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Page 1: For personal use only - ASX · • Delivery excellence & customer centricity • Agile operating model & margin focus • Deliver returns from acquired businesses • Strengthen balance

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Page 2: For personal use only - ASX · • Delivery excellence & customer centricity • Agile operating model & margin focus • Deliver returns from acquired businesses • Strengthen balance

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, (23 February 2016). 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 is not licensed to provide financial product

advice in relation to Spotless securities or any other financial products.

• Accordingly, 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. Non-IFRS information has not been subject to audit or review in

accordance with Australian Auditing Standards.

• All dollar values are in Australian dollars (A$) unless otherwise stated.

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Page 3: For personal use only - ASX · • Delivery excellence & customer centricity • Agile operating model & margin focus • Deliver returns from acquired businesses • Strengthen balance

HIGHLIGHTS

Business

update

• Debt facilities extended on improved terms with an additional $100m

• Strategy reset focused on growth, unlocking value, refining operating model and optimising

service offerings

• Continuing to leverage strong core

• Management team capabilities expanded with new appointments

• Acquisition integrations on track to be completed by 30 June 2016

Results

• Results in line with guidance - EBITDA and NPAT flat and down 20% respectively

• Underlying revenue and EBITDA growth of 23% and 19% respectively

• Operating cash flow used to fund acquisitions working capital requirements of acquired

businesses, work in progress and the exit of a supply contract

• Interim dividend of 3.5 cents representing a payout ratio of 73%

Outlook

• Pipeline strong with visibility through 2H16

• On track to deliver against trading update provided on 2 December

• Contestable market is growing

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CONTENTS

PERFORMANCE UPDATE

MARKET POSITION, STRATEGY AND OUTLOOK

DETAILED FINANCIALS

1

2

3

4

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1H16 FINANCIAL SUMMARYSignificant underlying growth

and guidance achieved

1.1

6

132

156

1H15 1H16

1,302

1,606

1H15 1H16

Reported result

Underlying result

(1) , (2)

Revenue

23% increase

EBITDA

19% increase

57

65

1H15 1H16

NPAT

14% increase

Note (1): Normalised for legacy pass through revenue ($44m).

Note (2): Includes $16.5m of revenue from acquisitions.

Note (3): Normalised for re-measurement of property make good provisions ($5m).

Note (4): Normalised for tender write-off ($9m), small bid costs ($5m), transaction costs ($1m) and acquisition integration costs ($4m).

Note (5): Guidance provided in December 2015 market update.

Significant underlying growth and guidance achieved

Revenue EBITDA NPAT

1,346 1,606 +19% 137 137 +0% 60 48 (20%)

Guidance achieved (5)

(3)

(4)

Acquisition

contribution311

16Acquisition

contribution

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512

553

1H15 1H16

372

624

1H15 1H16

139

149

1H15 1H16

Underlying Revenue

Health, Education & Gov. Commercial & Leisure Base & Township Laundries & Linen

Revenue growth driven by

increased sales in Health &

Government (organic and new

contracts)

Growth partially offset by

decreased Education revenue

Revenue increase driven by

acquisitions and catering

contract wins

Partially offset by lower

activity within retail and

cleaning (Business and

Industry)

Base & Township delivered a

solid performance in the

Defence sector

Partially offset by reduced

revenue in the Resources

sector

Growth was largely driven by

the Prime Laundry acquisition

which was completed in

August 2015

8% increase 68% increase 0% increase 7% increase

Commentary

Health, Education & Gov. Commercial & Leisure Base & Township Laundries & Linen

280 281

1H15 1H16

1.2

All segments performing strongly

7

PERFORMANCE BY SECTOR AND SEGMENT

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MARGINS

Margins

Facility Services

Laundries

Reported Underlying

Reported Underlying

1.3

Contract margins maintained

9.7%

8.4%

9.6% 9.5%

1H15 1H16 1H15 1H16

29.9%

25.0%

29.5% 27.7%

1H15 1H16 1H15 1H16

Commentary

Margins maintained not withstanding

acquisition of businesses with lower than

Group’s margins

New contract wins on comparable margins to

historical experience

Laundries expected to be adversely affected

by acquisition integration related issues

Better than historical margins expected to be

achieved as integration issues resolved

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WIN AND RENEWAL RATES

BY NUMBERWin

rates

Renewal

rates

By number By revenue

FY14A 34% 27%

FY15A 45% 36%(1)

FY16 - YTD 50% 23%(2)

FY14A 63% 75%

FY15A 78% 91%

FY16 - YTD 84% 79%

Note (1): FY15 benefited from an unusually high number of large renewals, 31% excl. WA housing win.

Note (2) 12% including a key township contract loss.

Renewals strong, win rate

improving with limited risk to 2H16

1.4

Enhancing key account management to focus on renewals

Greater focus on multi-service line contracts

Over $400m of annual revenues in wins/ renewals in 1H16

Renewals strong, with limited risk to 2H16

Win rates and renewal rates

Commentary

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ACQUISITIONS UPDATE AND CONTRIBUTION

Acquisition Date Acquired Integration Update

Aladdin 17 Sep 14 On track

ILS 26 Sep 14 Delivering by 30 June

Prime Laundry 26 Aug 15 On track

TGS 28 Nov 14 Complete and rebuilding

AE Smith 27 Feb 15 Delivering by 30 June

UASG 1 Jul 15 Complete

1.5

Acquisitions remain attractive and will make a strong contribution to group

earnings when they reach their full potential

Total 1H16 revenue and EBITDA contribution of $311m and $16m(1) respectively(2)

10

Note (1): Includes corporate overhead allocation of $8m.

Note (2): 1H15 included $16.5m revenue and nil EBITDA.

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BALANCE SHEET POSITION1.6

11

Net debt position

($m) 1H16 FY15

Cash (40) (105)

Debt 842 669

Net debt 802 564

Impacted by acquisition costs and working capital requirements of

acquired businesses

Credit metrics comfortably within financial covenant requirements

Debt covenants

ND / EBITDA Interest cover

Committed debt facilities maturity profile

Amendment and extension of existing A$638m syndicated

debt facility on more favourable terms

Debt headroom increased via five year A$100m syndicated

facility

Weighted average debt maturity extended from 1.8 to 3

years

1.8x

2.5x

10.1x

8.9x

3.0x

3.5x

535

410

115

200

425

213

100

FY17 FY18 FY19 FY20 FY21

Jun-15 committed facilities Dec-15 committed facilities

Improved debt maturity profile

80

120

AmountDrawn

Fully drawn

Fully drawn

Undrawn

AmountDrawn

FY15 1H16 FY15 1H16

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OPERATING CASH FLOW

Note (1): Please see page 22 for more detail.

1.7

Operating cash flow movements(1)

Reported

operating cash

flow before

interest and tax

Working capital

injection into

acquired

businesses

WIP – major

contract

Exit of National

food and bev.

supply contract

1H16 1H15

41

63

95

41

22

32

14

109 108

Axis

Tit

le

Operating cash flow utilised to fund acquisitions and large contract wins

Commentary

Unfavourable changes in

working capital driven by

funding provided to recently

acquired businesses

Delays in the receipt of a

number of large debtors and

work in progress relating to

major contract, expected to be

invoiced in 2H16

One-off impact from large

national food and beverage

supply contract

12

41

109 108

A

B

C

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SAFETY

Safety initiatives:

• Sector and work stream risk profiling project to identify risks and to develop targeted programs

to manage the risks

• OHS Management System certification (ANZS4801 & 18001) maintained and expanded to

include newly acquired AE Smith and UASG businesses

• Incident reporting system (IRIM) review project commenced

• Implementation of safety leadership training program

• Strong injury management process

Initiatives translating to improved performance for FY16:

• 40% reduction in lost time injury frequency rate YTD

• 36% reduction in days lost following injury (severity rate) YTD

1.8

Safety of our employees is paramount

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2 Market position, strategy and outlook

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STRATEGY RESET

Spotless has commenced a strategy reset to accelerate growth and deliver attractive

returns. The focus of the developing roadmap includes:

UNLOCK VALUELeading market position and strong core

business

• Delivery excellence & customer

centricity

• Agile operating model & margin

focus

• Deliver returns from acquired

businesses

• Strengthen balance sheet

• Cross-sell into existing contracts

• Optimise service offerings

REPOSITIONEnable and facilitate the growth agenda

• Improve brand recognition

• Prioritise innovation & product

development

• Collaboration

• Extend business development

capability to improve growth rate

• Facilitate a high performance culture

• Strengthen account management &

level & quality of engagement with

customers

EXTENDSector prioritisation and extending

services

• Improve focus on growing areas of

contestable market

• Mobilise PPPs & orient towards

multi-service expandable contracts

• Leverage and extend our services

through adjacencies

• Benefit from economic trends

• Use our scale & footprint to take

market share & benefits from

consolidation

2.1

Strategy reset to accelerate growth

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NEW MANAGEMENT TEAM IN PLACE TO DELIVER STRATEGY2.2

16

CEO & Managing Director

Martin Sheppard

Mergers &

Acquisitions &

Special Projects

Geoff Barnsley

Risk &

Compliance &

Legal

Paul Morris

Chief Financial

Officer

Nigel Chadwick

Chief Operating

Officer

Dana Nelson

Brand, Innovation

& Technology

Julian Fogarty

Markets & Growth

Agi Luczak

People,

Performance &

Culture

John Douglas

Sectors

Government,

Education &

Transport

Infrastructure,

Comms & Utilities

(AES and UASG)

Township

(Resources &

Defence)

PPP’s and Health

Business,

Hospitality,

Leisure & Security

New Zealand Laundries

Subject Matter Experts / Sales Executive / Business Development

Food & Catering CleaningMaintenance /

Construction

PPP /

Government /

Education

ResourcesFacilities

ManagementSecurity

New person Scope increased

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LEVERAGE STRONG CORE2.3

17

c.5 years

c.8%

c.82%

revenue

Largest 200

contracts=

c.78%

revenue

Largest single

contract=

c.4%

revenueAverage contract

tenure=

Gov't backed

contracts(4)=

c.50%

revenue

% of FY16

revenue due for

renewal in 2H

=

Revenue

contracted=

1. Largest Facility Services Provider in ANZ(1),(2) 2. High quality and diverse customer base(3)

94.6%

5.4%

0%

20%

40%

60%

80%

100%

Axis

Tit

le

5.4% with no price growth

mechanism

94.6% with embedded growth

mechanism

Facility Mgt.

Catering &

Food

Cleaning

Laundry &

Linen

Security

3. Favourable end market exposure 4. Embedded price growth mechanism(3)

Source: Company and ASIC filings.

Note (1): The market is defined by reference to the services Spotless currently provides to the four end-market customer sectors

that Spotless currently serves – Health, Education & Government; Commercial & Leisure; Base & Township; and Laundry &

Linen – and includes both Facility Services and Laundries services. It does not include potential revenue from adjacent customer

sectors that Spotless does not currently serve but that may be regarded as part of a broader facility services industry.

2.8

2.0

1.4

1.2

0.8 0.8 0.8

0.5

Axis

Tit

leLate

st A

ustr

alia

and

New

Zeala

nd R

evenue,

A$bn

(FY15) (2014) (FY15) (2014) (2014) (2015)(FY15)

Compass

Group

Broad-

spectrumSerco ProgrammedISS Sodexo

(FY15)

Skilled

34%

39%

17%

9%

Health, Educ.,Gov't

Commercial &Leisure

Base & Township

Laundry & Linen

Only 8% resource Exposure

Note (2): Estimate of revenue derived from Australian and New Zealand public filings – Compass (FY Sept 2014, ANZ); Broadspectrum (FY 2015, ANZ,

Revenue from Logistics and Facilities Management segment only); Serco (FY Dec 2014, ANZ); ISS (FY Dec 2014, ANZ); Programmed (FY 2015, ANZ,

Revenue from Property and Infrastructure segment only, does not include contribution from Skilled merger.; Skilled (FY 2015, ANZ), Revenue from Workforce

Services segment only; Sodexo (FY Aug 2015, ANZ). New Zealand Dollar revenues have been converted to Australian Dollars using the RBA daily rate of

1.0734 as of 19 February 2016.

Note (3): Based on identified contracts greater than $1 million annual revenue.

Note (4): Based on top 200 identified contracts by FY16 Forecast revenue.

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GROWING AND CONTESTABLE MARKET2.4

Spotless is well positioned in growth markets across all its segments

Health, Education

& Gov.Commercial & Leisure Base & Township Laundries & Linen

Growth

Extent

outsourcedMedium High High High

Spotless

presenceMedium Medium Low High

Key

opportunities

Current low level of

outsourcing in health

Low Spotless

presence in Education

Low penetration of

Integrated Facilities

Management (IFM)

Large market with

growth

Moderate Spotless

footprint

Low IFM penetration

Low IFM penetration

High growth with

further scope to

increase market share

Government desire to

extend defence

outsourcing

Government owned

laundries

18

Source: Frost & Sullivan – Facilities Management Market in Australia Nov 14.

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3 Market position, strategy and outlook3 Detailed financials

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REPORTED P&L RESULTS

Commentary

Revenue growth underpinned by stable

existing business performance and acquisition

contribution

Underlying EBITDA growth reflects strong

performance from Defence contract,

Government contracts (new and existing) and

contribution from acquired businesses

Acquired revenue and EBITDA of $311m and

$16m respectively

Underlying profit growth affected by increased

depreciation, largely due to impact of

acquisitions, impact of the new Defence

contract and FY15 capex spend

Depreciation reflects increases from:

– Acquired businesses

– Mobilisation costs

– Bid cots

Amortisation reflects increases from:

– IT platform

– Customer contracts

$m 1H16 1H15 % Var

Reported Sales Revenue 1,606 1,346 +19%

Underlying Revenue 1,606 1,302 +23%

Reported EBITDA 137 137 +0%

Underlying EBITDA 157 132 +19%

Depreciation (41) (29) +41%

Amortisation (8) (6) +33%

Net finance costs (20) (16) +25%

Income tax expense (21) (26) (19%)

Reported NPAT 48 60 (20%)

Underlying NPAT 65 57 +14%

3.1

20

(1) (1)

Note (1): ) Numbers rounded to nearest $m.

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REPORTED TO UNDERLYING RECONCILIATION

Commentary

1H15 Revenue impacted by legacy pass

through revenue in Facility Services which has

discontinued

1H16 EBITDA negatively impacted by a

number of significant items including

– Large tender bid costs on two unsuccessful

bids ($9m)

– Treatment change on bid costs ($5m)

– Transaction costs associated with the USG

and Prime Laundry acquisitions ($1m)

– Acquisition integration costs relating to

Laundries and AE Smith ($4m)

1H15 was impacted by the positive impact of

the $5m remeasurement of property make

good provisions

$m 1H16 1H15

Reported Sales Revenue 1,606 1,346

Legacy pass through - (44)

Underlying Sales Revenue 1,606 1,302

Reported EBITDA 137 137

Tender write-off 9 -

Small bid costs 5 -

Transaction costs 1 -

Acquisition integration costs 4 -

Re-measurement of property make good provisions - (5)

Underlying EBITDA 156 132

NPAT 48 60

Significant items 19 (5)

Income tax on significant items (3) 2

Underlying NPAT 65 57

3.2

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CASH FLOW

$m 1H16 1H15 % Var

Underlying operating cash flow

before interest and tax109 108 +1%

Working capital injection into

acquired businesses(22) (5) >100%

Work in progress – major contract (32) - n/a

Exit of national food and beverage

supply contract(1) (14) - n/a

Net interest and tax (24) (14) +64%

Operating cash flow 18 89 (80%)

Investing Activities

Acquisition of businesses (103) (53) +95%

Net investments for PP&E, IT

systems and pre-contract costs(79) (63) +26%

Free Cash Flow (165) (27) >100%

Underlying operating cash flow higher than

previous year

However operating cash flow lower than

previous year after taking into account:

– Significant items

– Unfavourable changes in working capital

driven by funding provided to recently

acquired businesses

– Timing in the receipt of a number of large

debtors

– Work in progress relating to major contract,

expected to be invoiced in 2H16

Note (1): During the half year the consolidated entity exited a national food and beverage supply contract which resulted in a one-off $14m net outflow of cash during the half year

ended 31 December 2015.

Commentary

3.3

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NET DEBT MOVEMENT3.4

23

All balances impacted by acquisition

accounting

Goodwill largely relates to PEP

acquisition ($827m), with remainder

relating to recent acquisitions

Working capital impacted by:

– Effect of acquisitions

– Increase in contract WIP

– Timing of debtor receipts

Commentary

Net debt bridge

564 694 754 786 796

564

130

60 32 10 6

802

30 Jun 2015net debt

Impact frominvestment in

businessacquisitions

Full yeardividend

New contractWIP

Increasedinterest cost

Other Total

Axis

Tit

le

Summary balance sheet

$m 1H16 FY15 % Var

Current assets 514 536 (4%)

Non-current assets 1,690 1,519 +11%

Goodwill 1,027 911 +13%

PP&E and other 663 608 +9%

Current liabilities 435 450 (4%)

Non-current liabilities 977 794 +23%

Net current assets 80 86 (7%)

Net assets 793 810 (2%)

Net debt 802 564 +42%

Gearing 50% 41%

Net debt as at 31 December of $802m

– 2.5x Net debt / EBITDA vs. 1.8x at 30

June 2015

Change since FY15 results driven by:

– Final dividend of $60m

– Acquisition related funding of c.$130m

– Working capital investment of c.$32m

partly relating to large contracts

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FY16 GUIDANCE REAFFIRMED3.5

• Revenue will materially exceed FY15

• Reported EBITDA – flat year on year

• EBITDA excluding significant items to exceed FY15 by approx. 5%

• Reported NPAT – approx. 10% below FY15 (including tax-effected significant items and increased

depreciation)

• NPAT excluding significant items expected to be flat year on year

ALL GUIDANCE SUBJECT TO ECONOMIC CONDITIONS

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4 Summary

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Summary4.1

26

• Results in line with guidance

• Underlying business performance strong

• Integration of acquired businesses progressing well

• Management team strengthened

• Strategy reset to deliver growth

• Contestable market and pipeline growing

Spotless is the largest, most diversified essential services

provider in Australia and New Zealand, with a strong pipeline

of opportunities in a growing market

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5 Appendices

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SIGNIFICANT CONTRACT WINS AND RENEWALS

Customer Services Quarter won / renewed

Ren

ew

als

SA Health Integrated 1Q16

NAB Catering 2Q16

Clipsal 500 Integrated 1Q16

NSW Land and Housing

Corporation Maintenance 2Q16

Virgin Brisbane Domestic Terminal Cleaning / Food 2Q16

BHP Billiton FM / Maintenance 2Q16

Win

s

WA Schools PPP 1Q16

Rio Tinto Hail Creek Township management 1Q16

Vic Schools PPP 2Q16

GSK Integrated 2Q16

Greater than $30m.

Over $400m of contract wins and renewals in 1H16

28

5.1

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Page 29: For personal use only - ASX · • Delivery excellence & customer centricity • Agile operating model & margin focus • Deliver returns from acquired businesses • Strengthen balance

MOST DIVERSIFIED OFFERING

SERVICE Facility

management

Venue

management

Accommodati

on

management

Fleet

management

Car park

management

Concierge &

mailroom

Event

management

Patient

management

Security

services

Venue

management

Food service

solutions

Cleaning &

hygiene

solutions

Laundry,

linen &

uniforms

Security

services

Asset and

building

maintenance

Waste

management

Grounds &

garden care

services

Pest control

services

Concierge

HVAC

services

Refrigeration

BIM (Building

Information

Modelling)

Prefabrication

/

Modularisatio

n

Engineering

design

Commissioni

ng (NEBB

Certified)

Electrical,

plumbing,

drainage

Asset

maintenance

Mechanical &

electrical

services

Retail fitouts

Building

trades

services

Painting

services

Grounds &

gardens

Pest control

Building

management

systems

Fire &

emergency

services

Energy &

water

management

Handyman

services

Asset

installation &

maintenance

Meter

installation &

replacement

Meter reading

Energy

conservation

Pole

reinstatement

Asset

inspection &

monitoring

Street light

maintenance

& globe

replacement

Electrical

construction

&

maintenance

Vegetation

management

Stadia, venue

& event

catering

Dining rooms

& cafés

Functions

Corporate

hospitality

Retail food &

beverage

Venue

management

Cafeterias

Canteens,

cafés

Retail food &

beverage

Resident

dining

Aged care

Schools &

colleges

Mining camps

& defence

sites

Hospital

patient meals

Functions &

boardrooms

Meals on

wheels

Venue, event

& precinct

cleaning

Waste

management

& recycling

Commercial,

retail &

industrial

cleaning

Waste

management

& recycling

Hygiene &

washroom

services

Window

cleaning

Concierge &

mailroom

Crowd control

Event

management

Close circuit

television

(CCTV)

Alarm

systems

Access

control

24 hour alarm

monitoring

People

tracking

Risk

management

Mail

screening

Duress

systems

First aid

response

Patrols

Concierge

services

Linen supply,

laundering &

management

Accommodati

on

Hospitality

Healthcare

Sterilising

Workwear

laundering,

rental &

management

Workwear

supply &

design

Floor care &

washroom

services

SECTORS Business &

Industry

Defence

Education

Government

Health

Laundries

Leisure,

Sports &

Entertainment

PPP

Resources

Utilities

Leisure,

Sports &

Entertainment

Business &

Industry

Defence

Education

Government

Health

Laundries

Leisure,

Sports &

Entertainment

PPP

Resources

Business &

Industry

Defence

Education

Health

Government

Leisure,

Sports &

Entertainment

Resources

Business &

Industry

Defence

Education

Government

Health

Laundries

Leisure,

Sports &

Entertainment

PPP

Resources

Utilities

Business &

Industry

Leisure,

Sports &

Entertainment

Business &

Industry

Defence

Education

Health

Government

Resources

Leisure,

Sports &

Entertainment

Business &

Industry

Defence

Education

Health

Government

Resources

Business &

Industry

Education

Government

Health

Leisure,

Sports &

Entertainment

Resources

Business &

Industry

Defence

Education

Government

Health

Laundries

Leisure,

Sports &

Entertainment

Resources

SERVICE

LINEINTEGRATED SERVICES

ENGINERING SERVICES AND

ASSET MAINTENANCE

UTILITIES

SERVICESFOOD SOLUTIONS CLEANING SECURITY LAUNDRY

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