Security 9.1 9.4 27.0 29.1Manned Guarding 3.4 3.0 8.8 9.5Security 12.5 12.4 35.8 38.6 Facilities Management Services 8.3 7.5 21.8 23.3Tropical Plants 2.6 2.5 7.4 7.7Facilities Management 10.9 10.0 29.2 31.0 Parcels Delivery 6.0 6.3 18.5 20.1 Total Business Segments 89.4 95.3 257.9 281.9 Central Items (8.1) (7.4) (28.7) (17.1) Continuing operations at actual average exchange rates* 81.3 87.9 229.2 264.8 * Before amortisation of customer lists and items identified as exceptional APPENDIX 2 - ANNUAL CONTRACT PORTFOLIO (CONTINUING BUSINESSES) 3 Months to 30 September 2005 New Net £m at constant 2004 1.7.05 Business Terminations Additions/ Acquisitions 30.09.05 average exchange rates Reductions Hygiene Services 715.2 17.8 (19.9) 0.9 0.4 714.4Pest Control 185.3 8.0 (8.2) 1.1 0.2 186.4 Total Hygiene 900.5 25.8 (28.1) 2.0 0.6 900.8 Electronic 93.0 4.1 (2.2) 1.0 (0.1) 95.8Manned Guarding 326.3 8.9 (10.9) 0.8 - 325.1 Total Security 419.3 13.0 (13.1) 1.8 (0.1) 420.9 Facilities Management Services 369.4 33.0 (8.5) 5.5 - 399.4Tropical Plants 91.9 2.6 (3.2) 0.9 1.5 93.7 Total Facilities Management 461.3 35.6 (11.7) 6.4 1.5 493.1 TOTAL 1,781.1 74.4 (52.9) 10.2 2.0 1,814.8 9 Months to 30 September 2005 New Net £m at constant 2004 1.1.05 Business Terminations Additions/ Acquisitions 30.09.05 average exchange rates Reductions Hygiene Services 695.7 56.7 (57.2) 6.9 12.3 714.4Pest Control 181.8 24.8 (25.4) 4.3 0.9 186.4 Total Hygiene 877.5 81.5 (82.6) 11.2 13.2 900.8 Electronic 90.0 7.9 (7.2) 2.8 2.3 95.8Manned Guarding 301.6 35.8 (30.4) 2.1 16.0 325.1 Total Security 391.6 43.7 (37.6) 4.9 18.3 420.9 Facilities Management Services 360.1 60.5 (33.3) 12.1 - 399.4Tropical Plants 87.1 8.0 (9.8) 2.8 5.6 93.7 Total Facilities Management 447.2 68.5 (43.1) 14.9 5.6 493.1 TOTAL 1,716.3 193.7 (163.3) 31.0 37.1 1,814.8 Notes Contract Portfolio Definition: Customer contracts are usually either "fixed price", "as-used" (based on volume)or mixed contracts. Contract portfolio is the measure of the annualised value ofthese customer contracts. Contract Portfolio Valuation: The contract portfolio value is typically recorded as the annual value from thecustomer contract. However, in some cases - especially "as-used" (based onvolume) and mixed contracts, estimates are required in order to derive thecontract portfolio value. The key points in respect of valuation are: "As-used" contracts: These are more typical in Hygiene Services, where elementsof the contract are often variable and based on usage. Valuation is based onhistoric data (where available) or forecast values. Income annualisation: In some instances, where for example the underlyingcontract systems cannot value portfolio, or there is a significant "as-used"element, the portfolio valuation is calculated using an invoice annualisationmethod. Inter-company: The contract portfolio figures include approximately £30 millionof inter-company revenue, of which a significant proportion relates to UKtextiles. Job Work and Extras: Many of the contracts within the contract portfolio includead hoc and or repeat job work and extras. These values are excluded from thecontract portfolio. Rebates: The contract portfolio value is gross of customer rebates. These areconsidered as normal part of trading and are therefore not removed from theportfolio valuation. New Business: represents new contractual arrangements in the period, which caneither be new contracts with an existing customer, or with a new customer. Terminations: represent the cessation of either a specific existing customercontract, or the complete cessation of business with a customer, in the period. Net Additions / Reductions: represents net change to the value of existingcustomer contracts in the period as a result of changes (either up or down) involume and/or pricing. Acquisitions: represents the valuation of customer contracts obtained fromacquisitions made in the period. This information is provided by RNS The company news service from the London Stock Exchange