Final Results

Johnson Service Group PLC 13 March 2006 13th March 2006 Johnson Service Group PLC Statement for the Financial Year to 31 December 2005 Johnson Service Group PLC, the textile related services and facilities management Group announces its preliminary results for the financial year ending 31 December 2005. Summary â€¢ Corporatewear performing strongly with major sales wins and a good pipeline of potential new customers in the UK and Europe â€¢ Facilities Management demonstrating good organic growth following significant contract wins â€¢ Apparelmaster returns to organic revenue growth of 2% halting four years of decline (2004: 5% decline) â€¢ Weak consumer demand leads Drycleaning revenue down 2.7% on like for like basis â€¢ Eight acquisitions completed for Â£62.2m - strengthening our position in higher growth and long term contractual business-to-business markets â€¢ Final dividend proposed up 5% to 15.0p (2004: 14.3p) â€¢ A preliminary approach has been received for the Drycleaning business that may or may not lead to an offer being received Simon Sherrard, Chairman of Johnson Service Group, commented: 'The Group remains focused on further developing its business-to-business operations which have high levels of recurring revenues and real growth potential. Our Corporatewear and Facilities Management businesses are performing well in growth markets and conditions in the workwear rental sector are improving. As previously indicated our Drycleaning business remains unpredictable. We are confident in the future of the Group and remain well placed to deliver another satisfactory outcome for the year as a whole.' Financial Highlights 2005 2004 Change Turnover Â£432m Â£364m 19% Turnover (excluding costs recharged to customers) Â£364m Â£278m 31% Profit Before Tax - UK GAAP Â£15.7m Â£15.4m 2% Adjusted Profit Before Tax* - UK GAAP Â£27.9m Â£24.6m 13% Profit Before Tax - IFRS Â£23.6m Â£21.8m 8% Adjusted Profit Before Tax* - IFRS Â£28.1m Â£24.4m 15% Final Dividend Proposed 15.0p 14.3p 5% *Before restructuring and environmental costs, goodwill and intangible amortisation and exceptional items. www.johnsonplc.com For further information, please contact: Johnson Service Group PLC Hudson Sandler Stuart Graham, CEO Michael Sandler Jim Wilkinson, CFO James Benjamin Tel: 020 7796 4133 (on the day) Sandrine Gallien Tel: 020 7290 0390 (thereafter) Telephone: 020 7796 4133 PRELIMINARY STATEMENT We are pleased to report a year of further progress for the Group. Particularly strong performances by our newer Facilities Management and Corporatewear businesses have helped us to achieve our financial objectives despite the impact on Drycleaning of the weak retail market. We have also managed to stabilise and grow our Apparelmaster garment rental business after several years of industry-wide decline and we continue to see excellent growth from our Stalbridge linen rental business. Group results The results for the year were in line with our expectations. Total turnover grew by 19% to Â£432m (2004: Â£364m), while turnover, excluding costs recharged to customers in our Facilities Management division, increased by 31% to Â£364m (2004: Â£278m). Excluding acquisitions and costs recharged to customers, underlying revenue rose by 4%. The Group interest charge rose to Â£8.4m (2004: Â£5.5m), reflecting the Â£86m expenditure on acquisitions, net of disposals, over the last two years. As a result of our acquisitions, amortisation of intangible assets increased substantially. We also incurred net exceptional costs of Â£0.6m (2004: Â£2.0 m); these comprised restructuring costs of Â£4.0m; a Â£1.0m provision for environmental and asbestos remediation work and exceptional income of Â£4.4m relating to the gain on the sale of ten retail properties and a textile rental facility. The restructuring expenditure arose as we integrated our acquired businesses and rationalised back office functions. This restructuring has already led to a saving of some Â£500k in 2005 and is expected to yield annual savings of Â£1.3m from 2006. In addition we rationalised the number of premises that Johnson Hospitality Services (JHS) trades from and incurred additional costs as we integrated the business under the management of Stalbridge. Under UK GAAP, Reported Profit Before Tax rose by 2% to Â£15.7m. The Group has prepared its consolidated financial statements to 31 December 2005 under UK GAAP, supplemented with summary IFRS financial information, rather than under IFRS as previously indicated. This is to comply with the Companies Act 1985 (as amended November 2004) and is a result of the current accounting year commencing on 26 December 2004, i.e. prior to the IFRS adoption date of 1 January 2005. The only significant difference in the Group profit and loss account is the treatment of amortisation of goodwill and intangibles. Therefore the adjusted profit (before amortisation, restructuring and environmental costs and exceptional items) under IFRS is nearly identical to that reported under UK GAAP. Summary IFRS information has been included in note 17 to this preliminary announcement. To aid comparability with our peers who will be reporting under IFRS, the following numbers used in this commentary are IFRS based unless otherwise stated. Adjusted profit before taxation rose by 15% to Â£28.1m (2004: Â£24.4m) and adjusted fully diluted earnings per share by 9% to 33.8 pence (2004: 30.9 pence). Finances In July we established a new Â£200m five year Revolving Credit Facility with a syndicate of seven banks. This was agreed on more favourable terms than our previous facility, which began to amortise at the end of June 2005. The Group's net debt at the year-end was Â£137m (2004: Â£74m). This Â£63m increase reflected our net cash spend on acquisitions of Â£56.2m, continuing capital expenditure and a Â£3.4m rise in our working capital. Capital expenditure is expected to continue at a substantial level through 2006, as previously advised, but then decrease markedly as our major IT and building programmes are completed. The interest charge was covered over four times by adjusted operating profit. Investment During the year we spent Â£23.2m on fixed assets to enhance efficiency, introduce new technologies and enlarge our capacity in markets with long-term growth potential. Our largest single project is the Â£11m roll-out of an Enterprise Resource Planning system, which is expected to be largely completed by the end of 2006 on budget. This will give us a real competitive advantage by allowing us to increase efficiency, reduce costs and ensure operational best practice across the Group. We also saw a marked increase in our rental stock expenditure, which rose to Â£24.8m (2004: Â£19.4m). This increase was due to the high organic growth levels experienced at our linen rental business, Stalbridge, together with the return to growth of our workwear rental operation, Apparelmaster. Another sign of the improvement in Apparelmaster's performance was that receipts from customers who terminated their contracts fell to Â£3.5m (2004: Â£5.1m) as retention rates improved. Acquisitions During the year we made eight acquisitions for a total value of Â£62.2m, including deferred consideration. The acquisitions continued our strategy of refocusing the Group towards markets which offer higher growth business-to-business services, with strong recurring revenue streams, hence reducing our exposure to our traditional and more volatile markets in garment rental and drycleaning. The two principal acquisitions made during the year were in the Corporatewear and Facilities Management Divisions. At the start of the financial year we acquired the DCC corporatewear business, focusing primarily on customers in the financial services and leisure sectors, for a maximum consideration of Â£23.0m. In October 2005 we bought SGP Property Services, providing white-collar facilities management to the financial services, leisure and retail sectors, for a maximum consideration of Â£24.8m. Other smaller acquisitions made during the year were further bolt-ons to our Corporatewear and Facilities Management Divisions and trade and asset purchases designed to strengthen Johnsons Apparelmaster while reducing industry overcapacity in its market place. All the acquisitions are meeting or exceeding our initial expectations. Potential Disposal We have received a preliminary approach for our Drycleaning Division that may or may not lead to an offer being received. Pension schemes As previously reported in our Trading Update in January 2006, we face an increased deficit in our pension schemes as a result of rising life expectancy and lower corporate bond yields. Our main defined benefit scheme, the Johnson Group Staff Pension Scheme, was closed to new entrants in 2002. However, the normal triennial valuation was conducted during the year and this, updated in December under FRS 17, has resulted in an Â£11.3m increase in the deficit compared with that reported last year. This brings the net deficit after tax for all our pension schemes to a total of Â£34.0m. The two main sensitivities associated with the valuation of the scheme are related to longevity assumptions and movements in the discount rate, both of which are outside the control of the Group. A one year change in the longevity assumed will alter the deficit by Â£5.0m whilst a 0.5% movement in the discount rate will cause the deficit to change by Â£17m. The age assumptions used are that women over 65 will live for 24 years whilst men will live for 21 years. Dividend The Board is recommending an increased final dividend of 15 pence per share (2004: 14.3 pence). Together with the interim dividend of 4.4 pence paid in October, this makes a total for the year of 19.4 pence (2004: 18.5 pence), a rise of 5%. It is the Board's intention to continue to pursue a progressive dividend policy while maintaining a prudent level of cover. Operational Review Rental The Rental Division saw an increase in revenues of 13% (7% excluding acquisitions), consisting of a welcome stabilisation in Johnsons Apparelmaster revenues and continued strong growth from Stalbridge Linen Services. However adjusted operating profit fell 7% as Johnson Hospitality Services underperformed during the second half of the year with sales down 7%. Johnsons Apparelmaster Apparelmaster, the UK leader in the laundering and rental of workwear, has seen several years of sales decline. Following significant management effort we have achieved an improved business performance in 2005, with organic revenues increasing by 2%. Total revenues rose 4% following the acquisition of customer contracts from four small competitors who were exiting the market. This is the first time in several years that we have achieved a stabilising in revenues, as we contracted in line with a market that has suffered from the rapid decline in UK manufacturing. Strategically we have focused on developing our turnover with smaller and medium-sized customers in response to particularly intense price competition for large national accounts. This approach, together with continued investment in our sales force and marketing plans has resulted in new business sales and customer retention rates both improving. We have also sustained the rate of investment made over the last two years in the people and infrastructure within the business. This has enabled us to provide a high quality and efficient service to our customers, while maintaining a low cost base. This action, together with the acquisitions, has helped us to improve the total operating profit margin from 13.3% to 13.9%. It is expected that the operating profit margin will be under pressure during 2006 as the cost increases we are experiencing are unlikely to be totally matched by price rises. In January 2006 Rentokil Initial announced the closure of its UK linen and workwear operations. We are actively marketing to the customers that it is intending to stop servicing with some success. In addition, the processing capacity that will be closing may help the industry achieve greater price stability. Stalbridge Linen Services and Johnson Hospitality Services (JHS) Stalbridge again achieved excellent organic revenue growth of 28% in the premium hotel, catering and corporate hospitality sector, where it is the clear market leader. Total revenues increased by 46% following the strategic acquisitions of businesses in Winchester and Essex, which increase our geographic coverage. The operating margin decreased from 15.5% to 12.8% as expected, following the acquisitions and the increased investment in operational and management infrastructure required to support future growth. Further expansion is planned in 2006, when we will begin construction of a new state-of-the-art laundry facility in the East Midlands. Business has grown in all parts of the country, supported by innovative marketing that is recognised as the best in the industry, and by successful new product launches. Very high levels of customer retention again complemented an exceptional new business sales performance. Indeed, the company prides itself in its 'no contract' offering, based on our confidence that customers will receive service levels far in excess of those offered elsewhere. JHS is the market leader in the provision of furniture and catering equipment to the contract catering market. Following a disappointing trading performance during the second half of the year JHS was merged under the Stalbridge management team, though they remain as separate customer-facing brands. This integration was designed to enhance service, maximise cross-selling opportunities and realise operational and distribution efficiencies and cost savings. The new management team is also working to develop a flexible cost base that more appropriately reflects the seasonal pattern of demand. We also embarked on a rationalisation of the JHS branch network, with three locations closing in 2005 and a further closure planned in the current year, when we will also be relocating the head office to new premises in Buckingham. We have expanded and radically altered the JHS sales function to focus on the business-to-business market, and to ensure that we leverage the strong cross-selling opportunities with Stalbridge. We remain convinced that the combined JHS and Stalbridge offering is a robust business model and we have already seen an improvement in the performance of JHS in 2006. Corporatewear The Corporatewear Division saw revenue growth of 132% and adjusted operating profit growth of 178% over the year, largely due to our acquisition activity during 2004 and the start of 2005. Excluding the acquisitions we still saw good organic revenue growth of 10%. The five acquired businesses complemented our existing company, CCM, and achieved our aim of creating the UK's clear market leader in the supply of high quality corporate clothing. The market for corporatewear is continuing to grow strongly and has significant further potential. Over half the workers in the US wear corporate uniforms. In the UK penetration is under 40%, and on the Continent it is below 20%. As the market leader in Britain and one of the largest suppliers in Europe, we are well placed to exploit the development potential this affords. Our strategy is to capitalise on the individual strengths of the various businesses we have acquired, which all have strong brands and close customer relationships built on specialist knowledge of distinct market sectors. This enables us to provide our customers with the focus that they demand. At the same time, we have been able to leverage our Group scale in worldwide sourcing to reduce product costs and improve quality, while enhancing efficiency and service levels through the integration of back office functions. These efficiencies have seen the operating margin of the division increase from 11% to 13%. Management has been unified under a Corporatewear board to ensure that we exploit potential synergies and cross-selling opportunities to the full. All our brands achieved good organic growth during the year. Dimensions, which is primarily focused on large, blue chip retail customers, has continued to develop its enviable client list, which includes Tesco, Sainsbury's, Waitrose, BAA, Marriott hotels, Marks & Spencer and Boots. DCC mainly serves the financial services sector, where its clients include HSBC, Lloyds TSB and Royal Bank of Scotland. Our workwear brand CCM, continued to exceed our expectations achieving organic revenue growth of 7%. We have also developed a public services offering with Yaffy, focusing on high quality police outerwear, and Wessex, providing clothing for ambulance staff. These were complemented by the Â£4.0m acquisition in April 2005 of Boyd Cooper, a supplier of nurses' uniforms. All these businesses are performing well and are benefiting from being part of a larger division. Across the business we are experiencing good growth that reflects the strength of these customer relationships and the high quality of our newer and more comprehensive catalogue offering. Our skills in design and logistics enable us to provide even the largest corporations with comprehensive management of their clothing brand images. In addition, the substantially increased throughput coupled with our procurement experience, is resulting in a saving of Â£3.0m per annum in the sourcing of new garments. Many of these savings will be passed onto customers, but together with our other skills they have contributed to a number of notable business gains during the year, such as Group4Securicor, Post Office Counters, Mothercare and Alliance Pharmacy. 2006 has started strongly with two major pan-European contracts being secured as well as Virgin Atlantic Airways and Focus being won as new customers. Drycleaning Our market-leading retail Drycleaning business, which operates under the Johnsons, Sketchley and Jeeves brands, was affected by the general reduction in consumer spending on the high street throughout 2005. Although overall revenue rose 4% to Â£101m, we saw like for like shop sales fall by 2.7% during the year. We took a range of actions to reduce costs, which resulted in the operating margin of the retail business improving from 3.8% in the first half of the year to 7.7% in the second half, without compromising quality. During the year we opened 13 new concessions within Sainsbury's stores, and four new drive-in sites at Sutton Coldfield, Plymouth, Winchester and St Austell. We also acquired four independent shops and closed 31 underperforming branches, giving us a total of 587 units at the year-end. A further 60 branches were converted to the environmentally friendly GreenEarth(R) cleaning process during the year, extending the technology to 230 locations. Our Priority Club is continuing to expand and at the year-end reached a total of 520,000 active members. In the final months of the year we began a co-ordinated marketing drive designed to increase customer numbers and the frequency of their visits. Following a full staff survey and independent consumer research, comprehensive change plans have been developed to raise the profile of our shops and further improve the effectiveness of our marketing. We have also begun trialling a range of innovative services designed to enhance our convenience to customers, including 24-hour drop-off boxes for depositing drycleaning, and a home and office collection and delivery service. In line with this strategic priority, the focus of our future branch opening plans will be on the acquisition of highly accessible and convenient drive-in sites. The trading performance of Jeeves of Belgravia, our luxury brand, steadily improved during the year as we began to see the results of increasing customer recognition of our investment in both technology and people. We are confident that further improvements will be achieved in the current year, when we plan to launch an exciting new brand design. Alex Reid, our business which is the leading supplier of consumables to the drycleaning industry, performed well in holding revenue and profits steady despite the tough market conditions experienced during the year. In August 2005 we strengthened the business by acquiring Firbimatic UK, a market leader in the supply and servicing of machinery and ancillary equipment. Excellent progress has been made in developing cross-selling opportunities and capitalising on the synergies available. As the European Master Licence holder, Alex Reid has actively promoted the operational and marketing advantages of the environmentally preferable GreenEarth(R) cleaning system process to drycleaners across the EU. Although poor market conditions have limited investment by potential customers, sales were encouraging in the latter part of the year. In addition to the trading activities outlined above, the Drycleaning segmental results include Â£1.8 m (2004: Â£1.4 m) of profit from the disposal of freehold properties and other non-trading income. A similar income is expected during 2006. The Drycleaning business benefits from a property portfolio that extends to around 90 freehold sites. If these sites were leasehold and charged at a market rent to the division, the operating profit of the retail business would be approximately Â£1.6 m (2004: Â£1.7 m) lower. Facilities Management Organic revenue growth of 5% was supported by the acquisitions of SGP Property Services (SGP) in October and by Acame in January. These helped our Facilities Management Division grow total revenues (excluding costs recharged to customers) by 57% and adjusted operating profit by 144%, with the margin moving from 6.1% to 9.4%. SGP specialises in the provision of property management services to the financial, leisure and retail sectors, ideally complementing Johnson Workplace Management (JWM) our existing facilities management business, which is focused primarily in the commercial office market. Both share the 'white collar' model of facilities management, subcontracting lower-value commodity services. The acquisition gives us significantly enhanced scale in this market enabling us to offer a more complete service to potential customers. There is already an encouraging new business pipeline with both existing and potential new clients. This is aided by the current retail downturn, which is a positive environment for selling the outsourced services that we offer. Although we will exploit the synergies available in procurement we intend to maintain the distinctive strengths of our two customer-facing brands. JWM has achieved good organic revenue growth of 5% with a number of new three-year contracts being recently awarded by existing clients in the pharmaceuticals, electronics and telecoms sectors. We have also gained a number of new clients in both the public and private sectors. At the same time, we have again been successful in reducing costs through the delivery of improved operational efficiencies. Workplace Engineering is our new brand for the delivery of hi-tech electrical, engineering and project fit-out services. It brings together two recently acquired businesses, Ace (Ascot) and Acame, both of which achieved significant growth in 2005 through a combination of open market tenders and referrals from JWM. Their integration has now been completed, providing further efficiencies and cost savings and enabling us to take full advantage of the continuing opportunities in this buoyant sector. Outlook The Group remains focused on further developing its business-to-business operations which have high levels of recurring revenues and real growth potential. Our textile offering is comprehensive and unique, while our expanded Facilities Management activities now cover both the commercial and retail sectors. The strong business model we have developed allows us to exploit the cross-selling opportunities that exist within and between our core activities and to deliver sustained growth to the top and bottom line. With our Corporatewear and Facilities Management businesses performing well in growing markets and with improving conditions in the workwear rental sector we are confident in the future of the Group. Trading conditions for our retail Drycleaning business remain unpredictable. The approach for the Drycleaning business remains preliminary and an offer may or may not be received. Subject to the comments above, we remain well placed to deliver another satisfactory outcome for the year as a whole. JOHNSON SERVICE GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT - UNAUDITED Note YEAR ENDED YEAR ENDED 31st DECEMBER 25th DECEMBER 2005 2004 Â£m Â£m Restated 2 TURNOVER Continuing 390.6 364.0 Acquisitions 41.3 - TOTAL TURNOVER 431.9 364.0 Costs recharged to customers (68.4) (86.0) 2 Turnover excluding costs recharged to customers 363.5 278.0 2 OPERATING PROFIT BEFORE RESTRUCTURING AND ENVIRONMENTAL COSTS AND GOODWILL AMORTISATION Continuing 29.9 30.1 Acquisitions 6.4 - TOTAL 36.3 30.1 3 Restructuring and Environmental costs (5.0) (2.0) Amortisation of goodwill (11.6) (7.2) OPERATING PROFIT Continuing 16.2 20.9 Acquisitions 3.5 - TOTAL 19.7 20.9 4 EXCEPTIONAL ITEMS Profit on disposal of property 4.4 - PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 24.1 20.9 Net interest (8.4) (5.5) 2 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 15.7 15.4 6 Tax on profit on ordinary activities (6.5) (6.3) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 9.2 9.1 7 Dividends (11.4) (10.6) LOSS FOR THE FINANCIAL YEAR (2.2) (1.5) 5 ADJUSTED PROFIT BEFORE TAX (EXCLUDING RESTRUCTURING AND 27.9 24.6 ENVIRONMENTAL COSTS, GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS) RATES OF DIVIDEND PER SHARE Ordinary shares of 10p each:- Interim - paid 4.4p 4.2p Final - paid - 14.3p Final - proposed 15.0p - 8 EARNINGS PER SHARE BASIC 15.7p 15.9p FULLY DILUTED 15.4p 15.6p ADJUSTED EARNINGS PER SHARE BASIC 34.3p 30.8p FULLY DILUTED 33.6p 30.2p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Â£m Â£m Profit on ordinary activities after taxation 9.2 9.1 Actuarial (loss)/gain on defined benefit schemes (15.7) 0.2 Taxation in respect of actuarial loss on defined benefit schemes 4.7 - Total recognised gains and losses for the year (1.8) 9.3 1 Prior year adjustment - adoption of FRS 17 (25.4) 1 Prior year adjustment - adoption of FRS 20 0.4 Total gains and losses recognised since last annual report (26.8) JOHNSON SERVICE GROUP PLC CONSOLIDATED BALANCE SHEET - UNAUDITED 31st DECEMBER 25th DECEMBER 2005 2004 Â£m Â£m Restated FIXED ASSETS Intangible fixed assets - Goodwill 156.0 111.4 Tangible fixed assets: Property, plant and equipment 77.6 68.3 Rental items 30.1 24.5 Total 107.7 92.8 263.7 204.2 CURRENT ASSETS Stocks 30.2 19.8 Debtors: Amounts falling due within one year 64.9 54.1 Amounts falling due after more than one year 0.1 0.2 65.0 54.3 Cash at bank and in hand 7.5 4.5 102.7 78.6 CURRENT LIABILITIES Creditors: Amounts falling due within one year (100.0) (88.0) NET CURRENT ASSETS/(LIABILITIES) 2.7 (9.4) TOTAL ASSETS LESS CURRENT LIABILITIES 266.4 194.8 Creditors: Amounts falling due after more than one year (148.6) (78.1) PROVISIONS FOR LIABILITIES AND CHARGES (12.2) (12.3) PENSION AND OTHER RETIREMENT BENEFIT (35.3) (23.9) LIABILITIES (NET) NET ASSETS 70.3 80.5 CAPITAL AND RESERVES Called-up share capital 5.9 5.8 Share premium account 11.9 9.5 Revaluation reserve 6.3 8.0 Other reserves 2.1 2.1 Profit and loss account 44.1 55.1 EQUITY SHAREHOLDERS' FUNDS 70.3 80.5 JOHNSON SERVICE GROUP PLC CONSOLIDATED CASH FLOW STATEMENT - UNAUDITED Note YEAR ENDED YEAR ENDED 31st DECEMBER 25th DECEMBER 2005 2004 Â£m Â£m Restated 9 NET CASH INFLOW FROM OPERATING ACTIVITIES 53.2 44.9 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid (net) (6.5) (4.2) Issue costs on new bank loans (0.9) - NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS (7.4) (4.2) AND SERVICING OF FINANCE TAXATION Tax paid (net) (6.2) (5.8) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire tangible fixed assets - property, plant and equipment (23.2) (6.4) Receipts from sales of tangible fixed assets - property, plant and equipment 11.5 1.5 Payments to acquire tangible fixed assets - rental items (24.8) (19.4) Proceeds from tangible fixed assets - rental items withdrawn from circulation 3.5 5.1 NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (33.0) (19.2) FREE CASH FLOW 6.6 15.7 ACQUISITIONS AND DISPOSALS 10 Payments to acquire businesses (58.0) (32.5) 10 Cash balances acquired with businesses 1.8 1.3 Receipts from disposal of businesses - 1.1 NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS (56.2) (30.1) EQUITY DIVIDENDS PAID (10.8) (10.2) CASH OUTFLOW BEFORE FINANCING (60.4) (24.6) FINANCING Issue of Ordinary share capital 2.5 1.7 Debt due in more than one year: Loans repaid (116.2) (0.3) New loans advanced 178.2 26.0 Capital element of payments under finance arrangements (1.1) (0.5) NET CASH INFLOW FROM FINANCING 63.4 26.9 11 INCREASE IN CASH IN THE FINANCIAL YEAR 3.0 2.3 NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. Changes in Accounting Policies The financial information within this preliminary announcement has been prepared on the basis of the accounting policies stated in the Group's statutory accounts for the year ended 25th December 2004, except as outlined below. The preliminary results should therefore be read in conjunction with the 2004 annual report. The Group has changed its accounting policy in respect of share-based payments to comply with the provisions of FRS 20, Share-based Payments. The standard requires that the fair value of share-based payments be recognised as an expense in the profit and loss account over the period of service to which the award relates. In accordance with the transitional rules of FRS 20, the Group has applied the requirements of the standard to awards granted after 7 November 2002 that had not vested by 26 December 2004. The Group has also changed its accounting policy in respect of pensions and other retirement benefits to comply with the provisions of FRS17, Retirement Benefits. The standard requires the assets and liabilities of defined benefit retirement plans to be shown in the balance sheet, service costs and expected interest on plan assets and liabilities to be shown in the profit and loss account and changes in actuarial assumptions and movements on scheme assets and liabilities to be shown in the statement of total recognised gains and losses. Consequently, the Group has made the following adjustments in respect of 2004:- Year ended 25th December 2004 Operating Profit Profit Before Profit Shareholders' Funds Taxation After Taxation Â£m Â£m Â£m Â£m FRS 20 - Share-based Payments (0.2) (0.2) (0.3) 0.4 FRS 17 - Retirement Benefits 0.7 (0.1) (0.1) (25.4) Total Prior Year adjustment 0.5 (0.3) (0.4) (25.0) Earnings per share for the year ended 25th December 2004 have also been restated. For the year ended 31st December 2005, the adoption of FRS 17 and FRS 20 has increased operating profit by Â£0.3 million and reduced profit before taxation by Â£0.7 million. 2. Segmental Information - Analysis of Turnover, Operating Profit Before Restructuring and Environmental Costs and Goodwill Amortisation and Profit Before Taxation Turnover Turnover Excluding Costs Recharged to Customers 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Restated Restated CONTINUING Rental 128.4 113.3 128.4 113.3 Corporatewear 87.1 37.6 87.1 37.6 Drycleaning 101.4 97.4 101.4 97.4 Facilities Management 115.0 115.7 46.6 29.7 431.9 364.0 363.5 278.0 Operating Profit before Restructuring Profit before Environmental Costs and and Taxation Amortisation Goodwill 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Restated Restated CONTINUING Rental 15.2 16.4 11.5 13.6 Corporatewear 11.4 4.1 5.0 2.6 Drycleaning 9.8 10.8 10.2 7.3 Facilities Management 4.4 1.8 2.0 0.4 Unallocated costs (4.5) (3.0) (4.6) (3.0) 36.3 30.1 24.1 20.9 Interest (8.4) (5.5) PROFIT BEFORE TAXATION 15.7 15.4 Segmental information for 2005 includes the following in respect of acquisitions:- Turnover Operating Profit before Operating Profit Restructuring and Environmental Costs and Goodwill Amortisation Â£m Â£m Â£m Rental 6.3 0.9 0.1 Corporatewear 24.6 3.9 2.3 Drycleaning 2.7 0.3 0.2 Facilities Management 7.7 1.3 0.9 41.3 6.4 3.5 The basis of the segmental analysis has been revised to show unallocated central overheads separately, and to include the results of Alex Reid within Drycleaning. 2004 has been re-analysed accordingly. The operating profit before restructuring and environmental costs and goodwill amortisation, and profit before taxation from Drycleaning includes Â£1.8 million (2004: Â£1.4 million) of profit from the disposal of properties formerly occupied by the drycleaning business and other non-trading items. Of the exceptional items arising in 2005, Â£2.1 million has been included in the Rental segment and Â£2.3 million included in the Drycleaning segment in the analysis of Profit before Taxation. 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 in the profit and loss account to aid interpretation of the business. 3. Restructuring and Environmental Costs Year ended Year ended 25th 31st December December 2005 2004 Â£m Â£m Restructuring costs 4.0 2.0 Environmental costs 1.0 - 5.0 2.0 Restructuring costs are in respect of the reorganisation of the operation and management of recently acquired businesses into the Group's divisions, and comprise largely of redundancy costs and the write-off of fixed assets. The environmental costs relate to a provision for the anticipated environmental remediation cost of vacating an existing site and asbestos clean-up. 4. Exceptional Items Year ended Year ended 31st December 25th December 2005 2004 Â£m Â£m Profit on disposal of property assets 4.4 - Property disposals relate to the gain on disposal of a small group of trading properties and a textile rental facility. 5. Adjusted Profit Before Tax The reconciliation of profit before tax and adjusted profit before tax is as follows:- Year ended Year ended 31st December 2005 25th December 2004 Â£m Â£m Restated Profit on ordinary activities before taxation 15.7 15.4 Add goodwill amortisation 11.6 7.2 Add restructuring and environmental costs 5.0 2.0 Less exceptional items (4.4) - Adjusted profit before taxation 27.9 24.6 6. Taxation Year ended Year ended 31st December 25th December 2004 CURRENT TAX 2005 Â£m Â£m UK corporation tax charge for the year 6.3 6.0 Adjustment in relation to previous years (0.1) (0.8) Current tax charge for the year 6.2 5.2 DEFERRED TAX Origination and reversal of timing differences 0.3 0.5 Adjustment in relation to previous years - 0.6 Deferred tax charge for the year 0.3 1.1 Total charge for taxation 6.5 6.3 The tax relief on the restructuring and environmental costs incurred in the current year has reduced UK corporation tax by Â£1.2 million (2004: Â£0.6 million). The tax relief on goodwill amortisation has reduced UK corporation tax by Â£0.2 million (2004: Â£0.1 million). There is no taxation on the exceptional item disclosed in note 4. 7. Dividends Year ended Year ended 31st December 2005 25th December 2004 Â£m Â£m Ordinary shares at 19.4p (2004: 18.5p) per share 11.4 10.6 On 21st October 2005 an interim dividend of 4.4p was paid on the Ordinary shares. A proposed final dividend of 15.0p, will be paid on 15th May 2006 to Shareholders on the register of members on 18th April 2006. The Trustee of the ESOP has waived the entitlement to receive dividends on the Ordinary shares held by the Trust. 8. Earnings Per Share Year ended Year ended 31st December 2005 25th December 2004 Â£m Â£m Restated Profit on ordinary activities after taxation 9.2 9.1 Less profit on exceptional items (net of taxation) (4.4) - Add restructuring and environmental costs (net of taxation) 3.8 1.4 Add goodwill amortisation (net of taxation) 11.4 7.1 Adjusted profit attributable to Ordinary Shareholders 20.0 17.6 Weighted average number of Ordinary shares 58,208,126 57,419,393 Fully diluted number of Ordinary shares 59,357,348 58,492,266 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 on ordinary activities after taxation. Adjusted earnings per share figures are given to exclude the effects of restructuring costs, goodwill amortisation and exceptional items, all net of taxation, 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 Year ended Year ended 31st December 2005 25th December 2004 Â£m Â£m Restated Operating profit 19.7 20.9 Depreciation 27.5 22.2 Amortisation of goodwill 11.6 7.2 Profit on sale of tangible fixed assets (1.9) (0.4) Charge for share options 0.5 0.3 Difference between retirement benefit charge and cash paid (0.3) (0.6) Increase in current assets (6.3) (4.6) Increase in creditors 2.9 0.7 Adjustment in respect of provisions (0.5) (0.8) Net cash inflow from operating activities 53.2 44.9 10. Acquisitions Year ended Year ended 31st December 2005 25th December 2004 Â£m Â£m Purchase of Businesses Payments to acquire businesses 58.0 32.5 Cash and overdraft balances acquired with businesses (1.8) (1.3) Net cash consideration 56.2 31.2 Acquisitions were completed during the year for net cash consideration of Â£54.0 million, and deferred consideration of Â£6.4 million, generating goodwill of Â£56.0 million. In addition deferred consideration of Â£2.2 million in respect of acquisitions completed in earlier years was paid. 11. Reconciliation of Net Cash Flow to Movement in Net Debt Year ended Year ended 31st December 2005 25th December 2004 Â£m Â£m Restated Increase in cash in year 3.0 2.3 Cash (inflow) on change in debt and lease financing (60.9) (25.2) Change in net debt resulting from cash flows (57.9) (22.9) Finance leases - new (0.7) (5.1) Issue costs of new bank loans 0.9 - Amortisation of issue costs of bank loans (0.1) (0.1) Issue of loan notes - (2.3) Loans and leases acquired with subsidiaries (5.1) (0.3) Movement in net debt in year (62.9) (30.7) Opening net debt (74.1) (43.4) Closing net debt (137.0) (74.1) 12. Analysis of Net Debt Acquisitions At (Excluding Cash Other At 25th December Cash and Non-cash 31st December 2004 Flow Overdrafts) Changes 2005 Â£m Â£m Â£m Â£m Â£m Cash in hand and 3.0 - - 7.5 at bank 4.5 Debt due within one year (3.2) 2.2 - - (1.0) Debt due after more than one year (69.9) (64.2) (4.9) 0.8 (138.2) Finance leases (5.5) 1.1 (0.2) (0.7) (5.3) (60.9) (74.1) (57.9) (5.1) 0.1 (137.0) Non-cash changes represent the effects of amortising issue costs relating to bank loans and new finance leases. 13. Abridged Accounts The financial information set out above does not constitute the Company's statutory accounts for the years ended 31st December 2005 or 25th December 2004 within the meaning of section 240 of the Companies Act 1985, but is derived from those accounts, subject to the adjustments in note 1. Statutory accounts for 2004 have been delivered to the Registrar of Companies. The Auditors have reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985. The 2005 statutory accounts will be completed shortly and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. 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 The annual report and accounts will be posted to Shareholders on 4th April 2006. 15. Approval The Preliminary Announcement was approved by the Board of Directors on 13th March 2006. 16. Final Dividend The final dividend is subject to confirmation at the Annual General Meeting which will be held on Wednesday 11th May 2006 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 Tuesday 18th April 2006, the expected record date. The ex dividend date will be Wednesday 12th April 2006 and the proposed final dividend will be paid on 15th May 2006. 17. Summary IFRS Information a) BASIS OF PREPARATION The Group will be required to report under IFRS for the accounting period ending on 31st December 2006. The summary income statement and net assets statement for 2005 and 2004 presented below have been prepared in accordance with IFRS as they are expected to apply to the Group. The summary IFRS information that follows in this note has been prepared in accordance with those IFRS standards and IFRIC interpretations issued and endorsed or issued and expected to be endorsed by the European Union (EU), as at the time of preparing these summary statements (March 2006). In addition, the Group has adopted the amendment to IAS 19, Employee Benefits, that permits actuarial gains and losses arising on defined benefit pension plans to be taken to the Statement of Recognised Income and Expense. The Johnson Service Group PLC consolidated financial statements were prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP) until 31st December 2005. UK GAAP differs in some areas from IFRS. Summary reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS on the Group's equity and its net income and cash flows are provided in this note. The summary information presented in this note does not include all the disclosures required in full IFRS financial statements and is therefore not fully in accordance with IFRS disclosure requirements. The revised principal accounting policies set out in the IFRS Impact Statement issued in July 2005 are expected to be formally adopted by the Group when it prepares its first annual report for the year ending 31st December 2006. These standards remain subject to further amendments and interpretative guidance from the International Accounting Standards Board (IASB) as well as ongoing review and endorsement by the EU. Consequently, the accounting policies are provisional and are subject to change. b) SUMMARISED CONSOLIDATED INCOME STATEMENT UNDER IFRS Year ended Year ended 31st December 25th December 2005 2004 Note Â£m Â£m REVENUE 431.9 363.7 Costs recharged to customers (68.4) (86.0) Revenue excluding costs recharged to customers 363.5 277.7 OPERATING PROFIT 31.8 27.3 f) OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION AND 36.3 29.9 EXCEPTIONAL ITEMS Amortisation of intangible assets (3.9) (0.6) Restructuring and Environmental costs (5.0) (2.0) Profit on disposal of property 4.4 - OPERATING PROFIT 31.8 27.3 Finance costs (8.2) (5.5) f) PROFIT BEFORE TAXATION 23.6 21.8 Taxation (6.6) (5.6) PROFIT FOR THE PERIOD 17.0 16.2 g) ADJUSTED PROFIT BEFORE TAXATION 28.1 24.4 h) EARNINGS PER SHARE Basic 29.2p 28.3p Fully diluted 28.6p 27.8p Adjusted (fully diluted) 33.8p 30.9p c) CONSOLIDATED SUMMARY NET ASSET STATEMENT UNDER IFRS As at As at 31st December 25th December 2005 2004 Â£m Â£m ASSETS NON-CURRENT ASSETS Goodwill 140.7 108.3 Intangible assets 50.6 16.3 Property, plant and equipment 68.0 66.0 Rental items 30.1 24.5 Deferred tax assets 17.9 12.9 307.3 228.0 CURRENT ASSETS Inventories 30.2 19.8 Trade and other receivables 65.0 54.3 Derivative financial assets 0.2 - Cash and cash equivalents 7.5 4.5 102.9 78.6 LIABILITIES CURRENT LIABILITIES Trade and other payables 26.9 25.1 Other creditors and accruals 61.1 50.1 Current income tax liabilities 2.7 2.0 Borrowings 2.1 4.2 Derivative financial instruments 0.2 - 93.0 81.4 NET CURRENT ASSETS / (LIABILITIES) 9.9 (2.8) NON-CURRENT LIABILITIES Borrowings 142.6 74.7 Retirement benefit obligations 50.4 34.4 Deferred tax liabilities 14.6 6.8 Provisions and other non-current liabilities 19.7 17.5 227.3 133.4 NET ASSETS 89.9 91.8 d) CASH FLOWS FROM OPERATING ACTIVITIES UNDER IFRS Year ended Year ended 31st December 25th December 2005 2004 Â£m Â£m Cash flows from operating activities Operating profit 31.8 27.3 Adjustments for: Depreciation and amortisation 31.4 22.8 Increase in net working capital (3.3) (3.7) Profit on sale of tangible fixed assets (6.2) (0.4) Other non-cash movements (0.5) (1.1) Cash generated from operations 53.2 44.9 The IFRS re-presentation has had no further impact on the cash flow position of the Group, hence only the movements in the reconciliation of profit before taxation to cash generated from operations have been disclosed. e) RECONCILIATION OF UK GAAP TO IFRS 31st December 25th December 2005 2004 (i) Profit and loss account Â£m Â£m Profit before taxation - UK GAAP 15.7 15.4 Add: Goodwill amortisation 11.6 7.2 Less: Amortisation of intangible assets (3.9) (0.6) Less: Other differences - (0.2) Add: Interest- IAS 39 0.2 - Profit before taxation - IFRS 23.6 21.8 (ii) Net assets Net assets - UK GAAP 70.3 80.5 Add: Goodwill amortisation 18.8 7.2 Less: Intangible assets amortisation (4.5) (0.6) Add: Dividends 8.8 8.2 Less: Other (3.5) (3.5) Net assets - IFRS 89.9 91.8 f) SEGMENTAL INFORMATION - ANALYSIS OF TURNOVER, OPERATING PROFIT BEFORE RESTRUCTURING AND ENVIRONMENTAL COSTS AND INTANGIBLES AMORTISATION AND PROFIT BEFORE TAXATION Turnover Turnover Excluding Costs Recharged to Customers 2005 2004 2005 2004 Â£m Â£m Â£m Â£m CONTINUING Rental 128.4 113.3 128.4 113.3 Corporatewear 87.1 37.6 87.1 37.6 Drycleaning 101.4 97.1 101.4 97.1 Facilities Management 115.0 115.7 46.6 29.7 431.9 363.7 363.5 277.7 Operating Profit before Restructuring and Profit before Environmental Costs and Intangibles Amortisation Taxation 2005 2004 2005 2004 Â£m Â£m Â£m Â£m CONTINUING Rental 15.2 16.4 14.4 16.4 Corporatewear 11.4 4.1 6.8 3.6 Drycleaning 9.8 10.6 11.9 8.6 Facilities Management 4.4 1.8 3.3 1.7 Unallocated costs (4.5) (3.0) (4.6) (3.0) 36.3 29.9 31.8 27.3 Interest (8.2) (5.5) PROFIT BEFORE TAXATION 23.6 21.8 g) ADJUSTED PROFIT BEFORE TAXATION Year ended Year ended 31st December 25th December 2005 2004 Â£m Â£m Profit before taxation 23.6 21.8 Intangibles amortisation 3.9 0.6 Restructuring and environmental costs 5.0 2.0 Profit on disposal of property (4.4) - Adjusted profit before taxation 28.1 24.4 Intangibles amortisation relates to intangible assets arising on acquisitions. Amortisation of computer software, which is also classified in the balance sheet as intangible assets, is included in arriving at adjusted profit before taxation. h) EARNINGS PER SHARE Year ended Year ended 31st December 25th December 2005 2004 Â£m Â£m Profit for the period 17.0 16.2 Restructuring and Environmental costs (net of taxation) 3.8 1.4 Disposal of property (net of taxation) (4.4) - Intangibles amortisation (net of taxation) 3.7 0.5 Adjusted profit attributable to Ordinary Shareholders 20.1 18.1 Weighted average number of Ordinary shares 58,208,126 57,419,393 Fully diluted number of Ordinary shares 59,357,348 58,492,266 EARNINGS PER SHARE Basic 29.2p 28.3p Fully diluted 28.6p 27.8p ADJUSTED EARNINGS PER SHARE Basic 34.5p 31.5p Fully diluted 33.8p 30.9p Basic earnings per share is calculated using the weighted average number of shares in issue during the period, excluding those held by the ESOP, based on the profit for the period. Adjusted earnings per share figures are given to exclude the effects of intangibles amortisation and exceptional items, all net of taxation. For fully 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 period. This information is provided by RNS The company news service from the London Stock Exchange

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