Final Results
Johnson Service Group PLC
04 March 2003
4 March 2003
JOHNSON SERVICE GROUP PLC
PRELIMINARY RESULTS FOR THE 52 WEEKS TO 28 DECEMBER 2002
SUMMARY
• Turnover was £219.2m (2001: £220.4m).
• Adjusted operating profit (excluding goodwill amortisation) reduced
by 10.5% to £26.3m (2001: £29.4m). Operating profit was £21.6m (2001:
£25.0m).
• Adjusted pre-tax profit* (excluding goodwill amortisation and exceptional
items) reduced by 11.4% to £21.0m (2001: £23.7m). Pre-tax profit was
£15.0m (2001: £19.3m).
• Adjusted fully diluted earnings per share (excluding goodwill amortisation
and exceptional items) reduced by 11.9% to 26.6p (2001: 30.2p). Fully
diluted earnings per share were 16.2p (2001: 22.5p).
• Total dividend for the year maintained at 17.6p (2001:17.6p).
• Strong cash flow reduced net borrowings by £15.1m during the year to £61.9m
(2001: £77.0m).
• Stuart Graham undertook an intensive review of the business following his
appointment as CEO in June 2002.
• Management strengthened across the Group.
• Culture of the business reshaped - 'a people business'.
• New products launched.
* see note 4
Stuart Graham, CEO, Johnson Service Group PLC, said: 'I feel confident that the
fundamentals of our business are once again strong and believe that a
well-managed and efficiently structured business with a best-in-class product
offering will enjoy a strong platform returning in due course to organic
growth.'
Enquiries:
Johnson Service Group PLC Hudson Sandler
Stuart Graham, CEO Michael Sandler / Wendy Baker
Mike Sutton, CFO Telephone: 020 7796 4133 Tel: 020 7796 4133
on Tuesday 4 March 2003 only
thereafter on 0151 933 6161
CHAIRMAN'S STATEMENT
Against a difficult market background, this has been a year of radical change
strengthening our management and central functions, re-examining our strategy
and creating the right framework for future growth. Our overriding aim is to
ensure that we derive full benefit from the strength of the Group's brands,
market positions and nationwide coverage. We will achieve this by refocusing on
the needs of our customers, by enhancing our services and above all by creating
a new and positive culture, thereby realising the full potential of our people.
Financial results
Our results for the year reflected the challenging economic environment and
difficult trading conditions noted in the interim report. Turnover was in line
with the previous year at £219.2m (2001: £220.4m), while operating profit was
£21.6m (2001: £25m) and adjusted operating profit (which excludes goodwill
amortisation) was 10.5% lower at £26.3m (2001: £29.4m). This figure is stated
after charging one-off costs relating to management changes, plant and shop
closures and environmental matters totalling £5.9m (2001: £5.3m) and additional
pension costs of £1.6m. Of the one-off costs £3.9m (2001: £4.2m) related to UK
textile rental, £0.5m (2001: £0.2m) to Irish textile rental and £1.5m (2001:
£0.9m) to GB drycleaning.
Pre-tax profit was £15m (2001: £19.3m) and fully diluted earnings per share were
16.2p (2001: 22.5p). Adjusted pre-tax profit (which excludes goodwill
amortisation and exceptional items) was 11.4% lower at £21m (2001: £23.7m) and
adjusted fully diluted earnings per share were 26.6p (2001: 30.2p), a reduction
of 11.9%.
Cash generation remained strong, in spite of the reduction in profit, and this
was reflected in a £0.4m decrease in the Group's interest charge to £5.3m and a
£15.1m reduction in year-end debt to £61.9m. Interest was covered 5 times by
adjusted operating profit.
The Board recommends a maintained final dividend of 13.6p per share which,
together with the interim dividend of 4.0p paid in October, makes a total for
the year of 17.6p, the same as in 2001.
Operations
The performance of Johnsons Apparelmaster was affected by further deterioration
in the trading climate, particularly in the manufacturing sector. Although the
contractual nature of the workwear rental business afforded some short term
protection to profits, and rigorous measures were taken to reduce costs, it
became clear to the Board that a new approach was required to stabilise and
restore the business. The new management team appointed in the second half has
created a number of new initiatives designed to achieve this, all of which are
based on a more customer-focused and flexible approach to our offer. The
national sales force is being rebuilt, redirected and reinvigorated under a new
Sales & Customer Service director, and we have recently launched a range of new
products and services designed to attune our business more closely with changes
in the workwear market place. Action is also being taken to improve efficiency
and consistency, enhance plant utilisation, and create a unified national
culture behind the market-leading Johnsons Apparelmaster brand.
Stalbridge Linen Services, our value-added niche business which is UK market
leader in the leisure, professional catering and corporate entertainment
sectors, achieved further growth despite increasing competition in its sector.
CCM, our garment sourcing and manufacturing business, produced strong results
and made good further progress in both market and service penetration.
JWS, our washroom services business, exceeded expectations and continued to
build its national presence through two bolt-on acquisitions.
The continuing disappointing results of our business in Ireland, Connacht Court
Group, have been addressed by empowering local management to make the necessary
changes. Until an acceptable performance is achieved, this business will report
directly to the new Group Chief Executive.
Johnsons Drycleaning performed in line with expectations and remained a
significant cash generator. We have continued to expand our presence in
convenient locations, notably through the opening of additional drive-in stores,
while our 'Cleanology' initiative to enhance quality and service was
successfully extended to over 300 branches during the year.
Pensions
All our businesses have borne significantly increased costs following the
actuarial valuation of the Johnson Group Staff Pension Scheme, a defined benefit
scheme, in April 2002. Like many other companies, we have been forced to take
action to limit our liabilities, which have increased because of a combination
of increasing life expectancy and falling stock market values. The defined
benefit scheme was substantially closed to new entrants in January 2002.
As disclosed in the interim report, cash contributions to our pension schemes,
totalling £4.0m per annum, were recommenced with effect from July 2002. We are
actively seeking ways to reduce the cost materially in the full financial year
2003.
Board and management
As shareholders will be aware from my statement in last year's annual report, we
had at that time identified a successor for the position of Chief Executive.
This was the result of a search instigated in 2001. I am delighted to welcome
Stuart Graham, formerly Group Chief Operating Officer of ISS, who joined us in
June 2002.
We were pleased to welcome Michael Gatenby to the Board as a non-executive
director in September 2002, following the resignation of Tony Davidson earlier
in the year. Peter Robinson, whose retirement was announced in the interim
report, left the Board in November 2002. He was replaced as managing director
of Johnsons Apparelmaster by David Toon, who formerly occupied the same position
at CCM. Kevin Mayes, previously finance director of CCM, was promoted to become
managing director there.
A number of other senior management appointments and promotions have been made
to strengthen the business and in particular to fill the skill gaps identified
by Stuart Graham during his intensive review of the Group.
On behalf of the Board, I would like to record our appreciation of the
tremendous energy and intellect, both enhanced by long experience of the support
services sector, which Stuart has brought to bear since his appointment, and of
the considerable progress he has made in finding new ways forward. I am
confident that the Board and our employees throughout the Group will respond
positively to the challenges ahead.
Outlook
Trading in the current year is likely to remain difficult, with no sign of an
upturn in economic activity at present. Geopolitical considerations have added
an extra uncertainty to the situation at the time of writing.
Not withstanding the challenging environment, the Group will continue to
concentrate on managing its assets effectively, as well as pursuing
opportunities, both organic and by acquisition, to help it return to top line
growth.
I am encouraged by the robustness of our retail drycleaning business, and by the
growth prospects of Stalbridge, CCM and JWS. I have already referred to the
unsatisfactory performance of Connacht Court, where further steps have been
taken to improve performance. Johnsons Apparelmaster is a challenge, but I am
confident that the new management team will re-establish the business on a
growth path.
John Hancox
Chairman
4 March 2003
CHIEF EXECUTIVE'S REVIEW OF OPERATIONS
I joined the Group in June 2002 and since then have devoted my time to a
comprehensive review of its businesses and prospects, and beginning
implementation of a number of initiatives. We have a range of important
strengths not least of which are our leading market positions, well-known brands
and a number of excellent people within the Group. Nevertheless it became clear
during this period that there were critical skill gaps in a number of areas, and
that the Group had failed to derive full benefit from two major acquisitions in
recent years, Connacht Court in Ireland and Semara. Following identification of
the problems, the actions taken so far have been concentrated on getting the
right people into the right positions, with the capability and determination to
implement collectively strategies that will achieve growth in shareholder value,
from a solid base of performance-focused culture.
PEOPLE AND CULTURE
Any support services company is, by definition, 'a people business'. I believe
that the Company had given insufficient attention to the needs and potential of
its own employees, and in many areas it had also failed to recognise and respond
to the changing requirements of customers. In consequence, our business loss
rate was unacceptably high and new sales were significantly short of our target.
This needed to be addressed immediately. A further major priority has been to
develop a new, people-focused culture in all divisions, in which management and
employees are consulted and know that their opinions will be valued. Loyalty
and enterprise will now be recognised. We are building a Group in which staff
at all levels are ultimately to be incentivised and rewarded through a
combination of performance related schemes, in which their interests are totally
aligned with the provision of both outstanding customer service and increasing
shareholder value. This will reflect both the short and long term values that
we intend to identify, create and deliver. The process has started and will
roll out over the next 12 months.
Customers, too, will be consulted on a more regular and structured basis, to
ensure that we are meeting their constantly evolving needs. This is a process
that has been neglected, and one that we are especially keen to put right. Our
drycleaning business has already begun to recognise this, through the
rationalisation of its shop network and the opening of new branches in highly
convenient locations, whether they be drive-ins, retail parks or within
supermarkets. In the coming months, we shall also be ensuring that our textile
rental operations are properly structured to meet the needs of an evolving
economy where the traditional heavy manufacturing base has shrunk dramatically,
but new growth areas have developed in the hospitality industry, food and other
service sectors. We will ensure that our services offer is adapted and
constantly re-tuned to meet the ever-changing needs of this twenty-first century
customer base, through a reduced emphasis on traditional workwear rental and a
growing focus on the sale and laundering of all forms of corporate wear. As a
first important stage in this strategy Johnsons 'Masterplan', our new branded
offering, was launched nationally on 1 March 2003.
At the centre, we have also acted rapidly to close the gaps identified in our
finance, purchasing and administrative functions. These are now filled and are
operating very effectively under the leadership of CFO Mike Sutton. Paul Davis
and John Johnstone have been recruited to strengthen the Group's finance team
bringing with them incremental skills from global businesses. Our management
information systems are already much improved. This process will continue to
evolve and be supported by action already taken in the IT area to increase our
server capacity. I anticipate, too, further progress as all our head office
departments are comprehensively reviewed and overhauled in the months ahead, and
propose to report further on this in our interim results statement. Whilst we
shall be centrally strengthened initially, our goal of a smaller centre remains
to be fulfilled as the operating companies mature, leading to effective
self-sufficiency.
We have also made important senior appointments with the recruitment of Simon
Moate as Director - Corporate Strategy, to support me in both the evolution and
implementation of each identified initiative, and Christine Jenkins who was
promoted to Director of Human Resources, a key position within a people company
and previously unfilled.
DIVISIONAL STRATEGY AND PERFORMANCE
Our two core activities are both essentially concerned with textile aftercare.
We have appointed and confirmed the senior management who are to manage them,
and provided them with an appropriate infrastructure; in this Review the
managing directors each report on the progress of their own business to date.
The key performance areas requiring immediate action on my appointment were
textile rental in both the UK and Ireland, and washroom services. Significant
management and structural changes have already been made in each of these areas.
Textile rental had been underperforming from various perspectives for a
considerable time. Whilst early actions are under way, market conditions are
against us and the launch of 'Masterplan' is designed clearly to address this.
Our drycleaning business requires new revenue streams and, with the operational
and marketing focused infrastructure now in place, I believe that it is well
positioned to deliver improved performance.
Johnsons Apparelmaster. This business is the UK market leader in the laundering
and rental of workplace clothing. It immediately became clear to me that the
major Semara acquisition had not been properly integrated, and that sales,
service and profitability had suffered severe strain as a result. To address
these issues, a number of management changes were made. David Toon was promoted
from within the Group to become Managing Director of Johnsons Apparelmaster,
Nick Tree was recruited externally as Director, Sales & Customer Service, the
former regional structure was abolished and Chris Sander was promoted to the new
position of National Operations Director.
David Toon writes: Despite the cushion afforded by our contractual structure
and an acquisition in 2001 Johnsons Apparelmaster turnover, excluding
acquisitions, was 5.3% lower than in the previous year. This net reduction
includes business lost on an annualised basis of some £7.7m in 2002.
The serious decline in sales and customer retention reflected not only the
difficult economic environment resulting in the contraction of our established
customer base, but also the failure to win new business which had a major
impact. We have moved swiftly to address the issues we identified as the cause
of this. The national sales team has been completely reorganised and redirected
under the new Sales & Customer Service Director, with a clear and unified
reporting structure. In addition, our national call centre has for the first
time been integrated and co-ordinated with the activities of the field sales
force, with IT support.
Further new initiatives designed to modernise our product and service offering,
and to ensure that it is attuned to our customers' requirements, are currently
being launched under the 'Masterplan' brand. This will be supported by
appropriate investment in new technology and marketing, to which inadequate
attention has been paid in recent years.
Operational performance needs to improve and, with support from our new Chief
Executive and the Johnsons Apparelmaster senior management team, we shall
strengthen our processing capabilities, simultaneously reviewing our logistics
and support methodology, which was not carried through following the Semara
acquisition. This will provide us with potential to improve upon our
efficiencies and service delivery consistency, while assisting the creation of a
more cohesive national brand and company culture. It will also entail
streamlining our production facilities and improving their efficiencies, with
capital expenditure where appropriate. Operations will be run on a national
basis, led by Chris Sander who has many years of experience in our business.
The objectives of these changes are clear. We wish for the future to return the
business both to organic sales growth, and to improved profitability.
Stalbridge Linen Services is the UK market leader in premium linen hire for the
leisure, professional catering and corporate entertainment sectors, including
the growing market for chef's wear and hospitality, and has an excellent track
record. During the year it again achieved sales progress, reflecting its
expansion to operate nationwide from five locations across the UK. From a
strong Southern base, it has grown into the Midlands and further onwards into
Scotland, creating a truly national brand and the market leadership that we
seek. A bolt-on acquisition took place at the end of 2002 that will both
consolidate and complete our UK coverage.
CCM. This is a successful business, acquired with Semara, traditionally involved
in garment manufacturing but with substantial scope for development in sourcing
and added-value services. Kevin Mayes, who was promoted to the role of Managing
Director in November, writes: The company made good progress in the second
half, broadening our product and service range and further progressing our
strategic decision to move away from UK manufacturing to new supply lines in the
Far East. An important contract was secured with Arco, the United Kingdom's
leading supplier of safety clothing and equipment maintenance products, to
procure, store, decorate and distribute both work and casual wear. Valued at
£30m over five years, this project involved specifying, building and fitting out
a new 30,000 sq ft garment distribution centre in Lancashire.
JWS. Our washroom services division continued to build critical mass in line
with our previously announced objectives. Profitability, however, remained an
issue. Once break-even was reached during the third quarter, the company was
required to increase its performance over a much shorter period and, by the
year-end, to be both self-sufficient and profitable in line with Group
projections.
Shaun Mason, Managing Director, writes: We reached break-even point and made an
operating profit for the year, ahead of schedule, in line with the Group's new
strategic objectives and understanding of our business. National coverage was
achieved through two further bolt-on acquisitions, and the potential, long
promised, began to be realised. Customer retention rates were well over 90%,
and we extended our product range to reflect increased demand.
The year also saw an expanded sales team with IT support, and the launch of new
sales literature. A notable success was the contractual award for the 2002
Commonwealth Games in Manchester. The next steps for the business are to
improve profitability and to complete our comprehensive geographical coverage.
Connacht Court Group. As the Chairman has stated, the performance of our
business in Ireland was again unacceptable; indeed, it has produced consistently
worsening returns since its acquisition in 1998. Adjusted operating profit for
the year declined to nil (2001: £1.5m) on turnover of £17.9m (2001: £18.4m).
Yet the business is a market leader, with a strong and loyal customer base, and
clear potential to achieve improved returns.
We have transferred the control of the workwear business in Northern Ireland to
Johnsons Apparelmaster, where it can be more effectively managed. Dublin,
Galway and Spiddal in the Republic of Ireland have a materially different set of
problems, rooted in failed integration and central neglect. Following the
changes to senior management referred to in the interim report the newly
empowered and incentivised team are now addressing their market place in a much
more decentralised and entrepreneurial fashion, reporting directly to me. New
management information systems have been introduced, with appropriate IT
support.
Historically, the company's strengths lay in linen hire and laundry and we have
reverted to these in response to market demands, as well as continuing to focus
on our textile rental business. JWS, CCM and Apparelmaster will also provide
support to their hitherto neglected sister company where appropriate.
The new team in Ireland have responded to this opportunity with enthusiasm, and
clear targets and expectations have been set to return the business to an
acceptable level of performance. The longer term future of this business will
be continually reviewed in the light of the progress they are able to achieve.
Johnsons Cleaners. We are the market leader in drycleaning in the UK, yet with
limited exposure to the most populous regions of the South East, including
London. This alone affords significant potential for growth as we need to
achieve true national coverage and market penetration, simultaneously enhancing
the convenience, quality and availability of our brand. A number of marketing
initiatives have been identified and these will be built upon either internally
or within partnerships, as appropriate. The company needed a comprehensive
review of its internal management structure, and this has been provided by the
centre. Potential new revenue streams continue to be identified and worked with
and, once these are permanently in place, will allow us to build upon a solid
and sophisticated retail platform.
Managing Director David Bryant writes: Turnover remained flat for the year at
£71.6m as we reduced the total number of outlets, underperforming branches were
closed and a smaller number of higher profile units in more convenient locations
were opened.
The key development for Johnsons Cleaners in 2002 was the creation of a new
management structure that provided the energy, strong determination and capable
resources needed to drive the business forward, and ensure that we are equipped
to meet the challenges and realise the opportunities before us. Paul Ogle was
appointed Commercial Director and Ruth Wood Finance Director, both through
internal promotion, giving us a much more conventional infrastructure. This,
combined with total Group support, has enabled us to free our line management to
run their businesses more responsively and ultimately with greater
accountability. An improved and interactive IT infrastructure has also helped
to provide financial information more speedily and more widely.
The strategic review process commenced during the latter part of the year
identified a number of critical issues and new initiatives. Progress has
already been made in removing some traditional barriers to allow new revenue
streams to be developed and an enhanced business model delivered from the
platform of our existing core activity. Central resources have also been made
available and this will greatly assist us in both ensuring that we remain the
nation's number one drycleaner, and in proactively strengthening our position
and offering to our customers.
The 'Cleanology' initiative, which involves advanced skills training for branch
staff to enhance stain removal using ultra-sonic technology, has been rolled out
to in excess of 300 units. We have also improved customer service by opening a
new and highly skilled central customer service department in Rugby, alongside
our technical centre, which in turn will become a commercial centre of
excellence.
New drive-in branches were opened during the year in Rhyl, Leeds, Preston,
Stourbridge and Liverpool. We also opened a new branch in Lincoln and in the
commercial centre of Leeds, utilising the very latest environmentally friendly
drycleaning solvent, which has been well received.
Johnsons Cleaners now has a clear focus and vision, which will enable us to move
the business forward in a manner that is responsible, proactive and of the
highest quality.
THE COMMUNITY AND THE ENVIRONMENT
In recent times there has been increasing emphasis on corporate social
responsibility ('CSR') - the responsibility a Company has to its customers,
employees, the community and the environment. Today being a 'Good Corporate
Citizen' is an essential component of a company's sustainable business model.
The ideal is to embed CSR into the way in which the company conducts its
business, by establishing common purpose and values. We recognise that this
cannot be done all at once in every aspect of our Group and we view it as a
series of steps moving through from a basic level of CSR to a more sophisticated
approach. We already have some aspects of our CSR approach in place and senior
management is committed to building on these foundations.
Health, safety and environmental matters. On 1 September 2002 David Bryant, a
Johnson Service Group PLC Director, was nominated as having Group responsibility
for such matters and reports to the Board at each of its regular meetings.
A Group Environmental Committee has been established to consider the risks
presented by environmental matters and to implement plans to clean up
contaminated sites and to prevent future contamination. We are continuing the
introduction of procedures to ensure that all our textile rental plants comply
with ISO 14001 European Environmental Management Systems Standard. Approximately
50% of the Johnsons Apparelmaster plants are currently compliant and we
anticipate all plants achieving compliance by the third quarter of 2003, before
rolling the procedures out at Stalbridge facilities.
The community. By promoting the return and reuse of hangers, Johnsons Cleaners
is not only helping the environment but is also helping the community. As a
result of the programme, over £19,000 was donated to Macmillan Cancer Relief in
2002. Our Bootle facility has been recognised by The Greater Merseyside
Consortium for its involvement with young people through the Education Business
Link programme. Johnson Group Cleaners Charity supports local registered
charities.
THE FUTURE
Johnson Service Group has a unique heritage, with a history stretching back to
the eighteenth century. My task is to ensure that it has an equally interesting
future. The initiatives we have taken so far have been designed to address past
failure to integrate acquisitions, and to identify areas with the potential for
profitable growth along our present core activity baselines. What we are
building today must be able to stand the test of time from every perspective.
When we acquire next I shall ensure we are able to integrate.
In many cases activity over the last few months has led to the acceleration of
strategic initiatives already in place; in other areas it has required a
re-evaluation of our strengths and weaknesses, coupled to our objectives, and
the further formulation of new plans to take our business forward. There have
been difficulties with this approach as we have been on unfamiliar ground to
many, though I firmly believe today that our management team is together and
working in one direction, with a genuine commitment to long term success.
Throughout the Group, the most important achievements of 2002 have been putting
in place the right management structure and the right people, all of whom have
considerable capability and capacity to ensure the delivery of our strategy; and
creating an open and positive culture that puts people first, and ensures their
empowerment and motivation. 2003 will build from this foundation and we believe
that the 'Masterplan' initiative is a national first to market opportunity.
Central sourcing and purchasing initiatives are already bearing fruit and new
long term strategic partnerships will be both exciting and have real benefits
for Johnsons Apparelmaster and eventually all our businesses. Additionally I
believe there is much to be gained from relatively modest investment in the
Group's operating and IT infrastructure.
Much remains to be done, but I feel confident that the fundamentals of our
business are once again strong. The market for workplace support services and
textile aftercare is growing, and the continuing trend towards outsourcing
across the economy can only enhance this potential. We believe that a
well-managed and efficiently structured business with a best-in-class product
offering will enjoy a strong platform returning in due course to organic growth,
and that there will be simultaneous potential for us to expand our existing core
activities into complementary service areas that are compatible with the skills
and culture of the Johnson Service Group, either by acquisition or organically.
I should especially like to thank my colleagues and our shareholders for their
patience during what has clearly been a difficult period and I look forward to a
successful long term future together.
Stuart Graham
Chief Executive
4 March 2003
JOHNSON SERVICE GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT 52 WEEKS 52 WEEKS
DECEMBER DECEMBER
2002 2001
Note £m £m
Restated
2 TURNOVER 219.2 220.4
2 OPERATING PROFIT BEFORE GOODWILL AMORTISATION 26.3 29.4
Amortisation of goodwill (4.7) (4.4)
OPERATING PROFIT 21.6 25.0
3 EXCEPTIONAL ITEMS
Disposal of business (1.3) -
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 20.3 25.0
Net interest (5.3) (5.7)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 15.0 19.3
5 Tax on profit on ordinary activities (5.8) (6.5)
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 9.2 12.8
6 Dividends (10.0) (10.0)
RETAINED (LOSS)/PROFIT FOR THE FINANCIAL YEAR (0.8) 2.8
4 ADJUSTED PROFIT BEFORE TAX EXCLUDING GOODWILL AMORTISATION AND EXCEPTIONAL
ITEMS 21.0 23.7
RATES OF DIVIDEND PER SHARE
Ordinary shares of 10p each:-
Interim - paid 4.0p 4.0p
Final - paid - 13.6p
Final - proposed 13.6p
Preference shares of 10p each - paid - 3.75p
7 EARNINGS PER SHARE
BASIC 16.3p 22.6p
FULLY DILUTED 16.2p 22.5p
7 ADJUSTED EARNINGS PER SHARE (before goodwill amortisation and exceptional
items)
BASIC 26.9p 30.4p
FULLY DILUTED 26.6p 30.2p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES £m £m
Profit for the period 9.2 12.8
Currency translation differences on foreign currency net investments 0.5 (0.2)
Total recognised gains and losses for the period 9.7 12.6
1 Prior year adjustment (0.4)
Total gains and losses recognised since last annual report 9.3
All operations are continuing
JOHNSON SERVICE GROUP PLC
CONSOLIDATED BALANCE SHEET
DECEMBER DECEMBER
2002 2001
£m £m
Restated
Note
FIXED ASSETS
Intangible fixed assets 79.3 78.7
Tangible fixed assets 76.3 80.7
Textile rental items 25.8 29.0
Investments 0.4 0.5
181.8 188.9
CURRENT ASSETS
Stocks 7.2 8.7
Debtors : Amounts falling due within one year 32.3 35.1
8 : Amounts falling due after more than one year 6.5 12.0
38.8 47.1
Cash at bank and in hand 0.6 1.3
46.6 57.1
CURRENT LIABILITIES
Creditors:
Amounts falling due within one year (49.7) (46.3)
NET CURRENT (LIABILITIES)/ASSETS (3.1) 10.8
TOTAL ASSETS LESS CURRENT LIABILITIES 178.7 199.7
Creditors:
Amounts falling due after more than one year (59.1) (77.0)
PROVISIONS FOR LIABILITIES AND CHARGES (12.1) (15.4)
NET ASSETS 107.5 107.3
CAPITAL AND RESERVES
Called-up share capital 5.7 5.7
Share premium account 7.3 6.8
Revaluation reserve 9.9 11.0
Other reserves 2.1 2.1
Profit and loss account 82.5 81.7
EQUITY SHAREHOLDERS' FUNDS 107.5 107.3
The Preliminary Statement was approved by the Board of Directors on 4th
March 2003
JOHNSON SERVICE GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
52 WEEKS 52 WEEKS
DECEMBER DECEMBER
2002 2001
Note £m £m
9 NET CASH INFLOW FROM OPERATING ACTIVITIES 64.0 55.2
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Net interest paid (4.8) (5.4)
Preference dividends paid - (0.3)
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE (4.8) (5.7)
TAXATION
Tax paid (net) (5.9) (2.3)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets (8.3) (8.1)
Receipts from sales of tangible fixed assets 2.5 2.2
Payments to acquire textile rental items (21.2) (24.1)
Proceeds from textile rental items withdrawn from circulation 5.8 5.6
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (21.2) (24.4)
CASH INFLOW BEFORE ACQUISITIONS, DISPOSALS, DIVIDENDS AND FINANCING 32.1 22.8
ACQUISITIONS AND DISPOSALS
10 Payments to acquire businesses (5.7) (2.7)
Investments held for resale - 0.1
Receipts from disposal of businesses - 5.5
NET CASH (OUTLOW)/INFLOW FROM ACQUISITIONS AND DISPOSALS (5.7) 2.9
EQUITY DIVIDENDS PAID (10.0) (9.3)
CASH INFLOW BEFORE FINANCING 16.4 16.4
FINANCING
Issue of Ordinary share capital 0.5 1.1
Debt due beyond 1 year:
Loans repaid (19.3) (12.2)
Finance lease movement (1.2) (2.2)
NET CASH OUTFLOW FROM FINANCING (20.0) (13.3)
11 (DECREASE)/INCREASE IN CASH IN THE FINANCIAL YEAR (3.6) 3.1
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1. Prior Year Adjustment
The Group has changed its accounting policy in respect of deferred taxation
to comply with the provisions of Financial Reporting Standard 19, 'Deferred
Taxation', and now provides for deferred taxation on a full provision
basis. Consequently the Group has made the following adjustments:-
At
December 2001
£m
Deferred taxation liability (1.9)
Increase in goodwill arising on the acquisition of Semara Holdings Plc 1.5
Profit and loss reserve charge 0.4
The increase in goodwill in respect of the acquisition of Semara arises
from the recognition of a deferred taxation liability in accordance with
the provisions of FRS19 in determining the fair value of the assets
acquired. Goodwill amortisation has not been adjusted as the effect would
be insignificant.
There is no effect on the reported profit and loss account in the 52 weeks
to December 2001.
The earnings per share for 52 weeks to December 2001 have been restated.
2. Segmental Information - Analysis of Turnover and Operating Profit Before
Goodwill Amortisation
52 Weeks to Dec 2002 52 Weeks to Dec 2001
Turnover Adjusted Turnover Adjusted
Operating Operating
Profit Profit
£m £m £m £m
UK Rental 129.7 19.0 130.9 20.6
IR Rental 17.9 - 18.4 1.5
GB Drycleaning 71.6 7.3 71.1 7.3
219.2 26.3 220.4 29.4
Adjusted operating profit is operating profit before goodwill amortisation.
The UK rental results include turnover of £3.1m (2001: £4.5m) and adjusted
operating profit of £0.1m (2001:£0.4m) from Northern Ireland subsidiaries
which had previously been included in the results for Irish textile rental.
The comparatives for 2001 have been restated. This treatment brings the
disclosure in line with the revised management structure of the business.
The disclosure of the 2001 reorganisation costs of £4.3m has been amended
and is no longer disclosed separately but is included within operating
profit before goodwill amortisation. In previous years reorganisation costs
were treated as an exceptional charge against operating profit and
disclosed separately. Such costs were also excluded in the calculation of
adjusted earnings per share. This change has been made in order to
simplify the presentation of results.
Adjusted earnings per share for 2001 have been restated to reflect the
revised disclosure.
The results of acquisitions are not significant and have not been disclosed
separately.
There is no material difference between turnover by origin and by
destination.
NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued...
3. Exceptional Items
52 weeks to 52 weeks to
Dec 2002 Dec 2001
£m £m
Loss on disposal of Northern Ireland linen business (1.3) -
The loss on disposal arises from the sale of the share capital of Lilliput
Dunmurry Limited ('Lilliput') during the year. Prior to disposal the net
assets and contracts relating to the workwear business of Lilliput were
transferred to a fellow subsidiary undertaking in Northern Ireland, Central
Laundries Limited, at the lower of book value or net realisable value.
The loss arising on the disposal comprises £1 million on the sale of the
company and £0.3 million in respect of redundancy costs and asset
provisions.
The sale did not result in any adjustment to goodwill.
4. Adjusted Profit Before Tax
The reconciliation of profit before tax and adjusted profit before tax is
as follows:-
52 Weeks to Dec 52 Weeks to Dec
2002 2001
£m £m
Profit on ordinary activities before tax 15.0 19.3
Add goodwill amortisation 4.7 4.4
Add exceptional items 1.3 -
Adjusted profit before tax 21.0 23.7
5. Taxation
52 Weeks to Dec 52 Weeks to Dec
2002 2001
£m £m
Continuing Operations:
UK corporation tax 6.2 6.5
Overseas corporation tax (0.2) 0.6
6.0 7.1
Deferred tax (0.2) (0.6)
Total Continuing Operations 5.8 6.5
There is no charge to taxation on the exceptional item.
6. Dividends
52 Weeks to Dec 52 Weeks to Dec
2002 2001
£m £m
Ordinary shares at 17.6p (2001: 17.6p) per share 10.0 9.9
10p Convertible preference shares at nil p (2001: 3.75p) per share - 0.1
10.0 10.0
On 11th October 2002 an interim dividend of 4p was paid on the Ordinary
shares. A proposed final dividend of 13.6p will be paid on 1st May 2003 to
Shareholders on the register of members on 4th April 2003.
All of the Convertible preference shares were converted to Ordinary shares
during 2001.
NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued...
7. Earnings Per Share
52 Weeks to Dec 52 Weeks to Dec
2002 2001
£m £m
Profit for the financial year 9.2 12.8
Less dividend on 10p Convertible preference shares - (0.1)
Profit attributable to Ordinary Shareholders 9.2 12.7
Add loss on exceptional items 1.3 -
Add goodwill amortisation 4.7 4.4
Adjusted profit attributable to Ordinary Shareholders 15.2 17.1
Weighted average number of Ordinary shares 56,777,267 56,420,946
Fully diluted number of Ordinary shares 57,278,200 56,929,376
Basic earnings per share is calculated using the weighted average number of
shares in issue during the year, excluding those held by the Trust
established in connection with the Long Term Incentive Plan, based on the
profit attributable to Ordinary Shareholders.
Adjusted earnings per share figures are given to exclude the effects of
goodwill amortisation and exceptional items, net of taxation.
For diluted earnings per share, the weighted average number of Ordinary
shares in issue is adjusted to assume conversion of all dilutive potential
Ordinary shares. The Company has dilutive potential Ordinary shares
arising from share options granted to employees where the exercise price is
less than the market price of the Company's Ordinary shares during the
year.
8. Pension Schemes
a) Balance Sheet Disclosure
The two largest defined benefit pension schemes, the Johnson Group
Staff Pension Scheme and the Semara Pension Plan, were merged with
effect from 1st January 2002. The pension contribution provision and
the pension scheme debtor for the two schemes have been combined in
the balance sheet at December 2002 and the net pension scheme debtor
disclosed as a debtor falling due after more than one year.
b) Unaudited Comparison of Valuation Bases
As with most companies, the recent decline in the UK stock market and
longer life expectancy has had an impact on the level of the
surplus/deficit in the Group's pension funds and also on the level of
funding which the Company is required to provide.
The Group currently accounts for pension costs under SSAP24. To
provide clarity and assist in the understanding of our pension
arrangements, the table below summarises the balance sheet positions
for the main UK pension funds under the existing pension accounting
standard, SSAP 24 and the new standard FRS 17. Actuarial valuations of
the Johnson Group Staff Scheme and the Johnson Group Retirement Plan
were performed at 5th April 2002 and details of the actuarial position
at that date have also been included.
Balance sheet positions:- December 2002 December 2001
Actuarial SSAP 24 FRS 17 SSAP 24 FRS 17
(5/4/02)
£m £m £m £m £m
Asset/(liability) (0.7) 6.5 (26.7) 7.4 9.6
Deferred tax 0.2 (1.9) 8.0 (2.5) (2.9)
Net asset/(liability) (0.5) 4.6 (18.7) 4.9 6.7
NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued...
8. Pension Schemes /Continued...
b) Comparison of Valuation Bases /Continued...
It is important to note that FRS 17, which is planned to be fully
implemented in 2005, takes a snap shot of the pension position at a
particular point in time and consequently the declining stock market
of the last 12 months, has contributed to turning the net asset, as
measured under FRS 17, of £6.7 million at December 2001 in to a net
liability of £18.7 million at December 2002. The actuarial position,
however, which is the basis of funding decisions and takes a longer
term view, shows the net deficit at 5th April 2002 was £0.5 million.
As a consequence of the actuarial valuation in April 2002, with effect
from 1st July 2002, the Company has discontinued the pension
contribution holiday with respect to the Johnson Group Staff Pension
Scheme and increased the level of contributions to the money purchase
part of the Johnson Group Retirement Plan. This has resulted in an
additional cash outflow of £1.5 million in the second half of 2002.
As a result of the actuarial valuation the increase in SSAP 24 cost
with effect from 1st July 2002 was £1.6 million.
Given the level of the actuarial deficit, the Directors do not believe
the situation gives rise to significant concern. However a review of
current pension arrangements is ongoing, which the Directors believe
will reduce the costs to the Group. Pending the results of this review
the Group is continuing to contribute to the pension schemes and
record SSAP 24 expense in line with those levels in the second half of
2002.
9. Reconciliation of Operating Profit to Net Cash Inflow from
Operating Activities
52 Weeks to Dec 52 Weeks to
2002 Dec 2001
£m £m
Operating profit 21.6 25.0
Depreciation 28.9 30.6
Amortisation of goodwill 4.7 4.4
Loss on sale of tangible fixed assets - 2.6
Decrease/(increase) in current assets 5.4 (2.2)
Increase/(decrease) in creditors 0.4 (5.1)
Adjustment in respect of provisions and pensions 3.0 (0.1)
64.0 55.2
10. Acquisitions and Disposals
Purchase of Businesses
Three minor acquisitions were completed in the year for a total cash
consideration of £5.7m generating goodwill of £4.5m.
11. Reconciliation of Net Cash Flow to Movement in Net Debt
52 Weeks to Dec 52 Weeks to Dec
2002 2001
£m £m
(Decrease)/increase in cash in year (3.6) 3.1
Cash outflow on change in debt and lease financing 20.5 14.4
Change in net debt resulting from cash flows 16.9 17.5
Amortisation of issue costs of bank loans (0.5) (0.2)
Loans and leases acquired with subsidiaries (0.2) (0.2)
Exchange movement (1.1) 0.5
Movement in net debt in year 15.1 17.6
Opening net debt (77.0) (94.6)
Closing net debt (61.9) (77.0)
NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued...
12. Analysis of Net Debt
At Acquisition Other At
December Cash (Excluding Non-cash Exchange December
2001 Flow Cash) Changes Movement 2002
£m £m £m £m £m £m
Cash in hand and at 1.3 (0.7) - - - 0.6
bank
Overdraft - (2.9) - - - (2.9)
(3.6)
Debt due after more
than one year
(76.7) 19.3 - (0.5) (1.1) (59.0)
Finance leases (1.6) 1.2 (0.2) - - (0.6)
20.5
(77.0) 16.9 (0.2) (0.5) (1.1) (61.9)
Non-cash changes represent the effects of amortising issue costs
relating to bank loans.
13. Abridged Accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 28th December 2002 or 29th December
2001, but is derived from those accounts except for the information in
note 8b). Statutory accounts for 2001 have been delivered to the Registrar
of Companies and those for 2002 will be delivered following the Company's
Annual General Meeting. The Auditors have reported on those accounts;
their reports were unqualified and did not contain a statement under
s237(2) or (3) of the Companies Act 1985.
14. Preliminary Announcement
A copy of this Preliminary Announcement is available on request to all
Shareholders by post from The Company Secretary, Johnson Service Group PLC,
Mildmay Road, Bootle, Merseyside L20 5EW. The Announcement can also be
accessed on the Internet at www.Johnsonplc.com.
15. Approval
The Preliminary Announcement was approved by the Board of Directors on 4th
March 2003.
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