DVSG Davis Service

 

TIDMDVSG 
 
RNS Number : 4179V 
Davis Service Group PLC 
02 November 2010 
 

 2 November 2010 
 
                          THE DAVIS SERVICE GROUP PLC 
 
                          Interim Management Statement 
 
The Board of The Davis Service Group Plc ("the Group") today issues its interim 
management statement for the period from 1 January 2010. 
 
Trading Summary 
 
Revenue in the three months from 30 June 2010 to 30 September 2010 ("the third 
quarter") was up 1% on the same period last year and in line with the first 
half. However the Group delivered a slightly higher improvement in operating 
margin than reported in the first half.  Profit before tax also increased 
modestly over the same period last year, despite higher interest costs resulting 
from the debt private placement in 2009.  The Group is continuing to benefit 
from its strong cash flow.  Foreign exchange translation had a smaller than 
expected negative impact on results compared to last year with the Continental 
European currencies strengthening against Sterling towards the end of the 
period. 
 
In the Nordic region we are encouraged that the growth in underlying profits, 
before currency and acquisition impacts, increased in the third quarter compared 
with the first half, and we have seen further improvements in Norway and Sweden 
due to a stronger economic background; Denmark, while improving, is yet to show 
growth. 
 
In the Continent region, the Workwear and Facility markets remain stable with 
underlying profits in the third quarter broadly similar to the same period last 
year.  As reported previously the German Healthcare business has been operating 
in difficult markets but has steadily been improving its margin over the last 18 
months and the Group has decided to further restructure this business primarily 
by closing its loss making plant at Gl?ckstadt, near Hamburg.  Volumes from 
Gl?ckstadt will be served from other plants in the North of Germany and we 
expect this restructuring to result in an increase in profits in 2011, moving us 
closer to our margin target for this business. The cash cost of the 
restructuring is estimated at around GBP6 million together with an expected 
tangible asset write off of GBP4 million. 
 
In the UK and Ireland, the Group's textile maintenance business performed very 
well, with positive momentum in UK Hotels and Healthcare linen continuing to 
drive a much improved margin over last year.  We have yet to turn the corner in 
moving our decontamination contracts towards profitability. 
 
The Group's free cash flow was again strong and we converted over 100% of our 
profit to free cash flow for the nine month period to 30 September 2010.  Net 
debt was lower than we reported at the half year, maintaining our solid 
financing position, with the majority of our current funding needs available 
beyond 2016 and secured at interest rates fixed at below 5%. 
 
Strategy Review 
 
Group senior management will present the conclusions of its strategy review, and 
proposals for implementation, to the investment community at 2.00 pm this 
afternoon. 
 
As previously stated the strategy builds on the Group's well invested base and 
strong market position.  The Board believes that through a greater focus on our 
core, higher margin and higher growth businesses, and by improvements in sales 
processes, it can grow revenue at 1-2% above GDP and grow underlying earnings in 
high single digits over the medium term, based on its current view of the 
outlook for its markets. 
 
Greater focus will also be applied to improvements in return on invested capital 
and the Group aims to deliver a post tax return in double digits over the same 
medium term period.  Capital efficiency across the Group will be the subject of 
an improvement project starting immediately. 
 
The Group sees growth opportunities in expanding its customer base more 
aggressively to businesses which have yet to adopt the full service rental 
model. 
 
The Group will also adopt a new business line structure, with Executive Board 
members taking responsibility for core business lines rather than geographical 
divisions. Within this new structure, the key growth areas the Group has 
identified are Workwear, Mats, Washroom & Cleanroom across all regions and, in 
the UK, the Hotel and Healthcare linen businesses also offer attractive growth 
opportunities.  In other areas the Group's existing well invested businesses 
will be managed with lower expectations of growth and consequently these areas 
will attract lower investment and generate higher free cash flow. We have a 
carefully prepared programme to manage the implementation of these changes 
through 2011 and expect to be reporting fully under the new business line 
structure from the beginning of 2012. 
 
The Group believes this structure will be more transparent to all stakeholders, 
will enable us to identify and concentrate on growth opportunities more easily 
and will allow us to drive best practice in the key areas of sales, operations, 
logistics and pricing.  At plant level the business remains essentially local 
and we will continue to drive accountability down to this level. 
 
As well as capturing improved organic growth, there is scope for continued 
growth through bolt-on acquisitions and to play an active role in the 
consolidation of the industry. 
 
To promote a one company vision both internally and externally, more closely 
align the Group with its main operating brand and to capitalise on the benefits 
of shared knowledge and experience, we will be changing the Group name to 
Berendsen plc towards the end of 2010.  However, the local brands will be 
retained, such as Sunlight in the UK, as they continue to have strong market 
recognition. 
 
The Board believes that the Group has a great opportunity to build on the 
strength of its existing foundations.  Radical change is not appropriate but an 
increased focus on key growth markets reflects the specialist nature of our 
different businesses and will allow the Group to drive stronger growth and 
increased returns for shareholders. 
 
Outlook for the Group 
 
Trading conditions so far in 2010 have remained largely unchanged yet, despite 
this, the Group has delivered against its priorities of further improving its 
operational efficiency, delivering a strong free cash flow, which is benefiting 
interest, and maintaining a robust balance sheet.  With nine months trading now 
behind us, the Board is confident of delivering on its expectations for 2010. 
 
For further information contact: 
 
+---------------------------------------------+---------------------------+ 
| Davis Service Group                         | Financial Dynamics        | 
+---------------------------------------------+---------------------------+ 
| Peter Ventress, Chief Executive             | Richard Mountain          | 
+---------------------------------------------+---------------------------+ 
| Kevin Quinn, Finance Director               | Telephone 020 7269 7291   | 
|                                             |                           | 
+---------------------------------------------+---------------------------+ 
| Telephone 020 7259 6663                     |                           | 
+---------------------------------------------+---------------------------+ 
 
Note: 
1.             Davis Service Group is a focused European textile maintenance 
business with leading positions in most of the countries in which it operates. 
As a focused business we are able to mobilise our resources to drive our 
strategies in our core area of expertise. 
2.            All financial information sourced from management accounts; 
operating profit and earnings per share stated before exceptional items and 
amortisation of customer contracts and intellectual property rights. 
3.            Statements made in this announcement that look forward in time or 
that express management's beliefs, expectations or estimates regarding future 
occurrences are "forward-looking statements" within the meaning of the United 
States federal securities laws. These forward-looking statements reflect the 
Group's current expectations concerning future events and actual results may 
differ materially from current expectations or historical results. 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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