“Spotless is experiencing sustained demand for outsourcing in key sectors and the Facility Services business delivered a strong financial result. There were lower mobilisation and start-up costs incurred during the period and the demand for the integrated services offering grew,” stated Spotless CEO Josef Farnik when delivering the company’s half year to December report.

Spotless’ Australia/New Zealand Facility Services revenue, prior to pass-through revenue, rose 6.9 percent to $1,218.4 million, reflecting the impact of new contracts secured during the last 12 months, net of contract losses and major event activity during the half. Since the end of FY11, ANZ Facility Services has secured a number of new contracts with clients including NZ Defence, Olympic Dam, QGC Pty Limited and ERA.

Earnings growth was dampened by higher transitional IT costs as part of the Business and IT Platform project as well as soft demand for discretionary cleaning, maintenance and laundry services within the Group’s portfolio of existing contracts. Lower demand included reduced scope of activity within a number of existing contracts and several contract losses directly attributed to challenging economic conditions.

These impacts are offset by lower costs during the half ($1.2 million during the period, compared with $3.7 million in the pcp). Start-up costs incurred in the prior comparative period in Laundry Services were not repeated.

With one exception, contracts secured and mobilised in the prior corresponding period performed well and continue to mature in profitability. Early in the second half of FY12 Spotless exited one underperforming Managed Services contract by mutual agreement with the client.

By sector, strong performances were achieved (against revenue prior to the comparative period) in the Leisure; Sports and Entertainment (+13%); Health (+11%); Commerce and Industry (+10%); and Public Housing sectors (+8%).

Resources sector revenue rose by 93 percent, reflecting the maturation and full period impact of contracts won in the prior period as well as contracts secured during the half. The Resources sector now accounts for 10 percent of revenue prior to pass-through revenue, up from 5 percent in the prior comparative period.

At 31 December 2011 the Managed Services forward revenue order book stood at $11.2 billion, in line with 30 June 2011. Public Private Partnerships (PPPs) represent about two thirds of the order book.

ANZ Facility Services EBIT, prior to corporate administration costs, rose 7.3 percent to $48.7 million.

International Services

International Services comprises Spotless’ Facility Services operations outside of Australia and New Zealand.

Revenue of $34.7 million was 16.1 percent above the prior comparative period. Revenue growth was largely due to:
• The London Olympic Games 2012 contract work generating income during the planning and preparatory stage. This includes event management test events;
• Maintenance cleaning work in London Olympic park; and
• EMC catering revenue (acquired in the pcp).

First half FY12 EBIT of -$0.5 million was a significant improvement on the prior period of -$2.4 million, which contained $1.8 million in start-up costs. Ongoing profitability reflects an overhead structure calibrated to deliver the London Olympics contract in the second half of FY12 and first half of FY13, in addition to future organic growth. A positive earnings contribution from the London Olympics contract during the period was offset by several contract losses.

Further, while Spotless considers the United States to be an attractive market, management is refocusing US operations on the Leisure, Sports and Entertainment Sector, comprising convention centres, sporting venues and events. Consistent with this, Spotless will exit from a number of US retail sector cleaning contracts. This exit will materially improve ongoing profitability. Following this restructure the International Services business will be largely focused on the UK Leisure, Sports and Entertainment sector.

To read the complete Spotless group financial report, go to www.spotless.com