spotless group holdings limited appendix 4d half year report ...2017/02/28 · 2 review of...

Spotless Group Holdings Limited Appendix 4D Half year report for the period ended 31 December 2016

Name of entity Current Period

Spotless Group Holdings Limited Period ended 31 December 2016

ABN Prior Corresponding Period

27 154 229 562 Period ended 31 December 2015

Results for announcement to the market % Movement compared to the

prior period

Current Period A$

Revenue from ordinary activities Down 9.4% to $1,455.4 million

Reported net loss from ordinary activities after tax Down >100% to $(358.1) million

Reported net loss attributable to members Down >100% to $(358.1) million

Dividends Interim Dividend 2017

Interim Dividend 2016

Amount per share 1.35 c 3.5 c

Franked amount Nil Nil

The amount of conduit foreign income for the 2017 interim dividend is nil cents per share. Fiscal 2017 interim dividend dates

Record date 21 March 2017

Payment date 7 April 2017

Ratios 31 December 2016 31 December 2015

Net tangible assets backing per share (cents) -42.8 c -36.1 c

Review Results This report is based on the financial statements that have been the subject of an independent review and are not subject to any dispute or qualification. The detailed half-year financial statements are attached to this report. Enquiries Geoff Bryant General Manager, Investor Relations T +61 2 9816 9281 M +61 419 684 900

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Spotless Group Holdings Limited RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Sales Revenue of $1,455.4m, down 9.4% from the prior corresponding period reflecting prior period lost contracts and scope reductions, partially offset by the contribution from newly mobilised PPP contracts.

Reported EBITDA of ($298.6m) significantly impacted by $419.7m of exceptional items following the restructure of the existing contract portfolio.

Contract renewal rates improved further to continue to hold at 95% by number and 72% by annual value. New contract wins also increased during the period to 71% by number and 21% by annual value.

Net loss after tax of ($358.1m) includes $391.1m of exceptional items (after tax) primarily relating to the contract portfolio restructure.

Operating cash flows of $73.6m demonstrated significant improvement in working capital management and cash collections and, together with decreased net capital expenditure, represent a $93.3m improvement in free cash flow before payments for acquisitions from the prior corresponding period.

Net debt of $848.1m and net leverage ratio of 2.7x (based on last 12 months EBITDA and excluding

exceptional items) has increased from June 2016 due to the acquisition of Nuvo and mobilisation of PPP contracts.

Half Year Ended 31 December 2016

$m

2015

$m

Change

%

Sales Revenue 1,455.4 1,606.0 (9.4)

EBITDA (298.6) 137.3 (>100)

EBIT (358.6) 88.7 (>100)

(Loss) / Profit after tax (358.1) 48.1 (>100)

Basic (losses) / earnings per share (cents) (32.6) 4.4 (>100)

Interim dividend per share (cents) 1.35 3.5 (61.4)

Operating cash flow 73.6 17.5 >100

Reported EBITDA excluding exceptional items 121.1 137.3 (11.8)

Reported EBITDA margin (%) excluding exceptional items 8.3 8.5 (20 bps)

Reported EBIT margin (%) excluding exceptional items 4.5 5.5 (100bps)

Reported profit after tax excluding exceptional items 33.0 48.1 (31.4)

Net debt 848.1 802.4 5.7

Net leverage ratio excluding exceptional items 2.7x 2.5x n/a

Note: Exceptional items of $391.1m after tax are detailed in Note 5 to the Interim Financial Statements.

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Review of Operations

Contract Portfolio Restructure

During the period, and further to the Strategy Reset announced in August 2016, Spotless Group Holdings Limited (the “Group” or “Spotless”) undertook a detailed review of its contract book and identified potential areas to unlock value. Whilst the business has a strong portfolio of contracts, growth is constrained by a large number of contracts which are inconsistent with the attributes identified as desirable in the Strategy Reset, including long lived, multi-service, expandable customer partnerships. Reducing poor performing and single service contracts over time allows for a focus on long-dated, expandable, multi-service contracts.

This program provides the platform for growth by simplifying our business model, reducing complexity and overheads, and leveraging our strengths to drive organic growth.

The restructure and other exceptional items have resulted in a largely non-cash accounting charge of $423.4m (pre-tax) representing goodwill impairment, software development intangibles write-downs, Property, Plant and Equipment (“P,P&E”) write-downs and provisions for contracts that become onerous. A one-off cash impact from the restructure of between $25.0m and $35.0m representing contract exit costs, potential redundancy costs and other associated costs is expected to be incurred in 2H17 and beyond and has not been included in the results for the half year ended 31 December 2016.

The rationalisation of non-core contracts will be undertaken progressively, with the majority being continued until maturity and not renewed, while we are also exploring the sale of certain contract bundles.

Statutory Results

Half Year Ended 31 December 2016

$m

2015

$m

Change

%

Sales Revenue 1,455.4 1,606.0 (9.4)

EBITDA (298.6) 137.3 (>100)

(Loss) / Profit after tax (358.1) 48.1 (>100)

Basic (losses) / earnings per share (cents) (32.6) 4.4 (>100)

Interim dividend per share (cents) 1.35 3.5 (61.4)


Statutory sales revenue decreased from December 2015 largely driven by prior year contract losses, partially offset by a strong contribution from the Defence sector, PPPs and the recently acquired Nuvo business. EBITDA for the period has been significantly impacted by $419.7m of exceptional items recorded as a result of the contract book restructure undertaken as part of the strategy reset to focus on long-dated, expandable, multi-service contracts. Exceptional items for the period include:

Goodwill impairment of $315.7m relating to businesses most impacted by the restructure; Software development intangible asset write-downs of $15.1m; P,P&E write-downs of $25.8m; Other asset write-downs of $32.8m; Onerous contract provisions of $15.8m; and Other provisions and accruals of $14.5m.

Depreciation and amortisation expense increased by 23.5% from December 2015 driven by FY16 capital expenditure and the completion of the SAP system roll out.

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Review of Operations (continued)

3

Operating Segments

Facility Services

Half year ended 31 December 2016

$m

2015

$m

Change

%

Sales Revenue

Health Education and Government 524.6 552.5 (5.0)

Commercial and Leisure 528.4 639.3 (17.3)

Base and Township 283.4 280.5 1.0

Facility Services Sales Revenue 1,336.4 1,472.3 (9.2)

Health, Education and Government Sales revenue in the Health, Education and Government customer sector decreased by $27.9m from the December 2015 half driven by contracts lost in FY16 and FY15 and continued margin pressure on contract renewals during FY16 and FY15. These negative impacts were partially offset by increased revenue from newly mobilised PPP contracts. Commercial and Leisure Commercial and Leisure sales revenue decreased by $110.9m driven by prior year contract losses (including Suncorp Stadium), contract downsizing and general scope reductions. Revenue was also negatively impacted by a general slowdown observed in AE Smith construction projects. Base and Township Base and Township sales revenue increased marginally by $2.9m largely driven by a strong contribution from the Defence contract partially offset by the loss of the Rio contract and continued compression in Resources contracts.


$m

2015

$m

Change

%

Facility Services EBITDA (194.7) 122.7 (>100)

Facility Services EBITDA excluding exceptional items 113.0 122.7 (7.9)

Depreciation (22.6) (14.9) 51.7

Facility Services EBITA (217.3) 107.8 (>100)

Facility Services EBITA excluding exceptional items 94.1 107.8 (12.7)

Facility Services EBITDA Margin (14.6%) 8.3%

Facility Services EBITDA Margin excluding exceptional items 8.5% 8.3%

Facility Services EBITA Margin excluding exceptional items 7.0% 7.3%

Reported EBITDA for Facility Services was significantly impacted by $307.7m of exceptional items during the period. Excluding exceptional items, EBITDA decreased by $9.7m / 7.9% from December 2015 attributable to the above mentioned revenue losses, costs associated with the exit of the Rio contract and underperformance of smaller, single service contracts. Increased investment in business development and innovation also negatively impacted the result. Partially offsetting these decreases were a number of smaller contract wins, a strong performance from the Defence sector and the commencement of operations at 4 PPP contracts. EBITDA margins (excluding exceptional items) improved from the comparative period reflecting changes in mix in the existing portfolio and the loss of $37.1m of zero margin pass through revenue from the prior period.

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Operating Segments (continued)

Laundries


$m

2015

$m

Change

%

Sales Revenue

Laundries Sales Revenue 144.2 148.9 (3.2)

Sales revenue from the Laundries segment of $144.2m decreased by $4.7m or 3.2% from December 2015 as a result of lower than anticipated yields, partially offset by higher volumes in a number of states.

EBITDA excluding exceptional items from the Laundries business decreased by $3.6m or 9.7%, due to margin pressure on new and existing contracts, particularly within hospitality linen driven by new competition in certain markets. This has been reflected in the decrease in margins during the period.


$m

2015

$m

Change

%

Laundries EBITDA (74.1) 37.2 (>100)

Laundries EBITDA excluding exceptional items 33.6 37.2 (9.7)

Depreciation (including rental stock) (26.0) (23.1) 12.6

Laundries EBITA (100.1) 14.1 (>100)

Laundries EBITA excluding exceptional items 7.6 14.1 (46.1)

Laundries EBITDA Margin (51.4%) 25.0%

Laundries EBITDA Margin excluding exceptional items 23.3% 25.0%

Laundries EBITA Margin excluding exceptional items 5.3% 9.5%

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Cash Flow


$m

2015

$m

Change

%


Investing Activities

Net investments for P,P&E, IT1 systems and capitalised contract costs (41.9) (79.1) (47.0)

Facility Services – P,P&E and capitalised contract costs (21.1) (42.4) (50.2)

Laundries – P,P&E and capitalised contract costs (4.7) (7.7) (39.0)

Laundries – Rental Stock (16.2) (21.4) (24.3)

Corporate – P,P&E and IT Systems (5.5) (10.6) (48.1)

Other 5.6 3.0 86.7

Free Cash Flow before acquisitions 31.7 (61.6) (>100)1 Information Technology

Operating cash flows improved significantly from the prior half despite the reduced EBITDA. The $56.1m 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. The first half of FY15 also included work-in-progress invested into a major mobilising contract, which was subsequently recovered in in second half of FY15.

Total capital expenditure reduced by $37.2m / 47.0% following the completion of the SAP development project, completion of the mobilisation of several PPP contracts and general tightening of capital expenditure levels across both Facility Services and Laundries.

Balance Sheet

Key Balance Sheet Metrics Dec 16

$m

Jun 16

$m

Change

%

Current Assets 473.3 532.9 (11.2)

Non-current Assets 1,373.8 1,708.0 (19.6)

- Goodwill 745.3 1,032.0 (27.8)

- P,P&E and Other 628.5 676.0 (7.0)

Current Liabilities 407.2 421.4 (3.4)

Non-current liabilities 1,024.6 992.2 3.3

Net current assets 66.1 111.5 (40.7)

Net Assets 415.3 827.3 (49.8)

Net Debt 848.1 789.8 7.4

Balance Sheet movements in the period were significantly impacted by the various impairments, asset write-downs and additional provisions and accruals required following the contract portfolio restructure undertaken at 31 December 2016.

The balance sheet movement also incorporates the impact of the acquisition of Nuvo. A number of other balance sheet items were also impacted by the provisional purchase price accounting and consolidation of this acquisition. Refer to Note 14 to the interim financial statements for more detail. F

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Debt Management and Liquidity

Dec 16

$m

Jun 16

$m

Net Leverage ratio (excluding exceptional items) 2.7x 2.4x

Interest cover ratio (excluding exceptional items) 8.4x 8.8x

Gearing1 67.1% 48.8%

Weighted Average Comitted Debt Facility Maturity 2.1 2.6

1 Gearing excluding exceptional items was 51.3%

Net debt increased 7.4% from June 2016 to $848.1m at December 2016, attributable to the acquisition of Nuvo in October 2016, payment of the FY16 final dividend of $54.9m and recovery of FY16 investment in net working capital attributable to contract mobilisations and improved cash collections. The investment in net working capital was primarily driven by the Group mobilising seven Public Private Partnership (PPP) contracts, of which four commenced operations in the second quarter of FY17. The Group’s borrowing facilities require compliance with Net Leverage Ratio and Interest Cover Ratio. Both of these metrics are well within the Group’s financial covenant requirements. The Group has committed debt facilities of $1,057.4m of which $887.4m were drawn at 31 December 2016.

Reconciliation of Statutory Results to Results Excluding Exceptional Items


$m

2015

$m

Statutory EBITDA (298.6) 137.3

Exceptional Items 419.7 -

EBITDA excluding Exceptional Items 121.1 137.3

Statutory Net (Loss) / Profit After Tax (358.1) 48.1

Exceptional Items 423.4 -

Income tax benefit on Exceptional Items (32.3) -

Net Profit After Tax excluding Exceptional Items 33.0 48.1

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Reconciliation of Statutory Results to Operating Segments Results


$m

2015

$m

Facility Services Revenue 1,336.4 1,472.3

Laundries Revenue 144.2 148.9

Inter-segment Revenue (25.2) (15.2)

Statutory Sales Revenue 1,455.4 1,606.0

Facility Services EBITDA (194.7) 122.7

Laundries EBITDA (74.1) 37.2

Unallocated Corporate Overheads EBITDA (29.8) (22.6)

Statutory EBITDA (298.6) 137.3

Facility Services Depreciation (22.6) (14.9)

Laundries Depreciation (26.0) (23.1)

Unallocated Corporate Overheads Depreciation (2.5) (2.9)

Statutory Depreciation (51.1) (40.9)

Facility Services EBITA (217.3) 107.8

Laundries EBITA (100.1) 14.1

Unallocated Corporate Overheads EBITA (32.3) (25.5)

Statutory EBITA (349.7) 96.4

Outlook

Our core business including Defence, Government, Health, Education and PPPs remains strong and is largely unaffected by the contract portfolio restructure. The investment in business development is achieving positive outcomes in win rates for large, long dated contracts in priority growth sectors and increasing the size of our pipeline. As previously outlined, FY17 is expected to be a transitional year. Subject to economic conditions, NPAT (excluding exceptional items) for FY17 is currently expected to be between $80m and $90m. The outlook reflects business development returns being slower than expected and the benefits to date being more than offset by weaker business performance in the Business and Industry, AE Smith construction and Resources sectors. The outlook reflects increases in depreciation and investment in business development. This year on year increase has been previously foreshadowed. Spotless is committed to undertaking the necessary steps to restructure the business and progress initiatives to provide a platform for growth. Improved underlying earnings performance beyond FY17 is expected to be driven by:

Successfully rationalising our contract book and simplifying our overhead structure Continuing to leverage market leading positions in Government, Defence, Health, Education and PPPs Achieving the returns from recent investment in business development Significant focus on cash flow conversion Capital management discipline

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Defined Terms

Spotless’ Financial Statements for the half year ended 31 December 2016 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.

Non-IFRS measures have not been subject to audit or review.

The principal non-IFRS financial measures used in this report are described below:

Glossary

EBITA Earnings before interest, tax and depreciation.

EBITDA Earnings before interest, tax, depreciation and amortisation.

Free Cash Flow Net cash flows from operating activities plus net cash flows from investing activities.

Gearing Measured as Net Debt divided by Net Debt plus equity.

Interest Cover Ratio Measured as EBITDA divided by net cash interest expense (as defined in the Group’s debt facility agreements).

Net Debt Measured as the sum of current and non-current borrowings less cash and cash equivalents.

Net Leverage Ratio Measured as Net Debt divided by EBITDA (as defined in the Group’s debt facility agreements).

Sales Revenue Sales Revenue comprises total revenue excluding other income.

Exceptional Items

Includes items of a material nature (individually or in aggregate) affecting Net Profit after Tax, or related to a significant matter, or not related to operations.

EBITDA excluding Exceptional Items

EBITDA adjusted to remove the impact of Exceptional Items.

EBITDA excluding Exceptional Items Margin

EBITDA Margin adjusted to remove the impact of Exceptional Items.

Profit After Tax excluding Exceptional Items

Profit After Tax adjusted to remove the impact of Exceptional Items.

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SPOTLESS GROUP HOLDINGS LIMITED

ABN 27 154 229 562 HALF YEAR FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

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INDEX

Directors’ Report 11

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income 13

Condensed Consolidated Statement of Financial Position 14

Condensed Consolidated Statement of Changes in Equity 15

Condensed Consolidated Cash Flow Statement 16

Notes to the Financial Statements 17

Auditor’s Independence Declaration 32

Directors’ Declaration 33

Auditor’s Review Report 34

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Directors’ Report

The Directors hereby present their report for the half year ended 31 December 2016. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows:

Directors The names of Directors of Spotless Group Holdings Limited (the “Group” or “Spotless”) during the entire half year and up to the date of this report, unless otherwise stated were: Garry Hounsell (appointed Chairman 22 February 2017) Margaret Jackson AC (retired 22 February 2017) Martin Sheppard Diane Grady AM The Hon. Nick Sherry Julie Coates Simon McKeon (appointed 29 November 2016) Rob Koczkar (retired 30 September 2016) Principal activities The principal activities of Spotless Group Holdings Limited and its subsidiaries (the “Group” or “Spotless”) during the half year ended 31 December 2016 were the provision of outsourced facility services, laundry and linen services, technical and engineering services, maintenance and asset management services and refrigeration solutions to various industries in Australia and New Zealand. Operating and Financial Review 1. Business Overview Spotless is a market leading provider of outsourced facility services and laundry and linen services in Australia and New Zealand. Within the market it serves, Spotless is the leader by revenue, scale and breadth of services. Spotless today employs more than 36,000 people comprised of full-time, part-time and casual employees, making Spotless one of Australia’s and New Zealand's largest employers. Spotless provides a broad range of facility services, which include facility management, catering and food and cleaning services, as well as laundry and linen services, such as industrial laundering and linen and uniform rental. Spotless provides these services to a diverse customer base that includes governmental departments, agencies and authorities at the federal, state and municipal level, large global and domestic corporations and medium sized domestic corporations across Australia and New Zealand. Spotless offers its customers an integrated multi-service offering with a single point of contact under a range of contractual models that deliver customers their desired level of services required for the successful operation of their facility. Spotless' main services are:

Facility Services

- Facility Management, which includes property management, maintenance and mechanical services, heating, refrigeration and air-conditioning services, grounds management, security and fire services, waste management, end-to-end essential maintenance and inspection services in electricity distribution, 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

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Directors’ Report (continued)

12

Operating and Financial Review (continued) 1. Business Overview (continued)

- 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.

2. Review of Operations

A detailed review of the Group’s operations, the results of those operations during the half year ended 31 December 2016, and likely future developments are given on Pages 1 to 7. The Review of Operations has been incorporated into, and forms part of, this Directors’ Report.

Significant changes in state of affairs There has not been any significant change in the state of affairs of the Group during the financial period. Significant events subsequent to balance date There has not been any matter or circumstance that has arisen since the end of the financial period that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years. Dividends On 28 February 2017, the Directors declared an unfranked interim dividend for the half year ended 31 December 2016 of 1.35 cents per ordinary share (2015: 3.5 cents), amounting to $14.8 million (2015: $38.4 million) to be paid on 7 April 2017 to shareholders on the Register of Members on 21 March 2017. On 30 September 2016, the Group paid a final dividend for the financial year ended 30 June 2016 of 5.0 cents per ordinary share, amounting to $54.9 million. No other dividends were paid or declared during the financial period or up until the date of this report. Auditor’s independence declaration The auditor’s independence declaration is included on page 32. Rounding Spotless Group Holdings Limited is a company of the kind referred to in ASIC Class Order 2016/191 dated 24 March 2016. In accordance with that Class Order, amounts in the Directors’ Report and the Financial Report have been rounded to the nearest hundred thousand dollars, unless otherwise indicated. On behalf of the Board of Directors

G Hounsell M Sheppard Chairman Chief Executive Officer & Managing Director Melbourne, 28 February 2017 Melbourne, 28 February 2017

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Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the half year ended 31 December 2016

Consolidated

Note Half year

ended 31 Dec 2016

Half year ended

31 Dec 2015

Continuing Operations $m $m

Revenue 1,455.4 1,606.0

1,455.4 1,606.0

Direct employee expenses (563.4) (579.3)

Subcontractor expenses (422.9) (466.2)

Cost of goods used (240.2) (289.8)

Occupancy costs (11.1) (11.8)

Catering rights (24.8) (29.8)

Other expenses 5 (491.6) (91.8)

(Loss) / Profit before depreciation, amortisation, finance costs and income tax (EBITDA) (298.6) 137.3

Depreciation and amortisation expense (60.0) (48.6)

(Loss) / Profit before finance costs and income tax (EBIT) (358.6) 88.7

Finance costs - interest expense 8 (20.5) (20.0)

Finance income - interest revenue 8 0.3 0.2

(Loss) / Profit before income tax (378.8) 68.9

Income tax benefit / (expense) 6 20.7 (20.8)

(Loss) / Profit for the half year after tax (358.1) 48.1

Other Comprehensive Income

Items to be reclassified to profit or loss in subsequent periods:

Foreign currency translation differences for foreign operations (1.1) (5.7)

Effective portion of changes in fair value of cash flow hedges 2.3 0.6

Income tax on effective portion of changes in fair value of cash flow hedges (0.7) (0.1)

Other comprehensive income / (loss) for the half year, net of income tax 0.5 (5.2)

Total comprehensive (loss) / income for the half year (357.6) 42.9

Total comprehensive (loss) / income attributable to equity holders of the parent entity (357.6) 42.9

(Loss) / Profit attributable to equity holders of the parent entity (357.6) 42.9

Half year ended

31 Dec 2016

Half year ended

31 Dec 2015

Earnings Per Share cents cents

Basic (losses) / earnings per share (32.6) 4.4

Diluted (losses) / earnings per share (32.6) 4.4

The accompanying notes form an integral part of these financial statements.

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Condensed Consolidated Statement of Financial Position as at 31 December 2016

Consolidated

Note As at

31 Dec 2016 As at

30 Jun 2016

Current assets $m $m

Cash and cash equivalents 53.9 54.3

Trade and other receivables 376.9 429.6

Inventories 30.5 30.0

Prepayments 12.0 15.6

Current tax asset - 3.4

Total current assets 473.3 532.9

Non-current assets

Investments accounted for using the equity method 2.0 2.0

Trade and other receivables 47.9 39.4

Property, plant and equipment 279.9 302.9

Goodwill 15 745.3 1,032.0

Intangible assets 140.1 163.1

Deferred tax assets 118.8 111.0

Other 39.8 57.6

Total non-current assets 1,373.8 1,708.0

Total assets 1,847.1 2,240.9

Current liabilities

Trade and other payables 278.8 294.4

Borrowings 6.3 3.8

Current tax liability 5.0 -

Provisions 112.6 117.4

Derivatives at fair value 4.5 5.8

Total current liabilities 407.2 421.4

Non-current liabilities

Borrowings 895.7 840.3

Deferred tax liabilities 73.2 99.0

Provisions 47.0 43.1

Derivatives at fair value 1.2 2.2

Other 7.5 7.6

Total non-current liabilities 1,024.6 992.2

Total liabilities 1,431.8 1,413.6

Net assets 415.3 827.3

Equity

Issued capital 993.8 993.8

Reserves (6.3) (7.3)

Accumulated losses (572.2) (159.2)

Total equity 415.3 827.3

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Condensed Consolidated Statement of Changes in Equity


Consolidated $m

Attributable to equity holders of the parent

Issued Capital

Foreign Currency

Translation Reserve

Debt Hedging Reserve

Investment Revaluation

Reserve

Share Based

Payment Reserve

Accumulated Losses

Total

At 1 July 2015 993.8 (1.0) (5.8) (0.6) 6.6 (182.6) 810.4

Profit for the half year - - - - - 48.1 48.1

Other comprehensive income

Currency translation differences - (5.7) - - - - (5.7)

Movement in cash flow hedges - - 0.6 - - - 0.6

Tax effect of movements - - (0.1) - - - (0.1)

Total other comprehensive income/(loss) - (5.7) 0.5 - - - (5.2)

Total comprehensive income/(loss) - (5.7) 0.5 - - 48.1 42.9

Dividends paid - - - - - (60.4) (60.4)

Recognition of share based payments - - - - 0.3 - 0.3

At 31 December 2015 993.8 (6.7) (5.3) (0.6) 6.9 (194.9) 793.2

At 1 July 2016 993.8 (7.9) (5.7) (0.6) 6.9 (159.2) 827.3

Loss for the half year - - - - - (358.1) (358.1)

Other comprehensive income

Currency translation differences - (1.1) - - - - (1.1)

Movement in cash flow hedges - - 2.3 - - - 2.3

Tax effect of movements - - (0.7) - - - (0.7)

Total other comprehensive income/(loss) - (1.1) 1.6 - - - 0.5

Total comprehensive income/(loss) - (1.1) 1.6 - - (358.1) (357.6)

Dividends paid - - - - - (54.9) (54.9)

Recognition of share based payments - - - - 0.5 - 0.5

At 31 December 2016 (i) 993.8 (9.0) (4.1) (0.6) 7.4 (572.2) 415.3

(i) Total number of fully paid ordinary shares on issue at 31 December 2016 was 1,098,290,178 (30 June 2016: 1,098,290,178).


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Condensed Consolidated Cash Flow Statement for the half year ended 31 December 2016

Inflows/(Outflows)

Note Half year

ended 31 Dec 2016

Half year ended

31 Dec 2015

$m $m

Cash flows from operating activities

Receipts from customers 1,647.3 1,767.6

Payments to suppliers and employees (1,551.0) (1,726.6)

Interest received 0.3 0.2

Interest and other costs of finance paid (17.9) (19.4)

Income tax paid (5.1) (4.3)

Net cash provided by operating activities 73.6 17.5

Cash flows from investing activities

Proceeds from sale of property, plant and equipment 6.1 -

Payment for property, plant, equipment and capitalised contract costs (47.1) (74.9)

Payment for acquisition of businesses 14 (23.1) (102.9)

Proceeds from the sale of shares held in joint ventures - 2.1

Payment for intangible assets (0.9) (6.8)

Proceeds from repayment of other financial assets - 0.5

Net cash used in investing activities (65.0) (182.0)

Cash flows from financing activities

Proceeds from borrowings 100.0 225.0

Repayment of borrowings (50.0) (65.0)

Payment of finance lease liabilities (3.0) (1.1)

Dividends paid to members of the parent entity (54.9) (60.4)

Net cash (used in)/provided by financing activities (7.9) 98.5

Net increase/(decrease) in cash and cash equivalents 0.7 (66.0)

Cash and cash equivalents at the beginning of the half year 54.3 105.2

Cash overdraft acquired as part of business combinations 14 (1.4) -

Effects of exchange rate changes on the balance of cash held in foreign currencies 0.3 0.7

Cash and cash equivalents at the end of the half year 53.9 39.9


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SPOTLESS GROUP HOLDINGS LIMITED

17

Notes to the Financial Statements for the half year ended 31 December 2016

1. Statement of Compliance

These condensed consolidated financial statements of Spotless Group Holdings Limited (the “Group” or “Spotless”) and its subsidiaries (collectively, the “Group” or “Spotless”) for the half year ended 31 December 2016 have been prepared in accordance with AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting.

The half year financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual financial statements for the year ended 30 June 2016.

The half year financial statements were authorised for issue by the Directors on 28 February 2017.

2. Basis of Preparation

The half year financial statements have been prepared on an historical cost basis, except for the revaluation of certain financial instruments and various assets and liabilities acquired as part of business combinations. Cost is based on the fair values of the consideration given in exchange for assets.

Unless noted otherwise, all amounts are presented in Australian dollars and all values are rounded to the nearest hundred thousand dollars, in accordance with ASIC Class Order 2016/191, dated 24 March 2016. Certain comparative information in the financial statements has been reclassified to ensure consistency of presentation.

The accounting policies adopted in the preparation of the half year financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 30 June 2016, and additionally the adoption of the following Standards and Interpretations that became effective from periods beginning on or after 1 January 2016:

- AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations (AASB 1 & AASB 11)

- AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle

Adoption of these Standards and Interpretations did not have a material impact on the consolidated financial statements for the half year ended 31 December 2016 or the comparative reporting period.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

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SPOTLESS GROUP HOLDINGS LIMITED Notes to the Financial Statements


18

3. Critical accounting estimates

The Group makes estimates and assumptions concerning the future which may eventually differ from actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.

Information on the estimates and assumptions that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year is as follows:

Long-term contract revenue recognition

The Group has a limited number of long-term maintenance contracts that are engaged in a suite of related services under the one contract. The Group distinguishes between these revenue streams with respect to revenue recognition. Planned maintenance services revenue is recognised based on services completed. Life cycle maintenance revenue is based on stage of completion based on costs incurred. In recognising the revenue, the Group periodically re-forecasts the estimated total contract costs based on the different stage of completion of the contract.

Impairment of goodwill and intangibles

Determining whether goodwill, non-financial assets and intangibles are impaired requires an estimation of the recoverable amount of the asset, or cash-generating unit (“CGU”) to which it has been allocated. The value in use and fair value less costs of disposal calculations requires the Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate present value.

Onerous contracts provisioning

The Group has recognised provisions for various contracts assessed as being onerous as at balance date. These provisions have been calculated based on management’s best estimate of discounted unavoidable net cash outflows required to fulfil the contracts. The status of these contracts and the adequacy of provisions are assessed at each reporting date.

Property make-good provisioning

The Group has made assumptions in arriving at its best estimate of the likely costs to “make good” premises which are currently occupied under operating leases or at customers’ premises. Such estimates involve management forecasting the average restoration cost and are dependent on the nature of the premises occupied.

Environmental provisioning

The Group intends to restore and remediate certain properties. The provision for remediation is based on assessments by management supported by external advisors. As remediation progresses, actual costs are being monitored against the estimated provisions made.

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3. Critical accounting estimates (continued)

19

Taxation

The Group has carried forward tax losses of $39.8 million (tax effected) carried on the Condensed Consolidated Statement of Financial Position as a deferred tax asset. These continue to be carried on the Condensed Consolidated Statement of Financial Position as the Directors believe it is probable that future taxable profits will be available against which the Group can utilise the benefits. These losses are also subject to satisfying the loss recoupment rules in the Income Tax Assessment Act 1997.

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the nature and complexity of existing and terminated contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies.

Useful lives of acquired customer contracts

Customer contracts are carried on the Condensed Consolidated Statement of Financial Position at their initial fair value at acquisition date net of accumulated amortisation. These intangible assets are amortised on a straight-line basis over the average contract term of the customer portfolio. The contract term and amortisation period has been based on historical experience and management expectation on the renewal profiles.

Long service leave provisioning

The liability for long service leave is recognised and measured at the present value of the estimated future cash flows for the services provided by employees in current and prior periods. In determining the present value of the liability, consideration is given to the following key assumptions:

future increase in wages and salary rates; future on-cost rates; and attrition rates based on staff turnover history.

Estimation of useful lives and residual values of property, plant and equipment

The estimation of the useful lives and residual of values of assets has been based on historical experience as well as manufacturers’ warranties (for plant and equipment), lease terms (for leased equipment and leasehold improvements) and turnover policies. In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives and residual values are made when considered necessary.

Purchase price accounting

Purchase price accounting for the acquisition made within 12 months of 31 December 2016 remains provisional. Note 14 details the fair value of assets and liabilities acquired. F

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Half year ended

31 Dec 2016 31 Dec 2015

4. Other Items Included in the Profit or Loss $m $m

Loss on disposal of MV Epicure 2.5 -

Exit costs of major Resources contract 2.1 -

Transaction costs 3.8 -

Write-off of two significant unsuccessful bids - 9.0

Changes in estimates:

Onerous contract provisions 8.8 -

Environmental provisions 0.9 -

Make-good provisions (3.0) -

Other provisions1 15.0 -

Public liability provisions (1.2) -

Other estimates 0.2 -

1Based on management’s reassessment of the expected recoverable amounts.

Of the amounts included in the Note disclosed above, $34.0 million is also captured in Note 5 below.

5. Exceptional Items

Within results from continuing operations in the Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income for the half year ended 31 December 2016 are certain items of individual or aggregated significance.

These items largely relate to the accounting impacts of the Group’s decision to review its current contract portfolio in line with its strategy outlined in August 2016. As a result, the Group is exiting a number of contracts within its portfolio as well as allowing the business to focus on investing in high-growth sectors, and improving performance and profitability.

This optimisation will result in the accelerated exit of low-performing contracts to allow the business to focus on priority growth areas as soon as possible.

Spotless has identified various facilities services and Laundry contracts as non-core.

Half year ended 31 Dec 2016

Other

expenses $m

Depreciation and

amortisation expense

$m Tax impact

$m Total

$m

Goodwill impairment 315.7 - - 315.7

Other intangible asset write-downs 15.1 - (4.5) 10.6

Property, plant and equipment write-downs 25.8 - (7.7) 18.1

Other asset write-downs 32.8 2.3 (10.5) 24.6

Onerous contracts provision 15.8 1.4 (5.2) 12.0

Other provisions and accruals 14.5 - (4.4) 10.1

Total Exceptional Items 419.7 3.7 (32.3) 391.1

Exceptional items relating to goodwill are detailed in Note 15 to these financial statements.

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5. Exceptional Items (continued)

Property, plant and equipment write-downs (pre-tax) impacted plant and equipment by $15.4m in the Facility Services segment; and the Laundries segment incurred write-downs of $1.9m for rental stock and $8.5m for plant and equipment respectively.

Intangible asset write downs (pre-tax) impacted software development by $15.1m in the Facility Services segment. Other asset write-downs impacted Trade and other receivables by $17.0m.

There were no exceptional items for the half year ended 31 December 2015.

Half year

ended

31 Dec 2016

$m

Other expenses excluding Exceptional Items 71.9

Exceptional Items 419.7

Total Other expenses 491.6

Half year

ended

31 Dec 2016

6. Income Tax Benefit $m

Income tax expense on profit excluding Exceptional Items (11.6)

Income tax benefit on Exceptional Items 32.3

Total Income tax benefit 20.7

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7. Segment Information

The Group's operating segments under AASB 8 Operating Segments are as follows, and are determined based on the nature of services provided to customers:

Facility Services: provides multi-faceted facilities management, cleaning, and catering and food services to a wide range of industries across Australia and New Zealand.

Laundry Services: provides linen and uniform laundry services to a broad range of customers across Australia and New Zealand.

The accounting policies of the operating segments are the same as the Group's accounting policies.

The segment result represents the profit earned by each segment excluding unallocated corporate administration costs, depreciation and amortisation, net finance costs and income tax expense.

Half year ended

External Sales 31 Dec 2016 31 Dec 2015

Operating segments $m $m

Facility Services 1,336.4 1,472.3

Laundry Services 144.2 148.9

Total operating segments 1,480.6 1,621.2

Inter-segment sales (25.2) (15.2)

Total revenue 1,455.4 1,606.0

Segment Result

Operating segments

Facility Services (194.7) 122.7

Laundry Services (74.1) 37.2

Total Operating Segments (268.8) 159.9

Unallocated corporate administration costs (29.8) (22.6)

Earnings before interest, tax, depreciation, amortisation (EBITDA) (298.6) 137.3

Depreciation and amortisation (60.0) (48.6)

Earnings before interest and tax (EBIT) (358.6) 88.7

Net finance costs (20.2) (19.8)

(Loss) / Profit before income tax expense (378.8) 68.9

Income tax benefit / (expense) 20.7 (20.8)

(Loss) / Profit for the half year from continuing operations (358.1) 48.1 For

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Half year ended

31 Dec 2016 31 Dec 2015

8. Net Finance Costs $m $m

Interest Expense

Interest charged from third party entities (18.9) (18.0)

Other borrowing costs (0.8) (1.0)

Unwinding of discount on provisions (0.8) (1.0)

(20.5) (20.0)

Interest Revenue

Third party entities 0.3 0.2

0.3 0.2

Net Finance Costs (20.2) (19.8)

Half year ended 31 Dec 2016 31 Dec 2015

9. Dividends Cents per share

Total $m

Cents per share

Total $m

Fully Paid Ordinary Shares

Recognised and paid dividends

2016 final dividend (paid 30 September 2016) 5.0 54.9 - -

2015 final dividend (paid 25 September 2015) - - 5.5 60.4

Unrecognised and declared dividends

2017 interim dividend 1.35 14.8 - -

2016 interim dividend - - 3.5 38.4

On 28 February 2017, the Directors declared an unfranked interim dividend of 1.35 cents per share to the holders of fully paid ordinary shares in respect of the half year ended 31 December 2016, to be paid to shareholders on 7 April 2017. This dividend has not been included as a liability in the financial statements. The dividend will be paid to all shareholders on the Register of Members on 21 March 2017. The total estimated dividend to be paid is $14.8 million.

10. Changes in the Composition of the Group

Other than the acquisition as disclosed in Note 14, there were no material changes to the composition of the Group during the period. F

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As at As at

31 Dec 2016 30 Jun 2016

11. Commitments and Contingencies $m $m

a) Commitments

Plant and equipment 23.1 15.7

Catering rights 120.9 150.6

Contract and bank guarantees and letters of credit 151.3 139.5

295.3 305.8

b) Contingencies There have been no other significant contingencies since the most recent annual financial statements.

12. Fair Value

The carrying amount of financial assets or liabilities recognised in the financial statements approximate their fair value, on the basis that they are short-term in nature and subject to variable interest rates where applicable. The fair value of derivative financial instruments is estimated using Level 2 inputs that are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

13. Borrowings

Borrowings comprise interest bearing liabilities recorded at amortised cost, net of borrowing costs that are held to maturity.

During the period, the Group extended its existing A$75 million and A$50 million single currency revolving cash advance facilities, with a revised termination date from 16 December 2017 to 11 January 2018.

As at 31 December 2016, the Group has total committed facilities of $1,057.4 million (30 June 2016: $1,056.0 million), of which $887.4 million is drawn (30 June 2016: $836.0 million).

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13. Borrowings (continued)

As at

31 Dec 2016

$m

As at

30 Jun 2016

$m

Unsecured multi-option facility, effective 28 May 2014 as amended, structured as a $A324.9 million and a NZ$107.0 million revolving credit facility terminating on 22 December 2018 (Facility A); and a $A163.6 million and a NZ$53.0 million revolving credit facility terminating 22 December 2019 (Syndicated Facility Agreement).

Amount drawn 642.4 641.0

Amount undrawn - -

Unsecured A$100 million multi-currency revolving credit facility, effective 22 December 2015 and terminating 22 December 2020.

Amount drawn - -

Amount undrawn 100.0 100.0

Unsecured multi-option facility structured as a A$115.0 million dual-currency cash advance facility, with a NZ$70.0 million sub-limit, commencing 28 May 2014, as amended, and terminating 29 May 2018 (Bilateral Facility Agreement).


Amount undrawn - 10.0

Unsecured cash advance facilities, structured as two A$75 million and a A$50 million single currency revolving cash advance facilities, commencing 16 December 2014 and terminating 11 January 2018 (Bilateral Facility Agreement).


Amount undrawn 70.0 110.0

Total Financing Facilities 1,057.4 1,056.0

14. Business Combinations

On 31 October 2016, the Group acquired 100% of the share capital of Nuvogroup (Australia) Pty Ltd and NG-Serv Pty Ltd (collectively, referred to as “Nuvo”). The accounting for this acquisition is provisional as at 31 December 2016 and will be finalised within 12 months of acquisition date, as the Group continues to assess the fair value of assets acquired and liabilities assumed. The primary reason for acquiring Nuvo is to broaden the capacity to deliver long life integrated services.

Transaction costs of $0.4 million (December 2015: $1.5 million) relating to this acquisition was recognised in other expenses in the profit and loss during the period. F

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14. Business Combinations (continued)

The aggregated fair values of the identifiable assets and liabilities of Nuvo as at the date of acquisition, which will be finalised within 12 months of acquisition date, is noted in the following table:

Provisional at

31 Dec 2016

$m

Assets

Property, plant and equipment 0.8

Cash overdraft (1.4)

Trade and other receivables 11.1

Inventories 0.6

Prepayments 0.1

11.2

Liabilities

Trade and other payables 15.6

Employee provisions 1.3

Other liabilities 1.7

18.6

Total identifiable net liabilities at fair value (7.4)

Purchase consideration transferred - cash 23.1

Intercompany amounts payable to the Group on acquisition (1.5)

Goodwill arising on an acquisition 29.0

Nuvo contributed $12.2 million of revenue and $1.0 million to profit after tax for the half year ended 31 December 2016. If the acquisition had taken place at the start of the period, revenue from continuing operations for the 6 months would have been $1,479.8 million, and loss after tax for the Group would have been $356.1 million for the half year ended 31 December 2016.

The goodwill of $29.0 million includes knowledge, business and capability acquired as well as the value of expected synergies arising from the acquisition. None of the goodwill recognised is expected to be deductible for income tax purposes.

As at As at

31 Dec 2016 30 Jun 2016

15. Goodwill $m $m

Balance at the beginning of the year 1,032.0 911.4

Acquired in a business combination (Note 14) 29.0 120.6

Impairment loss (Note 15(ii)) (315.7) -

Balance at the end of the year 745.3 1,032.0

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15. Goodwill (continued)

The Group comprises two distinct businesses, namely Facility Services and Laundries, representing the different services and capability offered to customers. The services offered to Facility Services customers are largely homogenous and leverage the skills and experience of the Group in mobilising and operating large contracts with multiple service lines. For the purposes of impairment testing at 31 December 2016, and consistent with historical allocations, goodwill has been allocated to the following CGU’s, which reflect the industries in which the Group’s customers operate.

As at As at

31 Dec 2016 30 Jun 2016

$m $m

Facility Services

AE Smith 78.0 49.0

Business and Industry 48.4 170.7

Defence 50.5 50.5

Education 61.1 61.1

Government 123.8 123.8

Health 86.1 86.1

Public Private Partnerships 48.2 48.2

Resources 3.2 102.4

Sports and Leisure 79.3 79.3

UASG 88.1 88.1

Total Facility Services 666.7 859.2

Laundries 78.6 172.8

Balance at the end of the year 745.3 1,032.0

Impairment Testing of Goodwill

Impairment testing is performed annually at 30 June in accordance with the Group’s accounting policies and processes. At each reporting date, the Group reviews the carrying amounts of its goodwill and assets to determine whether there is any indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made. An impairment loss is recognised in profit and loss if the recoverable amount of an asset is estimated to be less than its carrying amount.

Following the strategic review in August 2016, the Group commenced a review of the number of poor performing and single service contracts resulting in an indicator of impairment as at 31 December 2016. Consequently, the Group has assessed the recoverable amount of each of its CGUs, including any associated goodwill. The assessment determined that the carrying amount exceeded the recoverable amount for the Business and Industry, Resources and Laundries CGUs, requiring a goodwill impairment loss to be recognised in the Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income.

Assets within a CGU that have been impacted by the strategic decision have been assessed for impairment prior to the assessment of goodwill impairment. These impairments are disclosed in Note 5. The discussion below outlines the Group’s methodology and approach to testing the recoverable amount of each CGU.

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(i) Methodology and Testing of Recoverable Amount

Value in Use

The recoverable amount of all CGUs, except for the Resources CGU, has been determined based on a value in use (“VIU”) calculation.

Key Assumptions

Value in Use

The following key assumptions have been used to determine the recoverable amounts of the Group’s CGUs under a value in use model:

i) Cash Flows

Cash flows have been based on a contract profitability forecast (reflecting the expected reduction of poor performing and single service contracts) using the growth rates detailed in point iii) between years 2 and 5 and a terminal value based on the long term growth rate. The cash flows comprise earnings before interest, depreciation and amortisation from each CGU net of expected working capital movements (as a surrogate for cash flows) and sustainable levels of maintenance capital expenditure.

ii) Discount rates

Discount rates applied in the testing of recoverable amount reflect the pre-tax weighted average cost of capital for the respective CGUs (12.8% for Facility Services CGUs and 13.8% for the Laundries CGU) and is reflective of the current market assessment of the risks specific to each CGU taking into consideration the time value of money. Discount rates have not changed from those used at 30 June 2016.

iii) EBITDA Growth

EBITDA growth has been based on management’s experience in the respective customer sectors, from observable industry trends and data, and growth prospects given current revenue pipelines. Compound annual growth rates applied range from 2.9% to 7.0% between years 2 and 5.

iv) Long Term Growth rate

Management has applied a long term growth rate of between 2% and 3% beyond the 5 year forecast period and into perpetuity. This range is considered to be in line with, and in some instances below external market expectations of long term growth in these industries.

Fair Value Less Costs of Disposal

The recoverable amount of the Resources CGU has been determined based on a fair value less costs of disposal basis using a discounted cash flow valuation technique. The costs of disposal have been estimated by management based on prevailing market conditions. As there are no quoted prices or active markets for the Resources CGU, the valuation is largely based on Level 3 inputs in accordance with AASB 13 Fair Value Measurement. Each of the key inputs is described further below.

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(i) Methodology and Testing of Recoverable Amount (continued)

Key Assumptions

The following key assumptions have been used to determine the recoverable amount of the Resources CGU under a fair value less costs of disposal basis:

i) Cash Flows

Cash flows have been based on a contract profitability forecast (reflecting the expected reduction of poor performing and single service contracts) using the growth rates detailed in point iii) for subsequent years and a terminal value based on the long term growth rate. The cash flows comprise earnings before interest, depreciation and amortisation from the Resources CGU net of expected working capital movements (as a surrogate for cash flows) and sustainable levels of maintenance capital expenditure.

ii) Discount rate

The recoverable amount of the Resources CGU has been determined by applying a post-tax discount rate of 9.0%. The post-tax discount rate is based on the post-tax weighted average cost of capital for the Resources CGU reflecting the current market assessment of the risks specific to the Resources CGU and taking into consideration the time value of money. Discount rates have not changed from those used at 30 June 2016.

iii) EBITDA Growth

EBITDA growth has been based on management’s experience in the sector, from observable industry trends and data, and growth prospects given current revenue pipelines. The Resources CGU applies a 10 year model, comprising a forecast and a compound annual growth rate of negative 2.5% over this period. The 10 year model more accurately reflects management’s current view of the economic cycle of the Resources industry.

iv) Long Term Growth rate

Management has applied a long term growth rate of 3.0% beyond the forecast period and into perpetuity. This rate is considered to be in line with, and in some instances below external market expectations of long term growth in these industries.

(ii) Impairment

Goodwill impairments of $315.7 million have been recognised in the period ended 31 December 2016, as outlined in the table below.

Recoverable Amount

Impairment – Goodwill

CGU $m $m

Business and Industry 89.5 122.3

Resources 31.1 99.2

Total Facility Services 120.6 221.5

Laundries 322.6 94.2

Total 443.2 315.7 For

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(iii) Sensitivity Analysis

Value in Use

The Group has assessed the potential impact of reasonably possible changes in the following key assumptions on the recoverable amount of CGUs calculated using the VIU methodology:

Pre-tax discount rate Compound annual EBITDA growth rate Long term growth rate

Excluding the Laundries and Business and Industry CGUs, the Group does not believe there is a reasonably possible change in those assumptions which would result in the carrying value of the other CGU’s exceeding their recoverable amounts, particularly following the intended reallocation of the level at which goodwill is assessed (refer Note 15(iv) for further details).

A reasonably possible unfavourable change in each of these assumptions in isolation would result in the following approximate change on the estimated recoverable amounts for the Laundries and Business and Industry CGUs. This may have a negative impact on the recoverable amount, without any mitigating facts or changed circumstances, and could indicate a requirement for additional goodwill impairment.

Sensitivity Business and Industry $m

Laundries

$m

1.0% increase in the pre-tax discount rate 8.6 27.1

1.0% decrease in the compound annual EBITDA growth rate 3.2 16.4

1.0% decrease in the long term growth rate 5.8 18.1

Fair Value Less Costs of Disposal

After accounting for the impairment loss for the Resources CGU, the fair value of this CGU is assessed as equating to its carrying amount as at 31 December 2016. The Group has assessed the potential impact of reasonably possible changes in the following key assumptions on the fair value and thus recoverable amount of the Resources CGU:

Post-tax discount rate Compound annual EBITDA growth rate Long term growth rate

A reasonably possible unfavourable change in each of these sensitivities in isolation would result in the following approximate change on the estimated fair value, which may have a negative impact on the fair value, without any mitigating facts or changed circumstances, and could indicate a requirement for an additional goodwill impairment.

Sensitivity Resources

$m

1.0% increase in the post-tax discount rate 2.0

1.0% decrease in the compound annual EBITDA growth rate 1.5

1.0% decrease in the long term growth rate 1.0

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(iv) Subsequent Goodwill Impairment Testing

Management intends to reallocate the level at which goodwill is assessed by 30 June 2017 to reflect the Group’s two distinct businesses, Facility Services and Laundries, and incorporate changes as a result of the contract portfolio rationalisation, and the manner in which the business is internally managed and reported.

16. Subsequent Events

There has not been any matter or circumstance that has arisen since the end of the financial period that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years.

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A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation

Ernst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001

Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/au

Auditor’s Independence Declaration to the Directors of Spotless GroupHoldings Limited

As lead auditor for the review of Spotless Group Holdings Limited for the half-year ended31 December 2016, I declare to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 inrelation to the review; and

(b) no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Spotless Group Holdings Limited and the entities it controlled duringthe financial period.

Ernst & Young

Tim WallacePartner28 February 2017

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Directors’ Declaration The Directors of Spotless Group Holdings Limited declare that in the opinion of the Directors:

(a) the financial statements and notes of Spotless Group Holdings Limited for the half year ended 31 December 2016 are in accordance with the Corporations Act 2001, including:

i. giving a true and fair view of the Group’s financial position as at 31 December 2016 and of its performance for the half year ended on that date; and

ii. complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they

become due and payable. Signed in accordance with a resolution of the Directors. On behalf of the Board of Directors

G Hounsell M Sheppard Chairman Chief Executive Officer & Managing Director Melbourne, 28 February 2017 Melbourne, 28 February 2017

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Ernst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001

Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/au

To the members of Spotless Group Holdings Limited

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Spotless Group Holdings Limited,which comprises the Condensed Consolidated Statement of Financial Position as at31 December 2016, the Condensed Consolidated Statement of Profit and Loss and OtherComprehensive Income, Condensed Consolidated Statement of Changes in Equity and CondensedConsolidated Cash Flow Statement for the half-year ended on that date, notes comprising a summaryof significant accounting policies and other explanatory information, and the directors’ declaration ofthe consolidated entity comprising the company and the entities it controlled at the half-year end orfrom time to time during the half-year.

Directors’ Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation of the half-year financial report thatgives a true and fair view in accordance with Australian Accounting Standards and the CorporationsAct 2001 and for such internal controls as the directors determine are necessary to enable thepreparation of the half-year financial report that is free from material misstatement, whether due tofraud or error.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. Weconducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to statewhether, on the basis of the procedures described, we have become aware of any matter that makes usbelieve that the financial report is not in accordance with the Corporations Act 2001 including: giving atrue and fair view of the consolidated entity’s financial position as at 31 December 2016 and itsperformance for the half-year ended on that date; and complying with Accounting Standard AASB 134Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Spotless GroupHoldings Limited and the entities it controlled during the half-year, ASRE 2410 requires that wecomply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsiblefor financial and accounting matters, and applying analytical and other review procedures. A review issubstantially less in scope than an audit conducted in accordance with Australian Auditing Standardsand consequently does not enable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the CorporationsAct 2001. We have given to the directors of the company a written Auditor’s IndependenceDeclaration, a copy of which is included in the Directors’ Report.F

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Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes usbelieve that the half-year financial report of Spotless Group Holdings Limited is not in accordance withthe Corporations Act 2001, including:

(a) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016and of its performance for the half-year ended on that date; and

(b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the CorporationsRegulations 2001.

Ernst & Young

Tim WallacePartner

Melbourne28 February 2017

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spotless group holdings limited appendix 4d half year report ...2017/02/28 · 2 review of...

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