CEO comment - Polygon off to a strong start in 2016
The restructuring programmes that were executed during the second half of 2015 continue to deliver a strong contribution to our Q1 performance.
Both Germany and the US show impressive improvements in their results and together represent a large part of the total adjusted EBITA increase of 39% for the Group. The German business continues to pick up pace under the new leadership, in combination with a much lower cost structure. The decision to focus on Temporary Climate Solutions in the US has paid off with a significant increase in gross margin, whilst reducing overheads. Polygon Group now has stable country management teams in place and we are seeing the positive effects of their strong leadership cascade down into the country organizations. The double-digit improvement compared to an already strong quarter last year was achieved in challenging market conditions and is a direct result of a well functioning organization. The investment in creating a clear and simple structure, in combination with a strong company culture that has been built over the last two years, are the key drivers for the improved performance.
We have, as mentioned before, worked hard and diligently on getting the basics in place. We have seen a consistent improvement in performance in terms of both profitability and customer satisfaction. The results of our annual employee survey have again improved compared to the previous year and are well above the average for comparable service companies. Our philosophy of continuously investing in leadership skills and taking care of our people first has contributed to a highly motivated and engaged workforce, which in turn has led to satisfied customers and healthy results!
The most important side effect of our strong platform is that it enables us to focus on improving our service delivery processes to improve gross margins, whilst at the same time starting to prepare for growth in new service lines and bolt-on acquisitions in our most mature countries. The expected improvement in cash flow from increasing profits, substantially reduced restructuring and continuous control of working capital, can be used to finance acquisitions as and to reduce our net debt.
Looking more closely at the results, we also need to conclude that we face a lower growth rate than we were aiming for, in spite of some positive effects from major flooding in the UK. The closure of projects from the UK event is slow and invoicing is expected to occur during Q2. The closing down of the Property Damage Restoration services in the US also had a negative effect on volumes compared to the previous year. Adjusted for currency and the aforementioned US effects, organic growth amounts to 3.3%. Due to warm winter conditions and a general lack of damage, the reported “business as usual” claim level, continues to be low. Efficiencies, with regard to both direct costs resulting in improved gross margins and indirect savings from restructuring projects last year, are the main drivers behind the improved results. Nine out of our 13 countries show increased profitability compared to last year.
Preparations for the introduction of our new field force system are still in progress and pilots are expected to take place in Austria and the Netherlands during Q3. The rollout to the remaining countries will take place once the system has been successfully piloted and is expected to further enhance our service delivery process, resulting in continued gross margin improvements.
Stockholm, 13 May 2016
Evert Jan Jansen
President and CEO
Direct Reaction Team
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