Spotless : announces FY17 results

SPOTLESS WITHIN FORECAST RANGE

24 August 2017

Results for the year ended 30 June 2017

• Sales Revenue of $3,006.3m, down 5.3% from the prior corresponding period reflecting prior period lost contracts and scope reductions, partially offset by the contribution from newly mobilised Public Private Partnerships ("PPPs") contracts.

• EBITDA of $(199.2)m was significantly impacted by $464.3m of impairments, asset write-downs, takeover and transaction costs and other restructuring items following the restructure of the existing contract portfolio.

• Contract renewal rates continued to improve to 93% by number and 76% by annual value. New contract wins also increased during the period to 66% by number and 21% by annual value.

• Net loss after tax of $(347.4)m includes $436.4m of items (after tax) primarily relating to the contract portfolio restructure and takeover costs.

• Operating cash flows of $190.6m demonstrated significant improvement in working capital management and cash collections and, together with decreased net capital expenditure, represent a $119.8m improvement in free cash flow (before payments for acquisitions) from the prior corresponding period.

• Net debt of $782.3m declined $65.8m from December 2016 and $7.5m from June 2016, reflective of the recovery of working capital invested in 1H17, revision of the dividend payout ratio and improved capex management. The Group's net leverage ratio was 2.9x (based on last 12 months EBITDA and allowable adjustments for the purposes of debt covenant metrics) at 30 June 2017.

• The Directors have determined there will be no final dividend the year ended 30 June 2017.

Year Ended 30 June 2017 $m 2016 $m Change %

Sales Revenue	3,006.3	3,176.1	(5.3)
EBITDA	(199.2)	311.6	(>100)
EBIT	(310.9)	207.8	(>100)
(Loss) / Profit after tax	(347.4)	122.2	(>100)
Basic (losses) / earnings per share (cents)	(31.6)	11.1	(>100)
Final dividend per share (cents)	-	5.0	-
Operating cash flow	190.6	141.7	34.5
Net debt	782.3	789.8	(0.9)
Net leverage ratio1	2.9x	2.4x
Underlying EBITDA	264.3	325.6	(18.8)
Underlying EBIT	161.5	221.8	(27.2)
NPAT excluding restructuring and transaction costs	89.0	122.2	(27.2)
Underlying NPAT	84.1	130.9	(35.7)

1 Net leverage ratio includes allowable adjustments to EBITDA for the purpose of debt covenant metrics. Refer to Appendix 1 for reconciliation between statutory results and underlying.

Operating Segments

Facility Services

Year Ended 30 June 2017 $m 2016 $m Change %

Facility Services Underlying Sales Revenue Pass-through Revenue Facility Services Sales Revenue Facility Services EBITDA Underlying Facility Services EBITDA Facility Services EBITDA Margin Underlying Facility Services EBITDA Margin Depreciation Facility Services EBITA Underlying Facility Services EBITA Facility Services EBITA Margin Underlying Facility Services EBITA Margin	2,782.1 -	2,873.0 (3.2) 36.7 (100)
	2,782.1 (64.1) 242.5 (2.3)% 8.7% (39.3) (103.4) 206.9 (3.7)% 7.4%	2,909.7 (4.4) 279.0 (>100) 293.0 (17.2) 9.6% 10.2% (34.1) 15.2 244.9 (>100) 244.9 (15.5) 8.4% 9.0%

Revenue growth was driven by the commencement of new PPPs and the acquisition of Nuvo in October 2016. However, this growth was more than offset by lower volumes across mining camps, a slowdown in AE Smith construction projects and exited contracts as part of the portfolio restructure. The net result was a 4.4% revenue reduction compared with the prior year.

Reported EBITDA for Facility Services was significantly impacted by $306.6m of portfolio restructuring and other costs during the period. Excluding these items, EBITDA decreased by $50.5m / 17.2% from the prior year attributable to the above mentioned revenue losses, costs associated with the exit of the Rio Tinto contract and underperformance of smaller, single service contracts. Increased investment in business development and innovation, which are expected to deliver benefits in the future, also negatively impacted the result. Partially offsetting these decreases were several smaller contract wins, a strong performance from the Defence sector and the commencement of operations and strong margins across the PPP portfolio.

EBITDA margins reduced from the comparative period reflecting the above mentioned restructuring costs, changes in mix in the existing portfolio and reduced margins across some renewed contracts.

Laundries

Year Ended 30 June 2017 $m 2016 $m Change %

Laundries Sales Revenue	276.2	295.3	(6.5)
Laundries EBITDA	(64.5)	71.4	(>100)
Underlying Laundries EBITDA	62.6	71.4	(12.3)
Laundries EBITDA Margin	(23.4)%	24.2%
Underlying Laundries EBITDA Margin	22.7%	24.2%
Depreciation (including rental stock)	(52.6)	(48.4)	8.7
Laundries EBITA	(117.1)	23.0	(>100)
Underlying Laundries EBITA	15.2	23.0	(33.9)
Laundries EBITA Margin	(42.4)%	7.8%
Underlying Laundries EBITA Margin	5.5%	7.8%

Sales revenue from the Laundries segment of $276.2m decreased by $19.1m or 6.5% from the prior year, driven by lower yields and partially offset by higher volumes in a number of states.

Reported EBITDA has been affected by $127.1m of portfolio restructuring and other costs during the period. Excluding these items, EBITDA decreased by $8.8m / 12.3% from the prior year attributable to margin pressure on new and existing contracts, particularly within hospitality linen; and partially offset by productivity improvements across several plants as a result of capital investments into machinery upgrades.

Cash Flow 2017 $m 2016 $m Change %

Operating Cash Flow	190.6	141.7	34.5
Investing Activities
Net investments for P,P&E, IT1systems and capitalised contract costs	(71.3)	(142.2)	(49.9)
Facility Services - P,P&E and capitalised contract costs	(25.4)	(64.1)	(60.4)
Laundries - P,P&E and capitalised contract costs	(8.2)	(14.0)	(41.4)
Laundries - rental stock	(31.5)	(46.1)	(31.7)
Laundries - asset sales	10.4	-	-
Corporate - P,P&E and IT Systems	(12.2)	(20.6)	(40.8)
Other	(4.4)	2.6	(>100)
Free Cash Flow before acquisitions	119.3	(0.5)	>100

1 Information technology

Operating cash flows improved significantly from the prior year despite the reduced EBITDA. The $119.8m increase was driven by a strong focus on working capital resulting in improved cash collections and recovery of working capital invested in the FY15 and FY16 acquired businesses.

Total capital expenditure reduced by $70.9m / 49.9% following the completion of the SAP development project, mobilisation of several PPP contracts and general tightening of capital expenditure levels across both Facility Services and Laundries.

Balance Sheet

Key Balance Sheet Metrics	2017 $m	2016 $m	Change %
Current Assets	522.0	532.9	(2.0)
Non-current Assets	1,390.0	1,708.0	(18.6)
- Goodwill	753.4	1,032.0	(27.0)
- P,P&E and Other	636.6	676.0	(5.8)
Current Liabilities	1,346.5	421.4	>100
Non-current Liabilities	144.7	992.2	(85.4)
Net current Assets	(824.5)	111.5	(>100)
Net Assets	420.8	827.3	(49.1)
Net Debt	782.3	789.8	(0.9)

Balance sheet movements in the year were significantly impacted by the various impairments, asset write-downs and additional provisions and accruals required following the contract portfolio restructure undertaken during the year.

The balance sheet movements also incorporate the impact of the Nuvo acquisition. A number of other balance sheet items were also impacted by the provisional purchase price accounting and consolidation of this acquisition. Refer to Note 21 to the financial statements for more detail.