Final Results

Johnson Service Group PLC 14 March 2005 14 March 2005 JOHNSON SERVICE GROUP PLC PRELIMINARY RESULTS FOR THE 52 WEEKS TO 25 DECEMBER 2004 2004 has been a year of delivery and further progress. Good organic growth together with targeted acquisitions has resulted in Johnson Service Group occupying strong positions in its two core business areas: textile related services and facilities management. Operational Highlights - Creation of the UK's leading supplier of clothing to people at work - Rate of revenue decline in Johnsons Apparelmaster slows. Other areas show organic revenue growth of 7.4% on a like for like basis - Johnsons Drycleaning division revenue up 6% on a like for like basis - Workplace Management first full year of ownership completed exceeding expectations - Seven acquisitions completed for £31.2m in line with strategy and value criteria Financial Highlights 2004 2003 Change Turnover £364m £232m 57% Turnover (excluding costs recharged to customers) £278m £220m 26% Underlying Profit Before Tax* £25.4m £23.1m 10% Reported Profit Before Tax £15.7m £9.7m 62% Reported Earnings per Share 16.3p 12.2p 34% Adjusted Earnings per Share** 30.9p 28.7p 8% Dividend per Share 18.5p 17.6p 5% Simon Sherrard, Chairman, Johnson Service Group, said: 'The major reshaping of the Group accomplished over the last two years has created a unique support services enterprise. Whilst still early in the new year the first two months have begun well. I believe that we are well placed to build on last year's progress and deliver another satisfactory outcome in the current year.' * Underlying Profit Before Tax excludes restructuring costs, goodwill amortisation, exceptional items and costs relating to Board membership changes **Adjusted EPS is after excluding restructuring costs, goodwill amortisation and exceptional items Enquiries: Johnson Service Group PLC Stuart Graham, CEO Tel: 020 7796 4133 on Monday 14 March only Jim Wilkinson, CFO thereafter on 020 7290 0380 or 0151 933 6161 gcg hudson sandler Michael Sandler Tel: 020 7796 4133 James Benjamin Sandrine Gallien CHAIRMAN'S STATEMENT This has been a further year of progress for The Johnson Service Group, as we have continued to develop our business portfolio in our two core areas: textile related services and facilities management. We have been the clear UK market leaders in renting and laundering garments, and drycleaning for many years and now through targeted acquisitions, we have also become the largest supplier of clothing for people at work in the UK. During the year we have produced good organic growth across the Group, further strengthened our management team and are successfully slowing the decline in Johnsons Apparelmaster. Financial results Total turnover grew by 57% to £364 million (2003: £232 million) while underlying turnover (excluding costs recharged to customers in the Facilities Management business), increased by 26% to £278 million (2003: £220 million). Adjusted operating profit from continuing operations, excluding restructuring costs and goodwill amortisation grew by 12% to £29.6 million (2003: £26.4 million) and is stated after charging £0.5 million in relation to costs arising from the Board changes during September 2004. Restructuring costs in relation to the integration of the Sketchley acquisition and the resultant changes to the drycleaning operations amounted to £2.0 million, in line with the estimate at the time of the acquisition. Underlying pre-tax profit, excluding restructuring costs, goodwill amortisation and Board reorganisation costs, grew by 10% to £25.4 million (2003: £23.1 million) and adjusted fully diluted earnings per share by 8% to 30.9 pence (2003: 28.7 pence). Reported operating profit was £20.4million (2003: £22.1million). Reported pre-tax profit increased by 62% to £15.7 million (2003: £9.7 million), and fully diluted earnings per share rose 34% to 16.3 pence (2003: 12.2 pence). Cash flow Free cash flow generated from operations, although reduced from 2003 due to increases in working capital, remained strong at £15.7 million (2003: £25.2 million) and we maintained comfortable interest cover of 6.3 times (2003: 6.7 times). After expenditure on acquisitions during the year totalling £31.2 million, net debt at 25 December 2004 was £74.1 million (2003: £43.4 million). We acquired Dewhirst Corporate Clothing (DCC) for £23.8 million immediately after the year end. Dividend Reflecting the future prospects of the Group the Board is recommending an increased final dividend of 14.3 pence per share (2003: 13.6 pence). Together with the interim dividend of 4.2 pence paid in October, this makes a total for the year of 18.5 pence (2003: 17.6 pence), a rise of 5.1%. It is the Board's intention to pursue a progressive dividend policy in the future while ensuring a prudent level of cover. Operations Our newer businesses in the growth markets of Facilities Management, Specialist Supplies, Corporate Clothing and Hospitality Services all performed well during the year. The Drycleaning Division achieved excellent like-for-like sales growth in a difficult high street environment and with the on-going integration of the Sketchley acquisition. Johnsons Apparelmaster showed encouraging signs of improvement in the second half based on our efforts to stimulate new business and reduce costs while our niche linen operation, Stalbridge, continued growing organically with revenue rising 14%. Acquisitions and disposal In 2002 the Group was focused on two main businesses, workwear rental with serviced laundry, and drycleaning, where the markets were either showing slow growth or were in decline. Through acquisitions and disposals the Group has moved towards serving faster growing markets resulting in the share of revenue it receives from the workwear rental with serviced laundry division falling from 42% in 2002 to a current run rate of 26%. Over the last two years we have spent £54.3 million (net of cash acquired) on acquiring businesses and have realised £29.8 million from disposals. As a result the Group now also has an important and growing business in Facilities Management and has markedly increased its investment and prospects in the Corporatewear market. In the medium term the Group expects acquisitions to generate a pre-tax return of at least 15% and the acquisitions made over the last two years are on course to meet that target. As an example the Facilities Management and Specialist Supplies Division was created through the acquisition of three companies at the end of 2003 for a cost of £27.7 million (£15.2 million net of cash acquired). This division generated operating profit of £3.5 million in 2004 at a margin of 9% with further organic growth expected in 2005. The Board Jim Wilkinson, formerly Group Finance Director of Informa Group plc, joined the Board as Chief Financial Officer on 27 September 2004, succeeding Mike Sutton who resigned on the same date. Jim's experience in growth companies in the UK and overseas make him a considerable asset to the Board as we progress our strategy for the Group. We thank Mike for his contribution over 25 years, including 19 as Group Finance Director. As announced in the interim report, Simon Moate and Michael Del Mar were both appointed to the Board on 12 May 2004. Simon joined the Group in 2002 and has executive responsibility for corporate strategy and for our Facilities Management and Specialist Supplies Division. Michael, who is a former investment banker, joins us as an independent non-executive director. Outlook The major re-shaping of the Group accomplished over the last two years has created a support services enterprise with increased access to growing markets and substantially reduced dependency on the traditional workwear sector addressed by Johnsons Apparelmaster. Whilst still early in the new year we have started the first two months well. Our Facilities Management and Specialist Supplies Division is continuing to achieve good organic growth. Our new corporate clothing companies are making excellent progress as they are integrated and we begin to exploit the cross selling opportunities. The Drycleaning Division has largely completed the integration of the Sketchley shops and is looking to continue to generate solid like-for-like sales growth. Johnsons Apparelmaster is continuing to perform well against its peer group in a competitive market place affected by structural decline and over capacity. The initiatives we have taken to further strengthen our selling effort and improve efficiencies are bearing fruit, and we have a market-leading business that can look forward with optimism. Overall, I believe that we are well placed to build on last year's progress and deliver another satisfactory outcome in the current year. Simon Sherrard Chairman 14 March 2005 CHIEF EXECUTIVE'S REVIEW Over the last two years we have significantly increased the turnover of the Group, acquired new businesses, strengthened management and effected extensive cultural change. We have substantially increased our exposure to growth markets, while tackling the challenges posed by the structural decline of our traditional, industrial workwear business. The new Johnson Service Group that we have created is clearly focused on meeting the needs of customers in two core business areas where we occupy market-leading positions and the Group has a clear and deliverable strategy for sustainable future growth. STRATEGIC OVERVIEW During 2004 we completed, as promised, the first phase of our strategic repositioning of the Johnson Service Group through further selective acquisitions, targeted investment in our core businesses, and continued improvements in management and processes throughout the Group. Having laid solid foundations for future growth, we are now moving into the second phase of our strategic development. We have established a clear mission and vision for the Group as a world class integrated service provider for individuals and companies, dedicated to making their lives easier by allowing them to focus on their own business and lifestyle priorities. We aim to be seen by our peers and our shareholders as setting benchmark standards in support services. Under the acronym 'CONVERGE', our strategic priorities are defined as Consolidating our business offering, Organising our business structure, Navigating the right course, focusing on Value Creation, Empowering our people, Rewarding our employees, Growing our business and Encouraging best practice throughout the Group. Management There has been a significant strengthening of the management team over the last two years. This process of change was continued in 2004 with the appointment of Jim Wilkinson as Group CFO, Chris Sander as MD of Johnsons Apparelmaster and Mike Hill as MD of Stalbridge Linen Services. We also strengthened our team through acquisitions, retaining Simon Hughes at Dimensions and Suzanne Walton at DCC. We now have an exceptionally talented senior management team, giving us the ability to manage future growth through internal promotion. Our managing directors have been empowered to deliver, supported by the essential Group infrastructure of finance, information technology and human resources. As part of our devolution and empowerment strategy, we have significantly strengthened the Group Management Board we created some 18 months ago, ensuring full representation of every part of the business. Acquisitions and Disposal The prime focus of acquisition activity over the last 12 months has been on creating a market-leading business in corporatewear, a growth opportunity distinct from the traditional workwear sector serviced by Johnsons Apparelmaster. In July we purchased Dimensions, the UK's leading supplier of corporatewear, for a maximum consideration of £27.4 million including performance-related deferred payments of up to £3.4 million, and in December we bought the specialist workwear business, S. Yaffy, for £3.5 million. Since the year end we have also acquired the DCC business for a maximum consideration of £23.8 million. The acquired businesses are highly complementary to CCM, our existing garment sourcing operation, and to each other, with Dimensions and DCC focusing primarily on retail and financial services customers respectively. Together they offer us significant potential benefits from the sharing of best practice and the exploitation of synergies. With an annualised throughput of some 10 million garments per year and proforma revenue of circa £90 million, our enlarged clothing operations have real scale exceeding that of many UK retailers. We have created the clear market leader in the provision of clothing for people at work in the UK, with strong brands and real potential for future development in other European markets. The purchase for a nominal consideration of the Sketchley drycleaning shops has added another well-known consumer brand to our portfolio, extended our coverage in London and the South-East, and has given us an opportunity to create value through cost savings and the introduction of our own standards and operating procedures. Integration with Johnson Cleaners is proceeding to plan, and most of the acquired branches had begun to make a positive contribution to profit by the year end. The acquisition of HSS Event Hire for £1.5 million in April gave Johnson Hospitality Services undisputed market leadership in the rental of catering equipment, furniture and related items to the hospitality industry nationwide. Our acquisitions over the last two years have met our strategic and value criteria and have delivered against our expectations. We will continue to augment the strong organic growth of our business through further bolt-on and larger acquisitions that meet our strict value criteria. The specialist supplies operation Alex Reid Ireland was sold in October for £0.9 million, realising an attractive price for a business with limited organic growth potential. Investment We have continued to invest for the long term in all our operations, through initiatives such as the roll-out of the unique GreenEarth(R) cleaning process across Johnson Cleaners. After a year long review of our IT infrastructure we have decided to install a new Enterprise Resource Planning system. This will be implemented over the course of the next three years at a total cost of some £11 million and will be fully scaleable to accommodate our planned growth and will allow us to drive down costs in our supply chain as well as ensuring operational best practice across the Group. REVIEW OF OPERATIONS TEXTILE AND HOSPITALITY SERVICES Clothing for people at work The acquisitions of Dimensions Holdings in July 2004 and DCC in late December 2004, allied to our existing CCM business, have enabled us to create a new Clothing Division containing three premium brands, which together are the largest supplier of clothing to people at work in the UK. CCM, our garment sourcing operation, maintained its strong growth record across all sectors of its business with revenue up 14% like for like. We managed to grow sales to existing customers and further progress was made in expanding our NHS business, by gaining new 'Trust' customers. We also reduced costs by increasing the proportion of products sourced from the Far East, which is a managed trend expected to continue for the foreseeable future. Dimensions, the leading corporatewear supplier acquired in July 2004, has performed exceptionally well since joining the Group. The business has benefited from strong demand and a management team and employees who have impressed with their exciting and dynamic culture. This has been reflected in the winning of clothing contracts for amongst others, a large security company and a major retailer. These important wins consolidate the company's already strong position in the retail sector, where established customers include a large number of well known retail names. We believe that Dimensions is well placed for continued growth and expansion. DCC, acquired immediately after our year end added another leading brand to our portfolio and brought us market leadership in the supply of corporatewear to the financial services sector. Again its major customers include many of the sector's largest names. The acquisition in December of S Yaffy, a small company specialising in the supply of high quality police outerwear, further extended our product range within the corporatewear sector. Our Clothing Division is now firmly established as the UK's largest supplier of corporatewear by both value and volume. Our aim is to accelerate the growth of these businesses by emphasising the excellent design, service and quality of the products, while exploiting the cross-selling opportunities between the brands. We will also be examining the opportunity to link the supply of corporatewear to the provision of a service element provided by our retail and commercial drycleaning operations nationwide. Johnsons Apparelmaster We remain the UK market leader in the laundering and rental of workwear. We have been at the forefront in identifying and responding to the major changes in our market place caused by the decline in British manufacturing and a fundamental lack of company investment. Although turnover and profit continued to decline in 2004, we saw encouraging signs of improvement, particularly in the second half, as we began to see the benefits of our actions to improve sales performance, production processes and customer service. The rate of revenue decline in the second half of 2004 was 2%, a marked improvement to the comparable period in 2003 when revenue fell 4%. This reflects the increased stability of the market place, reward from our investment in the production processes and improvements made to the sales and customer service teams. Although the rate of revenue decline is slowing, the operating margin continues to decrease as previously anticipated. We have also continued to address the cost base by undertaking a comprehensive route rationalisation programme. This was a major project involving the transfer of over 8,000 customers and a substantial reduction in vehicle usage, delivering direct cost savings of some £0.75 million while simultaneously improving our service. We have, and will continue over time, to invest significantly in the business, particularly in new plant and machinery, creating a modern, high-productivity asset base. This has enabled us to continue to meet the growing demand from customers with high care requirements, such as the food processing industry. We have a clear and focused strategy and are strongly placed to continue this process when the dynamics of the market place improve. Stalbridge Linen Services The business maintained its excellent record as Britain's leading supplier of premium linen hire services with organic revenue growth of 14%. Stalbridge is a dynamic brand with an excellent reputation for quality of service and people and is operating within a buoyant market, focusing on high quality hotels, restaurants and contract caterers. Reorganisation and expansion of our sales force delivered significant results in the second half of the year with particularly strong growth recorded in Scotland and the Midlands, further increasing national brand awareness. Our Permagard protective antimicrobial finish for garments used in food preparation areas has enjoyed great success and we plan to launch further new products in 2005. These will enable us to exploit further growth opportunities within this expanding market. Johnson Hospitality Services The acquisition of HSS Event Hire in April 2004 extended our product range and geographical coverage, making Johnson Hospitality Services ('JHS') the national market leader in this sector, with current revenue in excess of £10 million. The integration process will be completed during the first half of the current year with the roll out of new vehicle liveries, new stock lines and a unified product catalogue. JHS continues to service the vast majority of premium sporting facilities in the UK and has successfully developed new markets following joint marketing initiatives with our Stalbridge linen hire business. In London, we have created a new, premium brand - Well Dressed Tables - which is performing well, with its high quality product range and service levels being well received. DRYCLEANING Johnson Cleaners Although high street trading conditions were generally challenging, Johnson Cleaners made good progress during 2004, achieving like for like sales growth of 6%. We also consolidated our market leadership in UK drycleaning by strengthening our representation in the South East through the acquisition of 103 branches of the well-known Sketchley chain for a nominal £1. Since we acquired the business we have implemented Johnson's best practice and have largely completed the integration of the Sketchley shops into our branch network. This has been achieved within the £2 million that we budgeted for restructuring costs. Much work remains to be done but trading benefits are already being realised. As predicted the acquisition will not achieve the full margins enjoyed by the rest of our drycleaning operations until the end of 2005. Following the closure of 26 of the acquired Sketchley branches, and a number of less profitable Johnsons outlets, we ended the year with a total of 595 branches across the UK, compared with 528 at the beginning of 2004. We continued to strengthen our relationship with Tesco, both through our partnership with their Clubcard and the opening of a further five drycleaning concessions within or alongside Tesco stores. We now operate in 17 such locations and expect to expand further as our relationship grows. As part of our focus on high traffic locations, we are already represented within selected food retailers including Waitrose stores, and are planning a number of openings with other major retailers during 2005. Although competition for suitable drive-in sites is steadily increasing, we opened four further locations during the year at Chesterfield, Burnley, Derby and Cambridge. We continued the programme to convert our branches to the environmentally friendly GreenEarth(R) drycleaning process. At the end of 2004 we had converted 170 branches with the remaining branches expected to be converted by the end of 2007. The in-house development of our new Electronic Point of Sale (EPoS) system was completed and rolled out during the year. We are already benefiting from the improved management and financial information it generates, and from the standardisation of in-store procedures. It has also enabled us to identify a number of ways to improve our service offering and has given us further opportunities for cost-effective marketing, notably through the successful Johnsons Priority Club. This has continued to grow and now has 470,000 active members, to whom we can offer targeted membership rewards that will help us to achieve improved retention. Jeeves of Belgravia Jeeves is widely recognised as 'London's Finest Drycleaner' and has an excellent reputation as a bespoke, luxury brand operating in prime retail sites in London's West End and City. It also provides a collection and delivery service to its discerning clientele. The business had nevertheless suffered from years of under investment prior to its acquisition by the Group in May 2003. During 2004 we continued to invest in state of the art processing technology, including installation of the GreenEarth (R) process. We also carried out some store refurbishments, updated the brand design and are installing our new EPoS system. We are also aiming to grow the customer base for our collection and delivery service. Jeeves International We have continued to support our international franchisees through a number of brand, retail and marketing initiatives, and are having a number of active discussions with potential franchisees with a view to extending our representation in Europe, the Middle East and Asia. FACILITIES MANAGEMENT AND SPECIALIST SUPPLIES Johnson Workplace Management Since we acquired this business in October 2003, we have undertaken a comprehensive re-branding and corporate identity programme designed to reinforce the position of Johnson Workplace Management ('JWM') as one of the leading providers of outsourced procurement and facilities management in the UK. This process has helped JWM redefine markets and services and has provided a platform for significant new business development in 2005, continuing the momentum gained through our organic growth in 2004. We have also further strengthened the management team while at the same time have managed to reduce costs through operational efficiencies. In particular, premises costs were significantly reduced in 2004 through relocation of the JWM headquarters in Bracknell and of our Scottish office in Aberdeen. We have successfully concluded the complicated relocation of the newly merged HM Treasury and HM Customs & Excise departments to refurbished Whitehall offices. This was conducted on behalf of the Exchequer Partnership under a PFI contract. Other PFI contracts in the education and healthcare markets are performing well and are expected to generate additional business growth during 2005 and well into the future. We have continued to develop our portfolio of high added value support services through acquisitions. Environmental Pest Control, an acquisition made in December 2003, continues to make strong progress and new products are being developed for introduction in 2005. In November 2004, we acquired ACE (Ascot) Limited for £0.7 million, which provides high quality electrical and building refurbishment skills that ideally complement our space planning and project management capabilities. Since the year end we have purchased Acame Limited for £1 million, a mechanical and electrical engineering support services business specialising in the installation and maintenance of equipment. All offer good growth prospects that we intend to enhance through the development of our new Workplace Direct brand. Alex Reid Since we acquired this supplier of consumables to drycleaners and launderers in December 2003 we have pursued a strategy of widening its product range and customer base, while continuing to grow its share of core markets. Its focus was tightened during the year by the sale of Alex Reid Ireland, with which we have retained a supply arrangement and envisage a strong continuing relationship. Despite difficult trading conditions on the high street, Alex Reid achieved good organic revenue growth in 2004 led by new product development. We achieved significant success from our marketing alliance with Procter & Gamble for their range of industrial detergents and we added the Evercare range of home and garment care products to the offering. We launched the GreenEarth(R) cleaning process to independent drycleaners in the UK in August 2004, attracting high levels of interest. We also successfully negotiated the acquisition of the Master Licence for GreenEarth(R) throughout Europe, giving us the potential to capture a significant share of the European solvents and supplies market. We strengthened the management team in January 2005 by appointing a new marketing director to help drive the growth of Alex Reid in the UK and other European markets. A new website with enhanced product information and ordering facilities is being developed and will come on-line in the first quarter of 2005, greatly increasing our ability to sell existing products to users in other trades. THE FUTURE The clear strategy that we developed in our reviews of 2002 and 2003 has delivered what we promised. Underperforming operations have been sold, core businesses strengthened and our exposure to growth markets substantially increased through well-researched and successfully integrated acquisitions. In every area where we operate we are either the clear market leader or in a position of strength. We have also accomplished a major change in culture to ensure that management and employees alike are empowered and incentivised to deliver. Having laid these firm foundations, we are now moving forward into the next stage of our strategy and development, with the aim of delivering sustained, profitable growth. We will continue to drive organic growth in our existing businesses by focusing on our customers, enhancing our services and introducing more innovative products and processes. This will be supported by well-targeted investment in our central functions, operations and systems. We will also enhance our prospects through further acquisitions, where these meet our strategic criteria and can be completed at prices that represent good value to our shareholders. In addition, we will look to exploit our established UK strengths across a broader geographical area, when we believe that it is appropriate to do so. Johnson Service Group today has a strong business and customer portfolio, and industry-leading management operating within a devolved and empowered structure and culture. I believe that we are well positioned to build on what we have achieved to date and so develop a distinctive, profitable and sustainable growing business for the future. Stuart Graham Chief Executive 14 March 2005 JOHNSON SERVICE GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT 52 WEEKS 52 WEEKS DECEMBER DECEMBER 2004 2003 £m £m 2 TURNOVER Continuing 336.3 213.3 Acquisitions 27.7 - 364.0 213.3 Discontinued - 18.3 TOTAL TURNOVER 364.0 231.6 Costs recharged to customers (86.0) (12.0) 2 Turnover excluding costs recharged to customers 278.0 219.6 OPERATING PROFIT BEFORE RESTRUCTURING COSTS 2 AND GOODWILL AMORTISATION Continuing 28.6 26.4 Acquisitions 1.0 - 29.6 26.4 Discontinued - 0.7 TOTAL 29.6 27.1 3 Restructuring costs (2.0) - Amortisation of goodwill (7.2) (5.0) OPERATING PROFIT Continuing 22.4 22.4 Acquisitions (2.0) - 20.4 22.4 Discontinued - (0.3) TOTAL 20.4 22.1 4 EXCEPTIONAL ITEMS Disposal of businesses (discontinued) - (9.2) Profit on disposal of property (discontinued) - 0.8 PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 20.4 13.7 Net interest (4.7) (4.0) 2 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 15.7 9.7 6 Tax on profit on ordinary activities (6.2) (2.8) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 9.5 6.9 7 Dividends (10.6) (10.0) LOSS FOR THE FINANCIAL YEAR (1.1) (3.1) 5 ADJUSTED PROFIT BEFORE TAX (EXCLUDING RESTRUCTURING COSTS, GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS) 24.9 23.1 RATES OF DIVIDEND PER SHARE Ordinary shares of 10p each:- Interim - paid 4.2p 4.0p Final - paid - 13.6p Final - proposed 14.3p - 8 EARNINGS PER SHARE BASIC 16.6p 12.3p FULLY DILUTED 16.3p 12.2p ADJUSTED EARNINGS PER SHARES (see note 8) BASIC 31.4p 28.9p FULLY DILUTED 30.9p 28.7p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES £m £m Profit for the financial year 9.5 6.9 Credit for share options - 0.1 Currency translation differences on foreign currency net investments - 0.1 Total recognised gains and losses for the year 9.5 7.1 JOHNSON SERVICE GROUP PLC CONSOLIDATED BALANCE SHEET DECEMBER DECEMBER 2004 2003 £m £m Restated FIXED ASSETS Intangible fixed assets 111.4 89.8 Tangible fixed assets: Property, plant and equipment 68.3 64.2 Rental items 24.5 21.4 Total 92.8 85.6 204.2 175.4 CURRENT ASSETS Stocks 19.8 8.8 Debtors: Amounts falling due within one year 54.1 47.7 Amounts falling due after more than one year 5.7 5.8 59.8 53.5 Cash at bank and in hand 4.5 2.2 84.1 64.5 CURRENT LIABILITIES Creditors: Amounts falling due within one year (88.0) (71.0) NET CURRENT LIABILITIES (3.9) (6.5) TOTAL ASSETS LESS CURRENT LIABILITIES 200.3 168.9 Creditors: Amounts falling due after more than one year (78.1) (49.1) PROVISIONS FOR LIABILITIES AND CHARGES (16.7) (14.9) NET ASSETS 105.5 104.9 CAPITAL AND RESERVES Called-up share capital 5.8 5.7 Share premium account 9.5 8.0 Revaluation reserve 8.0 8.5 Other reserves 2.1 2.1 Profit and loss account 80.1 80.6 EQUITY SHAREHOLDERS' FUNDS 105.5 104.9 JOHNSON SERVICE GROUP PLC CONSOLIDATED CASH FLOW STATEMENT 52 WEEKS 52 WEEKS DECEMBER DECEMBER 2004 2003 £m £m 9 NET CASH INFLOW FROM OPERATING ACTIVITIES 44.9 52.9 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest paid (4.2) (4.4) Issue costs on new bank loans - (0.3) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (4.2) (4.7) TAXATION Tax paid (net) (5.8) (6.9) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire tangible fixed assets - property, plant and equipment (6.4) (5.2) Receipts from sales of tangible fixed assets - property, plant and 1.5 4.1 equipment Payments to acquire tangible fixed assets - rental items (19.4) (19.8) Proceeds from tangible fixed assets - rental items withdrawn from 5.1 4.8 circulation NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (19.2) (16.1) FREE CASH FLOW 15.7 25.2 ACQUISITIONS AND DISPOSALS 10 Payments to acquire businesses (32.5) (37.3) 10 Cash balances acquired with businesses 1.3 14.2 Receipts from disposal of businesses 1.1 29.0 Cash balances disposed with businesses - (0.3) NET CASH (OUTFLOW)/INFLOW FROM ACQUISITIONS AND DISPOSALS (30.1) 5.6 EQUITY DIVIDENDS PAID (10.2) (10.0) CASH (OUTFLOW)/INFLOW BEFORE FINANCING (24.6) 20.8 FINANCING Issue of Ordinary share capital 1.7 0.7 Debt due in more than one year: Loans repaid (0.3) (62.4) New loans advanced 26.0 46.0 Capital element of payments under finance arrangements (0.5) (0.6) NET CASH INFLOW/(OUTFLOW) FROM FINANCING 26.9 (16.3) 11 INCREASE IN CASH IN THE FINANCIAL YEAR 2.3 4.5 NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. Change in Accounting Policy The Group has changed its accounting policy in respect of its ESOP trust to comply with the provisions of UITF38. The impact of adopting the UITF was to reduce investments and Shareholders' funds by £0.4 million as at 27th December 2003. There is no effect on the reported profit and loss account or earnings per share for the 52 weeks ended 25th December 2004 or 27th December 2003. 2. Segmental Information - Analysis of Turnover, Operating Profit Before Restructuring Costs and Goodwill Amortisation and Profit Before Taxation Turnover Turnover Excluding Costs Recharged to Customers 2004 2003 2004 2003 £m £m £m £m CONTINUING Textile and Hospitality Services 150.9 122.4 150.9 122.4 Drycleaning 86.9 73.5 86.9 73.5 Facilities Management and Supplies 126.2 17.4 40.2 5.4 Total continuing 364.0 213.3 278.0 201.3 DISCONTINUED UK Textile Rental - 6.1 - 6.1 IR Textile Rental - 12.2 - 12.2 Total discontinued - 18.3 - 18.3 364.0 231.6 278.0 219.6 Operating Profit before Profit before Restructuring Costs and Goodwill Amortisation Taxation 2004 2003 2004 2003 £m £m £m £m CONTINUING Textile and Hospitality Services 18.0 18.0 13.7 14.6 Drycleaning 8.1 8.0 5.1 7.6 Facilities Management and Supplies 3.5 0.4 1.6 0.2 Total continuing 29.6 26.4 20.4 22.4 DISCONTINUED UK Textile Rental - 0.3 - 1.5 IR Textile Rental - 0.4 - (10.2) Total discontinued - 0.7 - (8.7) 29.6 27.1 20.4 13.7 Interest (4.7) (4.0) PROFIT BEFORE TAXATION 15.7 9.7 Turnover from continuing operations originates in the United Kingdom. There is no material difference between turnover by origin and by destination. Facilities management turnover comprises fees receivable and costs recharged to customers where the relationship with the supplier of services is that of principal. The element of turnover which comprises supplier costs recharged to customers has been shown separately on the profit and loss account to aid interpretation of the business. Discontinued activities in 2003 relate to the sales and profit of Connacht Court Group Ltd (CCG), Johnsons Washroom Services Ltd (JWS) and Central Laundries Ltd (Central) up to the date of disposal. NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued... 3. Restructuring Costs The restructuring costs are associated with the integration of the Sketchley drycleaning business acquired in May 2004 and the resultant changes required to processing facilities. They comprise mainly redundancy costs, write off of fixed assets and provisions for the costs for the outstanding lease commitments on shop closures. 4. Exceptional Items 52 weeks to 52 weeks to Dec 2004 Dec 2003 £m £m Loss on disposal of CCG - (10.1) Gain on disposal of JWS - 4.6 Loss on disposal of Central - (3.7) Disposal of businesses - (9.2) Gain on disposal of textile rental property - 0.8 Total - (8.4) 5. Adjusted Profit Before Tax The reconciliation of profit before tax and adjusted profit before tax is as follows:- 52 Weeks to 52 Weeks to Dec Dec 2004 2003 £m £m Profit on ordinary activities before tax 15.7 9.7 Add goodwill amortisation 7.2 5.0 Add restructuring costs 2.0 - Add exceptional items - 8.4 Adjusted profit before tax 24.9 23.1 6. Taxation 52 Weeks to Dec 52 Weeks to Dec 2004 2003 £m £m CURRENT TAX UK corporation tax charge for the period - continuing 6.0 5.8 Adjustment in relation to previous years - continuing (0.8) (4.5) Current tax charge for the year 5.2 1.3 DEFERRED TAX Origination and reversal of timing differences - continuing 0.4 0.8 Adjustment in relation to previous years - continuing 0.6 0.7 Deferred tax charge for the year 1.0 1.5 Total charge for taxation 6.2 2.8 There is no charge to taxation on the exceptional items. The adjustment in 2003 to UK corporation tax in respect of previous years of £4.5m includes £3.9m in relation to the agreement of specific, non-recurring matters with the Inland Revenue. 7. Dividends 52 Weeks to Dec 52 Weeks to Dec 2004 2003 £m £m Ordinary shares at 18.5p (2003: 17.6p) per share 10.6 10.0 On 22nd October 2004 an interim dividend of 4.2p was paid on the Ordinary shares. A proposed final dividend of 14.3p will be paid on 13th May 2005 to Shareholders on the register of members on 15th April 2005. NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued... 8. Earnings Per Share 52 Weeks to Dec 52 Weeks to Dec 2004 2003 £m £m Profit for the financial year 9.5 6.9 Add loss on exceptional items - 8.4 Add restructuring costs (net of taxation) 1.4 - Add goodwill amortisation (net of taxation) 7.1 5.0 Less tax credit relating to prior periods (note 6) - (3.9) Adjusted profit attributable to Ordinary Shareholders 18.0 16.4 Weighted average number of Ordinary shares 57,419,393 56,940,711 Fully diluted number of Ordinary shares 58,429,266 57,449,593 Basic earnings per share is calculated using the weighted average number of shares in issue during the year, excluding those held by the ESOP, based on the profit attributable to Ordinary Shareholders. Adjusted earnings per share figures are given to exclude the effects of restructuring costs, goodwill amortisation and exceptional items, all net of taxation, and in 2003, the non-recurring tax credit relating to the agreement of specific matters in prior periods and are considered to show the underlying results of the Group. 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 average market price of the Company's Ordinary shares during the year. 9. Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 52 Weeks to 52 Weeks to Dec 2004 Dec 2003 £m £m Operating profit 20.4 22.1 Depreciation 22.2 25.3 Amortisation of goodwill 7.2 5.0 Profit on sale of tangible fixed assets (0.4) (0.7) Charge for share options - 0.1 Increase in current assets (4.6) (2.2) Increase in creditors 0.7 1.3 Adjustment in respect of provisions and pensions (0.6) 2.0 Net cash inflow from operating activities 44.9 52.9 NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued... 10. Acquisitions 52 Weeks to 52 Weeks to Dec 2004 Dec 2003 £m £m Purchase of Businesses Payments to acquire businesses 32.5 37.3 Cash and overdraft balances acquired with businesses (1.3) (14.2) Net cash consideration 31.2 23.1 Acquisitions were completed during the year for net cash consideration of £31.2 million, and deferred consideration and loan notes of £6.0 million, generating goodwill of £29.8 million. Sketchley Services Ltd (Sketchley) was acquired on 18th May 2004 for a nominal cash consideration of £1 plus deferred consideration. Sketchley may benefit from potential tax benefits from the future utilisation of brought forward trading losses which could arise subject to agreement with the Inland Revenue. Due to the uncertainty surrounding the availability and value of the losses the Directors believe it to be prudent not to recognise any potential benefit at this stage. If a benefit is realised in future years this will give rise to a liability for deferred consideration, the maximum liability under the agreement being £5 million. If the maximum liability arises, tax benefits of £8.5 million will have been realised. 11. Reconciliation of Net Cash Flow to Movement in Net Debt 52 Weeks to 52 Weeks to Dec 2004 Dec 2003 £m £m Increase in cash in year 2.3 4.5 Cash (inflow)/outflow on change in debt and lease financing (25.2) 17.3 Change in net debt resulting from cash flows (22.9) 21.8 Finance leases - new (5.1) (1.1) Amortisation of issue costs of bank loans (0.1) (0.1) Issue of loan notes (2.3) (0.9) Loans and leases acquired with subsidiaries (0.3) (0.1) Leases disposed with subsidiaries - 0.3 Exchange movement - (1.4) Movement in net debt in year (30.7) 18.5 Opening net debt (43.4) (61.9) Closing net debt (74.1) (43.4) 12. Analysis of Net Debt Acquisitions At (Excluding Cash Other At December Cash and Non-cash December Overdrafts) 2003 Flow Changes 2004 £m £m £m £m £m Cash in hand and at bank 2.2 2.3 - - 4.5 Debt due within one year - - - (3.2) (3.2) Debt due after more than one year (44.7) (25.7) (0.3) 0.8 (69.9) Finance leases (0.9) 0.5 (5.1) (5.5) (25.2) - (43.4) (22.9) (0.3) (7.5) (74.1) Non-cash changes represent the effects of amortising issue costs relating to bank loans (£0.1 million), loan notes issued in relation to an acquisition (£2.3 million) and new finance leases. £0.9 million of loan notes are reclassified from due after more than one year to due within one year. NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued... 13. Post Balance Sheet Event On 31st December 2004 the Group acquired the whole of the issued share capital of Dewhirst Corporate Clothing (DCC) Ltd for an initial consideration of £22.5 million plus deferred consideration of up to £1.25 million dependent on the signing of specific customer contracts. 14. Abridged Accounts The financial information set out above does not constitute the Company's statutory accounts for the years ended 25th December 2004 or 27th December 2003, but is derived from those accounts, subject to the adjustment in note 1. Statutory accounts for 2003 have been delivered to the Registrar of Companies and those for 2004 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. 15. 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 The annual report and accounts will be posted to Shareholders on 31st March 2005. 16. Approval The Preliminary Announcement was approved by the Board of Directors on 14th March 2005. 17. Final Dividend The final dividend is subject to confirmation at the Annual General Meeting which will be held on Wednesday 11th May 2005 at Radisson SAS Hotel, 107 Old Hall Street, Liverpool L3 9BD. Transfers to be taken into account for the proposed final dividend must be lodged at the company's transfer office, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU by midday on Friday 15th April 2005, the expected record date. The ex dividend date will be Wednesday 13th April 2005 and the proposed final dividend will be paid on 13th May 2005. This information is provided by RNS The company news service from the London Stock Exchange

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