Preliminary Results - Year Ended 31 December 2018

1 BASIS OF PREPARATION & FORWARD LOOKING STATEMENTS

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UK 100

RNS Number : 6686R

Johnson Service Group PLC

04 March 2019

4 March 2019

AIM: JSG

Johnson Service Group PLC

('JSG' or 'the Group')

Preliminary Results for the Year Ended 31 December 2018

"Another consistent and strong financial performance"

HIGHLIGHTS

Continuing Operations	2018	2017	% Increase
Adjusted results¹
Revenue	£321.1m	£290.9m	10.4%
Adjusted operating profit	£46.0m	£43.3m	6.2%
Adjusted profit before taxation	£42.5m	£39.7m	7.1%
Adjusted diluted earnings per share	9.3p	8.7p	6.9%
Dividend	3.1p	2.8p	10.7%
Net debt	£98.4m	£91.3m	n/a
Statutory results
Operating profit	£36.6m	£34.8m	5.2%
Profit before taxation	£33.1m	£31.2m	6.1%
Diluted earnings per share	7.2p	6.9p	4.3%

§ Strong financial performance reflects organic revenue growth of 7.8%² and contribution from acquisitions

§ Full year dividend increased by 10.7% to 3.1p (2017: 2.8p) reflecting confidence in future prospects

§ Significant capital investment during the year to improve productivity and increase processing capacity

§ Acquisition of HORECA linen business, South West Laundry, on 31 August 2018 increases JSG's nationwide presence

§ Planned new high volume linen plant in Leeds on track for Spring 2020

Notes

1 Excluding amortisation of intangible assets (excluding software amortisation) and exceptional items (see note 5).

2 Excluding revenue from acquisitions completed in 2018, the full year benefit of acquisitions completed in 2017 and the one-off benefit of some £2.6 million of revenue for work processed in 2017 on behalf of a privately owned laundry whose plant was out of commission.

Peter Egan, Chief Executive Officer of Johnson Service Group PLC, the UK's leading textile services provider, commented:

"Our strategy of driving the quality of growth organically by investing capital in our operations, coupled with selective acquisitions, has delivered another strong year of substantial growth with both divisions achieving higher levels of new business. We are continuing to focus on growing the business through targeted investment in our current sites, developing new capacity where market opportunities have been identified and expanding geographical coverage through acquisition. The combination of these three strands allow us the platform to continue to provide an excellent service to our customer base. We remain confident in the year ahead."

SELL-SIDE ANALYSTS MEETING

The Company will present to sell-side analysts at 11:00 today at Investec, 30 Gresham Street, London EC2V 7QP. A copy of the presentation will be available on the Company's website (www.jsg.com) following the meeting.

ENQUIRIES

Johnson Service Group PLC (www.jsg.com)
Peter Egan, CEO
Yvonne Monaghan, CFO
Tel: 020 3757 4992 (on the day)
Tel: 01928 704 600 (thereafter)

Investec Investment Banking (NOMAD)	Camarco (Financial PR)
David Flin	Ginny Pulbrook
Carlton Nelson	Ben Woodford
Darren Vickers	Tom Huddart
Tel: 020 7597 4000	Tel: 020 3757 4992

Note

Throughout this statement 'adjusted operating profit' refers to continuing operating profit before amortisation of intangible assets (excluding software amortisation) and exceptional items. 'Adjusted profit before taxation' refers to adjusted operating profit less total finance cost. 'Adjusted EBITDA' for gearing purposes, refers to adjusted operating profit for the relevant period plus the depreciation charge for property, plant and equipment and software amortisation. 'Adjusted EPS' refers to EPS calculated based on adjusted profit after tax. The Board considers that 'adjusted operating profit', 'adjusted profit before taxation', 'adjusted EBITDA' and 'adjusted EPS', which all exclude the effects of non-recurring items or non-operating events, provide useful information for Shareholders on underlying trends and performance'.

OPERATIONAL AND FINANCIAL REVIEW

Financial Results

Total continuing revenue for the year to 31 December 2018 increased by 10.4% to £321.1 million (2017: £290.9 million), reflecting the Group's continuing strong organic growth performance of 7.8% and contributions from the acquisition of South West Laundry in August 2018 as well as the full year benefit of acquisitions completed in 2017. Adjusted operating profit increased by 6.2% to £46.0 million (2017: £43.3 million).

The total finance cost was £3.5 million (2017: £3.6 million) reflecting lower average debt levels and a reduced notional interest charge of £0.3 million (2017: £0.4 million) on the Group's net pension liabilities.

Adjusted profit before taxation increased by 7.1% to £42.5 million (2017: £39.7 million).

Net exceptional items from continuing operations were £0.6 million (2017: £0.5 million) and were in respect of acquisition and subsequent integration activity. The statutory profit before taxation, after amortisation of intangible assets (excluding software amortisation) of £8.8 million (2017: £8.0 million), increased by 6.1% to £33.1 million (2017: £31.2 million).

Continuing adjusted diluted earnings per share increased by 6.9% to 9.3 pence (2017: 8.7 pence). Diluted earnings per share from continuing operations after amortisation of intangible assets (excluding software amortisation) and exceptional items increased by 4.3% to 7.2 pence (2017: 6.9 pence).

Dividend

The Board is pleased to recommend an increased final dividend of 2.1 pence per share (2017: 1.9 pence), which reflects the Group's strong performance and confidence in the future prospects of the business. Together with the interim dividend, this takes the total dividend for the year to 3.1 pence per share (2017: 2.8 pence), an increase of 10.7% year-on-year.

The proposed final dividend, if approved by Shareholders, will be paid on 10 May 2019 to Shareholders on the register at close of business on 12 April 2019. The ex-dividend date is 11 April 2019.

Finances

Total net debt at the year-end stood at £98.4 million (31 December 2017: £91.3 million). The Group's strong trading performance and cash generation helped to offset the impact of both the acquisition we made in the year and our significant investment in capital expenditure across the business. Interest cover, based on adjusted operating profit and excluding notional interest, is 14.4 times (2017: 13.5 times).

The Group remains well funded. A revolving credit facility of £150.0 million was agreed in August 2018 of which £135.0 million runs to August 2022, with a further £15.0 million short term facility expiring in August 2019.

The facility is considerably in excess of the anticipated level of borrowings with comfortable headroom on all bank covenants for the foreseeable future.

Interest payable on bank borrowings is based upon LIBOR plus a margin which is linked to gearing levels. The applicable margin during 2018 was 1.72% and will remain at a similar level for at least the first quarter of 2019. We have mitigated our exposure to future increases in LIBOR rates through the use of interest rate hedging. Hedges for £15.0 million of borrowings replacing LIBOR with 1.665% for the full year 2019 and an additional hedge, over £10.0 million of borrowings, replacing LIBOR with 0.5525% for the period to June 2019 were put in place in prior periods. Since the year end we have put further hedges in place, each over £15.0 million, so that LIBOR is replaced by 1.07% to January 2021 and by 1.144% to January 2022.

Post-Employment Benefits

The recorded net deficit after taxation for all post-employment benefit obligations reduced to £3.8 million at 31 December 2018 from £9.8 million at 31 December 2017. The reduction reflects the benefit of deficit recovery contributions together with the net impact of a small increase in the discount rate and in the assumed inflation rate.

Asset allocation remains under constant review with the Trustee. Changes continue to be made to more appropriately match assets and the resultant cash flows against the remaining scheme liabilities and the timing of benefit payments. The interest rate and inflation risks to the Scheme have been reduced to a more acceptable level through LDI funds, with a current effective hedge target of 75%. This remains under regular review.

The current agreement with the Trustee of the defined benefit pension scheme required deficit recovery payments of £1.9 million in the year to December 2018 and this is expected to continue until after the next actuarial valuation is finalised.

OPERATIONAL REVIEW

Our Businesses

The Group reported another year of substantial organic growth with both divisions delivering higher levels of new business wins and maintaining consistently high levels of customer satisfaction scores which in turn contributed to very high retention levels. The acquisition of South West Laundry, a linen plant based in Cornwall, was a welcome addition to our coverage for Stalbridge.

The planned capital investment programme was accelerated during the year in many of our existing locations to ensure that we both improved efficiencies and created additional capacity to meet the demands from the strong organic sales generated throughout the year.

Our Group now comprises of textile services businesses that trade through a number of very well recognised brands, servicing the UK's Workwear and HORECA sectors. Currently the 'Apparelmaster' brand operates in the workwear market, 'Stalbridge', 'South West' and 'London Linen' provide premium linen services to the restaurant, hospitality and corporate events market and 'Bourne', 'Afonwen' and 'PLS' provide high volume hotel linen services.

As previously indicated, we are developing a new Group wide corporate brand which will link together the various local brands and extend national brand recognition. The rollout will commence shortly and will take up to three years to fully implement. The associated modest cost will not have a material impact on the reported earnings or cash flows of the Group over that period.

Workwear Division

The Group's workwear division provides workwear rental and laundry services to some 36,000 customers in the UK from small local businesses to the largest companies covering food related and other industrial sectors.

Operating profit increased 7.6% during the year to £22.7 million (2017: £21.1 million) driven by revenue growth of 5.2% to £128.8 million (2017: £122.4 million) and improved margins at 17.6% (2017: 17.2%).

The organic revenue growth of 5.2% includes the benefit from the record levels of new sales with some large customers returning to our services after trialling alternative providers. It was also helped by increased sales of additional products and services to existing customers and continuing high levels of retention at some 95%. These growth levels reflect a combination of our continued investment in sales and marketing activity and our strong customer service levels to our existing customers where our satisfaction index was at a high of 86.0% (2017: 84.9%). Our customer satisfaction index for our new customers also continues to remain at very high levels.

Despite the impact of higher energy costs and the continued wage increases in excess of inflation, costs were maintained and margins improved through volume efficiencies and improved productivity.

Our workwear business has continued to invest in plant and machinery during the year to drive higher productivity and lower energy consumption, ensuring the business is on schedule to meet the Government targets for reduced energy consumption under the Climate Change Agreement. Highly efficient garment folding equipment was installed in the high care food unit at Hinckley increasing folding capacity at the site by 17.5%. Work was also completed to increase garment production capacity at the high care food unit in Letchworth by a further 35%. Phase one of the Gateshead high care upgrade was completed with the installation of a new tunnel finisher and loading systems. In total, capital expenditure amounted to £5.6 million (2017: £4.7 million), with a further £21.7 million (2017: £17.8 million) spent on new rental stock. Further enhancements to the computer tablet software for our sales and service staff have been implemented which make the face to face customer experience more effective.

We have continued to improve the garment delivery times for new customers and have instigated a new product development programme, working closely with our suppliers, to ensure garments are of high quality and meet our ever-changing customers' requirements.

Investment in the training and development of our employees is carried out through our Academy and there are now 60 people benefiting from enrolment on apprenticeship schemes in addition to a nationwide customer service and management development programme. This will help to provide internal succession in some of our technical and skilled areas. Our success in this area was recognised towards the end of the year when the Academy team won the 2018 Personnel Today Talent Management Award. This national recognition reflects the excellent work of the learning and development team.

We will start the rebranding of our division early in 2019 in line with the Group wide rebranding process. Our operational and marketing departments will work together to launch and promote our new brand both internally and externally.

The business strategy of delivering enhanced quality and service to our customer base will continue into 2019 with the aim of sustaining the high levels of customer satisfaction and retention achieved in 2018.

Following the appointment of Peter Egan to the Board of Johnson Service Group, Gerry Moore was appointed Managing Director of the division at the end of April 2018. Gerry has over 25 years of industry experience and is a welcome addition to the team.

HORECA Division

The total revenue for the HORECA division was up 14.1% to £192.3 million (2017: £168.5 million). This £23.8 million increase includes contributions from additional months of trading from acquisitions completed in both 2017 and 2018. The increase is net of the one-off benefit of some £2.6 million of revenue for work processed between February and October 2017 on behalf of a privately owned laundry whose plant was out of commission. New business sales throughout the year were strong, contributing to underlying organic growth of 9.6%.

Adjusted operating profit increased by £1.2 million to £28.0 million (2017: £26.8 million) with an operating margin of 14.6% (2017: 15.9%). The margin in 2017, excluding the benefit from the work processed for the privately owned laundry referred to above, was 15.2%. The slight reduction in underlying margin is, in part, attributed to the seasonal impact of acquisitions.

Stalbridge have continued with very strong organic growth with record new sales wins well ahead of target and expectations. This is a result of a continuing reputation for quality, service delivery and response, as well as a vigorous approach to sourcing new business via online search engine optimisation tools and website activity. Our flexible, contract free approach to the marketplace is attractive to both new entrants and long established hotels, restaurants and caterers.

We have also won or renewed agreements with several significant catering groups in the latter part of 2018.

During 2018 StarCounty near Wrexham and Caterers Linen in Southall were successfully integrated onto the Stalbridge operating platforms and branding. The Wrexham site benefited from an investment programme of £0.9 million which included a new ironer line and chefs' wear finishing equipment to improve quality and productivity. In Southall, an additional factory unit has been leased to extend the existing factory footprint and £3.3 million invested in processing equipment to double the capacity of the plant. Both investment programmes were also designed to improve the working environment of our staff. A significant number of customers were moved between factory locations which will lead to improved, and more local, distribution and service and allow for further optimisation of distribution in 2019.

The acquisition of South West Laundry in August 2018 will allow us to further consolidate our customer distribution in the West Country and will free up additional capacity for future growth in our linen laundries based in Dorset. We have continued to invest in energy efficient and higher productivity equipment in all of the Stalbridge sites in order to process additional volume.

We have started work on expanding and improving our operation in Grantham to accommodate a significant amount of business installed in the first quarter of 2019.

Maintaining service and quality levels are paramount to Stalbridge, and our customer survey scores continue to rank us in the top quartile of service delivery companies generally and serve to motivate the business to stay ahead of the competition.

London Linen is now solely focused on restaurant customers, mainly in the London area, although the national restaurant chains are also supplied via our nationwide network of Group laundries, providing consistency of service levels and key performance criteria.

Revenue increased during the year, both as a result of gaining new accounts, including a significant (92 site) contract win at the start of 2018, and the opening of new sites by existing customers. Customer retention is 95% for the year with the majority of lost customers being due to restaurant sites closing.

We have experienced some limited pressures exerted by the restaurant market to reduce the amount of textile product lines laundered as customers attempt to limit costs without affecting the services they provide to their own customers front of house. Despite this, the third week of December was our busiest ever week with in excess of 2.5 million items delivered to customers.

The £4.5 million capital investment programme which was completed half way through 2017 continues to drive further benefits for London Linen, providing the capacity to facilitate the increased revenue whilst at the same time generating efficiencies. This combination has resulted in lower production labour costs per unit compared to 2017, despite National Living Wage increases. Investment has continued through 2018 with the installation of a new high speed ironer line, inclusive of an electronic inspection system, which has further increased capacity, productivity, quality and consistency.

Three of our nine ironer lines now have electronic inspection systems and these will continue to be installed to existing ironer lines to further improve efficiency and the quality of the final product. Further project work is being undertaken to determine ways to improve efficiency within the dispatch process to ensure our high levels of customer service are maintained in a cost effective manner.

2018 was another successful year for high volume linen, trading under the Afonwen, Bourne and PLS brands. The business continues to invest strongly in a range of areas including equipment, people and textile product in order to ensure we maintain our leading position in the high volume linen market, focusing on the core corporate 4 star and budget hotel sectors.

Early in the year, the businesses benefited from securing and installing a range of new customers quickly due to the sudden and unplanned closure of a small independent laundry in the Midlands. In addition, the business continued to benefit from increased integration and working more consistently together, allocating work to the closest operating site thereby ensuring the business continued to benefit from improved logistical efficiencies.

In July 2018, nearing the peak of the summer season, the high volume linen business successfully rolled out a new nationwide contract with Village Hotels, supplying 29 hotels across England, Wales and Scotland. This is an example of the benefit from being able to offer a fully nationwide supply following the successful acquisitions that have now enabled us to offer a genuine UK-wide service.

By the height of the summer, we saw a significant increase in summer peak volumes with our customers benefiting from the exceptionally warm summer period and delivered in excess of 7 million items of linen per week.

Throughout the year, we continued to lay down the foundations of an on-going, carefully planned structured process of integrating into a high volume linen single business platform. This will create improved benefits of a centralised national operations and account management team together with plans in place to fully integrate the finance function across the business from early 2019. During the year ahead, the further integration of the three brands is expected to continue as part of the Group wide re-branding process.

With increasing capacity constraints and anticipated further consolidation and growth in the underlying hotel market place, the high volume linen business is actively planning additional production capacity to allow future growth.

We have identified an opportunity to secure a new operational site within close proximity of our current Leeds transport hub, which supplies hotels across Yorkshire and the North East.

As such, we have entered into a 20 year lease agreement to enable the business to open a major new laundry on the outskirts of Leeds in the first half of 2020. The proposed new site will deliver considerable logistical benefits and increased capacity for our business in Northern England, delivering improved efficiencies, lowering our carbon footprint, with significant reductions in cost of trunking work. The new site will also free up capacity at existing production facilities through reallocation of work and effectively relocating our Leeds transport hub to a fully operational commercial laundry.

Construction on site has commenced and is on schedule for handover towards the last quarter of 2019, enabling up to six months for installation and commissioning of the new plant. The anticipated investment in the site will be up to £10.0 million. The financing of the new plant is already in place due to the increased banking facilities previously announced during the financial year.

The business continues to explore other opportunities to expand over the medium term and is developing an enhanced sales and marketing strategy to continue to drive organic growth throughout the business as we commission and increase production capacity from the spring of 2020 onwards.

System Development

Work continues on our in-house development of the new operating systems for both the workwear and high volume linen operations. This project, which incorporates the use of Microsoft Dynamics, will further improve our operating systems and customer engagement. The first phase of the solution, covering finance, will be installed in the first half of 2019.

Employees

Our teams across the business have continued to work with skill, enthusiasm and dedication and have helped to ensure that our customers receive market-leading service standards.

The Board would like to thank them for their significant contribution to the continuing success of the Group.

Board Changes

As reconfirmed on 17 December 2018, Peter Egan, who joined the Board on 1 April 2018 as Chief Operating Officer assumed the role of Chief Executive Officer (CEO) on 1 January 2019. Chris Sander, the previous CEO, stepped down from the Board on 31 December 2018 with our sincere gratitude and very best wishes; the Board would like to thank Chris, who during his 34 years with the Group, has made a significant contribution to its success and, as CEO, led the Group through a sustained period of exceptional growth.

Brexit

The main impact from Brexit and the continuing uncertainty around the post Brexit arrangements depends on whether or not it has a potential negative effect on the macroeconomic environment. In this respect, we believe that the risks we would have to mitigate against would be a change in consumer confidence, levels of employment and investment from within our customer base. The Group has undertaken a review of potential actions that it would take in the event that mitigation was required.

Outlook

The Group's performance since the year end has been in line with management expectations. With strong new business sales in the second half of 2018, existing strong cash flows and an established strategy of investing for growth, we remain confident in the year ahead.

We are continuing to focus on growing the business through targeted investment in our current sites, developing new capacity where market opportunities have been identified and expanding geographical coverage through acquisition. The combination of these three strands allows us the platform to continue to provide an excellent service to our customer base.

The announced investment in a new laundry in Leeds forms part of our strategy to increase future capacity and revenue generating opportunities and demonstrates our commitment and confidence in the future.

By order of the Board,

Peter Egan Yvonne Monaghan

Chief Executive Officer Chief Financial Officer

4 March 2019 4 March 2019

CONSOlidated Income Statement

		Year ended 31 December 2018	Year ended 31 December 2017
	Note	£m	£m


Revenue	2	321.1	290.9

Operating profit	2	36.6	34.8

Operating profit before amortisation of intangible assets (excluding software amortisation) and exceptional items	2	46.0	43.3

Amortisation of intangible assets (excluding software amortisation)		(8.8)	(8.0)

Exceptional items	3
- Costs in relation to business acquisition activity		(0.6)	(0.5)
Operating profit	2	36.6	34.8

Finance cost		(3.2)	(3.2)
Notional pension interest		(0.3)	(0.4)
Total finance cost	4	(3.5)	(3.6)

Profit before taxation		33.1	31.2
Taxation charge *	6	(6.3)	(5.8)

Profit for the year from continuing operations		26.8	25.4

Profit for the year from discontinued operations	13	-	0.3

Profit for the year attributable to equity holders		26.8	25.7

Earnings per share	7
Basic earnings per share
From continuing operations		7.3p	6.9p
From discontinued operations		-	0.1p
From total operations		7.3p	7.0p
Diluted earnings per share
From continuing operations		7.2p	6.9p
From discontinued operations		-	0.1p
From total operations		7.2p	7.0p
Adjusted basic earnings per share
From continuing operations		9.4p	8.7p
From discontinued operations		-	-
From total operations		9.4p	8.7p
Adjusted diluted earnings per share
From continuing operations		9.3p	8.7p
From discontinued operations		-	-
From total operations		9.3p	8.7p

* Including £1.7 million credit (2017: £1.7 million credit) relating to amortisation of intangible assets (excluding software amortisation) and £nil credit (2017: £0.1 million credit) relating to exceptional items.

Consolidated Statement of COMPREHENSIVE Income

	Year ended 31 December 2018 £m	Year ended 31 December 2017 £m

Profit for the year	26.8	25.7

Items that will not be subsequently reclassified to profit or loss
Re-measurement and experience gains on post-employment benefit obligations	5.7	3.2
Taxation in respect of re-measurement and experience gains	(1.1)	(0.6)
Change in deferred tax due to change in tax rate	-	(0.1)
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) - fair value (losses) / gains	(0.3)	0.2
- transfers to administrative expenses	(0.4)	-
- transfers to finance cost	0.2	0.4
TOTAL OTHER COMPREHENSIVE INCOME FOR THE YEAR	4.1	3.1
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	30.9	28.8

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

	Share Capital					Share Premium	Merger Reserve	Capital Redemption Reserve	Hedge Reserve	Retained Earnings	Total Equity
	£m					£m	£m	£m	£m	£m	£m

Balance at 1 January 2017	36.5					15.0	1.6	0.6	(0.7)	94.1	147.1

Profit for the year	-					-	-	-	-	25.7	25.7
Other comprehensive income				-		-	-	-	0.6	2.5	3.1
Total comprehensive income for the year					-	-	-	-	0.6	28.2	28.8

Share options (value of employee services)	-					-	-	-	-	0.7	0.7
Current tax on share options	-					-	-	-	-	0.2	0.2
Issue of share capital	0.1					0.2	-	-	-	-	0.3
Dividend paid	-					-	-	-	-	(9.5)	(9.5)
Transactions with Shareholders recognised directly in Shareholders' equity	0.1					0.2	-	-	-	(8.6)	(8.3)

Balance at 31 December 2017	36.6					15.2	1.6	0.6	(0.1)	113.7	167.6

Change in accounting standard (note 18)	-					-	-	-	-	1.0	1.0

Restated balance at 1 January 2018		36.6				15.2	1.6	0.6	(0.1)	114.7	168.6

Profit for the year	-					-	-	-	-	26.8	26.8
Other comprehensive income			-			-	-	-	(0.5)	4.6	4.1
Total comprehensive income for the year					-	-	-	-	(0.5)	31.4	30.9

Share options (value of employee services)	-					-	-	-	-	0.8	0.8
Deferred tax on share options	-					-	-	-	-	0.1	0.1
Issue of share capital	0.2					0.5	-	-	-	-	0.7
Dividend paid	-					-	-	-	-	(10.7)	(10.7)
Transactions with Shareholders recognised directly in Shareholders' equity	0.2					0.5	-	-	-	(9.8)	(9.1)

Balance at 31 December 2018	36.8					15.7	1.6	0.6	(0.6)	136.3	190.4

The Group has an Employee Benefit Trust (EBT) to administer share plans and to acquire shares, using funds contributed by the Group, to meet commitments to employee share schemes. At 31 December 2018 the EBT held 16,256 shares (2017: 16,526).

Consolidated Balance Sheet

	As at 31 December 2018	As at 31 December 2017
	£m	£m

NON-CURRENT ASSETS
Goodwill	128.1	120.3
Intangible assets	39.3	43.5
Property, plant and equipment	96.0	89.3
Textile rental items	56.4	50.0
Trade and other receivables	0.7	0.3
Deferred income tax assets	1.8	2.9
	322.3	306.3

CURRENT ASSETS
Inventories	2.8	2.9
Trade and other receivables	52.1	47.2
Derivative financial assets	-	0.1
Cash and cash equivalents	7.1	5.3
	62.0	55.5

CURRENT LIABILITIES
Trade and other payables	64.8	65.3
Current income tax liabilities	5.1	3.8
Borrowings	14.5	14.5
Provisions	1.5	2.2
	85.9	85.8

NON-CURRENT LIABILITIES
Post-employment benefit obligations	4.6	12.0
Deferred income tax liabilities	7.6	9.5
Trade and other payables	2.3	3.1
Borrowings	91.0	82.1
Derivative financial liabilities	0.7	0.2
Provisions	1.8	1.5
	108.0	108.4
NET ASSETS	190.4	167.6


CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S SHAREHOLDERS
Share capital	36.8	36.6
Share premium	15.7	15.2
Merger reserve	1.6	1.6
Capital redemption reserve	0.6	0.6
Hedge reserve	(0.6)	(0.1)
Retained earnings	136.3	113.7
TOTAL SHAREHOLDERS' EQUITY	190.4	167.6

The notes on pages 13 to 27 form an integral part of these condensed consolidated financial statements. The condensed consolidated financial statements on pages 9 to 27 were approved by the Board of Directors on 4 March 2019 and signed on its behalf by:

Yvonne Monaghan

Chief Financial Officer

Consolidated Statement OF Cash Flows

	Year ended 31 December 2018	Year ended 31 December 2017
	£m	£m
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year	26.8	25.7
Adjustments for:
Taxation charge / (credit) - continuing operations	6.3	5.8
- discontinued operations	-	(0.3)
Total finance cost - continuing operations	3.5	3.6
Depreciation	55.3	48.8
Amortisation	8.9	8.2
Profit on sale of property, plant and equipment	-	(0.1)
Decrease / (increase) in inventories	0.1	(0.7)
Increase in trade and other receivables	(2.8)	(2.1)
(Decrease) / increase in trade and other payables	(3.2)	1.9
Costs in relation to business acquisition activity	0.6	0.5
Deficit recovery payments in respect of post-employment benefit obligations	(1.9)	(3.4)
Share-based payments	0.8	0.8
Post-employment benefit obligations	(0.1)	(0.1)
Decrease in provisions	(0.5)	(1.0)
Cash generated from operations	93.8	87.6
Interest paid	(3.5)	(2.8)
Taxation paid	(7.8)	(6.9)
Net cash generated from operating activities	82.5	77.9

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses (net of cash and overdrafts acquired)	(14.0)	(9.2)
Proceeds from sale of business (net of cash disposed) - discontinued operations	-	7.1
Purchase of property, plant and equipment	(17.5)	(16.5)
Purchase of software	(0.6)	-
Proceeds from sale of property, plant and equipment	0.2	0.2
Purchase of textile rental items	(48.9)	(43.1)
Proceeds received in respect of special charges	2.2	2.1
Net cash used in investing activities	(78.6)	(59.4)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	86.0	82.0
Repayment of borrowings	(77.0)	(88.2)
Capital element of finance leases	(3.9)	(5.3)
Net proceeds from issue of Ordinary shares	0.7	0.3
Dividend paid	(10.7)	(9.5)
Net cash used in financing activities	(4.9)	(20.7)

Net decrease in cash and cash equivalents	(1.0)	(2.2)
Cash and cash equivalents at beginning of the year	(3.7)	(1.5)
Cash and cash equivalents at end of the year	(4.7)	(3.7)

Cash and cash equivalents comprise:
Cash	7.1	5.3
Overdraft	(11.8)	(9.0)
Cash and cash equivalents at end of year	(4.7)	(3.7)

NOTES TO THE PRELIMINARY ANNOUNCEMENT

Basis of Preparation

The financial information contained within this Preliminary Announcement has been prepared on a going concern basis in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), IFRS Interpretations Committee (IFRS IC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

Other than as set out in note 18, the financial information has been prepared using accounting policies consistent with those set out in the 2017 Annual Report.

The financial information set out within this Preliminary Announcement does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 31 December 2017 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered as soon as practicable but not later than 30 April 2019. The auditor has reported on those accounts; the reports were unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

Going Concern

The Group currently meets its day-to-day working capital requirements through committed bank facilities which run to at least 9 August 2022. Current economic conditions continue to create uncertainty, particularly over the level of demand for the Group's services. The Group's latest forecasts and projections, taking account of reasonably possible changes in trading performance, show that there is not a substantial doubt that the Group should be able to operate within the level of its current facilities for a period of at least 12 months from the date of these condensed consolidated financial statements.

As a consequence, and having reassessed the principal risks and uncertainties, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the condensed consolidated financial statements.

Forward Looking Statements

Certain statements in these condensed consolidated financial statements constitute forward-looking statements. Any statement in this document that is not a statement of historical fact including, without limitation, those regarding the Group's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in these condensed consolidated financial statements. As a result you are cautioned not to place reliance on such forward-looking statements. Nothing in this document should be construed as a profit forecast.

2 SEGMENT ANALYSIS

Segment information is presented based on the Group's management and internal reporting structure as at 31 December 2018.

The chief operating decision-maker has been identified as the Board of Directors (the Board). The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board determines the operating segments based on these reports and on the internal reporting structure. For reporting purposes, in accordance with IFRS 8, the Board aggregates operating segments with similar economic characteristics and conditions into reporting segments, which form the basis of the reporting in the Annual Report. The Board has identified two reporting segments, being Workwear and Hotel, Restaurants and Catering ('HORECA'). Discontinued operations are reported separately.

The Board assesses the performance of the reporting segments based on a measure of operating profit, both including and excluding the effects of non-recurring items from the reporting segments, such as restructuring costs and impairments when the impairment is the result of an isolated, non-recurring or non-operating event. Interest income and expenditure are not included in the result for each reporting segment that is reviewed by the Board. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis, for example rental income received by Johnson Group Properties PLC (the property holding company of the Group) and is credited back, where appropriate, to the paying company for the purpose of segmental reporting. There have been no changes in measurement methods used compared to the prior year.

Other information provided to the Board is measured in a manner consistent with that in the financial statements. Segment assets exclude deferred income tax assets, derivative financial assets and cash and cash equivalents, all of which are managed on a central basis. Segment liabilities include non-bank borrowings but exclude current income tax liabilities, bank borrowings, derivative financial liabilities, post-employment benefit obligations and deferred income tax liabilities, all of which are managed on a central basis. These balances are part of the reconciliation to total assets and liabilities.

Exceptional items have been included within the appropriate reporting segment as shown on pages 14 to 15.

Workwear

Supply and laundering of workwear garments and protective wear.

HORECA

Linen services for the hotel, restaurant and catering sector.

§ Apparelmaster

§ Stalbridge

§ South West

§ London Linen

§ Bourne

§ Afonwen

§ PLS

All Other Segments

Comprising of central and Group costs.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

2 SEGMENT ANALYSIS continued

Year ended 31 December 2018	Workwear	HORECA	All Other Segments	Total

	£m	£m	£m	£m
Revenue	128.8	192.3	-	321.1

RESULT
Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation) and exceptional items	22.7	28.0	(4.7)	46.0
Amortisation of intangible assets (excluding software amortisation)	(0.5)	(8.3)	-	(8.8)
Exceptional items:
- Costs in relation to business acquisition activity	-	(0.6)	-	(0.6)
Operating profit / (loss)	22.2	19.1	(4.7)	36.6
Total finance cost				(3.5)
Profit before taxation				33.1
Taxation				(6.3)
Profit for the year from continuing operations				26.8
Result for the year from discontinued operations				-
Profit for the year				26.8

	Discontinued Operations	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m	£m
BALANCE SHEET INFORMATION
Segment assets	-	121.9	252.0	1.5	375.4
Unallocated assets: Deferred income tax assets					1.8
Cash and cash equivalents					7.1
Total assets					384.3

Segment liabilities	(3.9)	(29.2)	(41.0)	(3.7)	(77.8)
Unallocated liabilities: Current income tax liabilities					(5.1)
Bank borrowings					(98.1)
Derivative financial liabilities					(0.7)
Post-employment benefit obligations					(4.6)
Deferred income tax liabilities					(7.6)
Total liabilities					(193.9)

OTHER INFORMATION
Non-current asset additions
- Property, plant and equipment	-	5.0	11.4	-	16.4
- Textile rental items	-	21.7	27.4	-	49.1
- Intangible software	-	0.7	-	-	0.7
Depreciation and amortisation expense
- Property, plant and equipment	-	4.8	8.7	-	13.5
- Textile rental items	-	16.5	25.3	-	41.8
- Intangible software	-	-	0.1	-	0.1
- Customer contracts	-	0.5	8.3	-	8.8

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

2 SEGMENT ANALYSIS continued

Year ended 31 December 2017	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m

Revenue	122.4	168.5	-	290.9

RESULT
Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation) and exceptional items	21.1	26.8	(4.6)	43.3
Amortisation of intangible assets (excluding software amortisation)	(0.5)	(7.5)	-	(8.0)
Exceptional items:
- Costs in relation to business acquisition activity	-	(0.5)	-	(0.5)
Operating profit / (loss)	20.6	18.8	(4.6)	34.8
Total finance cost				(3.6)
Profit before taxation				31.2
Taxation				(5.8)
Profit for the year from continuing operations				25.4
Profit for the year from discontinued operations				0.3
Profit for the year attributable to equity holders				25.7

	Discontinued Operations	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m	£m
BALANCE SHEET INFORMATION
Segment assets	-	116.8	235.5	1.2	353.5
Unallocated assets: Deferred income tax assets					2.9
Derivative financial assets					0.1
Cash and cash equivalents					5.3
Total assets					361.8

Segment liabilities	(3.7)	(29.4)	(45.1)	(3.9)	(82.1)
Unallocated liabilities: Current income tax liabilities					(3.8)
Bank borrowings					(86.6)
Derivative financial liabilities					(0.2)
Post-employment benefit obligations					(12.0)
Deferred income tax liabilities					(9.5)
Total liabilities					(194.2)

OTHER INFORMATION
Non-current asset additions
- Property, plant and equipment	-	4.7	10.6	-	15.3
- Textile rental items	-	17.8	25.9	-	43.7
Depreciation and amortisation expense
- Property, plant and equipment	-	4.6	7.9	-	12.5
- Textile rental items	-	15.8	20.5	-	36.3
- Intangible software	-	-	0.2	-	0.2
- Customer contracts	-	0.5	7.5	-	8.0

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

3 EXCEPTIONAL ITEMS

	2018	2017
	£m	£m


Costs in relation to business acquisition activity	0.6	0.5
Total exceptional items	0.6	0.5

Current year exceptional items

Costs in relation to business acquisition activity

During the year, professional fees of £0.2 million were paid relating to the acquisition of South West Laundry Holdings Limited, together with its trading subsidiary South West Laundry Limited ('South West'). In addition, costs of £0.3 million were incurred as part of the integration of recent acquisitions. Further information relating to the acquisitions is provided in note 13. The remainder of the cost relates to fees and expenses incurred during negotiations with undisclosed targets.

Prior year exceptional items

Costs in relation to business acquisition activity

During the prior year, professional fees of £0.3 million were paid relating to the acquisitions of Clayfull Limited and StarCounty Textile Services Limited. In addition, costs of £0.2 million were incurred as part of the integration of recent acquisitions. Further information relating to the acquisitions is provided in note 13.

4 TOTAL FINANCE COST

	2018	2017
	£m	£m

Finance cost:
- Interest payable on bank loans and overdrafts	2.6	2.5
- Amortisation of bank facility fees	0.3	0.3
- Interest payable on obligations under finance lease agreements	0.3	0.4
Total finance costs before notional interest on post-employment benefit obligations	3.2	3.2
Notional interest on post-employment benefit obligations	0.3	0.4
Total finance cost	3.5	3.6

5 ADJUSTED PROFIT BEFORE AND AFTER TAXATION

	2018	2017
	£m	£m


Profit before taxation	33.1	31.2
Amortisation of intangible assets (excluding software amortisation)	8.8	8.0
Costs in relation to business acquisition activity	0.6	0.5
Adjusted profit before taxation	42.5	39.7
Taxation on adjusted profit	(8.0)	(7.6)
Adjusted profit after taxation	34.5	32.1

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

6 TAXATION CHARGE

	2018	2017
	£m	£m

Current tax
UK corporation tax charge for the year	9.5	7.8
Adjustment in relation to previous years	(0.5)	(0.9)
Current tax charge for the year	9.0	6.9

Deferred tax
Origination and reversal of temporary differences	(2.6)	(1.4)
Changes in tax rate	(0.2)	(0.3)
Adjustment in relation to previous years	0.1	0.6
Deferred tax credit for the year	(2.7)	(1.1)
Total charge for taxation included in the Income Statement for continuing operations	6.3	5.8

The tax charge for the year is the same as (2017: lower than) the effective rate of Corporation Tax in the UK of 19.00% (2017: 19.25%). The differences are explained below:

	2018	2017
	£m	£m


Profit before taxation	33.1	31.2
Profit before taxation multiplied by the effective rate of Corporation Tax in the UK	6.3	6.0

Factors affecting taxation charge for the year:
Tax effect of expenses not deductible for tax purposes	0.6	0.4
Changes in tax rate	(0.2)	(0.3)
Adjustments in relation to previous years	(0.4)	(0.3)
Total charge for taxation included in the Income Statement for continuing operations	6.3	5.8

Taxation in relation to amortisation of intangible assets (excluding software amortisation) has reduced the charge for taxation on continuing operations by £1.7 million (2017: £1.7 million reduction). Taxation in relation to exceptional items in the current year has reduced the charge for taxation on continuing operations by £nil (2017: £0.1 million reduction).

The taxation charge is based on the effective rate of UK Corporation Tax for the year of 19.00% (2017: 19.25%).

Deferred income taxes at the balance sheet date have been measured at the tax rate expected to be applicable at the date the deferred income tax assets and liabilities are realised. Management has performed an assessment, for all material deferred income tax assets and liabilities, to determine the period over which the deferred income tax assets and liabilities are forecast to be realised, which has resulted in an average deferred income tax rate of 17.5% being used to measure all deferred tax balances as at 31 December 2018 (2017: 18.0%). The impact of the change in tax rates to 17.5% has been a £0.2 million credit (2017: £0.3 million credit) in the Income Statement and a £0.1 million charge (2017: £0.1 million charge) recognised directly within other comprehensive income.

During the year, a £1.0 million charge relating to deferred taxation (2017: £0.7 million charge) has been recognised in other comprehensive income.

During the year, £nil relating to current taxation (2017: £0.2 million credit) and a £0.1 million credit relating to deferred taxation (2017: £nil) have been recognised directly in Shareholders' equity.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

7 EARNINGS PER SHARE

	2018	2017
	£m	£m


Profit for the financial year from continuing operations attributable to Shareholders	26.8	25.4
Profit for the financial year from discontinued operations attributable to Shareholders	-	0.3
Amortisation of intangible assets from continuing operations (net of taxation)	7.1	6.3
Exceptional costs from continuing operations (net of taxation)	0.6	0.4
Adjusted profit attributable to Shareholders relating to continuing operations	34.5	32.1
Adjusted profit attributable to Shareholders relating to discontinued operations	-	0.3
Adjusted profit attributable to Shareholders	34.5	32.4

Weighted average number of Ordinary shares	366,547,752	366,167,837
Dilutive potential Ordinary shares	3,053,927	2,798,518
Diluted number of Ordinary shares	369,601,679	368,966,355

Basic earnings per share
From continuing operations	7.3p	6.9p
From discontinued operations	-	0.1p
From continuing and discontinued operations	7.3p	7.0p
Adjustments for amortisation of intangible assets (continuing operations)	1.9p	1.7p
Adjustment for exceptional items (continuing operations)	0.2p	0.1p
Adjustment for exceptional items (discontinued operations)	-	(0.1p)
Adjusted basic earnings per share (continuing operations)	9.4p	8.7p
Adjusted basic earnings per share (discontinued operations)	-	-
Adjusted basic earnings per share from continuing and discontinued operations	9.4p	8.7p

Diluted earnings per share
From continuing operations	7.2p	6.9p
From discontinued operations	-	0.1p
From continuing and discontinued operations	7.2p	7.0p
Adjustments for amortisation of intangible assets (continuing operations)	1.9p	1.7p
Adjustment for exceptional items (continuing operations)	0.2p	0.1p
Adjustment for exceptional items (discontinued operations)	-	(0.1p)
Adjusted diluted earnings per share (continuing operations)	9.3p	8.7p
Adjusted diluted earnings per share (discontinued operations)	-	-
Adjusted diluted earnings per share from continuing and discontinued operations	9.3p	8.7p

Basic earnings per share is calculated using the weighted average number of Ordinary shares in issue during the year, excluding those held by the Employee Benefit Trust, based on the profit for the year attributable to Shareholders.

Adjusted earnings per share figures are given to exclude the effects of amortisation of intangible assets (excluding software amortisation) and exceptional items, all net of taxation, and are considered to show the underlying performance of the Group.

For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all potentially dilutive Ordinary shares. The Group has potentially dilutive Ordinary shares arising from share options granted to employees. Options are dilutive under the SAYE scheme, where the exercise price together with the future IFRS2 charge of the option is less than the average market price of the Company's Ordinary shares during the year. Options under the LTIP schemes, as defined by IFRS 2, are contingently issuable shares and are therefore only included within the calculation of diluted EPS if the performance conditions, as set out in the Board Report on Remuneration, are satisfied.

Potentially dilutive Ordinary shares are considered dilutive at the point, from a continuing operations level, when their conversion to Ordinary shares would decrease earnings per share or increase loss per share. For the years ended 31 December 2018 and 31 December 2017, potentially dilutive Ordinary shares have been treated as dilutive, as their inclusion in the diluted earnings per share calculation decreases earnings per share from continuing operations.

There were no events occurring after the balance sheet date that would have changed significantly the number of Ordinary shares or potentially dilutive Ordinary shares outstanding at the balance sheet date if those transactions had occurred before the end of the reporting period.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

8 DIVIDENDS

	2018	2017
Dividend per share
Final dividend proposed	2.1p	-
Interim dividend proposed and paid	1.0p	0.9p
Final dividend proposed and paid	-	1.9p

	2018	2017
	£m	£m
Shareholders' funds committed
Final dividend proposed	7.7	-
Interim dividend proposed and paid	3.7	3.3
Final dividend proposed and paid	-	7.0

The Directors propose the payment of a final dividend in respect of the year ended 31 December 2018 of 2.1 pence per share. This will utilise Shareholders' funds of £7.7 million and will be paid, subject to Shareholder approval, on 10 May 2019 to Shareholders on the register of members on 12 April 2019. The trustee of the EBT has waived the entitlement to receive dividends on the Ordinary shares held by the trust. In accordance with IAS 10, there is no payable recognised at 31 December 2018 in respect of this proposed dividend.

9 CAPITAL EXPENDITURE AND COMMITMENTS

Capital Expenditure

During the year, the Group acquired property, plant and equipment and intangible assets for a cost of £16.4 million (2017: £15.3 million), excluding property, plant and equipment and intangible assets acquired through business combinations. A further £0.7 million (2017: £nil) of intangible software was acquired. In addition, textile rental items with a cost of £49.1 million were acquired in the year (2017: £43.7 million), excluding textile rental items acquired through business combinations. Offsetting this, property, plant and equipment with a net book value of £0.2 million was disposed of (2017: £0.1 million). In addition, amounts received in respect of textile rental special charges were £2.2 million (2017: £2.1 million).

Capital Commitments

Orders placed for future capital expenditure contracted but not provided for in the financial statements are shown below:

	2018	2017
	£m	£m

Property, plant and equipment	5.2	1.4

10 POST-EMPLOYMENT BENEFIT OBLIGATIONS

The Group has applied the requirements of IAS 19, 'Employee Benefits' (revised June 2011) to its employee pension schemes and post-retirement healthcare benefits. The Group operates a defined benefit pension scheme, the Johnson Group Defined Benefit Scheme ('JGDBS'). The JGDBS was closed to future accrual on 31 December 2014.

As part of the Group's objective to reduce its overall pension deficit, deficit recovery payments of £1.9 million (2017: £1.9 million) were paid to the JGDBS. In addition, a further, one-off, deficit recovery payment of £1.5 million was made in April 2017. A net re-measurement and experience gain of £5.7 million has been recognised in the year to December 2018.

The gross post-employment benefit obligation and associated deferred income tax asset thereon is shown below:

	2018 £m	2017 £m

Gross post-employment benefit obligation	4.6	12.0
Deferred income tax asset thereon	(0.8)	(2.2)
Net liability	3.8	9.8

The reconciliation of the opening gross post-employment benefit obligation to the closing gross post-employment benefit obligation is shown below:

	2018 £m	2017 £m

Opening gross post-employment benefit obligation	(12.0)	(18.2)
Notional interest	(0.3)	(0.4)
Deficit recovery payments	1.9	3.4
Utilisation of post-retirement healthcare obligation	0.1	-
Re-measurement and experience gains	5.7	3.2
Closing gross post-employment benefit obligation	(4.6)	(12.0)

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

10 POST-EMPLOYMENT BENEFIT OBLIGATIONS (continued)

GMP

On 26 October 2018, the High Court handed down a judgment involving the Lloyds Banking Group's defined benefit pension schemes. The judgement concluded the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension (GMP) benefits for the effect of unequal GMPs accrued between 1990 and 1997. The issues determined by the judgement affect many other UK defined benefit pension schemes. We are working with the trustee of our pension scheme, and our actuarial and legal advisers, to understand the extent to which the judgement crystallises additional liabilities for the pension scheme.

The true impact of GMP equalisation on the scheme will not be known until members' benefits have been rectified, which could take over a year. However, we understand that it is necessary under the relevant accounting standard, to make allowance for the estimated impact of GMP equalisation as at the date of the judgement.

The pension scheme has historically included a reserve in the actuarial valuation, and in the value of the scheme's liabilities on the balance sheet in previous financial years, to allow for a potential need to recognise equalised GMP benefits in the future. The clarity provided by the judgement has allowed us to update our estimate of the expected impact of GMP. The estimated impact of the equalisation of GMP benefits after allowance for the existing reserve, has been recognised through OCI as an actuarial loss. This amounted to an increase in liabilities of £0.2 million as at 26 October 2018 which has been included in the pension scheme liability at 31 December 2018.

11 SHARE CAPITAL

		2018		2017
Issued and Fully Paid	Shares	£m	Shares	£m
Ordinary shares of 10p each:
- At start of year	366,499,375	36.6	365,108,019	36.5
- New shares issued	1,074,835	0.2	1,391,356	0.1
- At end of year	367,574,210	36.8	366,499,375	36.6

Issue of Ordinary shares of 10p each

An analysis of the new shares issued in each year is shown below:

			2018		2017
Issued and Fully Paid		Shares	£	Shares	£
Ordinary shares of 10p each:
- Approved LTIP	note 1	37,500	3,750	-	-
- EBT	note 2	110,000	11,000	1,025,000	102,500
- SAYE	note 3	927,335	92,734	366,356	36,636
New shares issued		1,074,835	107,484	1,391,356	139,136

Note 1: 37,500 (2017: £nil) Ordinary shares were allotted in relation to employee share option exercises. The total nominal value received was £3,750 (2017: £nil).

Note 2: 110,000 (2017: 1,025,000) Ordinary shares were allotted to the EBT at nominal value to be used in relation to employee share option exercises. The total nominal value received was £11,000 (2017: £102,500). At the time of allotment, the EBT already held 16,256 (2017: 20,739) Ordinary shares of 10 pence each which, together with the 110,000 (2017: 1,025,000) newly allotted Ordinary shares of 10 pence each, were used to satisfy the exercise of 110,000 (2017: 1,029,483) LTIP options.

Note 3: 927,335 (2017: 366,356) SAYE Scheme options were exercised with a total nominal value of £92,734 (2017: £36,636).

The total proceeds received on allotment in respect of all of the above transactions were £0.7 million (2017: £0.3 million) and were credited as follows:

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

12 BORROWINGS

	2018	2017
	£m	£m
Current
Overdraft	11.8	9.0
Bank loans	(0.3)	1.7
Obligations under finance lease agreements	3.0	3.8
	14.5	14.5

Non-current
Bank loans	86.6	75.9
Obligations under finance lease agreements	4.4	6.2
	91.0	82.1
	105.5	96.6

As at 31 December 2018, borrowings were secured and drawn down under a committed facility dated 21 February 2014, as amended and restated on 24 April 2015 and as further amended and restated on 22 April 2016 and 9 August 2018, comprising a £135.0 million rolling credit facility (including an overdraft) which runs to August 2022 and a further £15.0 million short term rolling credit facility which runs to August 2019.

Individual tranches are drawn down, in sterling, for periods of up to six months at LIBOR rates of interest prevailing at the time of drawdown, plus the applicable margin. The margin varies between 1.25% and 2.25%.

Amounts drawn under the revolving credit facility have been classified as either current or non-current depending upon when the loan is expected to be repaid and are stated net of unamortised issue costs of £0.7 million (2017: £0.4 million), of which £0.3 million (2017: £0.3 million) is classified as current.

As at 31 December 2018, £40.0 million of borrowings were subject to hedging arrangements which have the effect of replacing LIBOR with fixed rates as follows:

§ for £15.0 million of borrowings, LIBOR is replaced with 1.4725% from 8 January 2016 to 8 January 2019;

§ for £15.0 million of borrowings, LIBOR is replaced with 1.665% from 8 January 2016 to 8 January 2020; and

§ for £10.0 million of borrowings, LIBOR is replaced with 0.5525% from 30 June 2016 to 30 June 2019.

Subsequent to the balance sheet date, two further hedging arrangements were entered into:

§ for £15.0 million of borrowings, LIBOR is replaced with 1.070% from 30 January 2019 to 29 January 2021; and

§ for £15.0 million of borrowings, LIBOR is replaced with 1.144% from 30 January 2019 to 31 January 2022.

13 BUSINESS COMBINATIONS AND DISCONTINUED OPERATIONS

BUSINESS COMBINATIONS

On 31 August 2018, the Group acquired 100% of the share capital of South West Laundry Holdings Limited, together with its trading subsidiary South West Laundry Ltd ('South West'), for a net consideration of £13.3 million (being a gross consideration of £15.5 million adjusted for normalised working capital, cash and debt like items) plus associated fees. Since acquisition, South West has incurred a loss of £0.4 million on revenue of £2.0 million. Had the business been acquired at the start of the period it is estimated that a profit of £0.7 million would have been generated on revenue of £6.4 million.

The provisional fair value of assets and liabilities acquired are as follows:

	South West Laundry	Fair value adjustments to previous acquisitions	Total
	£m	£m	£m

Intangible assets - Goodwill	7.6	0.2	7.8
Intangible assets - Customer contracts	4.0	-	4.0
Property, plant and equipment	4.0	-	4.0
Textile rental items	1.5	(0.2)	1.3
Trade and other receivables	1.2	-	1.2
Cash and cash equivalents	0.1	-	0.1
Trade and other payables	(2.8)	-	(2.8)
Borrowings	(1.3)	-	(1.3)
Current income tax liability	(0.2)	-	(0.2)
Deferred income tax liability	(0.8)	-	(0.8)
Net consideration	13.3	-	13.3

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

13 BUSINESS COMBINATIONS AND DISCONTINUED OPERATIONS (continued)

Goodwill represents the deferred income tax arising on the recognition of the customer contracts plus the expected benefits to the wider Group arising from the acquisition. None of the acquired goodwill is expected to be deductible for tax purposes.

South West has been included within the HORECA reporting segment and within the Stalbridge CGU.

In 2017, the Group acquired the entire share capital of Clayfull Limited, which trades as PLS ('PLS') and StarCounty Textile Services Limited ('Star'). Full details are provided in the 2017 Annual Report and Accounts.

During 2018, the initial fair value of the textile rental items acquired as part of the Star acquisition was reduced by £0.2 million, with a corresponding increase in goodwill.

Cash flows from business acquisition activity

The cash flows in relation to business acquisition activity are summarised below:

	2018	2017
	£m	£m

Net consideration payable	13.3	9.5
Cash and cash equivalents acquired	(0.1)	(0.5)
Contingent and deferred consideration	0.2	(0.5)
Cost in relation to business acquisition activity	0.6	0.7
	14.0	9.2

In respect of 'contingent and deferred consideration':

§ the 2017 figure of £0.5 million reflects the recognition of contingent consideration, retained by the Group at the time of the acquisition, of £0.3 million and £0.2 million for PLS and Star respectively;

§ the 2018 figure of £0.2 million reflects the payment of the Star contingent consideration recognised in the prior year;

§ the PLS contingent consideration of £0.3 million may become payable in future periods dependent upon the outcome of certain, currently unknown, events; and

§ further deferred consideration of £0.3 million, relating to the acquisition of Ashbon in 2015, remains payable.

In respect of 'costs in relation to business acquisition activity':

§ the 2018 cash outflow of £0.6 million included in the table above relates to costs incurred during the year: and

§ the 2017 cash outflow of £0.7 million included in the table above relates to £0.5 million of costs incurred during 2017 and £0.2 million of costs that were incurred during 2015.

DISCONTINUED OPERATIONS

Current Year

Other than for a £0.1 million cash outflow in respect of the ongoing utilisation of a provision relating to discontinued property liabilities, there have been no other transactions during the year relating to discontinued operations.

Prior Year

On 4 January 2017, the Group disposed of its Drycleaning operation. The Drycleaning business was included in the December 2016 Balance Sheet as "assets classified as held for sale" and "liabilities directly associated with assets held for sale". The anticipated loss on disposal of £2.0 million was reflected as an impairment of goodwill as at 31 December 2016 and included in the Income Statement within discontinued operations. Further details are set out within note 32 of both the 2016 and 2017 Annual Report.

Income Statement

Discontinued operations in the current and prior year comprise of the following:

	2018	2017
	£m	£m

Revenue	-	-

Taxation credit	-	0.3
Retained profit from discontinued operations	-	0.3

Cash Flows

The cash flows from discontinued operations included within the Consolidated Statement of Cash Flows are as follows:

	2018	2017
	£m	£m

Proceeds from disposals	-	8.3
Payment of costs relating to disposals	-	(0.4)
Cash disposed of	-	(0.8)
Net proceeds from disposals	-	7.1
Net cash used in operating activities	(0.1)	(0.3)
Net cash flow	(0.1)	6.8

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

14 ANALYSIS OF NET DEBT

Net debt is calculated as total borrowings, net of unamortised bank facility fees, less cash and cash equivalents. Non-cash changes represent the effects of the recognition and subsequent amortisation of fees relating to the bank facility, changing maturity profiles, debt acquired as part of an acquisition and new finance leases entered into during the year.

	At 1 January 2018	Cash Flow	Non-cash Changes	At 31 December 2018
2018	£m	£m	£m	£m

Debt due within one year	(1.7)	2.0	-	0.3
Debt due after more than one year	(75.9)	(11.0)	0.3	(86.6)
Finance leases	(10.0)	3.9	(1.3)	(7.4)
Total debt and lease financing	(87.6)	(5.1)	(1.0)	(93.7)
Cash and cash equivalents	(3.7)	(1.0)	-	(4.7)
Net debt	(91.3)	(6.1)	(1.0)	(98.4)

	At 1 January 2017	Cash Flow	Non-cash Changes	At 31 December 2017
2017	£m	£m	£m	£m

Debt due within one year	(9.8)	9.2	(1.1)	(1.7)
Debt due after more than one year	(72.5)	(3.0)	(0.4)	(75.9)
Finance leases	(14.4)	5.3	(0.9)	(10.0)
Total debt and lease financing	(96.7)	11.5	(2.4)	(87.6)
Cash and cash equivalents	(1.5)	(2.2)	-	(3.7)
Net debt	(98.2)	9.3	(2.4)	(91.3)

The cash and cash equivalents figures are comprised of the following balance sheet amounts:

	2018	2017
	£m	£m
Cash (Current Assets)	7.1	5.3
Overdraft (Borrowings, Current Liabilities)	(11.8)	(9.0)
	(4.7)	(3.7)

Finance lease obligations are comprised of the following balance sheet amounts:

	2018	2017
	£m	£m

Amounts due within one year (Borrowings, Current Liabilities)	(3.0)	(3.8)
Amounts due after more than one year (Borrowings, Non-Current Liabilities)	(4.4)	(6.2)
	(7.4)	(10.0)

15 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

	2018	2017
	£m	£m

Decrease in cash in year	(1.0)	(2.2)
(Increase) / decrease in debt and lease financing	(5.1)	11.5
Change in net debt resulting from cash flows	(6.1)	9.3
Debt acquired through business acquisitions	(1.3)	(2.1)
Movement in unamortised bank facility fees	0.3	(0.3)
Movement in net debt	(7.1)	6.9
Opening net debt	(91.3)	(98.2)
Closing net debt	(98.4)	(91.3)

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

16 CONTINGENT LIABILITIES

The Group operates from a number of sites across the UK. Some of the sites have operated as laundry sites for many years and historic environmental liabilities may exist. Such liabilities are not expected to give rise to any significant loss.

The Group has granted its Bankers and Trustee of the Pension Scheme (the 'Trustee') security over the assets of the Group. The priority of security is as follows:

§ first ranking security for £28.0 million to the Trustee ranking pari passu with up to £155.0 million of bank liabilities; and

§ second ranking security for the balance of any remaining liabilities to the Trustee ranking pari passu with any remaining bank liabilities.

During the period of ownership of the Facilities Management division the Company had given guarantees over the performance of contracts entered into by the division. As part of the disposal of the division the purchaser has agreed to pursue the release or transfer of obligations under the Parent Company guarantees and this is in process. The Sale and Purchase agreement contains an indemnity from the purchaser to cover any loss in the event a claim is made prior to release. In the period until release the purchaser is to make a payment to the Company of £0.2 million per annum, reduced pro rata as guarantees are released. Such liabilities are not expected to give rise to any significant loss.

As a condition of the sale of the Facilities Management division in August 2013, the Group has put in place indemnities, to the purchaser, in relation to any future amounts payable in respect of contingent consideration related to the Nickleby acquisition completed in February 2012. As set out in the 2012 Annual Report and Accounts the maximum amount payable under the terms of the indemnity could be up to £5.0 million. The Directors believe the risk of settlement at, or near, the maximum level to be remote.

17 EVENTS AFTER THE REPORTING PERIOD

There were no events occurring after the balance sheet date that require disclosing in accordance with IAS 10, 'Events after the reporting period'.

18 ACCOUNTING POLICIES

Except as described below, the condensed consolidated financial statements have been prepared applying the accounting policies, presentation and methods of computation applied by the Group in the preparation of the published consolidated financial statements for the year ended 31 December 2017.

(a) Standards and amendments to standards effective in 2018

IFRS 9, 'Financial Instruments'

As at 1 January 2018, the Group assessed the requirements of IFRS 9. The standard includes requirements for impairment, hedge accounting and classification and measurement.

IFRS 9 introduces an 'expected loss' model for recognising impairment of financial assets held at amortised cost. This is different from IAS 39, which had an incurred loss model where provisions were recognised only when there was objective evidence of impairment. This change of approach requires the Group to consider forward-looking information to calculate expected credit losses regardless of whether there has been an impairment trigger. Given the general quality and short-term nature of the trade receivables within the Group, there is a small but immaterial increase to the level of impairment recognised and as such no adjustment has been made to the opening balance of retained earnings as at 1 January 2018.

The application of IFRS 9 has also not resulted in a significant increase of impairment of financial assets measured at amortised cost in the current year as compared to impairment recognised under previous accounting policies.

In accordance with the transition provisions of IFRS 9 for hedge accounting, the Group has applied the IFRS 9 hedge accounting requirements prospectively from the date of initial application on 1 January 2018 with all hedging relationships continuing to be effective under the effectiveness assessment requirements of IFRS 9.

The Group has also considered the changes to classification and measurement of financial assets and liabilities and has concluded that these changes do not impact the Group.

IFRS 15, 'Revenue from contracts with customers'

The adoption of IFRS 15 by the Group from 1 January 2018 has resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions in IFRS 15, the Group has applied the modified retrospective approach, which results in the cumulative effect of initially applying this standard being an adjustment to the opening balance of retained earnings as at 1 January 2018.

Under IFRS 15, revenue recognition is based on the principle that revenue is recognised when control of a good or service transfers to a customer. For the Group, the transfer of control under IFRS 15 and satisfaction of performance obligations remains consistent with the transfer of risks and rewards to the customer under IAS18. Consequently, there was no significant impact on the amount and timing of revenue recognition in the Group on application of IFRS 15.

The changes that do impact the Group relate to where IFRS 15 states that an asset should be recognised for costs that relate directly to a contract, are incremental to securing the contract and if management expects to recover those costs. The asset should then be amortised as the services to which the asset relates are transferred to the customer. The Group has identified an element of employee sales commissions as specifically relating directly to a contract and therefore meeting this requirement. Such costs were an estimated £1.3 million in the year to 31 December 2017. Applying this change to commissions paid historically by the Group resulted in £1.1 million of costs incurred to fulfil a contract being capitalised and included as a contract asset in Trade and Other Receivables on the Balance Sheet at 1 January 2018. These costs will be amortised over the average contract life. A deferred tax liability of £0.2 million was also recognised, resulting in a net adjustment to retained earnings of £0.9 million.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

18 ACCOUNTING POLICIES (continued)

The new standard also addresses consideration paid to customers. A reduction in revenue is to be recognised either when the Group recognises revenue for the services provided or when the Group pays or promises to pay the consideration. Where costs have been identified as meeting this definition, the reduction in revenue is deemed to be whichever is the later of the above. Where revenue was reduced due to such payments under previous accounting policies, under IFRS 15 the reduction in revenue is to be deferred through recognition of a contract asset and amortisation of this asset over the average contract life. This has resulted in a £0.1 million credit to opening retained earnings at 1 January 2018 and a corresponding increase in Trade and Other Receivables on the Balance Sheet.

Contract assets are included in the Balance Sheet at 31 December 2018 within Trade and Other Receivables, in line with the new disclosure requirements of IFRS 15.

The impact of the adoption of IFRS 15 on the Group's opening Balance Sheet is shown below. The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided.

	As at 31 December 2017	IFRS 15 adjustment	As at 1 January 2018
	£m	£m	£m
Non-current assets
Trade and other receivables	0.3	0.5	0.8

Current assets
Trade and other receivables	47.2	0.7	47.9

Non-current liabilities
Deferred income tax liabilities	9.5	0.2	9.7

NET ASSETS	167.6	1.0	168.6

Capital and reserves attributable to the Company's Shareholders
Retained earnings	113.7	1.0	114.7
Total equity	167.6	1.0	168.6

The impact of the adoption of IFRS 15 on the Group's retained earnings as at 1 January 2018 is as follows:

	£m

As at 31 December 2017	113.7
Recognition of asset for costs to fulfil a contract - Employee sales commissions	1.1
Recognition of asset for costs to fulfil a contract - Consideration paid to customers	0.1
Increase in deferred income tax liabilities	(0.2)
Adjustment to retained earnings from adoption of IFRS 15	1.0
As at 1 January 2018	114.7

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

18 ACCOUNTING POLICIES (continued)

As at 31 December 2018, included within Trade and Other Receivables, are Contract Assets totalling £1.1 million relating to sales commissions costs and consideration paid to customers as noted above. Under previous accounting policies, those costs that related directly to a contract would have been charged directly to the Income Statement in the period in which they were incurred and no asset would therefore be recognised on the Balance Sheet at 31 December 2018. This would have resulted in an estimated charge to the Income Statement of £1.1 million in 2018 under the previous accounting policies compared to a charge of £1.2 million under IFRS 15 where the costs are capitalised and subsequently amortised over the average contract life. The change has not impacted the basic earnings per share and fully diluted earnings per share figures for the year.

There has been no significant changes to the contract asset in the current year with costs capitalised expected to be recoverable.

(b) Standards and amendments to standards effective after 2018

IFRS 16, 'Leases'

This standard is mandatory for financial years commencing on or after 1 January 2019. It will result in almost all leases being recognised on the Balance Sheet as, from a lessee perspective, the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change.

The Group currently leases both properties and vehicles under a series of operating lease contracts which will be impacted by the new standard. These types of leases can no longer be recognised as operating leases and will need to be brought onto the Group's Balance Sheet from the date of adoption of the new standard. The Group has elected to apply the following practical expedients:

§ In determining whether existing contracts meet the definition of a lease, the Group will not reassess those contracts previously identified as leases and will not apply the standard to those contracts not previously identified as leases.

§ Leases of less than 12 months and leases with less than 12 months remaining as at the date of adoption of the new standard will not be within the scope of IFRS 16.

§ Leases for which the asset is of low value, for example IT equipment, will not be within the scope of IFRS 16.

The Group has elected to apply the simplified transition approach with the cumulative effect of initially applying this standard as an adjustment to the opening balance of retained earnings as at 1 January 2019. As a consequence of this, there is likely to be a material impact on the Balance Sheet with a lease liability and a corresponding right of use asset to be recognised on the Balance Sheet. There is anticipated to be a limited impact on the net assets of the Group on the date of adoption. Based on the current definition of adjusted operating profit, there is likely to be an increase in the Group's adjusted operating profit as operating lease costs are replaced by a lower depreciation charge. There will also be an additional interest charge, however, there will be no material effect on the overall Income Statement. The changes will not impact the overall cash flow of the Group.

As at the reporting date, the Group has non-cancellable operating lease commitments of £51.7 million. Of these commitments, approximately £0.4 million relate to short-term leases and £0.5 million to low-value leases which will both be recognised on a straight-line basis as an expense in profit or loss.

For the remaining lease commitments, the Group estimates that right-of-use assets of approximately £36 million will be recognised on 1 January 2019 and lease liabilities of approximately £37 million (after adjustments for prepayments and accrued lease payments recognised as at 31 December 2018).

19 PRINCIPAL RISKS AND UNCERTAINTIES

The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity. The Group set out in its 2017 Annual Report and Accounts the principal risks and uncertainties that could impact its performance. These remain largely unchanged as at 31 December 2018 and are summarised below:

Financial Risks

Cost Inflation

Economy

Interest Rate Fluctuations

Liquidity Risk

Taxation

Operational Risks

Loss of a Processing Facility

Failure of Strategy

Customers

Competition

Retention and Motivation of Employees

Information Systems and Technology

Regulatory Risk

Health and Safety

Compliance and Fraud

These risks and uncertainties do not comprise all of the risks that the Group may face and are not listed in any order of priority. Additional risks and uncertainties not presently known to the Board, or deemed to be less material, may also have an adverse effect on the Group. These include risks resulting from the UK's decision to leave the EU which could adversely affect the economic and political environment as well as affecting financial risks such as liquidity and credit. The Board views the potential impact of Brexit as an integral part of its principal risks rather than a stand-alone risk. However, there is still significant uncertainty about the withdrawal process, its timeframe, and the outcome of negotiations about future arrangements between the UK and the EU, and the period for which existing EU laws for member states will continue to apply to the UK. The Board will continue to assess the risk to the business as the Brexit process evolves and will implement any appropriate actions.

Full details of the Principal Risks and Uncertainties facing the Group will be included in the 2018 Annual Report and Accounts which will be made available on the Group's website (www.jsg.com) on or before 15 March 2019.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

20 DIRECTORS' RESPONSIBILITIES STATEMENT

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulation. Having taken advice from the Audit Committee, the Board considers the Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable and that it provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

The Annual Report and Accounts for the year ended 31 December 2018, which will be made available on the Group's website (www.jsg.com) on or before 15 March 2019, contains the following statement regarding responsibility for the Strategic Report, the Directors' Report (including the Corporate Governance Report), the Board Report on Remuneration and the financial statements included within the Annual Report and Accounts:

Each of the Directors confirms that, to the best of their knowledge:

§ the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

§ the Strategic Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

In the case of each Director in office at the date the Directors' Report is approved:

§ so far as the Director is aware, there is no relevant audit information of which the Group's auditors are unaware; and

§ they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group's auditors are aware of that information.

21 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, Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire, WA7 3GH. The announcement can also be accessed on the Internet at www.jsg.com.

The Company's Annual Report will be made available on the Group's website (www.jsg.com) on or before 15 March 2019.

22 APPROVAL

The Preliminary Announcement was approved by the Board of Directors on 4 March 2019.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR JBMLTMBTMBML

Johnson Service Group (JSG)

Friday, 20th December 2024

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