Spotless Group Limited - NZX

Spotless Group Limited
ABN 77 004 376 514
Review of Operations
31 December 2011
Contents
Page
Key Financials 2
Review of Operations 4
IMPORTANT NOTE:
All comparisons are to the previous corresponding period being 31 December 2010, unless otherwise indicated. Some
comparative information has been restated to improve the presentation of the data in this report.
SPOTLESS GROUP LIMITED HY2012 Page 1 of 8
Review of Operations

KEY FINANCIALS
Summary Group Income Statement
Summary Income Statement
A$ million unless otherwise specified 1H12 1H11 Change
Revenue 1,419.4 1,351.0 5.1%
Revenue (excluding pass-through revenue) 1,346.2 1,283.6 4.9%
Group EBITDA (prior to transaction costs) 1 80.3 75.3 6.6%
Group EBITDA 78.4 74.8 4.8%
Depreciation and amortisation (39.8) (36.8) (8.2)%
EBIT - Facility Services 48.7 45.4 7.3%
EBIT - International Services (0.5) (2.4) 79.2%
EBIT - Braiform (2.3) 1.0

Summary Divisional Income Statement
Functional Functional
Divisional Results
Currency Currency
A$ million 1H12 1H11 Change 1H12 1H11 Change
Revenue
Cleaning Services 192.6 208.3 (7.5)%
Food Services 309.0 296.5 4.2%
Laundry Services 132.4 123.1 7.6%
Managed Services 1 584.4 512.3 14.1%
Revenue - Facility Services 1,218.4 1,140.2 6.9%
International Services 34.7 29.9 16.1% GBP 22.4 18.2 23.1%
Braiform 2 92.9 113.3 (18.0)% USD 95.1 108.1 (12.0)%
Corporate Administration 0.2 0.2 0.0%
Revenue - Group 1 1,346.2 1,283.6 4.9%
EBIT
Cleaning Services 4.6 6.0 (23.3)%
Food Services 12.6 10.8 16.7%
Laundry Services 12.6 12.4 1.6%
Managed Services 18.9 16.2 16.7%
EBIT - Facility Services 48.7 45.4 7.3%
International Services (0.5) (2.4) 79.2% GBP (0.3) (1.5) 80.0%
Braiform (2.3) 1.0

REVIEW OF OPERATIONS
For the Half Year ended 31 December 2011
Spotless Group Results
Prior to pass-through revenue, Group revenue rose 4.9% to $1,346.2 million. EBIT prior to transaction
costs rose 5.2% to $40.5 million. Transaction costs of $1.9 million were incurred during the half year
($0.5 million in the pcp). These relate primarily to private equity engagement costs. NPAT prior to
transaction costs rose 0.6% to $17.8 million. EPS prior to transaction costs declined 1.5% to 6.7 cents per
share.
Cleaning Services
Cleaning Services provides commercial and specialised cleaning services to a wide range of critical sectors
including hospitals, schools, airport and shopping centres, as well as sports stadia and major events.
Revenue declined 7.5% to $192.6 million after a high level of organic growth in the prior period of 29.2%.
The decrease was driven by the loss of the NSW Schools contract from the prior year and a continuing
trend by existing customers to decrease the scope and specifications within their outsourced cleaning. This
loss of revenue was offset slightly by higher activity levels in the Queensland contracts in particular.
EBIT declined by 23.3% to $4.6 million, driven by the NSW Schools contract loss and lower margins from
existing contracts, reflecting a continuing trend of tough business conditions flowing through into client
activity and cost pressures.
Cleaning employees are covered by a number of industrial instruments, including the Cleaning Services
Modern Award and Clean Start CBD. During the reporting period a number of wage increases occurred
resulting in wage costs rising ahead of contract pricing, with price increases being pursued to offset.
Cleaning Services will be the first division to be migrated onto the new business and IT platform in 2H12.
Food Services
Food Services offers food services to a diverse range of customers, including sports stadia, function
centres, airports and business and educational institutions. It operates in two business units across
Australia and New Zealand. Alliance Catering includes approximately 400 contracts across business and
industry, education and aged care sectors. Hospitality and Retail Catering (HRC) includes approximately
55 contracts in sports stadia, function centres, major events and airport and transport hubs.
Food Services revenue increased 4.2% on pcp to $309.0 million.
Alliance Catering had strong growth from contract gains in the business and industry sector flowing from
2H11, with major further new contracts including Ernst and Young, Virgin Australia Lounges, and Rio Tinto
Brisbane in 1H12. In a climate of cost containment, many leading national corporate offices are
outsourcing, and Alliance is uniquely placed to service these across Australia and New Zealand by virtue of
its comprehensive network. There is a solid pipeline of further national contract opportunities. New contract
wins in the education sector included Auckland University and University of Sydney Women’s College.
Contract renewal activity continues to be high and 47 contracts were re-signed during the period.
HRC revenue performance was mixed, with successful major international event activity (Rugby World
Cup, Presidents Cup, and CHOGM) being offset by a lower level of December stadium activity relative to
pcp, as well as major concert tours in several stadia. Whilst the number of airport retail outlets expanded
by 6 to 88 outlets during the period, there was softness in customer levels in some airports relating to the
Tiger airline shutdown and the strong Australian Dollar negatively impacting on inbound tourism. Two of
SPOTLESS GROUP LIMITED HY2012 Page 4 of 8
Review of Operations

the eight new outlets at Southern Cross Station (Melbourne) were mobilised, and three outlets in the
QANTAS Sydney Domestic terminal are scheduled to open during 2012. The earthquake impacted the
Christchurch Vbase contract (stadium, town hall and convention centre) which continued to trade in a
reduced format, although a temporary new stadium will open in early 2012. As part of the integrated
Leisure Sports and Entertainment sector approach to the market, HRC successfully mobilised the national
V8 motor sport catering and cleaning contract, and provided integrated catering and cleaning services at
the Presidents Cup. No HRC contracts were lost during the period.
Food Services EBIT increased 16.7% on pcp to $12.6 million. Alliance margins were in line with pcp,
improving steadily during the half reflecting contract renegotiations, new business gains and improved
labour management processes. Margins in the business and industry sector are under pressure, reflecting
business conditions for clients. HRC margins improved strongly in the period, on the back of contributions
from major events at the Perth Convention and Exhibition Centre (CHOGM) and the Rugby World Cup in
New Zealand. Excluding major sporting and government events, HRC stadia results were somewhat
dampened by the absence of touring concerts – 20 fewer events than pcp. New Zealand margins improved
in both business units, significantly in HRC flowing from Rugby World Cup activities at Eden Park and
Westpac Stadium. Airports margins were largely stable on the prior period.
Laundry Services
Laundry Services washes and supplies workwear for large supermarket chains, food manufacturing and
general industry customers. It specialises in linen and laundry for the healthcare sector, including sterilised
linen and surgical packs.
Revenue of $132.4 million was 7.6% above pcp. Strong growth continued in the Health sector following a
NSW Laundry acquisition in 2011. In addition a number of new Accommodation Linen contracts were
secured in NSW, WA and QLD further strengthening Spotless’ competitive position.
The market for Garments (Workwear) continues to be highly competitive and growth is mixed, however
there are definite signs of a shift to recovery in some markets – notably in VIC and WA where a number of
fresh food processing and industrial and resources facilities are centred.
New Zealand revenue was strongly above pcp with solid growth in the Health sector combined with
increased Accommodation and Hospitality demand during the Rugby World Cup.
EBIT of $12.6 million is 1.6% above pcp. Despite solid revenue growth, margins continue to be compressed
due to higher input costs (utilities, flow-on costs of cotton price inflation in 2010) that could not be fully
recovered through contract price escalations. Margins have also been impacted by mobilisation and
restructuring activities following sizeable contract wins at the start of FY12 and ongoing optimisation activity
in QLD.
A number of efficiency initiatives have been commenced in the period to offset this shortfall, including
procuring a world class laundry performance measurement tool to be implemented in 2H12. Management
expects improved efficiencies in future periods as these initiatives reach maturity.
New Zealand earnings were below pcp with the impact of the 2011 Christchurch earthquakes reducing
revenue and earnings materially. While cost saving initiatives have been implemented, recovery in this
region is not expected until reconstruction works in the city are well advanced.
New and existing contracts secured include:
• Oaks Group (QLD) – Hotel Linen
• Sydney Park Hyatt (NSW) – Hotel Linen
• Ranger Mine (NT) – Camp Linen (part of wider Managed Services contract)
• Greenslopes Private Hospital – Ramsay (QLD) (to commence March 2012)
• SA Health – Health Linen (retention)
SPOTLESS GROUP LIMITED HY2012 Page 5 of 8
Review of Operations

Managed Services
Managed Services is comprised of facilities management, assets maintenance operations and integrated
facility services. It supports a variety of sectors including defence, education, health, industry and mining.
Managed Services revenue excluding pass through revenue rose 14.1% across Australia and New Zealand
to $584.4 million. Revenue mix by sector saw a strong uplift in the Resources sector as strategic growth
plans develop successfully for the provision of integrated services to mining clients and customers.
In December 2011 Spotless commenced a new integrated facility services contract at the Energy
Resources of Australia (ERA) uranium mine in the Northern Territory. Spotless is providing a full range of
maintenance, hospitality and village services to the two camp locations and mine facilities and is employing
over 100 staff in support of the new contract. In addition, the Northern Territory has been an important
region for the Defence sector with additional works being performed during the period for the Department of
Immigration and Citizenship adding to revenue. Several large Government contracts in Australia and New
Zealand were extended on the back of good performance and strategic performance indicators. New
contracts commenced in the second half of FY11 are performing to expectations.
EBIT rose by 16.7% to $18.9 million. The growth in the Resources sector was the key contributor to
improved performance in EBIT. Activity levels were also high across many of the contracts within the sector
which resulted in additional revenue and EBIT.
The Defence sector also contributed to improved earnings. Several new significant groups of assets have
been introduced within one Australian contract region in particular, resulting in more maintenance activity.
The New Zealand Defence Force contract for facility and asset maintenance for the central North Island
commenced on 1 July 2011 and has transitioned successfully.
Mobilisation costs of $1.2 million were significantly lower than pcp of $2.0 million due to the timing of new
contracts and the mobilisation effort required for specific major contracts.
Finally, a number of historically poorer performing contracts delivered improved performance during the
period as a result of operational service reviews.
International Services
International Services provides commercial and specialised cleaning services to a wide range of
critical sectors across the UK and USA, and supplies food services to sports stadia in the UK.
Revenue of $34.7 million was 16.1% above the prior 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 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.
Further, while Spotless considers the US 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
SPOTLESS GROUP LIMITED HY2012 Page 6 of 8
Review of Operations

estructure the International Services business will be largely focused on the UK Leisure, Sports &
Entertainment sector.
Braiform
Braiform manages the supply of garment hanger and apparel packaging products, servicing clients globally.
In US dollar terms, revenue decreased by 12.0% on the pcp to US$95.1 million. Hanger unit sales in 1H12
declined 19% over the period, with higher average unit selling prices achieved. Following some recovery in
post-GFC volumes, a marked downturn in apparel sales and associated demand for hangers was
evidenced early in the first half of the 2012 financial year.
Braiform maintained all contracts, re-signed its largest client for a further three years and secured
extensions to existing supply contracts with several major European retailers.
Reuse hangers accounted for 44% of total hanger sales in the first half, up from 37% in the pcp reflecting
full mobilisation of new reuse clients secured.
EBIT declined to -$2.3 million versus $1.0 million in the pcp, a decline of $3.3 million largely caused by
lower market demand and the resultant impact on Braiform hanger volumes described above, as well as
EBIT translation losses from the depreciation of the US Dollar ($1.0 million). The growth in Braiform’s
closed loop reuse volumes helped mitigate input cost increases.
Braiform’s business model allows for the flexing of its cost base to counter adverse market conditions. To
this end the business reduced operational and administrative headcount by approximately 20% compared
with the prior period.
A major restructuring program was implemented during the first half with further restructuring benefits to be
realised in the second half and through FY13.
Corporate Administration
Corporate administration costs of $5.4 million were marginally lower than the pcp of $5.5 million.
Other Items
Several items are highlighted as part of the 1H12 result due to their unusual size. Consistent with the 2011
interim and full year results, most items are not classified as non-recurring items but are disclosed
separately for shareholder information. Transaction costs of $1.9 million largely relate to private equity
engagement costs (pcp $0.5m – relating to acquisitions).
Mobilisation costs of $1.2 million were significantly lower during the period compared with $3.7 million in the
pcp.
Other start-up costs not repeated that were expensed in the pcp included the cost of transition from two
existing Queensland laundries into a greenfields Queensland plant and International Services start-up costs
of $1.8 million.
Net Debt, Cash Flow and Tax
Reported net debt as at 31 December 2011 was $360.1 million. In calculating the economic value
of net debt Spotless adjusts for non-cash IFRS amounts relating to the FX swap of the US Private
Placement Notes issued in December 2010. This adjustment was $11.0 million as at 31 December
2011. Therefore adjusted net debt increased to $349.1 million during the half ($272.9 million as at
30 June 2011). This was the result of:
the continued investment in business transformation (including the IT platform); and
an increase in working capital arising from seasonal factors (including catering rights
payments) and revenue growth on pcp.
SPOTLESS GROUP LIMITED HY2012 Page 7 of 8
Review of Operations

Net debt is expected to be lower in 2H12, driven by a reduction in working capital, and is expected
to average between $325 million and $335 million (prior to transaction costs primarily relating to
private equity engagement) for the full year due to:
Greater EBITDA;
Lower catering rights payments; and
Reductions in working capital investment.
In January 2012 the Company extended its syndicated corporate debt facility at the same level of $240
million into the following tranches:
$90 million – 364 days.
$90 million – 3 years.
$60 million – 5 years.
At 31 December 2011, $36.8 million was drawn and $203.2 million was undrawn. Pricing under this
extended facility has been reduced in line with the market. All other terms including banking covenants
remain generally unchanged.
The movement in adjusted net debt of $76.2 million for the 6 months to 31 December 2011 was
comparable to the pcp of $58.9 million, despite higher interest payments arising from the full period
charge of interest under the long term US Private Placement Notes issued in December 2010, and
higher tax payments following the cessation of an Australian tax investment allowance.
Gross operating cash flow in 1H12 of $20.2 million (compared with $31.0 million pcp) reflects an
increase in working capital arising from revenue growth. As outlined above, working capital
balances are expected to decrease in 2H12.
Credit metrics remain strong and significantly below debt covenants. Completion of the
Transformation program will augment the further strengthening of balance sheet and cash flows
and will optimise the management of working capital.
The effective tax rate of 32.3% before transaction costs of $1.9 million was below the pcp of 34.7%
before transaction costs of $0.5 million. The largest driver of the change in tax rate was the mix of
profits by country. Spotless continues to see an effective tax rate of 32% to 34% going forward,
with fluctuations above and below this range a result of the mix of profits by country across the
Group’s international operations.
Dividend
The Directors have declared an interim dividend of 5 cents per share, franked to 100%. This dividend
reflects a payout ratio of 79% to EPS and 75% to EPS prior to transaction costs.
Non-IFRS Items
This document includes references to a number of non-IFRS items. These are defined below:
Pass through revenue
Revenue generated by Spotless at zero profit margin
EBITDA
Profit before depreciation, amortisation, net finance costs and income tax expense
EBIT
Profit before net finance costs and income tax expense
NPAT
Net profit after tax
EPS
Earnings per share
Net debt
Borrowings and other financial liabilities less cash and cash equivalents
Adjusted net debt
Net debt (defined above) less the non cash IFRS impact of FX swaps of -$11m (1H11: -$2.3m)
Gross Operating Cash Flow Receipts from customers less payments to suppliers
pcp
Prior corresponding period
SPOTLESS GROUP LIMITED HY2012 Page 8 of 8
Review of Operations