Preliminary Results
Johnson Service Group PLC
23 March 2007
23rd March 2007
Johnson Service Group PLC
Statement for the Financial Year to 31 December 2006
Johnson Service Group PLC, the textile services and facilities management Group
announces its preliminary results for the financial year ending 31 December
2006.
Operational Summary
• Group profitability reduced due to the poor performance of Stalbridge
(Loss of £3.8 million in 2006 against profit of £4.4 million in 2005)
• Situation in Stalbridge being addressed and appropriate actions
being taken by new management in place
• Strong performance from our Corporatewear and Facilities Management
Divisions
• Encouraging revenue growth at Johnsons Apparelmaster for the
second consecutive year
• Good performance of the Drycleaning Division
• Charles Skinner to be appointed Chief Executive Officer on 16 April
• Final dividend maintained at 15 pence (2005: 15 pence)
Financial Summary (Continuing)
2006 2005 Change
Turnover £411m £422m (3%)
Turnover (excluding costs recharged to customers) £361m £354m 2%
Operating Profit £23.7m £34.4m (31%)
Adjusted Operating Profit* £34.9m £37.8m (8%)
Exceptional Costs £5.4m (£0.5m) n/a
Profit Before Tax £14.5m £26.2m (45%)
Adjusted Profit Before Tax* £25.7m £29.6m (13%)
Final Dividend Proposed 15.0p 15.0p 0%
* Before intangibles amortisation (excluding software) and exceptional items.
Simon Sherrard, Chairman of Johnson Service Group, commented:
''Within Johnson Service Group we have a number of market leading businesses
which traded satisfactorily during 2006. These successes were eclipsed by the
poor performance at our Stalbridge business whose problems are being addressed.
As the recovery programme will take longer than previously anticipated, the
Board has lowered its expectations for Group performance in 2007. Under the
leadership of our new Chief Executive joining in April, this will be a year of
maximising the opportunities for our businesses, enabling 2008 to demonstrate
our growth potential.'
For further information, please contact:
Johnson Service Group PLC Hudson Sandler
Simon Sherrard, Chairman Michael Sandler
Jim Wilkinson, CFO Sandrine Gallien
Tel: 020 7796 4133 (on the day) Telephone: 020 7796 4133
Tel: 01928 704600 (thereafter)
www.johnsonplc.com
PRELIMINARY STATEMENT
2006 was a challenging year for Johnson Service Group. In November, we
identified issues in our linen rental business, Stalbridge. A recovery programme
is being implemented but it is difficult to be precise as to the timing of the
improvement in margins that our actions will deliver. We are pleased with the
performance of our other businesses, particularly of our Corporatewear and
Facilities Management Divisions. We are encouraged by the stability of
Apparelmaster, our garment rental business, which has demonstrated organic
revenue growth for the second consecutive year. Finally, we are pleased with the
performance of our Drycleaning Division, which the Board has decided to retain
following an auction process, as offers received did not reflect the
profitability and potential for the business.
Group Results
Total continuing turnover reduced by 3% to £411 million (2005: £422 million),
whilst continuing turnover, excluding costs recharged to customers, increased by
2% to £361 million (2005: £354 million).
The Group interest charge rose to £9.2 million (2005: £8.2 million), reflecting
a full year's effect from the acquisitions made during 2005 and our continuing
investment in the Group's infrastructure. Amortisation of intangible assets
(excluding software) increased to £5.8 million (2005: £3.9 million), also
reflecting the full year effect of previous acquisitions.
Profit before taxation from continuing operations was £14.5 million (2005: £26.2
million). Adjusted profit before taxation (before intangibles amortisation
(excluding software) and net exceptional costs) was £25.7 million (2005: £29.6
million) and adjusted fully diluted earnings per share were 32.6 pence (2005:
35.8 pence), both on a continuing basis. Basic earnings per share were 22.8
pence (2005: 32.4 pence)
Net exceptional costs for the year amount to £5.4 million (2005: profit £0.5
million). These include restructuring costs for the Group, costs linked to the
disposal process of the Drycleaning Division, write-off of software development
costs following a change in the implementation plans for the ERP system and
provisions for uninsured losses. These costs have been partially offset by the
gain on the disposal of properties both on a sale and leaseback basis for
current drycleaning locations and sales of surplus properties.
Johnson Hospitality Services, which provided furniture and catering equipment to
the contract catering market was sold in December 2006, with the remaining
elements of the business closed before the year-end. Under IFRS accounting, the
total of the loss on the disposal and closure as well as the trading loss for
2006, net of taxation, has been disclosed as a single line item on the Income
Statement, amounting to £10.9 million.
The Group has prepared its financial statements to 31st December 2006 under
International Financial Reporting Standards (IFRS) and all comparatives have
been restated.
Finances
Net debt at the year-end was £142 million (2005: £137 million). This £5 million
increase reflected high levels of capital expenditure and additional
contributions to the defined benefit pension schemes, offset by the proceeds of
property disposals.
Dividend
The Board is recommending a final dividend of 15.0 pence per share (2005: 15.0
pence), which will be paid on 9th July 2007 to Shareholders on the register on
8th June 2007. Together with the interim dividend of 4.6 pence paid in October
2006, this makes a total for the year of 19.6 pence (2005: 19.4 pence).
The Board
I am pleased to announce that we have appointed Charles Skinner, 46, as Chief
Executive with effect from 16th April 2007. Charles was previously Chief
Executive of Brandon Hire Plc for nine years, prior to which he was at SG
Warburg, 3i and editor of Management Today. Charles has considerable business to
business services experience gained in a rental context, which will be valuable
in his new role.
The previous Chief Executive, Stuart Graham, resigned on 30th November 2006 and
since then I have been Executive Chairman. David Toon, previously Executive
Director responsible for the Textile Rental and Corporatewear Divisions resigned
with effect from 1st December 2006.
Operational review
Rental
Revenue increased by 6% to £125 million (2005: £119 million), while adjusted
operating profit was 46% down at £9.1 million (2005: £16.7 million). The
decrease in operating profit was a result of the difficulties at Stalbridge,
which offset the good performance of Johnsons Apparelmaster.
Stalbridge Linen Services
Stalbridge, market leaders in the premium hotel, catering and corporate
hospitality sector, reported like-for-like turnover up 10% to £39 million and an
adjusted operating loss of £3.8 million for the period against a profit of £4.4
million in the previous year.
A new ERP system was installed during April 2006 which gave rise to some
invoicing problems which masked that a disproportionate level of costs were
being incurred in the business. This did not become apparent until November,
partly due to the seasonality of this activity and partly due to the
improvements made to the ERP system during the course of the year, thus allowing
proper management information to be available.
A new management team was put into the company and the issues are being
addressed on two fronts. Firstly, we are confident that we have largely resolved
any outstanding issues with the ERP system and the invoicing. However, the
introduction of the system during 2006 resulted in a weakening of debtor
control, largely through invoicing errors and this has directly resulted in a
much higher level of potential bad debts than should be expected and a higher
level of debtors at the year end. Whilst we believe we have made appropriate
levels of provisions, the remaining debtors will take several months to reduce
to an acceptable level.
We are addressing the cost base of the business to bring it in line with the
expected revenue. Specific actions being undertaken include the reallocation of
production to a new facility in Hinckley, the closure of inefficient production
capacity and a rationalisation of distribution.
We are confident that Stalbridge will recover to previous operating margin
levels but it will be 2008 before we see the full benefit of the management
actions that are currently being undertaken.
Johnsons Apparelmaster
Apparelmaster, the UK leader in the laundering and rental of workwear, which had
previously suffered from several years of sales decline and pricing pressure,
achieved its second successive year of organic revenue growth, with a 3.1%
increase in its core recurring revenue.
Since April last year, we have benefited from the exit from the market place of
the third largest participant and several smaller independent companies. The
reduction in capacity in the industry has resulted in greater price stability,
allowing us better control of our margins which remained broadly flat at almost
14%. In February 2007, another large provider of linen and workwear rental
services went into administration, presenting us with further opportunities.
The success of our ongoing programme to improve continuously the quality of
service was confirmed during the year with customer retention now at 93% and
overall customer satisfaction levels at 80%, the third consecutive year of
improvement.
We are investing in our plant infrastructure to accelerate efficiencies in the
business. In September, a new plant was commissioned in Basingstoke to enhance
service to large food production customers and an existing plant in Birmingham
was refurbished to serve West Midlands customers. During the second quarter of
2007, a new plant will be commissioned in Leeds, to provide extra capacity for
Yorkshire customers and the head office of the business will be relocated to
Fulwood, near Preston, alongside our new workwear warehouse.
In addition, in January 2007, we acquired Texicare Ltd for £3 million. We expect
this acquisition to enhance performance further as the business is integrated.
As market leader, we believe that we have a first class business which should be
able to continue its strong cash generation. The outlook for this business in
the medium term continues to improve as the price pressure of some of its main
costs reduce.
Corporatewear Division
The Corporatewear Division reported adjusted operating profit growth of 8% to
£12.3 million (2005: £11.4 million) and the operating margin increased to 14.8%
(2005: 13.1%), as savings from the integration of the acquisitions made over the
last three years are realised.
The Division experienced a slight decline in revenue at £95.4 million, as one of
our major customers delayed a new uniform rollout to 2007. In addition, our
increasingly effective supply chain is leading to some price deflation as we
continue to move to more efficient suppliers and pass on the benefits achieved
to our customers.
Following on from the successful integration of the management, sales and supply
chain functions within this Division, during the latter part of 2006 we
initiated an integration plan for the support functions, which will be largely
implemented during 2007. There will be further rationalisation of properties and
functions to reduce overheads, whilst maintaining the brand names, which are all
valuable in their niche markets.
The Corporatewear Division has achieved a market leading position over the last
three years, by a combination of acquisition, integration, driving efficiency
and selling a fully out-sourced service model. This Division is now clearly the
UK's largest provider of clothing for people at work with the number of garments
supplied in 2006 up 11% over the prior year at 14.2 million, with almost 4
million people a day wearing our products. Its industry leading service
offering, combined with the strength of its procurement, has led to significant
new business wins. The amount of new business captured, together with our
success in renewing the contracts of many of our major customers, are all
positive indications for the future of the business.
The Division is gradually expanding its customer base overseas, by winning an
increasing amount of new business in Europe and through partnering with an
American company to provide a worldwide solution. Indeed, the largest contract
secured during 2006 was for a global distribution company won with our American
partners. Since the proportion of employees in the UK and Europe who wear
uniforms in the workplace is still relatively low in comparison to the US, we
remain convinced there is considerable future potential in this market place.
Drycleaning Division
Total revenue fell by 2% to £99.2 million (2005: £101.4 million) and adjusted
operating profit fell by 7% to £9.1 million (2005: £9.8 million). The result for
2005 benefited from £1.8 million of routine property disposals with no similar
benefit arising in 2006. The sale and leasebacks completed in 2006 resulted in
an additional rent charge of £1.0 million in the second half. Excluding the
effect of these two factors the underlying adjusted operating profit increased
by 26%.
Our market leading retail Drycleaning business, which encompasses Johnsons
Cleaners, Jeeves of Belgravia and Sketchley, saw like-for-like revenues up 1.1%
for the full year thanks to a management restructure at the end of the first
quarter, and the implementation of new marketing initiatives.
The retail operation is concentrating on growing revenue through several actions
including a focus on our Priority Club initiative, which is already yielding
good results. In addition, we are putting more emphasis on the location of our
shops as this is another key factor in future profitability. We are moving to
more high convenience locations, for example during 2006, we opened new branches
within Tesco and Sainsbury stores and Drive-ins in Cardiff, Bolton, Taunton,
Nottingham and Wakefield.
In addition to the action taken to stimulate consumer demand, a renewed focus on
tight cost control lifted the operating margins from 5.1% in the first half to
10.2% in the second half of the year. This was helped by a branch
rationalisation programme, which has seen the total number of branches fall to
548 (2005: 597). We saw some benefit from these actions during the second half
of 2006 but expect to benefit fully during 2007.
Alex Reid, our distribution operation, performed well with revenue up 11%
following the successful acquisition and integration of Firbimatic in July 2005.
In addition, Alex Reid has been able to expand its services to offer maintenance
contracts to independent Drycleaning customers following the merger of its
engineers with those of our retail operation.
Alex Reid also has the European licence rights to the GreenEarth(R) drycleaning
process and during 2007 will focus on marketing its attractions to the 50,000
drycleaners operating in Europe. GreenEarth(R) is environmentally, as well as
technically, a far more preferable option than alternative drycleaning solvents.
In 2006, following several expressions of interest, the Board decided to conduct
a formal auction for the potential sale of our consumer facing Drycleaning
Division. Although a number of offers were received, in our opinion, none of
them reflected the profitability of the business and would have resulted in an
unacceptable level of earnings dilution. We have, therefore, decided to retain
the business, giving the management a period of stability in which to implement
the many ideas they have for moving it forward.
Facilities Management Division
Our Facilities Management Division had a very successful year. Revenue excluding
costs recharged to customers increased by 13.9% to £53.1 million, while total
revenue fell by 10% to £103.4 million (2005: £115.0 million), the latter being
affected by reduced charges to customers. Adjusted operating profit increased by
70% to £7.5 million with the operating margin of the Division reaching 14.1%
(2005: 9.4%).
The results include a full year's contribution by SGP Property Services (SGP),
acquired in October 2005. Excluding the effects of the acquisition the Division
still achieved organic adjusted operating profit growth of 23%.
SGP delivered excellent organic growth, with significant new business wins
including Superdrug, Ladbrokes, and Phones 4U. They have also successfully
renewed contracts with Arcadia, Woolworths and Boots and have significantly
increased sales with Carphone Warehouse, Alliance & Leicester, BHS and Tesco.
The senior management team has been strengthened with the appointment of a
Technical Director, a Property Director and an Operations Director who will be
appointed shortly.
Workplace Management (WPM) also demonstrated excellent added value sales and won
new contracts including QCA, Water UK, Shell Retail and the Home Office
Immigration Centre as well as successfully extending or renewing contracts at
Inverness Airport, Citigroup, Norfolk Constabulary and Shell Employee Benefit
Trust Housing.
Workplace Engineering, our specialist mechanical and electrical engineering
business, demonstrated significant top line growth in a highly competitive
market, increasing turnover from an annualised £4.6 million to £14.2 million in
just over two years. The business, originally created by two acquisitions, is
now fully integrated and delivered 20% operating profit growth to £1.3 million
at an operating margin of 9.1%. Significant contract wins during 2006 included
BHS, Superdrug and The School of Midwifery. Although around half of the revenue
of the business is reactive one-off project work, there has also been
significant growth in contracted maintenance, which is expected to continue to
grow as a proportion of total revenue in 2007.
The services we offer through our Facilities Management Division uniquely
combine our expertise in property, project and facilities management with
procurement, to offer customers a high quality service at the best value for
money. Since the Division was created three years ago it has delivered strong
organic growth supported by some significant acquisitions. With the integration
of most of the back office functions of SGP and WPM almost complete, the
rationalisation of the management structure and the appointment of a new
Divisional Sales Director, we are confident the business will continue its
impressive growth rate.
Outlook
In the current year, we see growth potential in our Corporatewear and Facilities
Management Divisions, and we believe that Apparelmaster and Drycleaning will
continue to make important contributions, both to profitability and cash flow.
However, in view of the fact that the recovery programme in Stalbridge will take
longer than previously anticipated, the Board has lowered its expectations for
Group performance in 2007. We believe sufficient actions are being taken but
these are not expected to deliver significant benefits until 2008.
Simon Sherrard
Executive Chairman
23rd March 2007
JOHNSON SERVICE GROUP PLC
Consolidated Income Statement - UNAUDITED
Year ended Year ended
31 December 31 December
2006 2005
Note £m £m
CONTINUING OPERATIONS:
2 REVENUE FROM CONTINUING OPERATIONS 410.9 422.2
Costs recharged to customers (50.3) (68.4)
2 Revenue excluding costs recharged to customers 360.6 353.8
2 OPERATING PROFIT 23.7 34.4
2 OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION 34.9 37.8
AND EXCEPTIONAL ITEMS
Amortisation of intangible assets (excluding software) (5.8) (3.9)
3 Exceptional items
- Restructuring and environmental costs (20.4) (3.9)
- Profit on disposal of property 15.0 4.4
2 OPERATING PROFIT 23.7 34.4
5 Finance costs (10.0) (8.6)
5 Finance income 0.8 0.4
PROFIT BEFORE TAXATION 14.5 26.2
6 Taxation (1.1) (7.3)
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 13.4 18.9
DISCONTINUED OPERATIONS:
10 LOSS FOR THE YEAR FROM DISCONTINUED OPERATIONS (10.9) (1.9)
PROFIT FOR THE YEAR 2.5 17.0
8 EARNINGS PER SHARE *
Basic earnings per Share
From continuing operations 22.8p 32.4p
From discontinued operations (18.6p) (3.2p)
From continuing and discontinued operations 4.2p 29.2p
Fully diluted earnings per Share
From continuing operations 22.6p 31.8p
From discontinued operations (18.4p) (3.2p)
From continuing and discontinued operations 4.2p 28.6p
7 ORDINARY DIVIDENDS PAID AND PROPOSED
Final dividend proposed 15.0p -
Interim dividend proposed and paid 4.6p 4.4p
Final dividend proposed and paid - 15.0p
* Earnings per share before intangibles amortisation (excluding software) and
exceptional items are shown in Note 8.
Consolidated Statement of Recognised Income and Expense - UNAUDITED
Year ended Year ended
31 December 31 December
2006 2005
£m £m
Actuarial gain / (loss) on defined benefit pension plans and healthcare benefits 14.7 (15.7)
Taxation in respect of actuarial (gain) / loss (4.4) 4.7
Net movement on reserves in respect of defined benefit actuarial gains and losses 10.3 (11.0)
Cash flow hedges (net of tax) 0.3 (0.1)
NET INCOME / (EXPENSE) RECOGNISED DIRECTLY IN EQUITY 10.6 (11.1)
Profit for the year 2.5 17.0
TOTAL RECOGNISED INCOME FOR THE YEAR 13.1 5.9
Consolidated Group Balance Sheet - UNAUDITED
Year ended Year ended
31 December 31 December
2006 2005
Note £m £m
ASSETS
NON-CURRENT ASSETS
Goodwill 140.0 140.7
Intangible assets 51.9 50.6
Property, plant and equipment 60.8 68.0
Textile Rental items 27.6 30.1
Deferred income tax assets 13.4 17.9
293.7 307.3
CURRENT ASSETS
Inventories 29.5 30.2
Trade and other receivables 71.3 65.0
Current income tax assets 0.7 -
Derivative financial instruments 0.6 0.2
Cash and cash equivalents 11.3 7.5
113.4 102.9
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 29.4 26.9
Other creditors and accruals 69.0 61.1
Current income tax liabilities - 2.7
Borrowings 1.1 2.1
Derivative financial instruments 0.4 0.2
Provisions 8.5 4.8
108.4 97.8
NET CURRENT ASSETS 5.0 5.1
NON-CURRENT LIABILITIES
Borrowings 152.7 142.6
9 Retirement benefit obligations 30.7 50.4
Deferred income tax liabilities 12.6 14.6
Provisions 8.2 6.8
Other non-current liabilities 1.9 8.1
206.1 222.5
NET ASSETS 92.6 89.9
EQUITY
CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS
Called up share capital 5.9 5.9
Share premium 12.7 11.9
Other reserves 2.4 2.1
Retained earnings 71.6 70.0
TOTAL EQUITY 92.6 89.9
Consolidated Cash Flow Statement - UNAUDITED
Year ended Year ended
31 December 31 December
2006 2005
Note £m £m
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year 2.5 17.0
Adjustments for:
Income tax expense - continuing operations 1.1 7.3
- discontinued operations (3.2) (0.7)
Finance income and expense 9.2 8.2
Depreciation 28.6 27.1
Amortisation 7.3 4.3
Write off of intangible assets 3.9 -
(Increase) / Decrease in inventories 0.7 (3.5)
(Increase) / Decrease in trade and other receivables (3.9) (2.8)
Increase / (Decrease) in trade and other payables 1.4 2.9
Profit on sale of property, plant and equipment (14.5) (6.3)
Loss on sale of investments 11.7 -
9 Contribution to defined benefit pension schemes (4.8) -
Other non-cash movements 3.5 (0.3)
Cash generated from operations 43.5 53.2
Interest paid (9.5) (7.6)
Taxation paid (4.3) (6.2)
Net cash flows generated from operating activities 29.7 39.4
CASH FLOWS FROM INVESTING ACTIVITIES
10 Acquisition of subsidiaries (net of cash acquired) (4.4) (56.2)
10 Net proceeds from sale of investments in other companies 1.4 -
Purchase of property, plant and equipment (14.9) (14.1)
Proceeds from sale of property, plant and equipment 24.8 11.5
Purchase of intangible assets (11.8) (9.1)
Purchase of textile rental items (24.1) (24.8)
Proceeds from sale of textile rental items 3.9 3.5
Interest received 0.8 0.2
Net cash used in investing activities (24.3) (89.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from borrowings 86.0 178.2
Repayments of borrowings (76.0) (116.2)
Capital element of finance leases (1.1) (1.1)
Net proceeds from issue of ordinary shares 0.8 2.5
Net proceeds from sale of own shares in relation to employee share schemes 0.2 -
Dividends paid to company shareholders (11.5) (10.8)
Net cash (used in) / generated from financing activities (1.6) 52.6
11 Net increase in cash and cash equivalents 3.8 3.0
Cash and cash equivalents at beginning of period 7.5 4.5
12 Cash and cash equivalents at end of period 11.3 7.5
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1. Changes in Accounting Policy
This Preliminary Announcement, which has been agreed with the Auditors, is for
the year ended 31st December 2006. The financial information has been prepared
in accordance with International Financial Reporting Standards and International
Financial Reporting Interpretations Committee (IFRIC) interpretations issued and
endorsed by the European Union (EU) as at the time of preparing this statement
(March 2007) (IFRS).
The Johnson Service Group PLC consolidated financial statements for the year
ended 31st December 2005 were prepared in accordance with UK Generally Accepted
Accounting Principles (UK GAAP).
The financial information in respect of the year ended 31st December 2005 has
been restated to comply with IFRS. Reconciliations of the Income Statement and
Balance Sheet under IFRS and as presented previously under UK GAAP are stated in
the Interim Report dated 13th September 2006.
Johnson Service Group PLC has elected a date of transition to IFRS of 28th
December 2003. The Group previously reported the impact of the adoption of IFRS
on the 2004 comparative financial information in July 2005. Supplementary IFRS
information was provided in the 2005 Annual Report and the 2006 Interim Report,
together with summary reconciliations and descriptions of the effect of the
transition from UK GAAP to IFRS on the Group's equity and its net income and
cash flows. Further information will also be provided within the 2006 Group
Annual Report. The financial information has been prepared using accounting
policies consistent with those set out in the 2006 Interim Report.
The Group has taken advantage of a number of exemptions under IFRS 1 'First Time
Adoption of IFRS' namely:
• Not to restate its financial information for business combinations
occurring before 28th December 2003.
• Not to apply IFRS 2 'Share Based Payments' to share options granted
before 7th November 2002 and vested by 1st January 2005.
• To use the revaluation amount or historic cost of an item of property,
plant and equipment at, or before, 28th December 2003 as deemed cost at the
date of valuation.
2. Segmental Information - Analysis of Revenue, Operating Profit
Before Exceptional Items and Intangibles Amortisation and Profit Before Taxation
Segment information is presented in respect of the Group's business segments,
which are based on the Group's management and internal reporting structure as at
31st December 2006.
Inter-segment pricing is determined on an arm's length basis.
Geographical segments
Revenue originates wholly within the United Kingdom and as a result, no
geographical segments are presented within this announcement.
Business segments
The Group comprises the following main business segments:
• Textile rental services - market leader in the UK in the field of
workwear rental and laundering, in linen for the premium hotel, catering and
corporate hospitality sector and (up until 31st December 2006) the hire of
catering equipment and furniture;
• Corporatewear - offering a comprehensive range of workwear and
workplace clothing;
• Drycleaning - the nation's largest drycleaner, with over 540 stores
nationwide offering a range of drycleaning, laundry and ironing services, carpet
cleaning, upholstery cleaning, wedding dress cleaning and suede & leather
cleaning and the supply of drycleaning consumables; and
• Facilities management - delivering building, facilities and property
management services to many leading public, commercial and retail organisations
throughout the UK.
Year ended 31st December 2006
Textile Corporatewear Drycleaning Facilities Unallocated Total
Rental Management
£m £m £m £m £m £m
REVENUE
Revenue 125.2 95.4 99.2 104.6 - 424.4
Inter-segment revenue - (12.3) - (1.2) - (13.5)
Revenue - Continuing 125.2 83.1 99.2 103.4 - 410.9
Revenue - Discontinued 8.0 - - - - 8.0
133.2 83.1 99.2 103.4 - 418.9
REVENUE EXCLUDING COSTS RECHARGED
TO CUSTOMERS
Revenue 125.2 95.4 99.2 54.3 - 374.1
Inter-segment revenue - (12.3) - (1.2) - (13.5)
Revenue excluding costs recharged 125.2 83.1 99.2 53.1 - 360.6
to customers - Continuing
Revenue - Discontinued 8.0 - - - - 8.0
133.2 83.1 99.2 53.1 - 368.6
RESULT
Operating profit before intangibles 9.1 12.3 9.1 7.5 (3.1) 34.9
amortisation (excluding software)
and exceptional items
Amortisation of intangible assets (1.0) (2.6) (0.2) (2.0) - (5.8)
(excluding software)
Exceptional items
- Restructuring and other costs (6.2) (1.7) (5.7) (1.1) (5.7) (20.4)
- Profit on disposal of property - 1.5 13.5 - - 15.0
Operating profit 1.9 9.5 16.7 4.4 (8.8) 23.7
Finance costs (10.0)
Finance income 0.8
Profit before taxation 14.5
Taxation (1.1)
Profit for the period - Continuing 13.4
Discontinued operations - Textile (10.9)
rental services
Profit for the year 2.5
2. Segmental Information - Analysis of Revenue, Operating Profit
Before Exceptional Items and Intangibles Amortisation and Profit Before Taxation
/continued...
Year ended 31st December 2005
Textile Corporatewear Drycleaning Facilities Unallocated Total
Rental Management
£m £m £m £m £m £m
REVENUE
Revenue 118.7 99.7 101.4 115.1 - 434.9
Inter-segment revenue - (12.6) - (0.1) - (12.7)
Revenue - Continuing 118.7 87.1 101.4 115.0 - 422.2
Revenue - Discontinued 9.7 - - - - 9.7
128.4 87.1 101.4 115.0 - 431.9
REVENUE EXCLUDING COSTS RECHARGED
TO CUSTOMERS
Revenue 118.7 99.7 101.4 46.7 - 366.5
Inter-segment revenue - (12.6) - (0.1) - (12.7)
Revenue excluding costs recharged 118.7 87.1 101.4 46.6 - 353.8
to customers - Continuing
Revenue - Discontinued 9.7 - - - - 9.7
128.4 87.1 101.4 46.6 - 363.5
RESULT
Operating profit before intangibles 16.7 11.4 9.8 4.4 (4.5) 37.8
amortisation (excluding software)
and exceptional items
Amortisation of intangible assets (0.8) (2.5) - (0.6) - (3.9)
(excluding software)
Exceptional items
- Restructuring and other costs (1.2) (2.1) - (0.6) - (3.9)
- Profit on disposal of property 2.1 - 2.3 - - 4.4
Operating profit 16.8 6.8 12.1 3.2 (4.5) 34.4
Finance costs (8.6)
Finance income 0.4
Profit before taxation 26.2
Taxation (7.3)
Profit for the period - Continuing 18.9
Discontinued operations - Textile (1.9)
rental services
Profit for the year 17.0
The operating profit before intangibles amortisation (excluding software
amortisation) and exceptional items from Drycleaning in 2005 includes £1.8
million of profit from the disposal of properties formerly occupied by the
Drycleaning business. No such profit is included in 2006.
Revenue from continuing operations originates in the United Kingdom. There is no
material difference between revenue by origin and by destination.
Facilities management revenue comprises fees receivable and costs recharged to
customers where the relationship with the supplier of services is that of
principal. The element of revenue which comprises supplier costs recharged to
customers has been shown separately on the income statement to aid
interpretation of the business.
In view of the resignation of the two Executive Directors during the year the
Group CFO, who was the only remaining participant in the Long Term Incentive
Plan, has surrendered the Award made to him under the Plan in 2005. The effect
of this has been included in unallocated costs in 2006.
3. Exceptional Items
Year ended 31st Year ended
December 2006 31st December 2005
£m £m
Restructuring costs - Textile Rental Services (0.8) (0.2)
- Corporatewear (1.7) (2.0)
- Drycleaning (2.9) (0.1)
- Facilities Management (1.1) (0.5)
- Group (1.6) (0.1)
- Total (8.1) (2.9)
Onerous lease and environmental costs (1.7) (1.0)
Write-off of software development costs (3.9) -
Drycleaning - costs relating to the potential disposal (2.6) -
Uninsured losses (4.1) -
(20.4) (3.9)
Property disposals - Sale and leaseback 13.0 -
- Others 2.0 4.4
- Total 15.0 4.4
Total exceptional items (5.4) 0.5
Restructuring costs are in respect of the integration of the acquisitions made
in the previous two years in respect of Corporatewear and Facilities Management.
Costs incurred by the Textile Rental division are in respect of the relocation
of the Johnsons Apparelmaster head office. Drycleaning restructuring costs
included £2.1 million in relation to the closure of 60 shops, as part of the
repositioning of the business. Group restructuring costs relate to the
termination costs of two Executive Directors and the redundancy of other Group
staff. Other than redundancy costs, restructuring costs include the write off
of fixed and other assets and provisions for onerous leases in relation to shop
closures.
2005 restructuring costs relate to the reorganisation of the operation and
management of recently acquired businesses.
Onerous lease and environmental costs represent a reassessment of expected
future costs arising from significant changes in circumstances on specific
properties. In 2005 the cost related to the anticipated environmental
remediation cost of vacating an existing site and asbestos cleanup.
Following the restructuring of the Group, the ongoing integration process and
the evaluation of the sale of the Drycleaning business, costs incurred on the
development of the SAP system include £3.9 million of costs which have no future
value to the ongoing business.
The Group had been in discussion with potential purchasers of its Drycleaning
business. The costs included above relate to professional fees incurred during
the process including corporate finance, legal and tax advice and the
preparation of vendor due diligence.
Uninsured losses represent the costs incurred to date on the defence of two
claims for which the Group does not have insurance cover together with a
provision for the estimated settlement value.
Property disposals relate to the sale and leaseback, on an operating lease
basis, of 79 properties. In addition, the gain of £2.0 million related to two
warehouse facilities of the Corporatewear division and three surplus Drycleaning
properties. The gain in 2005 was in relation to the disposal of a small group
of trading properties and a textile rental facility.
4. Adjusted Profit Before Taxation
The reconciliation of profit before taxation from continuing operations and
adjusted profit before taxation from continuing operations is as follows:
Year ended Year ended
31st December 31st December
2006 2005
£m £m
Profit on ordinary activities before taxation 14.5 26.2
Add intangibles amortisation (excluding software) 5.8 3.9
Add restructuring and environmental costs 20.4 3.9
Less profit on disposal of properties (15.0) (4.4)
Adjusted profit before taxation 25.7 29.6
5. Finance Costs and Income
Year ended Year ended
31st December 2006 31st December
2005
£m £m
Interest payable on bank loans and overdrafts (8.8) (7.3)
Amortisation of bank loan issue cost (0.2) (0.1)
Interest payable on obligations under finance leases (0.3) (0.3)
(9.3) (7.7)
Fair value of financial derivatives not qualifying for hedge accounting (0.2) -
Interest payable before notional interest on defined benefit liabilities and (9.5) (7.7)
assets
Notional interest on defined benefit liabilities and assets:
- Interest cost on pension scheme liabilities (9.9) (8.9)
- Expected return on pension scheme assets 9.5 8.1
- Interest cost on Private healthcare scheme (0.1) (0.1)
Finance costs (10.0) (8.6)
Fair value of financial derivatives not qualifying for hedge accounting 0.6 0.2
Other interest income 0.2 0.2
Finance income 0.8 0.4
Net finance expense (9.2) (8.2)
6. Taxation
Year ended Year ended
31st December 31st December
2006 2005
£m £m
CURRENT TAX
UK corporation tax charge for the year - continuing 5.3 7.2
Adjustment in relation to previous years - continuing (1.5) (0.1)
Current tax charge for the year - continuing 3.8 7.1
DEFERRED TAX
Origination and reversal of timing differences - continuing (2.6) 0.2
Adjustment in relation to previous years - continuing (0.1) -
Deferred tax (credit) / charge for the year - continuing (2.7) 0.2
Total charge for taxation (Continuing Operations) included 1.1 7.3
in the Income Statement
The tax relief on the restructuring and other costs incurred in the current year
has reduced the charge for taxation by £4.4 million (2005: £0.8 million). The
tax relief on intangibles amortisation (excluding software) has reduced the
charge for taxation by £2.7 million (2005: £0.2 million). The tax charge on the
property disposals has increased the charge for taxation by £1.9 million (2005:
Nil).
7. Dividends
Year ended Year ended
31st December 31st December 2005
2006
Ordinary dividends paid and proposed
Final dividend proposed 15.0p -
Interim dividend proposed and paid 4.6p 4.4p
Final dividend proposed and paid - 15.0p
On 20th October 2006 an interim dividend of 4.6p was paid on the Ordinary shares
utilising £2.7 million of Shareholders' funds. A proposed final dividend of
15.0p, will, subject to Shareholder approval, be paid on 9th July 2007 to
Shareholders on the register of members on 8th June 2007. If approved, the
final dividend will reduce Shareholders' funds by £8.9 million. The Trustee of
the ESOP has waived the entitlement to receive dividends on the Ordinary shares
held by the Trust.
In accordance with International Accounting Standards, the Preliminary
Announcement does not reflect a liability in respect of the proposed dividend.
8. Earnings Per Share
Year ended 31st Year ended 31st
December 2006 December 2005
£m £m
Profit for the financial year attributable to Ordinary Shareholders 13.4 18.9
from continuing operations
Loss for the financial year attributable to Ordinary Shareholders (10.9) (1.9)
from discontinued operations
Intangibles amortisation, excluding software (net of taxation) 3.1 3.7
Exceptional costs from continuing operations (net of taxation) 2.9 (1.3)
Exceptional costs from discontinued operations (net of taxation) (Note 10) 9.2 0.7
Adjusted profit attributable to Ordinary Shareholders 17.7 20.1
Weighted average number of Ordinary shares 58,843,450 58,208,126
Dilutive options 709,375 1,149,222
Fully diluted number of Ordinary shares 59,552,825 59,357,348
Basic earnings per share
From continuing operations 22.8p 32.4p
From discontinued operations (18.6p) (3.2p)
From continuing and discontinued operations 4.2p 29.2p
Adjustment for intangibles amortisation (continuing operations) 5.2p 6.3p
Adjustment for exceptional costs (continuing operations) 4.9p (2.2p)
Adjustment for exceptional costs (discontinued operations) 15.8p 1.2p
Adjusted basic earnings per share from continuing operations 32.9p 36.5p
Adjusted basic earnings per share from discontinued operations (2.8p) (2.0p)
Adjusted basic earnings per share from continuing and discontinued operations 30.1p 34.5p
Diluted earnings per share
From continuing operations 22.6p 31.8p
From discontinued operations (18.4p) (3.2p)
From continuing and discontinued operations 4.2p 28.6p
Adjustment for intangibles amortisation (continuing operations) 5.1p 6.2p
Adjustment for exceptional costs (continuing operations) 4.9p (2.2p)
Adjustment for exceptional costs (discontinued operations) 15.6p 1.2p
Adjusted diluted earnings per share from continuing operations 32.6p 35.8p
Adjusted diluted earnings per share from discontinued operations (2.8p) (2.0p)
Adjusted diluted earnings per share from continuing and discontinued operations 29.8p 33.8p
Basic earnings per share is calculated using the weighted average number of
shares in issue during the year, excluding those held by the ESOP, based on the
profit attributable to Ordinary Shareholders.
Adjusted earnings per share figures are given to exclude the effects of
intangibles amortisation (excluding software) and exceptional items, all net of
taxation, and are considered to show the underlying results of the Group.
For diluted earnings per share, the weighted average number of Ordinary shares
in issue is adjusted to assume conversion of all dilutive potential Ordinary
shares. The Company has dilutive potential Ordinary shares arising from share
options granted to employees where the exercise price is less than the average
market price of the Company's Ordinary shares during the year.
Options are dilutive at the profit from continuing operations level and so, in
accordance with IAS 33, have been treated as dilutive for the purpose of diluted
earnings per share from continuing and discontinued operations.
There were no events occurring after the balance sheet date that would have
changed significantly the number of Ordinary shares or potential Ordinary shares
outstanding at the balance sheet date, if those transactions had occurred before
the end of the reporting period.
9. Retirement Benefit Obligations
The Group has applied the requirements of IAS 19 Employee Benefits (revised
December 2004) to its employee pension schemes and post-retirement healthcare
benefits.
As part of the Group's objective to reduce its overall pension liability,
additional contributions of £4.2 million and £0.6 million were paid to the
Johnson Group Staff Pension Scheme and the WML Final Salary Pension Scheme
respectively, during the period to 31st December 2006.
Following discussions with the Group's appointed actuary it has been identified
that an actuarial gain of £14.7 million should be recognised in the year to 31st
December 2006. This is as a result of the scheme assets and liabilities
performing differently to previous assumptions and changes to the assumptions
used in calculating scheme liabilities.
The gross retirement benefit liability and associated deferred tax asset
thereon, together with the net liability is shown below:
Year ended Year ended
31st December 2006 31st December
2005
£m £m
Gross retirement benefit liability (30.7) (50.4)
Deferred tax asset thereon 10.1 15.1
Net liability (20.6) (35.3)
10. Acquisitions and Disposals
Acquisitions
Other than for the purchase in cash of £0.1 million of customer lists, the Group
has not made any acquisitions during 2006. Deferred consideration of £4.3
million in respect of acquisitions completed in earlier years was paid.
Disposals
During the period, the Group disposed of the trade and assets of Johnson
Environmental Pest Control Limited and Johnson Hospitality Services Limited.
The Directors do not consider Johnson Environmental Pest Control Limited to meet
the definition of a discontinued operation, as the entity did not represent a
separate major line of business or geographical area of business. Revenues of
the business up until the date of disposal are therefore included within the
appropriate line of the income statement within continuing operations. Proceeds
from the disposal of the trade and assets are included within the cash flow
statement heading 'proceeds from sale of investments in other companies'.
The post-taxation loss on disposal of the trade and assets of Johnson
Environmental Pest Control Limited is £0.3 million, after writing-off goodwill
of £0.9 million. Net sales proceeds were £0.9 million.
The disposal of the trade and assets of Johnson Hospitality Services Limited
does constitute a discontinued operation. Set out below, in accordance with
IFRS 5, is the analysis of the post-taxation loss reported as being from
discontinued operations within the Income Statement.
Year ended Year ended
31st December 2006 31st December
2005
£m £m
Revenue from discontinued operations 8.0 9.7
Loss before taxation from discontinued operations (2.4) (2.6)
Taxation 0.7 0.7
Loss for the year (1.7) (1.9)
Proceeds from disposal (net of disposal costs) 0.5 -
Total net assets disposed of (9.9) -
Goodwill written off (0.5) -
Provision for onerous leases (1.8) -
Pre-tax loss on disposal (11.7) -
Taxation 2.5 -
Loss on disposal (9.2) -
Retained loss from discontinued operations (10.9) (1.9)
Included within the 2005 loss for the year are exceptional reorganisation costs,
net of taxation, of £0.7 million.
Costs of disposal include legal and professional fees and workforce redundancy
costs. Total net assets disposed of include the write-off of costs incurred on
the development of the SAP system for Johnson Hospitality Services Limited.
10. Acquisitions and Disposals /Continued)...
The cash flows (excluding proceeds from disposal) generated during the year from
discontinued operations included within the consolidated cash flow statement are
as follows:
Year ended Year ended
31st December 31st December
2006 2005
£m £m
Net cash flows used in operating activities (1.8) (1.5)
Net cash used in investing activities (2.2) (2.3)
Net cash flows (4.0) (3.8)
11. Reconciliation Of Net Cash Inflow To Movement In Net Debt
Year ended Year ended
31st December 2006 31st December
2005
£m £m
Increase in cash in year 3.8 3.0
Cash (inflow) on change in debt and lease financing (8.9) (60.9)
Change in net debt resulting from cash flows (5.1) (57.9)
Finance leases - new - (0.6)
Issue costs of new bank loans - 0.9
Amortisation of issue costs of bank loans (0.2) (0.1)
Loans and leases acquired with subsidiaries - (5.1)
Movement in net debt in year (5.3) (62.8)
Opening net debt (137.2) (74.4)
Closing net debt (142.5) (137.2)
12. Analysis of net debt
At 31st December Cash Flow Other Non-cash At 31st December
2005 Changes 2006
£m £m £m £m
Cash and cash equivalents 7.5 3.8 - 11.3
Debt due within one year (1.0) 1.0 - -
Debt due after more than one year (138.2) (11.0) (0.2) (149.4)
Finance leases (5.5) 1.1 - (4.4)
(137.2) (5.1) (0.2) (142.5)
Non-cash changes represent the effects of amortising issue costs relating to
bank loans.
13. Abridged Accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31st December 2006 or 31st December 2005
within the meaning of Section 240 of the Companies Act 1985, but is derived from
those accounts, subject to the adjustments in respect of the adoption of IFRS,
as previously published.
Statutory accounts for 2005 have been delivered to the Registrar of Companies.
The Auditors have reported on those accounts; their report was unqualified and
did not contain a statement under s237(2) or (3) of the Companies Act 1985. The
2006 statutory accounts will be completed shortly and delivered to the Registrar
of Companies following the Company's Annual General Meeting.
14. Preliminary Announcement
A copy of this Preliminary Announcement is available on request to all
Shareholders by post from The Company Secretary, Johnson Service Group PLC,
Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire WA7 3GH. The
Announcement can also be accessed on the Internet at www.Johnsonplc.com.
The Annual Report will be posted to Shareholders on 5th April 2007.
15. Approval
The Preliminary Announcement was approved by the Board of Directors on 23rd
March 2007.
16. Final Dividend
The final dividend is subject to confirmation at the Annual General Meeting
which will be held on Wednesday 10th May 2007 at The Park Royal Hotel, Stretton
Road, Stretton, Warrington, Cheshire WA4 4NS. Transfers to be taken into
account for the proposed final dividend must be lodged at the company's transfer
office, Capita Registrars, Northern House, Woodsome Park, Fenay Bridge,
Huddersfield, West Yorkshire HD8 0LA by midday on Friday 8th June 2007, the
expected record date. The ex dividend date will be Wednesday 6th June 2007 and
the proposed final dividend will be paid on Monday 9th July 2007.
This information is provided by RNS
The company news service from the London Stock Exchange
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