Interim Results

Johnson Service Group PLC 19 September 2003 19 September 2003 JOHNSON SERVICE GROUP PLC INTERIM RESULTS FOR THE 26 WEEKS TO 28 JUNE 2003 SUMMARY • Turnover from continuing operations was £97.4 million (2002: £98.1 million). • Adjusted operating profit* from continuing operations was £13.0 million (2002: £15.7 million) after charging additional pension and NI costs of £1.6 million. • Loss before tax of £5.5 million after exceptional charge of £14.1 million relating to goodwill impairment (2002: Profit £9.2 million). • Adjusted pre-tax profit** was £11.2 million (2002: £12.8 million). • Adjusted fully diluted earnings per share*** were 14.0p (2002: 15.6p). • Acquisition of Jeeves of Belgravia 'London's Finest Dry Cleaner' • Significant progress towards next phase of development for the Group. • Appointment as the Master Licensor for GreenEarth in the UK and Ireland • Since half year, disposal of Irish textile rental business and Johnsons Washroom Services for in excess of £27 million. *excludes goodwill amortisation ** excludes goodwill amoritisation and exceptional items. *** excludes goodwill amoritisation, exceptional items and a tax credit relating to previous years John Hancox, Chairman, Johnson Service Group PLC said: 'We have delivered on our objectives to date and have made significant progress in moving into the next phase of development for the Group. ' Enquiries: Johnson Service Group PLC Stuart Graham, CEO Mike Sutton, CFO Telephone: 020 7796 4133 on Friday 19 September 2003 only thereafter on 0151 933 6161 Hudson Sandler Michael Sandler / Wendy Baker Telephone 020 7796 4133 JOHNSON SERVICE GROUP PLC INTERIM RESULTS FOR THE 26 WEEKS TO 28 JUNE 2003 CHAIRMAN'S STATEMENT The first six months of the year have been a period of significant change for the Group in a market where economic activity has remained depressed. Although there remains much to do, we have delivered on our objectives to date and have made significant progress in moving into the next phase of development for the Group. Group Results and Dividend The Group's underlying results for the first six months of 2003 were in line with expectations. Total turnover was £110.3 million (2002: £109.3 million) and operating profit was £10.8 million (2002: £13.2 million). Turnover from continuing operations was £97.4 million (2002: £98.1 million), whilst adjusted operating profit from continuing operations (which excludes goodwill amortisation) was £13.0 million (2002: £15.7 million) after charging additional pension and NI costs of £1.6 million. The exceptional charge of £14.1 million relating to goodwill impairment has resulted in a loss before tax of £5.5 million (2002: Profit £9.2 million) and fully diluted loss per share of 9.5p (2002: earnings per share 9.4p). Adjusted pre-tax profit (which excludes goodwill amortisation and exceptional items) was £11.2 million (2002: £12.8 million) and adjusted fully diluted earnings per share (which excludes goodwill amortisation, exceptional items and a tax credit relating to previous years) were 14.0p (2002: 15.6p). The net interest charge decreased by £0.5 million to £2.2 million, reflecting the Group's lower level of debt compared to the first half of 2002. The interest charge was covered over 6 times by adjusted operating profit. Net debt at 28 June 2003 was £63.2 million (December 2002: £61.9 million), after the funding of £4.5 million for acquisitions towards the end of the first half. Since the period end we have received over £27 million from disposals as referred to below. The Board has decided to pay an unchanged interim dividend of 4.0p per share. DISPOSALS In August 2003 we announced the disposal of Connacht Court Group Limited (CCG), our Irish textile rental business, and the business and assets of Johnsons Washroom Services (JWS) with combined proceeds in excess of £27 million. The proceeds have been used to reduce borrowings and are available to further the development of the Group's activities. DIVISIONAL TRADING RESULTS UK textile rental With the continuation of challenging economic and competitive market conditions, turnover from continuing operations was £61.6 million (2002: £62.4 million). Operating profit before goodwill amortisation was £9.0 million (2002: £11.8 million) after charging additional pension and NI costs of £0.9 million. At Johnsons Apparelmaster, the cumulative effects of poor sales and customer retention over the last three years have continued to impact on turnover and operating profit, as has the ongoing contraction in the number of wearers within the customer base, particularly in our Midlands and Northern regions. In addition to the Customer Service Director we have appointed a new Sales Director, allowing the clear separation of responsibilities between sales and customer service. We have continued to strengthen the sales team and related infrastructure. There has been notable improvement in new sales performance, but it will be some time before the securing of new customers in market segments with good growth prospects reverses the effect of contraction in our traditional customer base and leads to a resumption of top line growth. During the half year, we have continued to implement cost reduction measures, including the closure of a plant in the North East and route rationalisation throughout the business. IT systems and administration procedures remain under review to ensure that efficiency is maximised. Stalbridge Linen Services has achieved further progress. Marginally lower volumes within the corporate hospitality sector have had a small impact on profit, though we have maintained our market share within an increasingly competitive environment. We believe that the customer base provides us with a number of opportunities to offer added services and we are working on developing these. CCM's focus for the first half of the year has been on the establishment of facilities and systems to support the 5 year Arco contract, referred to in the Annual Report. Whilst turnover has increased, start-up costs relating to this contract have resulted in flat profits for the period. We see considerable opportunities for growth in this business. Drycleaning Turnover in our drycleaning businesses was £35.8 million (2002: £35.7 million). Like-for-like sales increased by 2.4%. Operating profit before goodwill amortisation was £4.0 million (2002: £3.9 million). In May 2003, the Group acquired Jeeves of Belgravia - an established luxury brand, recognised as 'London's Finest Dry Cleaner' with 12 outlets and a central processing unit in London. This acquisition increases our penetration in the South East and it is our intention to revitalise and grow this business separately from the Johnsons brand. An exciting development in the period has been our appointment as the Master Licensor for GreenEarth in the UK and Ireland for an initial period to 2008. GreenEarth is a silicone-based cleaning process developed in the United States by GreenEarth Cleaning LLC in conjunction with GE and Procter & Gamble. Existing and impending legislation in North America and parts of Europe clearly demonstrates that drycleaning will have to rely increasingly on environmentally acceptable processes and GreenEarth will provide us with a first-to-market advantage. In addition to GreenEarth's extensive testing in the US, we have completed exhaustive trials in the UK and due to the success of these we plan to roll out this technology across all our 500 stores over the next two years. We also have the opportunity to licence the GreenEarth process across the industry. THE BOARD We were pleased to welcome David Toon, Managing Director of our textile rental division since November 2002, to the Group Board on 2nd May 2003. I am also pleased to announce the appointment of Baroness Wilcox, as a Non Executive Director of the Group from 1 October 2003. Judith's current roles include serving as a Non Executive Director of Cadbury Schweppes plc and Carpetright plc and as President of the Institute of Trading Standards and the National Consumer Federation. I am sure that her wide experience of both business and public affairs will be a great asset to the Board. I recently informed the Board that, having served as a Non Executive Director of the Group for some twelve years, the last six as Chairman, I believed it was time for me to step down and it has been agreed by the Board that I should do so on 27 December this year. I am delighted to report that the Board has decided to appoint Simon Sherrard, currently the Senior Independent Director, to succeed me as Chairman. He has been a Non Executive Director since January 2000 and has made a significant contribution to the Group. I firmly believe that, with Simon as Chairman and Stuart as Chief Executive, the Group will be in strong hands. OUTLOOK We remain confident about the prospects for the Group. We have taken firm action within Johnsons Apparelmaster which we are convinced will, in due course, abate the recent turnover decline. We believe there are significant growth prospects for Stalbridge and CCM. We are committed to growing our drycleaning business and are enthusiastic about the prospects for our GreenEarth Master Licence and the business and brand of Jeeves of Belgravia. The disposal of CCG, which immediately freed up important management resources, along with the disposal of JWS has released significant financial resources. In the last 14 months we have strengthened our management team and substantially improved our skill sets. We intend to bring these to bear in broadening the base of our activities in terms of both the services we offer and their geographical location. I am very encouraged by the decisive actions already taken to secure and strengthen our continuing businesses and to re-establish the management and financial resources required for the future development of the Group. Our strong balance sheet will enable us to take advantage of opportunities as we create them and as they arise. The UK market remains difficult, with no significant upturn in economic activity and competition remaining strong in Johnsons Apparelmaster's market place. However as a result of the changes that have taken place, the results for the half year and the underlying trends, the Board is confident of a satisfactory outcome for the year as a whole. John Hancox Chairman JOHNSON SERVICE GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER Note 2003 2002 2002 £M £M £M 1 TURNOVER Continuing operations 97.4 98.1 196.1 Discontinued operations 12.9 11.2 23.1 Total 110.3 109.3 219.2 1 OPERATING PROFIT BEFORE GOODWILL AMORTISATION 13.4 15.5 26.3 Amortisation of goodwill (2.6) (2.3) (4.7) OPERATING PROFIT Continuing operations 11.1 13.9 22.8 Discontinued operations (0.3) (0.7) (1.2) Total 10.8 13.2 21.6 2 EXCEPTIONAL ITEMS Loss on disposal of businesses (continuing) (3.6) (1.3) (1.3) Loss on disposal of businesses (discontinued) (10.5) - - Total (14.1) (1.3) (1.3) 1 (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST (3.3) 11.9 20.3 Net interest (2.2) (2.7) (5.3) (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (5.5) 9.2 15.0 4 Tax on (loss)/profit on ordinary activities - 3.8 5.8 (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS (5.5) 5.4 9.2 5 Dividends (2.3) (2.3) (10.0) 8 (LOSS)/RETAINED PROFIT FOR THE PERIOD (7.8) 3.1 (0.8) 3 PROFIT BEFORE TAX EXCLUDING GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS 11.2 12.8 21.0 RATES OF DIVIDEND PER SHARE Ordinary shares of 10p each:- Interim - paid - 4.0p 4.0p Interim - proposed 4.0p - - Final - paid - - 13.6p 6 (LOSS)/EARNINGS PER SHARE BASIC (9.6)p 9.5p 16.3p FULLY DILUTED (9.5)p 9.4p 16.2p 6 EARNINGS PER SHARE (before goodwill amortisation, exceptional items and previous year tax credit) BASIC 14.1p 15.8p 26.9p FULLY DILUTED 14.0p 15.6p 26.6p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (Loss)/profit for the period (5.5) 5.4 9.2 Currency translation differences on foreign currency net investments 0.2 0.5 0.5 Total recognised gains and losses for the period (5.3) 5.9 9.7 Prior year adjustment for FRS 19 - (0.4) (0.4) Total gains and losses recognised since last annual (5.3) 5.5 9.3 report JOHNSON SERVICE GROUP PLC CONSOLIDATED BALANCE SHEET JUNE JUNE DECEMBER Note 2003 2002 2002 £M £M £M FIXED ASSETS Goodwill 67.8 79.9 79.3 Tangible assets 73.7 78.8 76.3 Textile rental items 25.4 26.7 25.8 Investments 0.4 0.4 0.4 167.3 185.8 181.8 CURRENT ASSETS Stocks 8.7 8.4 7.2 Debtors: Amount falling due within one year 34.2 34.6 32.3 Amounts falling due after more than one 6.3 7.3 6.5 year 40.5 41.9 38.8 Cash at bank and in hand 1.2 - 0.6 50.4 50.3 46.6 CURRENT LIABILITIES Creditors: Amounts falling due within one year (40.5) (45.7) (49.7) NET CURRENT ASSETS / (LIABILITIES) 9.9 4.6 (3.1) TOTAL ASSETS LESS CURRENT LIABILITES 177.2 190.4 178.7 Creditors: Amounts falling due after more than one year (64.0) (67.9) (59.1) PROVISIONS FOR LIABILITIES AND CHARGES (13.2) (11.2) (12.1) NET ASSETS 100.0 111.3 107.5 CAPITAL AND RESERVES Called-up share capital 5.7 5.7 5.7 Share premium account 7.4 7.2 7.3 Revaluation reserve 9.4 10.2 9.9 Other reserves 2.1 2.1 2.1 Profit and loss account 75.4 86.1 82.5 9 SHAREHOLDERS' FUNDS 100.0 111.3 107.5 The Interim Statement was approved by the Board of Directors on 19 September 2003 JOHNSON SERVICE GROUP PLC CONSOLIDATED CASH FLOW STATEMENT 26 WEEKS 26 WEEKS 52 WEEKS Note JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M Operating profit 10.8 13.2 21.6 Depreciation and goodwill amortisation 16.4 17.0 33.6 Working capital and other items (net) 0.6 1.2 8.8 NET CASH INFLOW FROM OPERATING ACTIVITIES 27.8 31.4 64.0 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest paid (2.5) (2.7) (4.8) Issue costs of new bank loans (0.2) - - NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (2.7) (2.7) (4.8) TAXATION Tax paid (net) (3.5) (2.3) (5.9) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire tangible fixed assets (2.2) (5.1) (8.3) Receipts from sales of tangible fixed assets 0.9 1.6 2.5 Payments to acquire textile rental items (10.2) (9.5) (21.2) Proceeds from textile rental items withdrawn from 2.5 3.0 5.8 circulation NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (9.0) (10.0) (21.2) ACQUISITION AND DISPOSALS Payments to acquire businesses (4.5) (2.4) (5.7) NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS (4.5) (2.4) (5.7) EQUITY DIVIDENDS PAID (7.7) (7.7) (10.0) CASH INFLOW BEFORE FINANCING 0.4 6.3 16.4 FINANCING Issue of Ordinary share capital 0.1 0.4 0.5 Debt due beyond 1 year: Loans repaid (42.6) (10.0) (19.3) New loans advanced 46.0 - - Capital element of payments under finance agreements (0.4) (0.8) (1.2) NET CASH INFLOW/(OUTFLOW) FROM FINANCING 3.1 (10.4) (20.0) 10 INCREASE/(DECREASE) IN CASH IN THE PERIOD 3.5 (4.1) (3.6) JOHNSON SERVICE GROUP PLC NOTES 1. Segmental Information 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M Represented Turnover Continuing UK - Textile rental 61.6 62.4 124.5 GB - Drycleaning 35.8 35.7 71.6 Total continuing 97.4 98.1 196.1 Discontinued UK - Textile rental 3.2 2.1 5.2 IR - Textile rental 9.7 9.1 17.9 Total discontinued 12.9 11.2 23.1 110.3 109.3 219.2 Operating profit before goodwill amortisation Continuing UK - Textile rental 9.0 11.8 19.0 GB - Drycleaning 4.0 3.9 7.3 Total continuing 13.0 15.7 26.3 Discontinued UK - Textile rental 0.1 (0.2) - IR - Textile rental 0.3 - - Total discontinued 0.4 (0.2) - 13.4 15.5 26.3 (Loss)/profit before interest Continuing UK - Textile rental 3.6 8.7 14.3 GB - Drycleaning 3.9 3.9 7.2 Total continuing 7.5 12.6 21.5 Discontinued UK - Textile rental (0.2) (0.3) (0.4) IR - Textile rental (10.6) (0.4) (0.8) Total discontinued (10.8) (0.7) (1.2) (3.3) 11.9 20.3 Interest (2.2) (2.7) (5.3) (Loss)/profit before taxation (5.5) 9.2 15.0 On 11 August 2003, the Group disposed of its interest in the ordinary share capital of Connacht Court Group Limited (CCG), which operated the Group's textile rental business in the Republic of Ireland. On 12 August 2003, the Group disposed of the business and specified assets of Johnsons Washroom Services Limited (JWS). The results of CCG and JWS for the 6 months to 28 June 2003 and the comparatives for the 6 months ended June 2002 and for the year ended December 2002 are shown under discontinued operations. (See notes 2 and 12.) In the second half of 2002, the Group's operations in Northern Ireland were transferred to the UK - textile rental segment from the IR - textile rental segment. This was due to operational control for the business being transferred to the UK - textile rental management team. This has resulted in the restatement of the comparatives for June 2002 as follows: £1.9 million of turnover, £0.1 million of operating profit before goodwill amortisation and £1.3 million of loss before taxation being transferred from IR - textile rental segment to the UK - textile rental segment. There is no material difference between turnover by origin and by destination. 2. Exceptional Items The loss on disposal of businesses represents the write down of the goodwill on the Irish textile rental business (discontinued), which was sold on 11 August 2003, to its net realisable value and a provision for impairment of goodwill (continuing) of a business included within the UK textile rental segment. The loss in 2002 was in respect of the disposal of the Northern Ireland linen business. No taxation arises on the exceptional items. 3. Adjusted Profit Before Tax The reconciliation of profit before tax and adjusted profit before tax is as follows: 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M (Loss)/profit on ordinary activities before tax (5.5) 9.2 15.0 Add goodwill amortisation 2.6 2.3 4.7 Add exceptional items 14.1 1.3 1.3 Adjusted profit before tax 11.2 12.8 21.0 4. Tax on Profit on Ordinary Activities 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M Taxation has been estimated at: Current tax UK corporation tax charge for the period 3.2 3.9 6.8 Adjustment in relation to previous years (see note 6) (3.2) (0.2) (0.6) - 3.7 6.2 Overseas corporation tax - - (0.2) Current tax charge for the period - 3.7 6.0 Deferred Tax Deferred tax charge/(credit) for the period - 0.1 (0.2) Total charge for taxation - 3.8 5.8 The adjustment in relation to previous years arises as a result of the agreement of certain earlier year corporation tax liabilities with the Inland Revenue. 5. Dividends 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M Dividends on Ordinary shares 2.3 2.3 10.0 The interim dividend, of 4p, on the Ordinary shares will be paid on 24 October 2003 to those Shareholders registered in the books of the Company at 3 October 2003. 6. Earnings Per Share 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M (Loss)/profit attributable to Ordinary Shareholders (5.5) 5.4 9.2 Exceptional items (net of taxation) 14.1 1.3 1.3 Tax credit relating to previous years (see note 4) (3.2) - - Goodwill amortisation 2.6 2.3 4.7 Adjusted profit attributable to Ordinary Shareholders 8.0 9.0 15.2 Weighted average number of Ordinary shares 56,894,476 56,767,508 56,777,267 Fully diluted number of Ordinary shares 57,233,861 57,362,106 57,278,200 Adjusted earnings per share figures exclude the effects of goodwill amortisation, exceptional items, net of taxation and, in 2003, the tax credit relating to previous years and are considered to show the underlying results of the Group. 7. Land and Buildings Land and buildings are included within tangible fixed assets at the valuation adopted in the financial statements for the year to 25 December 1999, or, where acquired since that date, at cost at the date of acquisition. 8. Reserves OTHER RESERVES SHARE REVALUATION CAPITAL MERGER PROFIT & PREMIUM RESERVE REDEMPTION RESERVE LOSS ACCOUNT RESERVE ACCOUNT £M £M £M £M £M At 28 December 2002 7.3 9.9 0.6 1.5 82.5 Premium on issue of shares 0.1 - - - - Loss for period - - - - (7.8) Transfer of realised profits - (0.5) - - 0.5 Exchange movement - - - - 0.2 At 28 June 2003 7.4 9.4 0.6 1.5 75.4 9. Reconciliation of Movements in Shareholders' Funds 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M (Loss)/profit for the period (5.5) 5.4 9.2 Dividends (2.3) (2.3) (10.0) (7.8) 3.1 (0.8) Other recognised gains and losses relating to the period 0.2 0.5 0.5 Share premium 0.1 0.4 0.5 Net (reduction)/addition to Shareholders' funds (7.5) 4.0 0.2 Opening Shareholders' funds 107.5 107.3 107.3 Closing Shareholders' funds 100.0 111.3 107.5 10. Reconciliation of Net Cash Flow to Movement in Net Debt 26 WEEKS 26 WEEKS 52 WEEKS JUNE JUNE DECEMBER 2003 2002 2002 £M £M £M Increase/(decrease) in cash in the period 3.5 (4.1) (3.6) Cash (inflow)/outflow on change in debt and lease financing (2.8) 10.8 20.5 Change in net debt resulting from cash flows 0.7 6.7 16.9 Finance leases - new (0.9) - - Amortisation of issue costs of bank loans - (0.1) (0.5) Loans and leases acquired with subsidiary - - (0.2) Exchange movement (1.1) (1.0) (1.1) Movement in net debt in period (1.3) 5.6 15.1 Opening net debt (61.9) (77.0) (77.0) Closing net debt (63.2) (71.4) (61.9) 11. Analysis of Net Debt AT 28 DECEMBER CASH OTHER EXCHANGE AT 28 2002 FLOW NON-CASH MOVEMENT JUNE £M CHANGES 2003 £M £M £M £M Cash in hand at bank 0.6 0.6 - - 1.2 Overdraft (2.9) 2.9 - - - 3.5 Debt due after more than one year (59.0) (3.2) - (1.1) (63.3) Finance leases (0.6) 0.4 (0.9) - (1.1) (2.8) Total (61.9) 0.7 (0.9) (1.1) (63.2) Non-cash changes represent new finance leases. 12. Post Balance Sheets Events On 11 August 2003, the Group sold its interest in CCG for a net consideration of £14.7 million in cash on completion, less an adjustment of up to £1.2 million in relation to pension liabilities. (See notes 1 and 2). On 12 August 2003, the Group disposed of the business and specified assets of JWS, for a consideration of £13.7 million, less a retention of £0.5 million to reflect the anticipated level of working capital and other adjustments at completion. (See note 1.) 13. Preparation of Interim Financial Information The interim results have been prepared on the basis of accounting policies set out in the Group's 2002 statutory accounts. The profit and loss accounts, balance sheets and cash flow statements as at June 2003 and June 2002 are unaudited and have not been reviewed by the auditors. The financial information does not amount to full accounts within the meaning of Section 240 of the Companies Act 1985 (as amended). The profit and loss account, balance sheet and cash flow statement for December 2002 are abridged from the Group's full accounts for that year. Those accounts received an unqualified audit report and have been filed with the Registrar of Companies. The auditors' report did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985 (as amended). Copies of the interim report are to be sent to Shareholders and will be available to the public at the Company's registered office at Mildmay Road, Bootle, Merseyside L20 5EW. The report can also be accessed on the internet at www.johnsonplc.com This information is provided by RNS The company news service from the London Stock Exchange
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