Berendsen not too sexy for its shirt

Berendsen is one of those work-a-day companies that never seems to elicit much excitement, and so it proved again with a subdued reaction to a solid set of interim figures.

The top line may have fallen 2% in the first half of 2012 to £488.2m from £495.9m in the corresponding period of 2011, but with the effects of acquisitions and exchange rate fluctuations factored out, revenue rose by 2%.

Adjusted operating profit rose 6% in actual terms and 8% on an underlying basis to £65.0m from £61.6m, and the group managed to ratchet up its adjusted operating margin by nine-tenths of a percentage point to 13.3% from a year earlier.

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Headline profit before tax of £51.5m, up from £48.4m the year before, and slightly ahead of Investec's expectations. The broker said earnings per share of 22.3p versus 20.8p a year earlier also counted as a "beat".

Core growth businesses do what they say on the tinAs Investec noted, profit growth was driven by what Berendsen calls its Core Growth businesses, so these parts of the group are living up to their name.

The Core Growth businesses comprise: Workwear (rent, wash and maintenance of uniforms and overalls); Facility (mats and wash-rooms); UK flat linen (primarily serving the hotel and healthcare markets).

Workwear saw revenue unchanged at £143.0m, but the adjusted operating profit improved to £23.1m from £22.6m at the interim stage last year, leading to an increase in the operating margin to 16.2% from 15.8%. Underlying constant currency growth was 3% for revenue and 4% for adjusted operating profit.

The group's focus in this division is on improving efficiency levels in Germany and the UK towards those it has in Holland and Denmark, through advanced process changes, improved sourcing and management of textiles and use of online customer service.

The Facility division, seen as the sector offering the sexiest growth (although nothing much about Berendsen is ever sexy) - grew revenue to £106.1m from £104.0m the year before and adjusted operating profit to £25.7m from £23.1m previously. That led to a two point increase in the operating margin to 24.2%.

The level of new contract sales for mat and wash-room services in Scandinavia is ahead of the company's expectations, driven by an increase in sales efficiency which the group's management attributed to the more focused business line organisation, which enables it to drive new initiatives and to benchmark performance much more effectively.

"We have made operational progress in the wash-room business following the acquisitions we made last year to become market leader. We see a good opportunity to grow margins closer to those of the more developed mat business," the company said.

The UK flat linen business actually saw revenue dip a little, to £95.0m from £96.4m the year before, but this can be explained by 2011's interim figures covering 27 weeks and this year's just 26; adjusted for this, revenue was up 2%. Even so, the company managed to eke out an increase in operating profit to £10.7m from £10.1m the year before. The operating margin improved to 11.3% from 10.5% at the halfway point last year.

The group lost some contracts with smaller hotel customers, which held back revenue growth. The group is, in any case, diverting more energy to the Healthcare part of the business, as demand is currently stronger than the Hotel trade.

For the Core Growth businesses as a whole, revenue edged up to £344.1m from £343.4m. Adjusted operating profit notched up a fairly impressive 6.6% increase to £59.5m from £55.8m, while the operating margin jumped to 17.3% from 16.2%.

Where there's muck ...Investec's summary is that, overall, the group has delivered a good first half performance, despite difficult trading conditions. Perhaps the old Yorkshire adage that "where there's muck, there's brass" still holds true.

"Although the adverse currency impact could be a little greater in the second half than in the first, we will not be changing our full year forecasts or our PE-based [price/earnings ratio-based] target price," Investec said.

"We are maintaining our Buy recommendation on a business that we regard as very well managed with good medium-term growth prospects," Investec concluded.

It is hard to argue with that analysis. The day Berendsen starts becoming too sexy for its shirt is probably the day long-term holders want to start worrying about management becoming overly ambitious.

JH