Preliminary Results

RNS Number : 9884X

Johnson Service Group PLC

28 February 2017

 

28 February 2017

AIM: JSG

Johnson Service Group PLC

('JSG' or 'the Group')

Preliminary Results for the Year Ended 31 December 2016

"Another year of significant progress"

Johnson Service Group PLC, a leading UK Textile Rental business, announces its preliminary results for the year ended 31 December 2016.

HIGHLIGHTS

Continuing Operations	2016	2015 (Restated5)	Increase
Revenue	£256.7m	£188.2m	36.4%
Adjusted operating profit1	£37.7m	£25.9m	45.6%
Adjusted profit before taxation2	£33.8m	£23.3m	45.1%
Adjusted fully diluted earnings per share3	7.6p	5.8p	31.0%
Profit before taxation	£25.9m	£17.3m	49.7%
Dividend	2.5p	2.1p	19.0%
Net debt4	£98.2m	£71.2m	n/a

§ Strong financial performance that reflects both organic growth and recent acquisitions: 

-    revenue up 36.4% to £256.7 million 

-    adjusted profit before taxation² up 45.1% to £33.8 million

-    adjusted fully diluted earnings per share³ up 31.0% to 7.6p

§ Proposed final dividend of 1.7p, making a full year dividend of 2.5p, up 19.0%

§ Strategic acquisitions of Zip Textiles, Afonwen and Chester Textiles in H1, significantly increasing the Group's presence in the high volume hotel linen rental market:

-    all immediately earnings enhancing and have expanded the Group's geographic reach

-    further operational and synergistic cost benefits are expected as the integration process is completed

§ Continued investment across all operations focusing on enhanced customer service and operational efficiency and capacity

§ Disposal of Drycleaning on 4 January 2017 (classified as Discontinued Operations), in line with strategy to focus on higher margin Textile Rental activities

1      'Adjusted operating profit' is before charging £6.9 million (2015: £3.5 million) of amortisation and impairment of intangible assets (excluding software amortisation) and £1.0 million (2015: £2.5 million) of net exceptional items.

2      'Adjusted profit before taxation' is Adjusted operating profit, less total finance cost.

3      'Adjusted fully diluted earnings per share' is calculated using Adjusted profit before taxation, and deducting the charge to, or adding the credit for, taxation thereon.

4      Net debt at 31 December 2016 includes £0.8 million of cash within "assets classified as held for sale".

5      The 2015 Income Statement has been restated to reflect the presentation of Drycleaning as a Discontinued Operation.

 

Chris Sander, Chief Executive Officer of Johnson Service Group PLC, commented:

"These are strong results, with profit delivery ahead of original market expectations, reflecting both encouraging organic growth and the benefits of recent acquisitions. These acquisitions have expanded our geographic coverage and helped to further build our presence in specific market segments, especially high volume linen.  We expect further benefits to come from our acquisitions as we complete the integration and investment programme.

Looking ahead, the Group is very well positioned for the new financial year and performance to date has been in line with our expectations. The disposal of Drycleaning in January leaves us focused on driving the growth of our higher margin Textile Rental activities and we will continue to look at further complementary acquisitions and investment opportunities."

ANALYST MEETING

The Company will present to analysts at 09:30 today at KTZ Communications, No. 1 Cornhill, London EC3V 3ND.  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)
Chris Sander, CEO
Yvonne Monaghan, CFO
Tel: [phone] (on the day)
Tel: [phone] (thereafter)
Investec Investment Banking (NOMAD)	KTZ Communications  (Financial PR)
David Flin	Katie Tzouliadis
Matt Lewis	Emma Pearson
James Rudd
Tel: [phone]	Tel: [phone]

Note

Throughout this statement 'adjusted operating profit' refers to continuing operating profit before amortisation and impairment of intangible assets (excluding software amortisation) and exceptional items. 'Adjusted profit before taxation' refers to adjusted operating profit less total finance cost  The Drycleaning results in the Income Statement for both 2015 and 2016 have been classified as Discontinued Operations and the corresponding assets and liabilities have been classified as held for sale in the Balance Sheet as at 31 December 2016.

 

OPERATIONAL AND FINANCIAL REVIEW

Financial Results

Total continuing revenue for the year to 31 December 2016 increased by 36.4% to £256.7 million (2015: £188.2 million), reflecting the acquisitions of Zip Textiles in January 2016 and Afonwen and Chester Textiles in April 2016 as well as the full year benefit of acquisitions completed in 2015. Continuing adjusted operating profit increased by 45.6% to £37.7 million (2015: £25.9 million).  

Net exceptional items from continuing operations were £1.0 million (2015: £2.5 million) and included £1.2 million of acquisition and subsequent restructuring and integration activity, £0.3 million of costs relating to liability management exercises undertaken to reduce the defined benefit pension liabilities, and a gain of £0.5 million on the disposal of a vacated Textile Rental site in Leeds.

Amortisation and impairment of intangible assets (excluding software amortisation) increased to £6.9 million (2015: £3.5 million). The increase reflects the impact of acquisitions completed in 2015 and 2016.

The total finance cost was £3.9 million (2015: £2.6 million) and reflects an increase in net debt following the acquisitions made in the year. The cost includes the non-cash charge for notional interest on the net pension liabilities of £0.6 million (2015: £0.6 million).

Continuing adjusted profit before taxation increased by 45.1% to £33.8 million (2015: £23.3 million) whilst continuing profit before taxation increased by 49.7% to £25.9 million (2015: £17.3 million).

The effective tax rate on adjusted profit before taxation was 19.8% (2015: 19.7%). After the amortisation and impairment of intangible assets (excluding software amortisation) and exceptional items noted above, the post-taxation profit from continuing operations increased by 50.4% to £20.9 million (2015: £13.9 million).

Continuing adjusted fully diluted earnings per share increased by 31.0% to 7.6 pence (2015: 5.8 pence). Fully diluted earnings per share from continuing operations after exceptional items increased by 37.2% to 5.9 pence (2015: 4.3 pence).

Disposal of Drycleaning

On 4 January 2017, we completed the disposal of Drycleaning for a consideration of £8.25 million on a debt free, cash free basis and subject to adjustments for normalised working capital ("Disposal"). The initial proceeds of the Disposal, net of transaction costs of £0.5 million, were £6.25 million, with up to a further £1.0 million of contingent consideration potentially receivable within 12 months of completion, dependant on the satisfaction of certain conditions.  Drycleaning is included in the December 2016 balance sheet as "assets classified as held for sale" and "liabilities directly associated with assets classified as held for sale". The anticipated loss on disposal of £2.0 million has been reflected as an impairment of goodwill as at 31 December 2016 and is shown within Discontinued Operations.

The disposal of Drycleaning was in line with the Board's strategy over the last four years to focus the Group's activities on, and to expand, the higher margin Textile Rental activities.

Dividend

The Board is pleased to recommend an increased final dividend of 1.70 pence per share (2015: 1.45 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 2.50 pence per share (2015: 2.10 pence), an increase of 19.0% year-on-year. 

The proposed final dividend, if approved by Shareholders, will be paid on 12 May 2017 to Shareholders on the register at close of business on 18 April 2017. The ex-dividend date is 13 April 2017.

Post-Retirement Benefits

The recorded net deficit after taxation for all post-employment benefit obligations increased to £14.8 million at 31 December 2016 from £13.0 million at 31 December 2015. The increase reflects a reduction in the discount rate together with an increase in assumed inflation applied to the liabilities of the scheme offset, in part, by strong asset returns.

Asset allocation remains under constant review with the Trustee. Changes are made to more appropriately match assets against the remaining scheme liabilities and to reduce interest rate and inflation risks to a more acceptable level when market dynamics change.

Deficit recovery payments, which are made in equal monthly instalments, amounted to an aggregate £1.9 million in 2016 (2015: £1.9 million), as agreed with the Trustee following the completion of the triennial valuation as at 30 September 2013.  This level of monthly deficit recovery payments will continue until the triennial valuation as at 30 September 2016 is finalised and any changes to the recovery plan are agreed with the Trustee. In addition to the normal monthly payments, we will pay an additional £1.5 million into the Scheme on 3 April 2017 utilising part of the proceeds from the disposal of Drycleaning.

The notional interest charge, which is non-cash, totalled £0.6 million in 2016 (2015: £0.6 million). The charge for 2017, which is dependent upon the level of the accounting deficit at 31 December 2016, is expected to be £0.5 million.

Cash Flow and Banking

Total net debt at the year end stood at £98.2 million (31 December 2015: £71.2 million), which was better than expected. The Group's strong trading performance and the equity raise of £28.7 million, in April 2016, helped to offset both the acquisitions 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 11.4 times (2015: 13.0 times).

The Group remains well funded. A revolving credit facility of £120.0 million was agreed in April 2016 and runs to April 2020.  An additional £30.0 million short term facility, which was due to expire in April 2017, was repaid early in February 2017, as the remaining facility is considerably in excess of the current anticipated level of borrowings.

Interest payable on bank borrowings is based upon LIBOR plus a margin which is linked to gearing levels. The applicable margin during 2016 was, on average, 1.67% and will remain at the same level for at least the first quarter of 2017. We have mitigated our exposure to increases in LIBOR rates through the use of interest rate hedging. Two hedging arrangements, each for £15.0 million of borrowings, are in place whereby LIBOR is replaced by a fixed rate of 1.47% for the period January 2016 to January 2019, and 1.67% for the period January 2016 to January 2020.  Two further hedging arrangements, each for £10.0 million, were entered into at the end of June 2016 whereby LIBOR is replaced by a fixed rate of 0.49% to June 2018 and 0.55% to June 2019.

OPERATIONAL HIGHLIGHTS

Textile Rental

Following the disposal of Drycleaning, the Group is now entirely focused on its Textile Rental activities, which trade through five well-known brands and address the Workwear and the Hotel, Restaurant and Catering ("HORECA") market sectors in the UK.

 'Apparelmaster' is the leading brand in the UK Workwear Rental and Industrial Services sector while 'Stalbridge', 'London Linen', 'Bourne' and 'Afonwen' are amongst the leading brands in the much larger, and more diverse, HORECA market.

The Group's strategy is to combine organic growth with selective acquisitions, including those targeted at expanding our geographical reach, and this has helped to drive a 36.4% increase in revenues to £256.7 million (2015: £188.2 million) with adjusted operating profit rising by 41.8% to £41.7 million (2015: £29.4 million). The acquisitions we completed in 2015 and 2016 made earnings enhancing contributions and we have also been able drive synergies and cost benefits. This has helped to improve the operating margin to 16.2% from 15.6%.

The Apparelmaster business performed very strongly in a competitive market environment and has delivered year-on-year growth. This was helped by a number of major new sales wins, as well as the sale of additional products and services to existing customers. Smaller workwear accounts form a key part of our business and, over the course of the year, the sales team secured a significant number of these smaller accounts, which have been absorbed by our existing route network. The additional new sales required us to transfer work between units to maintain service levels and cost structures. During the year, we were also pleased to have successfully renewed agreements with a large number of national contracts.

As previously reported, the Lancaster factory suffered major flood damage in the latter part of 2015 and was closed for an extensive refit for the majority of 2016. All processing at Lancaster was transferred to alternative factory units under our well organised disaster recovery plan and it is testimony to the ability of our people that the Lancaster factory achieved the highest levels of customer retention across the entire factory network. The factory was subsequently reopened in September 2016 and has been operating well since then.

Our investment across the business in more modern and efficient machinery clearly assisted in the disaster recovery processes at Lancaster. The resultant improvements in production efficiencies have helped to mitigate the additional costs arising from the National Living Wage and energy price increases. We have initiated new capital investment programmes at our factories in Basingstoke, Letchworth, Hadleigh and Manchester which will further improve operational efficiencies while creating additional capacity to meet future growth expectations.

IT support and technology remains a focus and we have integrated a number of sales and service processes with customer-facing tablet technology. We have also launched a new website which provides a platform for further online self-help services for customers.

Our capital investment strategy combined with operational improvement plans have resulted in Apparelmaster more than meeting the standards required under the Government CCA (Climate Change Agreement) which expires in 2020.  

Our in-house training academy provides opportunities for further staff development and improves the skill base of the business. In 2017, we will be using a dedicated external training provider to complement our academy and to ensure that Apparelmaster maintains its market-leading reputation for service excellence.  

In restaurant and catering, Stalbridge had a very strong 2016, with revenue and margin increasing substantially. This was helped by the successful integration of Ashbon Laundry, in Grantham, which we completed by June 2016, having acquired the business in November 2015. Stalbridge also achieved a high level of new sales and improved customer retention rates. All these factors contributed to an impressive organic growth rate.

The integration of Ashbon Laundry involved a significant amount of work transfer, in particular from our Dorset facility to the Grantham factory. This transfer has improved efficiency in collection and delivery and substantially reduced operating costs when the Nuneaton depot closed. The transfer, and the implementation of Stalbridge production and IT processes at the Ashbon factory, were carried out very effectively in the first half, with little disruption to the service to customers. In addition, we also transferred work to Dorset from London Linen customers west of Swindon, thereby utilising the newly available capacity and reducing transport costs.

In the first quarter of 2016, we successfully implemented a new prospect database and sales management system.  These improvements are helping to develop sales, with some of the changes in the competitive landscape favouring the contract-free, flexible and responsive approach that Stalbridge offers. We have also added new products to the contract-free range offered by Stalbridge and our marketing activity is increasing our reach and the range of customers we supply.

In the early part of 2016, we invested in new equipment at our plants in Glasgow and Grantham, adding a new continuous batch washer and ironing lines as well as new towel folders at Glasgow. The new equipment has created additional capacity and will support ongoing sales growth and improved efficiencies.    

London Linen has continued to perform well and the transfer of some of its work to Stalbridge's facilities has enabled it to further focus on the opportunities in the London market.  New sales were strong, particularly in the second half of the year, and the business also continued to expand its sales within the existing customer base.  Customer retention also improved.

Our £4.5 million investment in London Linen's Southall plant, which commenced in August 2016, is nearing completion and we expect the new facilities to be operational in April 2017.  The investment will improve the site's capacity and productivity. We are continuing to invest in other technology, including electronic inspection systems, which will improve consistency and productivity.

We have made significant strategic progress in developing our high volume linen offering since the acquisition of Bourne Textile Services in 2014, making a further three high quality acquisitions in 2016. In January 2016, we acquired Zip Textiles, a major linen supplier operating a modern, fully automated production facility on an impressive freehold site in central Birmingham, which has seen considerable investment in recent years. The acquisition provided immediate synergies with Bourne, based nearby in Lincolnshire.

In April 2016, we completed our largest acquisition to date in the high volume linen rental market, with the purchase of Afonwen. This family owned business has operational facilities in North Wales, Cardiff and Reading and a depot in Leeds. At the same time, we acquired a smaller complementary operation, Chester Textiles. The addition of Chester Textiles enables the enlarged business to better service customers throughout the North West of England and will add capacity and improve operational performance as we meet the growing needs of the high volume linen rental market.

The integration of the newly acquired businesses into a single business model is ongoing. In addition, we have rebranded Zip Textiles and Chester Textiles and they now trade respectively under the Bourne and Afonwen brands. Linen processing is being aligned to the nearest production facility, which will optimise service for all customers. During the second half of the year the business successfully re-tendered a number of national accounts with major UK hotel chains, with the Group's future business strategy being well received. We are exploring further opportunities to realise the full potential of improved purchasing synergies and are also looking at geographic allocation of volumes to further improve transport efficiencies.

Employees

The Board would like to acknowledge our employees across the Group.  They have worked with skill, enthusiasm and dedication and have helped to deliver another year of significant progress.

Outlook

The Group is well placed for the future, with strong brands and a reputation for delivering excellent customer service. We are also investing regularly in new and modern equipment which delivers productivity and efficiency improvements.

The successful integration of our recent acquisitions is enabling us to realise distribution and synergy efficiencies and to expand our services over a wider geographical area.

The Group's balance sheet is strong and leaves us well placed to look for further opportunities to acquire complementary businesses and to consider medium term investment opportunities for increasing capacity to meet the longer term growth potential of our customers.

The Group's performance since the year end has been in line with management expectations. 

By order of the Board,

Chris Sander Chief Executive Officer 28 February 2017

Yvonne Monaghan Chief Financial Officer 28 February 2017

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.

CONSOlidated Income Statement

				Year ended 31 December 2016		Year ended 31 December 2015
		Note		£m		£m
						(Restated*)
	Revenue from continuing operations	2		256.7		188.2
	Operating profit	2		29.8		19.9
	Operating profit before amortisation and impairment of intangible assets (excluding software amortisation) and exceptional items	2		37.7		25.9
	Amortisation and impairment of intangible assets (excluding software amortisation)			(6.9)		(3.5)
	Exceptional items	3
	- Restructuring and other costs			-		(1.0)
	- Costs in relation to business acquisition activity			(1.2)		(1.5)
	- Pension costs			(0.3)		-
	- Profit on disposal of freehold property			0.5		-
	Operating profit	2		29.8		19.9
	Finance cost			(3.3)		(2.1)
	Finance income			-		0.1
	Notional pension interest			(0.6)		(0.6)
	Total finance cost	4		(3.9)		(2.6)
	Profit before taxation			25.9		17.3
	Taxation charge **	6		(5.0)		(3.4)
	Profit for the year from continuing operations			20.9		13.9
	Loss for the year from discontinued operations	12		(0.3)		(3.6)
	Profit for the year attributable to equity holders			20.6		10.3
	Earnings per share	7
	Basic earnings per share
	From continuing operations			6.0p		4.3p
	From discontinued operations			(0.1p)		(1.1p)
	From total operations			5.9p		3.2p
	Fully diluted earnings per share
	From continuing operations			5.9p		4.3p
	From discontinued operations			(0.1p)		(1.1p)
	From total operations			5.8p		3.2p
Adjusted basic earnings per share
From continuing operations			7.7p		5.8p
From discontinued operations			0.4p		0.5p
From total operations			8.1p		6.3p
Adjusted fully diluted earnings per share
From continuing operations			7.6p		5.8p
From discontinued operations			0.4p		0.5p
From total operations			8.0p		6.3p

*     The 2015 Income Statement has been restated to reflect the presentation of Drycleaning as a Discontinued Operation.  See note 12 for further information.

**   Including £1.5 million credit (2015: £0.8 million credit) relating to amortisation and impairment of intangible assets (excluding software amortisation) and £0.2 million credit (2015: £0.4 million credit) relating to exceptional items of which £nil (2015: £0.2 million credit) relates to prior year adjustments.

 

Consolidated Statement of COMPREHENSIVE Income

	Year ended  31 December  2016  £m	Year ended   31 December 2015 £m
Profit for the year	20.6	10.3
Items that will not be subsequently reclassified to profit or loss
Re-measurement and experience (losses) / gains on post-employment benefit obligations	(3.5)	1.2
Taxation in respect of re-measurement and experience losses / (gains)	0.6	(0.2)
Change in deferred tax due to change in tax rate	(0.1)	(0.2)
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) - fair value loss	(0.4)	(1.0)
- transfers to administrative expenses	0.2	0.3
- transfers to finance cost	0.3	0.3
OTHER COMPREHENSIVE (LOSS) / INCOME FOR THE YEAR	(2.9)	0.4
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	17.7	10.7

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 2015	30.0				14.5	1.6	0.6	(0.4)	33.7	80.0
Profit for the year	-				-	-	-	-	10.3	10.3
Other comprehensive (loss) / income			-		-	-	-	(0.4)	0.8	0.4
Total comprehensive (loss) / income for the year		-			-	-	-	(0.4)	11.1	10.7
Share options (value of employee services)	-				-	-	-	-	0.5	0.5
Deferred tax on share options	-				-	-	-	-	0.1	0.1
Issue of share capital	3.1				-	-	-	-	18.1	21.2
Dividend paid	-				-	-	-	-	(5.7)	(5.7)
Transactions with Shareholders recognised directly in Shareholders' equity	3.1				-	-	-	-	13.0	16.1
Balance at 31 December 2015	33.1				14.5	1.6	0.6	(0.8)	57.8	106.8
Balance at 1 January 2016	33.1				14.5	1.6	0.6	(0.8)	57.8	106.8
Profit for the year	-				-	-	-	-	20.6	20.6
Other comprehensive income / (loss)		-			-	-	-	0.1	(3.0)	(2.9)
Total comprehensive income for the year				-	-	-	-	0.1	17.6	17.7
Share options (value of employee services)	-				-	-	-	-	0.8	0.8
Deferred tax on share options	-				-	-	-	-	0.2	0.2
Issue of share capital	3.4				0.5	-	-	-	25.4	29.3
Dividend paid	-				-	-	-	-	(7.7)	(7.7)
Transactions with Shareholders recognised directly in Shareholders' equity	3.4				0.5	-	-	-	18.7	22.6
Balance at 31 December 2016	36.5				15.0	1.6	0.6	(0.7)	94.1	147.1

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 2016, the EBT held 20,739 shares (2015: 20,739).

 

Consolidated Balance Sheet

		As at 31 December 2016	As at 31 December 2015
		£m	£m
			(Restated*)
NON-CURRENT ASSETS
Goodwill		115.6	93.5
Intangible assets		47.9	36.6
Property, plant and equipment		81.7	58.2
Textile rental items		44.1	36.5
Trade and other receivables		0.3	0.4
Deferred income tax assets		4.2	3.5
		293.8	228.7
CURRENT ASSETS
Inventories		2.2	2.7
Trade and other receivables		43.3	40.5
Cash and cash equivalents		2.9	4.6
Assets classified as held for sale		17.2	-
		65.6	47.8
CURRENT LIABILITIES
Trade and other payables		60.6	52.6
Current income tax liabilities		4.3	2.9
Borrowings		19.9	11.8
Derivative financial liabilities		0.3	0.3
Provisions		1.9	6.2
Liabilities directly associated with assets classified as held for sale		9.4	-
		96.4	73.8
NON-CURRENT LIABILITIES
Post-employment benefit obligations		18.2	16.0
Deferred income tax liabilities		10.0	6.8
Trade and other payables		2.3	2.2
Borrowings		82.0	64.0
Derivative financial liabilities		0.5	0.6
Provisions		2.9	6.3
		115.9	95.9
NET ASSETS		147.1	106.8
CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S SHAREHOLDERS
Share capital		36.5	33.1
Share premium		15.0	14.5
Merger reserve		1.6	1.6
Capital redemption reserve		0.6	0.6
Hedge reserve		(0.7)	(0.8)
Retained earnings		94.1	57.8
TOTAL SHAREHOLDERS EQUITY		147.1	106.8

*  2015 balances for "cash and cash equivalents" and "borrowings" have been restated as a result of guidance issued in March 2016 by the IFRS Interpretations Committee regarding when bank overdrafts in cash-pooling arrangements would meet the requirements for offsetting in accordance with IAS 32: 'Financial instruments: Presentation'.  Further details are provided in note 1.

The notes on pages 12 to 25 form an integral part of these condensed consolidated financial statements.  The condensed consolidated financial statements on pages 8 to 25 were approved by the Board of Directors on 28 February 2017 and signed on its behalf by:

Yvonne Monaghan

Chief Financial Officer

 

 Consolidated Statement OF Cash Flows

		Year ended 31 December 2016	Year ended 31 December 2015
Note		£m	£m
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year		20.6	10.3
Adjustments for:
Taxation charge / (credit)        - continuing operations	6	5.0	3.4
- discontinued operations	12	0.6	(1.0)
Total finance cost                      - continuing operations	4	3.9	2.6
- discontinued operations	12	0.1	0.1
Depreciation		44.5	33.0
Amortisation		7.1	3.6
Revaluation of assets classified as held for sale		2.0	-
Decrease in inventories		0.4	0.1
Decrease / (increase) in trade and other receivables		0.8	(0.8)
Increase in trade and other payables		0.9	2.5
Costs in relation to business acquisition activity		1.2	1.5
Deficit recovery payments in respect of post-employment benefit obligations		(1.9)	(1.9)
Share-based payments		0.8	0.5
Post-employment benefit obligations		(0.1)	(0.1)
Decrease in provisions		(4.4)	(2.3)
Cash generated from operations		81.5	51.5
Interest paid		(3.0)	(2.2)
Taxation paid		(5.9)	(2.3)
Net cash generated from operating activities		72.6	47.0
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business (net of cash and overdrafts acquired)		(58.0)	(70.4)
Proceeds from sale of business (net of cash disposed)		-	0.9
Purchase of property, plant and equipment		(15.5)	(4.4)
Proceeds from sale of property, plant and equipment		0.6	0.1
Purchase of textile rental items		(34.5)	(27.5)
Proceeds received in respect of special charges		2.7	2.2
Net cash used in investing activities		(104.7)	(99.1)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		88.0	93.0
Repayment of borrowings		(69.3)	(54.3)
Capital element of finance leases		(5.3)	(1.6)
Net proceeds from issue of Ordinary shares		29.3	21.2
Dividend paid		(7.7)	(5.7)
Net cash generated from financing activities		35.0	52.6
Net increase in cash and cash equivalents		2.9	0.5
Cash and cash equivalents at beginning of the year		(4.4)	(4.9)
Cash and cash equivalents at end of the year		(1.5)	(4.4)
Cash and cash equivalents comprise:
Cash		2.9	4.6
Overdraft		(5.2)	(9.0)
Within assets classified as held for sale		0.8	-
Cash and cash equivalents at end of year		(1.5)	(4.4)

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1              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.

The financial information has been prepared using accounting policies consistent with those set out in the 2016 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 2016 or 31 December 2015 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for 2015 have been delivered to the Registrar of Companies, and those for 2016 will be delivered as soon as practicable but not later than 30 April 2017.  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.

Prior period restatement

Discontinued operations

The Consolidated Income Statement for the year ended 31 December 2015 has been restated, as shown below, to reflect the Drycleaning reporting segment being classified as a Discontinued Operation.  None of the changes impact the total comprehensive income, net assets or cash flows of the Group.

		As Previously Reported	Adjustment	As Restated
		£m	£m	£m
	Revenue	234.4	(46.2)	188.2
	Operating profit before amortisation and impairment of intangible assets (excluding software amortisation) and exceptional items	27.9	(2.0)	25.9
	Amortisation and impairment of intangible assets (excluding software amortisation)	(3.5)	-	(3.5)
	Exceptional items
	- Restructuring and other costs	(7.5)	6.5	(1.0)
	- Costs in relation to business acquisition activity	(1.5)	-	(1.5)
	Operating profit	15.4	4.5	19.9
	Finance cost	(2.2)	0.1	(2.1)
	Finance income	0.1	-	0.1
	Notional pension interest	(0.6)	-	(0.6)
	Total finance cost	(2.7)	0.1	(2.6)
	Profit before taxation	12.7	4.6	17.3
	Taxation charge	(2.4)	(1.0)	(3.4)
	Profit for the year from continuing operations	10.3	3.6	13.9
	Loss for the year from discontinued operations	-	(3.6)	(3.6)
	Profit for the year attributable to equity holders	10.3	-	10.3

Cash pooling

In March 2016, the IFRS IC issued an agenda decision regarding the treatment of offsetting and cash-pooling arrangements in accordance with IAS 32: 'Financial instruments: Presentation'.  This provided additional guidance on when bank overdrafts in cash-pooling arrangements would meet the requirements for offsetting in accordance with IAS 32.

As a consequence of the above, the Group has reviewed its cash-pooling arrangements and has revised its presentation of bank overdrafts.  As a result, the Group has presented an additional £3.5 million within borrowings in the current period and increased its cash balances by an equal and opposite amount.  Comparatives at 31 December 2015 have been similarly restated by £4.5 million.

2          SEGMENT ANALYSIS

Segment information is presented based on the Group's management and internal reporting structure as at 31 December 2016.

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 one reporting segment, being 'Textile Rental'.  Within the Textile Rental segment, five operating segments have been identified being Apparelmaster, Stalbridge, London Linen, Bourne and Afonwen.  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 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, current income tax assets and cash and cash equivalents, all of which are managed on a central basis.  Segment liabilities include non-bank borrowings but exclude deferred income tax liabilities, current income tax liabilities, bank borrowings and derivative financial 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.

Textile Rental Supply and laundering of workwear garments and protective wear; premium linen services for the hotel, catering and hospitality markets; high volume hotel linen services.	Apparelmaster  Stalbridge  London Linen  Bourne  Afonwen
All Other Segments Comprising of central and group costs.

 

Year ended 31 December 2016			Textile Rental	All Other Segments	Total
			£m	£m	£m
Revenue
Continuing			256.7	-	256.7
Discontinued					44.3
Total Revenue					301.0
RESULT
Operating profit / (loss) before amortisation and impairment of intangible assets (excluding software amortisation) and exceptional items			41.7	(4.0)	37.7
Amortisation and impairment of intangible assets (excluding software amortisation)			(6.9)	-	(6.9)
Exceptional items:
- Costs in relation to business acquisition activity			(1.2)	-	(1.2)
- Pension costs			-	(0.3)	(0.3)
- Profit on disposal of freehold property			0.5	-	0.5
Operating profit / (loss)			34.1	(4.3)	29.8
Total finance cost					(3.9)
Profit before taxation					25.9
Taxation					(5.0)
Profit for the year from continuing operations					20.9
Loss for the year from discontinued operations					(0.3)
Profit for the year attributable to equity holders					20.6

		Discontinued Operations	Textile Rental	All Other Segments	Total
		£m	£m	£m	£m
BALANCE SHEET INFORMATION
Segment assets		17.2	334.0	1.1	352.3
Unallocated assets:     Deferred income tax assets					4.2
Cash and cash equivalents					2.9
Total assets					359.4
Segment liabilities		(13.7)	(74.6)	(3.2)	(91.5)
Unallocated liabilities:  Deferred income tax liabilities					(10.0)
Bank borrowings					(87.5)
Current income tax liabilities					(4.3)
Derivative financial liabilities					(0.8)
Post-employment benefit obligations					(18.2)
Total liabilities					(212.3)
OTHER INFORMATION
Non-current asset additions
- Property, plant and equipment		0.7	14.9	-	15.6
- Textile rental items		-	35.4	-	35.4
Depreciation and amortisation expense
- Property, plant and equipment		1.4	10.4	0.3	12.1
- Textile rental items		-	32.4	-	32.4
- Intangible software		-	0.2	-	0.2
- Customer contracts		-	6.9	-	6.9

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

Year ended 31 December 2015 (Restated)			Textile Rental	All Other Segments	Total
			£m	£m	£m
Revenue
Continuing			188.2	-	188.2
Discontinued					46.2
Total Revenue					234.4
RESULT
Operating profit / (loss) before amortisation and impairment of intangible assets (excluding software amortisation) and exceptional items			29.4	(3.5)	25.9
Amortisation and impairment of intangible assets (excluding software amortisation)			(3.5)	-	(3.5)
Exceptional items:
- Restructuring and other costs			(1.0)	-	(1.0)
- Costs in relation to business acquisition activity			(1.5)	-	(1.5)
Operating profit / (loss)			23.4	(3.5)	19.9
Total finance cost					(2.6)
Profit before taxation					17.3
Taxation					(3.4)
Profit for the year from continuing operations					13.9
Loss for the year from discontinued operations					(3.6)
Profit for the year					10.3

		Discontinued Operations	Textile Rental	All Other Segments	Total
		£m	£m	£m	£m
BALANCE SHEET INFORMATION
Segment assets		19.2	246.6	2.6	268.4
Unallocated assets:    Deferred income tax assets					3.5
Cash and cash equivalents					4.6
Total assets					276.5
Segment liabilities		(19.7)	(51.5)	(3.1)	(74.3)
Unallocated liabilities:  Deferred income tax liabilities					(6.8)
Bank borrowings					(68.8)
Current income tax liabilities					(2.9)
Derivative financial liabilities					(0.9)
Post-employment benefit obligations					(16.0)
Total liabilities					(169.7)
OTHER INFORMATION
Non-current asset additions
- Property, plant and equipment		0.7	7.6	-	8.3
- Textile rental items		-	28.4	-	28.4
- Intangible software
Depreciation and amortisation expense
- Property, plant and equipment		1.8	6.9	0.2	8.9
- Textile rental items		-	24.1	-	24.1
- Intangible software		-	0.1	-	0.1
- Customer contracts		-	3.5	-	3.5

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

3          EXCEPTIONAL ITEMS

	2016	2015
	£m	£m
		(Restated)
Restructuring and other costs	-	(1.0)
Costs in relation to business acquisition activity	(1.2)	(1.5)
Pension costs	(0.3)	-
Profit on disposal of freehold property	0.5	-
Total exceptional items	(1.0)	(2.5)

Current year exceptional items

Costs in relation to business acquisition activity

During the year, professional fees of £0.6 million and Stamp Duty of £0.3 million were paid relating to the acquisitions of Zip Textiles (Services) Limited, Chester Laundry Limited and Portgrade Limited, the parent company of Afonwen Laundry Limited.  In addition, costs of £0.3 million were incurred as part of the ongoing restructuring and integration of recent acquisitions.  Further information relating to the acquisitions is provided in note 12.

Pension costs

During the period to 31 December 2016, professional fees of £0.3 million were incurred in respect of liability management exercises in relation to the defined benefit pension scheme.

Profit on disposal of freehold property

A former Textile Rental site in Leeds that was closed in 2015 was disposed of during the period for net proceeds of £0.5 million.  The carrying value was previously written down to £nil in 2014.

Prior year exceptional items

Restructuring and other costs

A new processing facility has been constructed to replace a previous Textile Rental site in Leeds.  The total cost of this relocation in 2014 and 2015, excluding the capital investment, was £2.3 million, of which, £1.0 million was charged to exceptional items in 2015.

Costs in relation to business acquisition activity

During the prior year, costs relating to business acquisition activity of £1.5 million were recognised.  Professional fees of £0.5 million and Stamp Duty of £0.3 million were paid relating to the acquisition of London Linen Group Limited and professional fees of £0.2 million were incurred in relation to the acquisition of Ashbon Services Limited.  Furthermore, costs of £0.4 million were incurred in relation to reorganisation and integration costs of the two business acquisitions in the year.  The remainder of the cost relates to fees and expenses incurred during negotiations with undisclosed targets.

4          TOTAL FINANCE COST

		2016	2015
Continuing operations		£m	£m
			(Restated)
Finance cost:
- Interest payable on bank loans and overdrafts		(2.5)	(1.7)
- Amortisation of bank facility fees		(0.3)	(0.3)
- Interest payable on obligations under finance lease agreements		(0.5)	(0.1)
Total finance costs before notional interest on post-employment benefit obligations		(3.3)	(2.1)
Finance income		-	0.1
Notional interest on post-employment benefit obligations		(0.6)	(0.6)
		(0.6)	(0.6)
Total finance cost		(3.9)	(2.6)

 

5          ADJUSTED PROFIT BEFORE AND AFTER TAXATION

		2016	2015
Continuing operations		£m	£m
			(Restated)
Profit before taxation		25.9	17.3
Amortisation and impairment of intangible assets (excluding software amortisation)		6.9	3.5
Restructuring and other costs		-	1.0
Costs in relation to business acquisition activity		1.2	1.5
Pension costs		0.3	-
Property Disposal		(0.5)	-
Adjusted profit before taxation		33.8	23.3
Taxation on adjusted profit		(6.7)	(4.6)
Adjusted profit after taxation		27.1	18.7

6           TAXATION

	2016	2015
Continuing operations	£m	£m
		(Restated)
Current tax
UK corporation tax charge for the year	7.3	4.2
Adjustment in relation to previous years	(0.1)	(0.3)
Current tax charge for the year	7.2	3.9
Deferred tax
Origination and reversal of temporary differences	(1.8)	(0.2)
Changes in statutory tax rate	(0.3)	(0.3)
Adjustment in relation to previous years	(0.1)	-
Deferred tax credit for the year	(2.2)	(0.5)
Total charge for taxation included in the Income Statement	5.0	3.4

The tax charge for the period is lower (2015: lower) than the effective rate of Corporation Tax in the UK of 20.00% (2015: 20.25%).  The differences are explained below:

	2016	2015
Continuing operations	£m	£m
		(Restated)
Profit before taxation	25.9	17.3
Profit before taxation multiplied by the effective rate of Corporation Tax in the UK	5.2	3.5
Factors affecting taxation charge for the year:
Tax effect of expenses not deductible for tax purposes	0.3	0.4
Changes in statutory tax rate	(0.3)	(0.2)
Adjustments in relation to previous years	(0.2)	(0.3)
Total charge for taxation included in the Income Statement	5.0	3.4

Taxation in relation to amortisation and impairment of intangible assets (excluding software amortisation) has reduced the charge for taxation on continuing operations by £1.5 million (2015: £0.8 million reduction).  Taxation in relation to exceptional items in the current year has reduced the charge for taxation on continuing operations by £0.2 million (2015: £0.4 million reduction) of which £nil (2015: £0.2 million credit) relates to the prior year.

The taxation charge is based on the effective rate of UK Corporation Tax for the year of 20.00% (2015: 20.25%).  Changes to the UK corporation tax rates were announced on 8 July 2015.  These changes were substantively enacted as part of Finance Bill 2015 on 26 October 2015. These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020.  A further change to reduce the rate from 1 April 2020 from 18% to 17% was announced on 16 March 2016.  This change was substantively enacted as part of Finance Bill 2016 on 15 September 2016.

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 18.5% being used to measure all deferred tax balances as at 31 December 2016 (2015: 19.0%). The impact of the change in tax rates to 18.5% has been a £0.3 million credit in the Income Statement and a £0.1 million credit recognised within other comprehensive income.

During the year, a £0.2 million credit relating to current taxation (2015: £nil credit) and a credit of £nil relating to deferred taxation (2015: credit of £0.1 million) have been recognised directly in Shareholders' equity.

7          EARNINGS PER SHARE

	2016	2015
	£m	£m
		(Restated)
Profit for the financial year from continuing operations attributable to Shareholders	20.9	13.9
Loss for the financial year from discontinued operations attributable to Shareholders	(0.3)	(3.6)
Amortisation and impairment of intangible assets from continuing operations (net of taxation)	5.4	2.7
Impairment of assets classified as held for sale	2.0	-
Exceptional costs from continuing operations (net of taxation)	0.8	2.1
Exceptional costs from discontinued operations (net of taxation)	(0.3)	5.2
Adjusted profit attributable to Shareholders relating to continuing operations	27.1	18.7
Adjusted profit attributable to Shareholders relating to discontinued operations	1.4	1.6
Adjusted profit attributable to Shareholders	28.5	20.3
Weighted average number of Ordinary shares	352,481,294	319,966,663
Dilutive potential Ordinary shares	4,421,297	3,239,840
Fully diluted number of Ordinary shares	356,902,591	323,206,503
Basic earnings per share
From continuing operations	6.0p	4.3p
From discontinued operations	(0.1p)	(1.1p)
From continuing and discontinued operations	5.9p	3.2p
Adjustments for amortisation and impairment of intangible assets (continuing operations)	1.5p	0.8p
Impairment of assets classified as held for sale (discontinued operations)	0.6p	-
Adjustment for exceptional items (continuing operations)	0.2p	0.7p
Adjustment for exceptional items (discontinued operations)	(0.1p)	1.6p
Adjusted basic earnings per share (continuing operations)	7.7p	5.8p
Adjusted basic earnings per share (discontinued operations)	0.4p	0.5p
Adjusted basic earnings per share from continuing and discontinued operations	8.1p	6.3p
Diluted earnings per share
From continuing operations	5.9p	4.3p
From discontinued operations	(0.1p)	(1.1p)
From continuing and discontinued operations	5.8p	3.2p
Adjustments for amortisation and impairment of intangible assets (continuing operations)	1.5p	0.8p
Impairment of assets classified as held for sale (discontinued operations)	0.6p	-
Adjustment for exceptional items (continuing operations)	0.2p	0.7p
Adjustment for exceptional items (discontinued operations)	(0.1p)	1.6p
Adjusted diluted earnings per share (continuing operations)	7.6p	5.8p
Adjusted diluted earnings per share (discontinued operations)	0.4p	0.5p
Adjusted diluted earnings per share from continuing and discontinued operations	8.0p	6.3p

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 and impairment 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 Company has potentially dilutive Ordinary shares arising from share options granted to employees where the exercise price is less than the average market price of the Company's Ordinary shares during the year. 

 

Potential Ordinary shares are 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 from continuing operations.  For the years ended 31 December 2016 and 31 December 2015, potential 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 dilutive potential Ordinary shares outstanding at the balance sheet date if those transactions had occurred before the end of the reporting period.

8          DIVIDENDS

		2016	2015
Dividend per share
Final dividend proposed		1.70p	-
Interim dividend paid		0.80p	0.65p
Final dividend paid		-	1.45p

		2016	2015
		£m	£m
Shareholders' funds utilised
Final dividend proposed		6.2	-
Interim dividend paid		2.9	2.1
Final dividend paid		-	4.8

The Directors propose the payment of a final dividend in respect of the year ended 31 December 2016 of 1.70 pence per share.  This will utilise Shareholders' funds of £6.2 million and will be paid, subject to Shareholder approval, on 12 May 2017 to Shareholders on the register of members on 18 April 2017.  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 2016 in respect of this proposed dividend.

9              CAPITAL EXPENDITURE AND COMMITMENTS

Capital Expenditure

During the year the Group purchased property, plant and equipment and intangible assets for a cost of £15.6 million (2015: £8.3 million), excluding property, plant and equipment and intangible assets acquired through business combinations.  In addition, textile rental items with a cost of £35.4 million were acquired in the year (2015: £28.4 million), excluding textile rental items acquired through business combinations.

Offsetting this, property, plant and equipment with a net book value of £0.6 million was disposed (2015: £0.1 million).  In addition, amounts received in respect of textile rental special charges were £2.7 million (2015: £2.2 million).

Capital Commitments

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

	2016	2015
	£m	£m
Property, plant and equipment	3.2	0.6

 

10            POST-EMPLOYMENT BENEFIT OBLIGATIONS

The Group has applied the requirements of IAS 19(R), '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 liability, deficit recovery payments of £1.9 million (2015: £1.9 million) were paid to the JGDBS. 

A net re-measurement and experience loss of £3.5 million (2015: gain of £1.2 million) has been recognised in the year to 31 December 2016.  This is as a result of the scheme's assets and liabilities performing differently to previous assumptions and changes to the assumptions used in calculating liabilities of the schemes.

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

	2016 £m	2015 £m
Gross post-employment benefit obligation	18.2	16.0
Deferred income tax asset thereon	(3.4)	(3.0)
Net liability	14.8	13.0

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

	2016	2015
	£m	£m
Opening gross post-employment benefit obligation	(16.0)	(18.5)
Notional interest	(0.6)	(0.6)
Deficit recovery payments	1.9	1.9
Re-measurement and experience (losses) / gains	(3.5)	1.2
Closing gross post-employment benefit obligation	(18.2)	(16.0)

 

11         CALLED-UP SHARE CAPITAL

				2016		2015
Issued and Fully Paid			Shares	£m	Shares	£m
Ordinary shares of 10p each:
-  At start of period			330,570,023	33.1	299,985,593	30.0
-  New shares issued			34,537,996	3.4	30,584,430	3.1
-  At end of period			365,108,019	36.5	330,570,023	33.1

Issue of Ordinary shares of 10p each

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

				2016		2015
Issued and Fully Paid			Shares	£	Shares	£
Ordinary shares of 10p each:
-  Placing	note 1		33,061,540	3,306,154	30,011,802	3,001,180
-  Approved LTIP	note 2		-	-	78,632	7,863
-  SAYE	note 3		1,476,456	147,645	493,996	49,400
New shares issued			34,537,996	3,453,799	30,584,430	3,058,443

Note 1:     During the period the Group placed 33,061,540 (2015: 30,011,802 ) Ordinary shares with institutional investors raising net proceeds of £28.7 million (2015: £21.1 million) of which £3.3 million (2015: £3.0 million) was credited to share capital.  The placing was undertaken using a cash box structure.  As a result, the Group was able to take relief under section 612 of the Companies Act 2006 from crediting share premium and instead transfer the net proceeds in excess of the nominal value to retained earnings.

Note 2:     Nil (2015: 78,632) Approved LTIP options were exercised with a total nominal value of £nil (2015: £7,863).

Note 3:     1,476,456 (2015: 493,996) SAYE Scheme options were exercised with a total nominal value of £147,645 (2015: £49,400).

The total proceeds received on allotment in respect of all of the above transactions were £29.3 million (2015: £21.2 million) and were credited as follows:

				2016		2015
				£m		£m
Share capital				3.4		3.1
Share premium				0.5		-
Retained earnings				25.4		18.1
				29.3		21.2

 

12        BUSINESS COMBINATIONS AND DISCONTINUED OPERATIONS

BUSINESS COMBINATIONS

On 29 January 2016 the Group acquired 100% of the share capital of Zip Textiles (Services) Limited ('Zip') for a net consideration of £13.0 million (being £14.0 million consideration less cash acquired of £1.0 million) plus associated fees.  Since acquisition, Zip has generated a profit of £0.5 million on revenue of £7.3 million.  Had the business been acquired at the start of the period it is estimated that a profit of £0.5 million would have been generated on revenue of £7.8 million.

On 26 April 2016 the Group acquired 100% of the share capital of Chester Laundry Limited ('Chester') for a net consideration of £1.0 million (being £0.8 million consideration plus overdraft acquired of £0.2 million) plus associated fees.  Since acquisition, Chester has generated a profit of £0.2 million on revenue of £4.7 million.  Had the business been acquired at the start of the period it is estimated that a profit of £0.2 million would have been generated on revenue of £6.8 million.

On 28 April 2016 the Group acquired 100% of the share capital of Portgrade Limited, together with its trading subsidiary Afonwen Laundry Limited ('Afonwen') for a net consideration of £41.9 million (being £37.4 million consideration plus overdraft acquired of £4.5 million) plus associated fees.  Since acquisition, Afonwen has generated a profit of £2.5 million on revenue of £30.7 million.  Had the business been acquired at the start of the period it is estimated that a profit of £2.0 million would have been generated on revenue of £42.9 million.

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

	Zip	Chester	Afonwen	Fair value adjustments to previous acquisitions	Total
	£m	£m	£m	£m	£m
Intangible assets - Goodwill	8.7	0.7	21.4	0.4	31.2
Intangible assets - Customer contracts	3.1	-	15.4	-	18.5
Property, plant and equipment	6.6	2.9	15.9	(0.4)	25.0
Textile rental items	0.4	0.4	6.5	-	7.3
Inventories	-	-	0.3	-	0.3
Trade and other receivables	0.8	1.4	5.1	-	7.3
Current income tax asset	-	0.1	0.1	-	0.2
Cash and cash equivalents / (overdraft)	1.0	(0.2)	(4.5)	-	(3.7)
Trade and other payables	(1.9)	(2.4)	(8.7)	-	(13.0)
Borrowings	(3.6)	(2.3)	(10.6)	-	(16.5)
Deferred income tax liability	(1.1)	0.2	(3.5)	-	(4.4)
	14.0	0.8	37.4	-	52.2

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 acquisitions.  None of the acquired goodwill is expected to be deductible for tax purposes.

Zip, Chester and Afonwen have been included within the Textile Rental reporting segment, Zip within the Bourne CGU and Chester and Afonwen as a separate Afonwen CGU.

In 2015, the Group acquired the entire share capital of London Linen Supply Limited ('London') and Ashbon Services Limited ('Ashbon').  Full details are provided in the 2015 Annual Report.  During 2016, the initial fair values acquired of the Property, plant and equipment were reduced by £0.3 million in relation to London Linen and £0.1 million in relation to Ashbon, with a corresponding increase in Goodwill.

Cash flows from business acquisition activity

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

					2016	2015
					£m	£m
Consideration paid					53.0	73.7
Overdraft / (cash and cash equivalents) acquired					3.7	(4.4)
Cost in relation to business acquisition activity					1.3	1.1
					58.0	70.4

Within consideration paid during the year is £0.8 million of deferred consideration in relation to the Ashbon acquisition in 2015.  Further deferred consideration of £0.3 million relating to that acquisition remains payable.  Costs in relation to business acquisition activity include the payment of £0.1 million of costs that were recognised in 2015.

 

DISPOSALS AND DISCONTINUED OPERATIONS

On 4 January 2017 the Group disposed of its Drycleaning operation and its results for the year ended 31 December 2016 have been included within Discontinued Operations, and its assets and related liabilities classified as held for sale.

Asset and related liabilities classified as held for sale are as follows:

			Assets / Liabilities Transferred to Held for Sale	Impairment	Carrying value under IFRS5 as at 31 December 2016
			£m	£m	£m
Intangible assets - Goodwill			9.1	(2.0)	7.1
Intangible assets - Software			0.1	-	0.1
Property, plant and equipment			4.4	-	4.4
Deferred income tax asset			0.8	-	0.8
Inventories			0.4	-	0.4
Trade and other receivables			3.6	-	3.6
Cash			0.8	-	0.8
Trade and other payables			(6.0)	-	(6.0)
Provisions			(3.4)	-	(3.4)
			9.8	(2.0)	7.8
Included within Assets classified as held for sale					17.2
Included within Liabilities directly associated with assets held for sale					(9.4)
					7.8

Consideration receivable is £8.25 million on a debt free cash free basis and to be adjusted for normalised working capital. Of the total consideration, £7.25 million was payable at completion with a further £1.0 million contingent on the satisfaction of certain conditions.  It is expected that the contingent consideration will be received in full.

There were no business disposals in the current or prior year.

On 7 August 2013 the Facilities Management division was disposed of; full details of this transaction are provided in the 2013 Annual Report.  There is £1.1 million of contingent consideration outstanding in relation to this disposal, the receipt of which is dependent upon the acquirer utilising acquired deferred tax assets.  This receivable has been fully provided for and no contingent consideration was received during the current period.   During 2015, deferred consideration of £0.8 million, together with £0.2 million of contingent consideration was received.  There is an outstanding creditor is relation to disposal costs of £0.2 million (2015: £0.2 million outstanding). 

Discontinued operations in the current and prior year consist of the trade relating to the Drycleaning business, the related taxation charge and the impairment of Goodwill recognised on classifying the related assets as held for sale.  The current year also includes a property provision release of £0.4 million for a property relating to operations discontinued in previous years.

The total loss relating to discontinued operations is as follows: 

		2016	2015
		£m	£m
Revenue		44.3	46.2
Operating profit before amortisation and impairment of intangible assets (excluding software amortisation) and exceptional items		2.0	2.0
Finance cost		(0.1)	(0.1)
Exceptional costs		0.4	(6.5)
Taxation (charge) / credit		(0.6)	1.0
Profit / (loss) for the period		1.7	(3.6)
Impairment of assets classified as held for sale		(2.0)	-
Retained loss from discontinued operations		(0.3)	(3.6)

Cash flows from discontinued operations

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

	2016	2015
	£m	£m
Proceeds from disposals	-	1.0
Payment of costs relating to disposals	-	(0.1)
Net proceeds from disposals	-	0.9
Net cash used in operating activities	(0.2)	(4.3)
Net cash used in investing activities	(0.9)	(0.8)
Net cash flow	(1.1)	(4.2)

13            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 bank facility fees, changing maturity profiles, debt acquired as part of an acquisition and new finance leases entered into during the year.

December 2016	At 1 January 2016	Cash Flow	Non-cash Changes	At 31 December 2016
	£m	£m	£m	£m
Cash and cash equivalents	(4.4)	2.9	-	(1.5)
Debt due within one year	(1.3)	(4.7)	(3.8)	(9.8)
Debt due after more than one year	(58.5)	(14.0)	-	(72.5)
Finance leases	(7.0)	5.3	(12.7)	(14.4)
	(71.2)	(10.5)	(16.5)	(98.2)

December 2015		At 1 January 2015	Cash Flow	Non-cash Changes	At 31 December 2015
		£m	£m	£m	£m
Cash and cash equivalents		(4.9)	0.5	-	(4.4)
Debt due within one year		(0.8)	0.3	(0.8)	(1.3)
Debt due after more than one year		(19.7)	(39.0)	0.2	(58.5)
Finance leases		(3.1)	1.6	(5.5)	(7.0)
		(28.5)	(36.6)	(6.1)	(71.2)

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

	2016	2015
	£m	£m (Restated*)
Cash (Current Assets)	2.9	4.6
Overdraft (Borrowings, Current Liabilities)	(5.2)	(9.0)
Cash within assets classified as held for sale (see note 12)	0.8	-
	(1.5)	(4.4)

*  Comparatives have been restated as a result of guidance issued in March 2016 by the IFRS Interpretations Committee regarding when bank overdrafts in cash-pooling arrangements would meet the requirements for offsetting in accordance with IAS 32: 'Financial instruments: Presentation'.  Further details are provided in note 1.

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

	2016	2015
	£m	£m
Amounts due within one year (Borrowings, Current Liabilities)	(4.9)	(1.5)
Amounts due after more than one year (Borrowings, Non-Current Liabilities)	(9.5)	(5.5)
	(14.4)	(7.0)

 

14         RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

	2016	2015
	£m	£m
Increase in cash in year	2.9	0.5
Increase in debt and lease financing	(13.4)	(37.1)
Change in net debt resulting from cash flows	(10.5)	(36.6)
Debt acquired through business acquisition	(3.8)	(0.9)
Movement in unamortised bank facility fees	-	0.3
New finance leases	(12.7)	(5.5)
Movement in net debt	(27.0)	(42.7)
Opening net debt	(71.2)	(28.5)
Closing net debt	(98.2)	(71.2)

15        EVENTS AFTER THE REPORTING PERIOD

The following event occurring after the balance sheet date has been disclosed in accordance with IAS 10, 'Events after the reporting period'.

Disposal

On 4 January 2017 the Group disposed of its Drycleaning operation for a consideration of £8.25 million on a debt free, cash free basis and subject to adjustments for normalised working capital.  The initial proceeds for the disposal, net of transaction costs of £0.5 million, were £6.25 million, with a further £1.0 million of contingent consideration potentially receivable within 12 months of completion, dependent on the satisfaction of certain conditions.  The Drycleaning business is 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 has been reflected as an impairment of goodwill as at December 2016 and is shown within Discontinued Operations.

16        DIRECTORS' RESPONSIBILITIES STATEMENT

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations.  Having taken advice from the Audit Committee, the Board considers the Annual Report, 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 Company's Annual Report for the year ended 31 December 2016, which will be posted to Shareholders on or before 10 March 2017, 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:

"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 EU, give a true and fair view of the assets, liabilities, financial position and result of the Group;

  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;

  there is no relevant audit information of which the Company's auditors are unaware; and

  he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/ herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information."

17        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 posted to Shareholders on or before 10 March 2017.

18         APPROVAL

The Preliminary Announcement was approved by the Board of Directors on 28 February 2017.

 

END

 

 

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