Spotless Group Holdings Limited FY14 Results Presentation

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1 Spotless Group Holdings Limited FY14 Results Presentation 25 August 2014 Presenters: Bruce Dixon Chief Executive Officer & Managing Director Danny Agnoletto Chief Financial Officer

2 Important Notices Important notice and disclaimer This document is a presentation of general background information about the activities of Spotless Group Holdings Limited (Spotless) current at the date of the presentation, (25 August 2014). The information contained in this presentation is of general background and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an investment is appropriate. Spotless, its related bodies corporate and any of their respective officers, directors and employees (Spotless Parties), do not warrant the accuracy or reliability of this information, and disclaim any responsibility and liability flowing from the use of this information by any party. To the maximum extent permitted by law, the Spotless Parties do not accept any liability to any person, organisation or entity for any loss or damage suffered as a result of reliance on this document. Forward looking statements This document contains certain forward looking statements and comments about future events, including Spotless expectations about the performance of its businesses. Forward looking statements can generally be identified by the use of forward looking words such as, expect, anticipate, likely, intend, should, could, may, predict, plan, propose, will, believe, forecast, estimate, target and other similar expressions within the meaning of securities laws of applicable jurisdictions. Indications of, and guidance on, future earnings or financial position or performance are also forward looking statements. Forward looking statements involve inherent risks and uncertainties, both general and specific, and there is a risk that such predictions, forecasts, projections and other forward looking statements will not be achieved. Forward looking statements are provided as a general guide only, and should not be relied on as an indication or guarantee of future performance. Forward looking statements involve known and unknown risks, uncertainty and other factors which can cause Spotless actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements and many of these factors are outside the control of Spotless. As such, undue reliance should not be placed on any forward looking statement. Past performance is not necessarily a guide to future performance and no representation or warranty is made by any person as to the likelihood of achievement or reasonableness of any forward looking statements, forecast financial information or other forecast. Nothing contained in this presentation nor any information made available to you is, or shall be relied upon as, a promise, representation, warranty or guarantee as to the past, present or the future performance of Spotless. Pro forma financial information Spotless uses certain measures to manage and report on its business that are not recognised under Australian Accounting Standards. These measures are referred to as non-ifrs financial information. Spotless considers that this non-ifrs financial information is important to assist in evaluating Spotless performance. The information is presented to assist in making appropriate comparisons with prior periods and to assess the operating performance of the business. In particular, this information is important for comparative purposes with pro forma information contained in Spotless IPO Prospectus lodged with ASIC on 28 April Non-IFRS information has not been subject to audit or review in accordance with Australian Auditing Standards. For a reconciliation of the non-ifrs financial information contained in this presentation to IFRS-compliant comparative information, refer to the Appendices of this presentation. All dollar values are in Australian dollars (A$) unless otherwise stated. All references to Prospectus contained within this document refer to the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April

3 Agenda 1. FY14 Highlights 3 2. Spotless at a Glance 5 3. Financial Performance Growth and Outlook 18

4 1. FY14 Highlights

5 FY14 Highlights FY14 results above FY14 Prospectus forecast $m Statutory Actual Prospectus % Var Actual Pro forma Prospectus % Var Total revenue 2, , % Sales Revenue 2, , % EBITDA % EBIT % NPAT (34.7) (41.4) +16.2% Adjusted NPAT N/A N/A N/A 2, , % 2, , % % % % % Strong Board and Management team to take the business forward FY14 results have delivered sustainable margins in line with global competitors Exciting opportunities providing a platform for growth Clearly defined growth strategy Refer to slide 26 for a glossary of non-ifrs defined terms 4

6 2. Spotless at a Glance

7 Business Overview Spotless provides facility management, catering & food, cleaning and laundry and linen services Facility Services - Facility Management, which includes property management, maintenance and mechanical services, grounds management, security and fire services, waste management and the delivery of a range of other facility services; - Catering and Food, including services such as operating canteens, dining halls and restaurants, personal meal delivery, specialised food preparation and delivery, management of food and beverage facilities and event catering services; and - Cleaning, which includes general facility cleaning, specialist industrial and sterile cleaning and washroom services. Laundry and Linen Services - Laundry and Linen, which includes the rental, cleaning, collection, delivery and stock management of linen, uniforms and specialised workwear. 6

8 Spotless Market Segments Segments Facility Services Laundries Customer sectors Health, Education & Commercial & Leisure Base & Township Laundry & Linen Government % of Spotless FY2014 Sales Revenue 36% 26% 10% 28% Customer sub-sectors served $945m $742m $677m $255m Health Commercial Defence Health laundry Public & private hospitals Commercial offices, major Residential housing Aged care facilities retail space Barracks and bases Airports & airline terminals Education Resources Other transport, manufacturing & utilities Universities & colleges High schools Government Buildings & agencies Public housing Correctional facilities Leisure, Sport & Entertainment Major sporting stadia Entertainment, leisure and function facilities Remote mining townships Mining support facilities Public & private hospitals Day procedure centres Aged care facilities Accommodation laundry Hotels Serviced apartments Motels Other laundry (garments) Various workplaces (food, manufacturing, etc.) Overview of services provided Facility management, catering and cleaning services for social infrastructure providers Facility management, catering and cleaning services for private sector companies, major events and large stadia Integrated services contracts for large Defence bases, remote mines and mining townships Centralised laundry services for linen & uniforms 7

9 Spotless Competitors Spotless is the largest provider of integrated services in Australia and New Zealand. Market participants include global providers as well as domestically based suppliers. Service Offering of Global Integrated Services Providers 1 Description 8 1 Spotless services and end markets shown reflect those relevant to Spotless. Aramark, Sodexo, Compass and ISS provide services and serve end markets in addition to those listed in the table above. The table does not provide a summary of the Australia and New Zealand competitive landscape in the market that Spotless serves.

10 Our Competitive Strengths Scale and national presence Breadth of services and integrated offering Leading service provider in its market in Australia and New Zealand Only provider with a national presence across Facility Services and Laundries in these markets Provides Facility Services and Laundries services across more customer sectors and sub-sectors than any of its competitors Service capability includes fully integrated multi-service offerings Brand and reputation Long history and established brand give high level of credibility as a low-risk outsourcing provider Self-delivery Self-deliver above 75% of services with initiatives in place to increase selfdelivery Increases control of services to clients and margin Local Well-known Australian and New Zealand brand advantage when tendering for new opportunities (particularly Australian government-related entities) Price of services is a factor in a client s consideration Managing and minimising risk for our clients is paramount 9

11 3. Financial Performance

12 Statutory Results Consolidated Profit & Loss ($m) June June % June % Change 2013 Change Statutory Actual Statutory Prospectus Forecast 2 Statutory Actual 1 Sales Revenue 2, , % 2, % Other income Total Revenue 2, , ,236.3 EBITDA % % Depreciation (53.2) (55.0) 3.3% (46.6) (14.2)% EBITA % % Amortisation (10.7) (10.9) 1.8% (8.8) (21.6)% EBIT % (3.3) % Net finance costs (169.8) (172.7) 1.7% (69.6) (144.0)% Loss before tax (47.8) (59.2) 19.3% (72.9) 34.4% Income tax benefit (26.4)% % Net Loss after tax before discontinued ops (34.7) (41.4) 16.2% (54.2) 36.0% Loss from discontinued operations % (38.6) 100.0% Net Loss After Tax (34.7) (41.4) 16.2% (92.8) 62.6% Commentary FY14 Actual v FY13 Actual Comparisons to the prior year are not meaningful as statutory results for the year ended 30 June 2013 only incorporate the operations of Spotless from the date of acquisition (16 August 2012) until 30 June 2013 (i.e months). FY14 Actual v FY14 Prospectus Sales Revenue 2.3% above Prospectus forecast. EBITDA 3.6% above Prospectus forecast, largely due to transaction and restructuring costs (including IPO costs). 1: Represents 10.5 months of operations 2: As disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April The Statutory Forecast information has not been audited or reviewed in accordance with Australian Auditing Standards. Notes: A reconciliation of statutory results to the pro forma is included in the Appendices on slide 23 11

13 Pro forma 1 Results Consolidated Profit & Loss ($m) June June % June % Change 2013 Change Pro forma Actual Pro forma Prospectus Forecast 2 Pro forma Actual 3 Sales Revenue 2, , % 2, % Legacy pass through revenue Other income Total Revenue 2, , ,585.9 EBITDA % % Depreciation (53.2) (55.0) 3.3% (53.2) 0.0% EBITA % % Amortisation (10.7) (10.9) 1.8% (10.2) (4.9)% EBIT % % Net finance costs (34.2) (35.2) 2.8% (34.7) 1.4% Profit before tax % % Income tax expense (47.5) (44.3) (7.2)% (20.4) (132.8)% Net Profit after tax % % Amortisation of Customer Contracts (after tax) Unwind of Discounts on Provisions (after tax) Adjusted Net Profit after tax % % 2: As disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April : Represents adjusted 12 months of operations as disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April Commentary Year on year ( YoY ) Sales Revenue increased by 1.8% primarily due to stronger results in Facility Services. YoY Sales Revenue growth achieved despite the voluntary exit of unprofitable and marginal contracts. FY14 EBITDA exceeded FY13 by $86.0m / 51.7% and prospectus by $3.4m / 1.4% following increased revenue and continued implementation of cost saving and efficiency program. - Overheads - Procurement review - Property - Insurance - Contract efficiency savings Continued focus on quality earnings, margins and productivity across all areas of the business. 1: The Pro forma financial information and EBITDA are non-ifrs financial information and have not been audited or reviewed in accordance with Australian Auditing Standards. Refer to Slide 26 for detailed explanations of non-ifrs measures used within this report. 12

14 Operating Segments - Statutory Segment Profit & Loss ($m) June June June Statutory Statutory Prospectus % Statutory % Actual Forecast 3 Change Actual 1 Change Sales Revenue Facility Services Segment 2, , % 2, % Laundries Segment % % Sales Revenue 2, , % 2, % Other income % % Total revenue 2, , % 2, % EBITDA Facility Services Segment % % Laundries Segment % % Total Operations % % Unallocated Corporate Overheads 2 (106.6) (110.2) 3.3% (130.6) 18.4% Statutory EBITDA % % Commentary FY14 Actual v FY13 Comparisons to the prior year are not meaningful as statutory results for the year ended 30 June 2013 only incorporate the operations of Spotless from the date of acquisition (16 August 2012) until 30 June 2013 (i.e months). FY14 Actual v FY14 Prospectus Facility Services and Laundries Sales Revenue above Prospectus forecast by 2.6% and 0.2% respectively. Statutory EBITDA 3.6% above Prospectus forecast due to above forecast results in Facility Services and below forecast transaction and restructuring costs. 1: Statutory revenue and EBITDA represents 10.5 months of operations. 2: June 2014 Statutory Actual includes $67.3m of transaction and restructuring costs. 3: As disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April The Statutory Forecast information has not been audited or reviewed in accordance with Australian Auditing Standards. Note: Facility Services and Laundries Statutory EBITDA prior to allocation of Corporate Overheads equals pro forma EBITDA prior to allocation of Corporate Overheads in FY14. 13

15 Operating Segments Pro Forma Segment Profit & Loss ($m) June June June Pro forma Pro forma Prospectus % Pro forma % Actual Forecast 2 Change Actual 1 Change Sales Revenue Facility Services Segment 2, , % 2, % Laundries Segment % (2.5)% Sales Revenue 2, , % 2, % Legacy Pass through revenue % (8.1)% Other income % 0.6 (33.3)% Total revenue 2, , % 2, % Commentary YoY Sales Revenue growth of 1.8% demonstrates solid underlying growth despite the voluntary exit of unprofitable and marginal contracts. Pro forma EBITDA exceeded both FY14 Prospectus forecast and FY13, underpinned by continued implementation of cost saving and efficiency programs. EBITDA Facility Services Segment % % Laundries Segment % % Pro Forma EBITDA % % 1: Represents adjusted 12 months of operations as disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April : As disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April Note: Segment EBITDA is based on segment contribution after allocation of corporate overheads and adjusted for transaction and restructuring costs, listed public company costs and director fees and the new share based payment plan totalling $66.3m). Corporate overheads have been attributed to the segment on the basis of the proportion of sales revenue generated by the segment. 14

16 Operating Segments Pro Forma (continued) Facility Services Facility Services ($m) June June % June Laundries Change 2013 Pro forma Pro forma Prospectus Pro forma Pro forma % Actual 1 Forecast 1 to Forecast Actual 2 Change Sales Revenue 2, , % 2, % EBITDA % % EBITDA Margin 7.9% 7.9% 0 bps 4.7% 323 bps 1: After allocation of corporate overheads (adjusted for transaction and restructuring costs, listed public company costs and director fees and the new share based payment plan totalling $66.3m). 2: Represents adjusted 12 months of operations. Laundries ($m) June June % June Change 2013 Pro forma Pro forma Propsectus Pro forma Pro forma % Actual 1 Forecast 1 to Forecast Actual 2 Change Sales Revenue % (2.5)% EBITDA % % EBITDA Margin 28.6% 28.6% 0 bps 23.8% 480 bps 1: After allocation of corporate overheads (adjusted for transaction and restructuring costs, listed public company costs and director fees and the new share based payment plan totalling $66.3m). 2: Represents adjusted 12 months of operations. Commentary Facility Services YoY pro forma Sales Revenue growth of $50.9m / 2.3% over FY13 despite the voluntary exit of unprofitable and marginal contracts. Pro forma EBITDA increased by $75.3m / 72.5% from FY13 pro forma. Pro forma EBITDA margins increased by 323 bps to 7.9% from FY13 reflecting the continued implementation of cost saving and efficiency programs, together with stronger margins from PPP contracts. FY14 results have delivered sustainable margins in line with global competitors. Commentary - Laundries YoY pro forma Sales Revenue decreased marginally from the prior year primarily due to the loss of a national workwear garment contract, partly offset by higher revenue and volumes from existing customers, particularly in Healthcare. Pro forma EBITDA increased by $10.7m / 17.2% (equating to a 480 bps increase in EBITDA margins) from the prior year reflecting the benefits of the costout and efficiency programs. 15

17 Pro Forma Cash Flow Cash Flow ($m) June June June June Pro forma Pro forma Statutory Pro forma Prospectus % % Actual Actual Forecast 2 Change Actual 2 Change EBITDA % % Changes in working capital 3 (56.1) (66.4) (76.8) 13.5% % Maintenance capital expenditure 1 (39.1) (39.1) (38.7) (1.0)% N/A Add non cash items / other items (20.0)% 1.0 (20.0)% Free Cash Flow % (15.3)% Growth and SAP IT Capital Expenditure 1 (37.7) (37.7) (38.3) 1.6% (94.4) 60.1% Net cash flow before financing and tax % % Free Cash Flow Conversion 49.2% 58.5% 54.0% 451 bps N/A N/A 1: June 2013 pro forma Growth and SAP IT Capital Expenditure also includes Maintenance capital expenditure which is separately disclosed in the June 2014 pro forma actual cash flow. 2: As disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April : Includes cash movement in non-current provisions Commentary Pro forma net cash flows before financing and taxation increased by $30.0m over the prior year driven predominantly by the significant increase in EBITDA from the prior year as well as decreased capital expenditure partially offset by unfavourable working capital movements. Pro forma Free Cash Flow was $13.2m / 9.8% above Prospectus forecast due to favourable EBITDA and changes in working capital. Changes in Working Capital Increase in working capital outflow from the prior year was primarily driven by: (a) $42.0m reduction in trade and other payables following a restructure of supplier arrangements. This resulted in a reduction in average prices paid to suppliers as well as a reduction in payment days. (b) Employee provisions decreasing as annual leave provisions were closely managed over the summer and Easter periods. End FY14 working capital position $10.4m ahead of Prospectus forecast due to favourable timing differences in the month of June Capex Total capital expenditure decreased from FY13 following a reduction in laundry rental stock investment (procurement savings) and a decline in SAP expenditure as the project nears completion. 16

18 Net Debt Net Debt ($m) June June % Change Current Borrowings (100.0)% Non-Current Borrowings % Finance leases (40.0)% Gross Debt % Less: Cash and Cash Equivalents (105.4) % Net debt (9.6)% 1: Net of borrowing costs Commentary 30 June 14 cash and cash equivalents End cash position ahead of management s target level of cash post IPO due to: - favourable cashflow variances; and - lower than expected IPO related costs. Net Debt FY14 Net debt / FY14 pro forma EBITDA of 2.09x compared to Prospectus target of 2.48x FY14 net debt / FY15 pro forma EBITDA x compared to 2.05x As net debt at year end is reflective of the post IPO debt structure, meaningful analysis against the prior comparative period is not meaningful. The Group is comfortably within prescribed debt covenants as at 30 June Net Leverage Ratio not greater than 3.50x - Interest cover rate not less than 3.00x Pro forma EBITDA / net cash interest expense of 8.5x is ahead of forecast. 17

19 4. Growth and Outlook

20 Platform for Growth With the business now restructured through: refocused organisational structure divestment of non-core divisions addressing the cost base business development accountability with sector management Description Spotless has a platform for growth 19

21 Growth Strategy underpinned by Four Pillars Underlying market growth Outsourcing penetration Contractual price growth mechanisms in most contracts, driving underlying price growth Expected customer volume and growth with customer demand for facility services typically growing in line with, or above GDP Significant outsourcing growth is anticipated through to 2018, in particular across Health, Education & Government. PPPs secured, providing long term, contracted income streams (~$130m of additional contracted PPP Sales Revenue per annum commencing over FY2016 and FY2017) Description Market share growth Cross-sell existing products to existing customers with expansion to additional customer sites and provision of additional services (driven by an increasing demand for integrated solutions and outsourcing) Gain market share in a fragmented market via value proposition / breadth of service offering Expansion opportunities Enter attractive adjacent sectors where Spotless can utilise its competitive advantages. Opportunities include Home care, Allied health services and Immigration Expand service lines and improve self delivery which reduces need for sub-contracting. 20

22 FY15 Outlook Spotless reaffirms its pro forma Prospectus forecast: Sales Revenue $2,694.4 million EBITDA $301.4 million EBIT $226.9 million NPAT $134.5 million Adjusted NPAT $141.8 million Spotless also reaffirms the Directors intent to pay out between 65 75% of Adjusted NPAT as a dividend commencing in FY

23 Appendices

24 Statutory to Pro Forma Reconciliation Consolidated Net Profit after Tax ($m) June June June Description Prospectus Actual Forecast 1 Actual 1 Statutory Net Loss After Tax (34.7) (41.4) (92.8) Listed public company costs and director fees (0.4) (0.7) (0.7) Transaction and restructuring costs New share based payment plan (0.6) (0.9) (1.0) 1.5 month adjustment Foreign currency translation costs Discontinued operations Total operating expense adjustments Interest expense adjustment Income tax expense adjustments (60.6) (62.1) (39.4) Total adjustments Pro forma Net Profit After Tax Consolidated EBITDA ($m) June June Prospectus Actual Forecast 1 Statutory EBITDA Listed public company costs and director fees (0.4) (0.7) Transaction and restructuring costs New share based payment plan (0.6) (0.9) Total operating expense adjustments Pro forma EBITDA : $1.3m of pro forma benefits (FY13: $1.2m) have been reclassified from "Transaction and restructuring costs" in the June 2014 Prospectus number into "Listed public company costs and directors fees" to more accurately disclose the nature of the item. This is consistent w ith the treatment of the corresponding June 2014 Actual amount. Commentary Public company costs relate to the full year impact of additional costs associated with being a listed company. Transaction and restructuring costs include $30.8m of costs related to the IPO as well as management fees and redundancy costs associated with the restructure of the business. New share based payment plan relates to the full year impact of the post IPO executive incentive payment plan. 23

25 Sales Revenue by Customer Sector Customer Sector Revenue ($m) June June June % June Change 2013 Pro forma Statutory Pro forma Prospectus Pro forma Pro forma % Actual Actual Forecast 1 to Forecast Actual 1 Change Sales Revenue Health, Education and Government % % Commercial and Leisure % (14.3)% Base and Township % % Laundries (Laundry and Linen) % (2.5)% Sales Revenue 2, , , % 2, % 1: As disclosed in the Spotless Group Holdings Limited prospectus lodged with ASIC on 28 April Commentary Health, Education and Government Sale Revenue grew by 10.3% over FY13 driven by increased activity in Government and Health contracts partially offset by lost contracts in Education. Commercial and Leisure Sales Revenue decreased by 14.3% from the prior year primarily due to the exit of unprofitable and marginal contracts in Business and Industry. Base and Township Sales Revenue increased by 17.9% driven by an increase in Resources together with additional growth in existing Defence contracts. 24

26 Group Balance Sheet Balance Sheet ($m) Jun-14 Current assets Cash and cash equivalents Trade and other receivables Inventories 22.9 Prepayments 7.6 Assets classified as held for sale 5.5 Total current assets Non-current assets Investments accounted for using equity method 2.1 Trade and other receivables 14.6 Property, plant and equipment Goodwill Intangible assets Deferred tax assets Derivatives at fair value - Other 15.9 Total Non Current Assets 1,390.6 Total Assets 1,858.9 Description Current liabilities Trade and other payables Borrowings 0.1 Current tax payables 0.2 Provisions Total Current Liabilities Non-current liabilities Borrowings Deferred tax liabilities 72.9 Provisions 52.3 Derivatives at fair value 0.1 Other 4.9 Total non-current liabilities Total Liabilities 1,139.7 Net assets Equity Issued capital Reserves 2.0 Accumulated losses (276.0) Total equity

27 Defined Terms Spotless Financial Statements for the year ended 30 June 2014 have been prepared in accordance with Australian Accounting Standards. Spotless uses certain measures to manage and report on its business that are not recognised under Australian Accounting Standards. These measures are referred to as non-ifrs financial measures and are intended to supplement the measures calculated in accordance with Australian Accounting Standards and not be a substitute for those measures. A reconciliation between statutory and pro forma NPAT and EBITDA has been provided on slide 23. Non-IFRS and pro forma measures have not been subject to an audit or review in accordance with Australian Auditing Standards. The principal non-ifrs financial measures used in this presentation are described below: Glossary Adjusted NPAT EBIT NPAT adjusted to add back the non-cash impact of amortisation of customer contracts (after tax) and the unwind of discounts on provisions (after tax). Earnings before interest and tax. EBITDA Description Free Cash Flow Free Cash Flow Conversion Legacy pass through revenue Earnings before interest, tax, depreciation and amortisation. Free cash flow is calculated as EBITDA less changes in working capital less maintenance capital expenditure. Free cash flow conversion is Free Cash Flow divided by EBITDA expressed as a percentage. Revenue received from one large government contract to procure certain goods and services on behalf of the customer. The customer reimburses Spotless for the cost of supply, with no margin. Pro forma EBITDA Pro forma NPAT Sales Revenue Working Capital Pro forma EBITDA is based on EBITDA, however pro forma adjustments have been made to remove the impact of one-off transaction and restructuring costs as well as include public company costs for the full financial year. Pro forma NPAT is based on NPAT, however pro forma adjustments have been made to remove the impact of one-off transaction and restructuring costs, write-off of borrowing costs and include public company costs for the full financial year. NPAT has also been adjusted to reflect the full year impact on interest expense of the post IPO debt structure. Sales revenue comprises revenue excluding legacy pass through revenue and other income. Working capital is defined as the total of current trade and other receivables, inventory prepayments, trade and other payables, current provisions and other current creditors. 26